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Dollar and Bonds Gain, Stock Indices Flat on More Bank Fears
Financial markets remain concerned about Deutsche Bank even after assurances from authorities, with a flight to safety evident in US bonds and the Dollar. Deutsche Bank shares are down around 12% this week, after their credit default swaps spiked unexpectedly today (an indicator of stress). While no story has accompanied the move it nonetheless spooked markets. For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.
Vincent’s View: Strong economy, weak stock market?
Vincent Deluard argues that the resilience of the economy and the tightness of the labor market is bad news for a stock market whose rich valuations rely on low rates and record margins. Earnings downgrades and missed forecasts could trigger stocks to move lower.
Suderman Says: Will announcing a peak in rates be a mistake?
Arlan Suderman notes that financial markets continued to rally after yesterday’s 25 basis point rate hike, as the central bank suggested an end to rate hikes is near by removing a line from its statement about "ongoing increases." Federal Chair Jerome Powell did his job, keeping Federal Open Market Committee (FOMC) members on the same page, while speaking with confidence regarding the economy and the banking sector. Will announcing a peak in rates be a mistake?
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Precious moments: Gold rallied towards $2,000 on rate rise, markets favor its safe haven status
Rhona O'Connell notes that Gold edged higher before and during yesterday’s FOMC meeting, closing on the $2,000 per ounce level last seen in august 2020, and 14% up year-to-date. Gold will end the year at $2,070 per ounce in the view of O'Connell, StoneX Head of Commodity Market Analysis for EMEA & Asia.
Suderman Says: Rates up as expected, but peak in sight?
Arlan Suderman says that markets bounced on news of an anticipated 25 basis point rate hike, but the Fed will no doubt be criticized by some market observers for its caution if inflation takes hold. The central bank suggested an end to rate hikes is near by removing a line from its statement about "ongoing increases."
Suderman Says: To raise rates or not, the Fed walks a tightrope
Suderman Says that this may be one of the most pivotal meetings of Jerome Powell’s tenure as Chairman of the Federal Reserve. The Federal Open Market Committee (FOMC) will discuss whether to stay the course with its monetary tightening at a time when confidence in the nation’s banking system is being tested. On the other hand, policymakers don’t want to repeat mistakes made in the 1980’s when they cut interest rates too soon, allowing inflation to get a tighter grip on the economy that then required even larger rate hikes to get it under control.
Suderman Says: Markets stabilize despite Bank stocks and interest rate uncertainty
Suderman Says that lingering uneasiness over bank solvency and this week’s Federal Reserve meeting worried traders overnight as Wall Street remains in an overall “risk-off” mode. Banking stocks largely led the way lower on fears of a broader contagion risk within the sector.
Baseline: Indonesia’s export bans reinforce local industry, limits exports
Natalie Scott-Gray highlights Indonesia's ‘grand strategy’ to support its domestic refining industries, limiting the export of unprocessed raw materials – most notably nickel – and increasing the shipment of refined products which benefit local industry.
Petroleum Post: Oil faces choppy trading ahead, long-term bullish
The oil market has been extremely volatile, tracking a volatile equity market. Crude oil was down 5% today, with WTI at $66.45. WTI prices have dropped to their lowest price since December 2021, losing over $14 per barrel in 2 weeks. A long-term bull run is still on the cards. However, current market dynamics point to continued downward pressure on prices.
Suderman Says: Risk-on thanks to sliding Bank stocks and interest rate uncertainty
Suderman says that equity markets fell again today, with bank shares of First Republic and Credit Suisse leading the way lower. Investor focus remains on interest rates and the outside markets, especially now with the Fed meeting next week and expectations for rate hikes scaled back.
Baseline: Peru announces reopening of key mining corridor, adding copper exports to world supply
Natalie Scott-Gray discusses the importance of Peru’s reopening of key mining corridor after a period of significant political volatility: the countries mines are responsible for 12% of global copper output, or 2.8 million tons in 2023; in addition, Peru produces significant lead, zinc, tin, and silver.
European rate rises and bank bailouts calm global markets
Suderman says that the European Central Bank hiked its benchmark interest rate by 50 basis points as expected this morning but gave no signals about future moves. US economic data remains resilient. Markets welcomed continued efforts to control inflation, and another bank bailout (but bigger). How the Fed responds with rate rises is a key focus.
Baseline: Russia increasingly excluded from global Aluminium markets
Natalie Scott-Gray discusses risks of Russian growing exclusion from global Aluminium markets, specifically Glencore’s decision to cut ties in 2024, and President Biden’s policy focus.
Markets at a turning point on rate expectations and the threat of endemic inflation
Arlan Suderman discusses his belief that the greater threat to our economy is for inflation to become deeply engrained, if the Fed backs off its focus on this problem, setting in motion a series of events that ends up creating long-term pain for everyone.
Baseline: Base metal price gains moderate as demand outlook sours
Natalie Scott-Gray discusses how a fundamental weakness in demand has caused a year-to-date retrenchment in the base metal index. Some explanations include souring macro demand conditions in the US, and weaker than expected economic forecasts from China after its annual ‘Two Sessions’ meetings (annual plenary sessions of the National People's Congress and of the Chinese People's Political Consultative Conference.)
Moderating rate hikes silver lining of bank failures?
Arlan Suderman notes that calm is restored on Wall Street for now, as worries about bank failure contagion ease. Banks failures brought a silver lining: diminished expectations for rate rises. However, consumer price inflation day is still a problem, just as the Fed’s freedom to raise rates might be limited. Volatility and bond yields moderated, but for how long?
WTI off lows but remains under pressure - #WTIUSD chart on @TradingView https://t.co/TxDVZNiZDz
Precious moments: Silicon Valley Bank rattles the markets and highlights gold’s role as a risk-hedge
Rhona O’Connell took a look at the collapse of Silicon Valley Bank (SVB), a bank that concentrated on start-up companies in the technology sector and went into receivership last Friday. She argued that Gold benefited from a surge in buying, rising to $1,909 per ounce emphasizing its long-term role as a hedge against risk.
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Suderman says: stronger jobs data, bank failure worries equity markets
Arlan Suderman argues that payroll numbers were stronger than expected and so bearish for rates, but rising unemployment and trimming wage gains were more encouraging. Tuesday’s CPI number now looks like a tie-breaker for rate hike doves and the hawks, both of which could take some ammunition from the jobs report to argue for rate moves. All eyes on Tuesday’s inflation report.
Conflict in Eastern Europe reshapes natural gas flows
Analysts Bruno Santos and Isabela Garcia argue that the natural gas market has been one of the most impacted by the war in Ukraine, reshaping global trade flows of the commodity, and causing price volatility.
Suderman says: weaker jobs data offers some respite, but financial markets remain jittery
Arlan Suderman argues that jobs data and the inflation outlook are in focus, with financial markets hoping that today’s signs of weakness will lead the Fed more do be more dovish on interest rate rises. Labor market was weaker than expected, but all eyes are on tomorrow’s key non-farm payroll data – with markets in a jittery mood.
Suderman says: Powell left market’s guessing on rates hikes, but data argues for a 50-point hike in March
Arlan Suderman argues that Fed Chair Powell left market’s guessing on the path for rate hikes, citing data as the main determinant. Markets were weaker on his testimony, and the dollar continued to be strong, as jobs data continues to point to inflation risks.
Oil patch: crude prices falling after the Federal Reserve’s comments and inventory build
Our oil team argue that traders grew cautious yesterday after Jerome Powell’s testimony in Congress triggered a selloff in energy futures. Benchmark West Texas Intermediate (WTI) crude oil price traded down to $76.6 per barrel this week and seem to be stuck in a $70-$80 range this year.
Precious moments: gold falling on stronger dollar and higher rate expectations
Interest rate fears hit the gold price, with Fed Chairman Powell ramping up rate hike expectations. It’s commonly believed that gold prices have an inverse relationship with interest rates,. On the other hand, continuing geopolitical tensions with respect to Russia and China are supportive of the gold price, a haven in uncertain times.