Posts belonging to Category Commodities

FED keeps interests rates flat

The Federal Reserve last week sparked US dollar weakness as they kept interest rates on hold.

The Federal Reserve last week sparked US dollar weakness as they kept interest rates on hold. The forecast outlined by the Fed at the beginning of the year was for four gradual rate rises over the course of the year, but now markets are anticipating just one further hike, if any at all during 2016. This is owing to the uncertainty in global markets as well as flat lining inflation and global growth concerns.

Despite this, commodity prices have rebounded slightly. This has helped stock markets recover from their slump earlier in the year and triggered a strong rally in risk assets.

Markets will be keenly watching this week’s data from the US for further direction as we move into the Easter weekend. Core Durable Goods and unemployment claims are released on Thursday.

While the Federal Reserve have chosen to remain dovish on forthcoming monetary policy, the European Central Bank have expanded their quantitative easing programme and cut deposit rates.

The outlook for growth and inflation in the EU has continued to slow further, but this has helped reverse the negative sentiment; with the Central Bank standing firm in its efforts to boost inflation.

Sterling rallies against the dollar

Sterling has rallied almost 4 cents against the US dollar on the back of dovish comments made by the Fed last week on monetary policy as well as a watchful evaluation of global growth conditions.

As monetary policy gets slightly less divergent, fears regarding a Brexit scenario and a soft inflation outlook has capped any further gains for the pound.

The CBI Industrial Trends Orders print is the only set of data out on the economic calendar to provide further direction.

Oil prices- Opec members split over output cuts

The oil cartel OPEC is split over how to react to the sharp slump in oil prices.

Oil prices- Opec members split over output cutsSaudi Arabia has indicated it will not push for output cuts to help push up oil prices, as Opec oil producers prepare for their meeting on Thursday.

The oil market will “stabilise itself eventually”, said Saudi Oil Minister Ali al-Naimi. Saudi Arabia is the largest producer of the 12 members of the Organization of the Petroleum Exporting Countries (Opec).

Among the Opec members, Venezuela and Iraq have called for output cuts as the price of Brent crude has plunged 30% since June, triggered by a sharp rise in US shale oil output and weakening global demand.

There is speculation that tomorrow Opec could announce its first cut in oil production since 2009 in an attempt to support the oil price.

However, fellow Opec member United Arab Emirates’s (UAE) Oil Minister Suhail bin Mohammed al-Mazroui appeared to side with Saudi Arabia, indicating it would not push for a cut in production, saying “the market will fix itself ultimately”.

“We are not going to panic, this is not the first time, this is not a crisis that requires us to panic … we have seen (prices) way lower. We are not interested in the short fixes because we know they will not last,” Mr al-Mazroui told Reuters.

The responses from Saudi Arabia and UAE come a day after non-Opec member Russia, which produces an estimated 11% of global oil, said it would not co-operate with any production cut.

Following a meeting with Saudi Arabia, Venezuela and Mexico representatives, Russian Energy Minister Alexander Novak said the country’s energy companies would produce around the same amount of oil next year as they did in 2014.

He told reporters in Moscow he was sceptical that Opec would decide on Thursday to cut output quotas.

The heated debate over how to react to the sharp fall in oil prices has led to some suggesting that Thursday’s meeting could last longer much longer than usual.

“It might take a bit longer than the ordinary meetings,” said one delegate. “They must agree, even if they have to stay here for two days. It is a matter of death or survival for budgets.”

Reserve Bank of Australia keeps interest rates on hold

The Reserve Bank of Australia in April’s meeting decided it was sensible to maintain interest rates on hold at 3%.Reserve Bank of Australia keeps interest rates on holdIn their report, the Bank noted that shortcoming in terms of worldwide growth seemed to be reduced with the US enjoying modest expansion.

Growth in China – Australia’s largest trading companion – was also seen to have calmed at a realistic pace with domestic growth close to trend over last year.

Following comparatively soft retail data being published in the first two months of the year, the RBA stated that reasonable growth in private consumption expenditure is taking place with house investments slowly improving.

In last month’s statement, the Reserve Bank stated that easing carried out through 2011 was yet to be effective, however pointers as of April were suggesting that the easing steps are having a positive influence on the Australian economy.

The rate hold was generally anticipated by markets, however the less dovish comments saw traders regain confidence in the commodity based currency causing it to rally against most of its major counterparts.

Some good news for the UK as we look to be avoiding the much publicised triple dip recession, according to the British Chamber of Commerce (BCC).

The view is based on a strong performance by Britain’s service industries throughout the first quarter of the year has kept the economy developing.

The weakness in Sterling has provided exports a lift, it said.

The survey also displayed advances in the manufacturing sector, although employment had deteriorated.

Sterling is trading higher this morning with Cable up at 1.5226 and GBPEUR approaching 1.19 at 1.1864.

Key events for Sterling this week will be the Bank of England Interest Rate and QE decisions on Thursday which are both expected to remain at 0.5% and £375 billion respectively.

Also expect further movement against the Greenback on Friday afternoon where we have the Non-Farm Payroll numbers for the month of March where 200,000 new jobs created are projected.

Reserve Bank of Australia cuts their interest rates

The Australian Dollar rallied overnight as the Reserve Bank of Australia reduced their interest rates by 0.25% to 3%- which was in line with market forecasts.Reserve Bank of Australia cuts their interest ratesAccording to the RBA the rate cut will ‘help to foster sustainable growth’ and that global growth is expected to be ‘below average for a time’.

Furthermore the central bank noted ‘risk remains to the downside’ and the exchange rate is still ‘higher than might be expected’.

The Australian Dollar (AUD) strength has been a headache for the RBA and has been causing problems for tourism and manufacturing industries.

This is the latest rate cut since October and places the cost of borrowing at the same level it was during the financial crisis of 2009.

Yesterday US ISM Manufacturing disappointed from 51.7 in October to a contracting figure of 49.5 in November.

The on-going Fiscal Cliff story alongside the Hurricane Sandy is being blamed for the lowest level of manufacturing activity since July 2009.

Companies mentioned political uncertainty as the biggest issue. “The fiscal cliff is the big worry right now. We will not look toward any type of expansion until this is addressed,” said one metals firm.

The Republicans yesterday sent a letter to President Obama planning out suggestions for tax alterations in a bid to deter automatic tax hikes and spending cuts in the New Year, but the White House soon dismissed the offer because it “does not meet the test of balance”.

Later this afternoon we have Canadian Interest rates which are widely tipped to remain at 1%.

Going into tomorrow we have Australian GDP numbers and Eurozone retail sales which will be the main events for Wednesday.

However with it being the first Friday of the month all eyes will be focused on the employment data from the states.

Last time out the number smashed expectations coming through at 171,000, this time out we are expecting around half that figure at 90,000 so any deviation away from this number we could see volatility on Friday afternoon.

Money markets steady on eurozone debt plans

Money markets have held steady as they await details of an agreement to resolve the eurozone debt crisis.Money markets steady on eurozone debt plansStock markets and the euro rose in early trading before falling back.

Although a weekend summit of eurozone leaders was inconclusive, the outline of a deal was agreed, with a summit to finalise details set for Wednesday.

Eurozone leaders agreed to force banks to protect themselves against future losses, and to increase the firepower of the single currency’s bailout fund.

Following a robust rally in Asian markets, European stock markets had been up 0.5%-1% in the first hour of Monday trading on the apparent progress at the talks.

Asian markets had been lifted by positive data from China and Japan, as well as the apparent progress in Brussels.

But European markets later fell back, and by mid-afternoon trading the Cac 40 index in France and the German Dax were both fractionally lower, while London’s FTSE 100 was up just 0.3%.

Market sentiment was not helped by industry surveys released during the morning that suggested the French and German economies are still struggling to avoid recession.

However, key points of disagreement remain.

France had hoped that the European Central Bank (ECB) would support the EFSF, by providing it with loans that could increase the fund’s total capacity to 2tn-3tn euros.

But this idea was blocked by Angela Merkel.

Instead, governments are expected to agree that the EFSF can help out troubled eurozone governments such as Italy and Spain by providing partial guarantees to investors and banks who lend them more money.

There was also disagreement over the extent of losses that should be imposed on Greece’s lenders, with Germany seeking a 50%-60% haircut.

The ECB opposes any such increase, according to a footnote in an internal document on the Greek economy leaked over the weekend.

There are fears that a unilateral default by Greece – such as a debt write-off without lenders’ consent – could have unforeseen consequences, for instance by triggering payments under credit derivative contracts.

Another unknown element in talks is whether and how much non-European countries may provide support.

The price of copper – an indicator of market sentiment over the global economy – rose 6% in Shanghai trading. But after the markets opened in Europe, the rally lost some of its lustre.

The euro followed a similar pattern, rising half a cent against the dollar, before dropping back. By mid-afternoon in Europe it was trading at about $1.386, down 0.2% for the day.

German vote fails to lift spirits

German ratification of an enlarged eurozone bail out fund was supposed to calm market nerves going into the weekend.German vote fails to lift spiritsHowever sentiment remains downbeat in early trading today and we can expect equity markets and risk on currencies to continue to struggle this afternoon and in the early part of next week.

Today is the end of the third quarter and with financial institutions set to report earnings over the next couple of weeks there is usually increased volatility as last minute balance sheet window dressing taking place, so be prepared for greater than usually swings in parings today.

Markets remain sceptical that European politicians have the political will and ability to finally put this crisis to bed because of the fragmented nature of the political system between member countries.

This is why we are hearing strong words from across the Atlantic about the need to for further enlargement of the bail-out fund, its current size would not support both Spain and Italy and the Germans have explicitly capped its size at the current €440 bn.

The New Zealand Dollar, not often mentioned by Wise Money was the big mover in the currency markets overnight after Standard & Poor’s downgraded their credit rating one notch from AA+ to AA.

The Kiwi Dollar responded immediately, falling across the board and compounding its recent declines on the back of the deteriorating outlook for global growth.

Which- if you have gone to see the rugby world cup will make buying any more kiwi dollars more competitively priced.

All of the so called commodity currencies are closely correlated to the outlook for world growth and it is the recent revisions by the IMF and other agencies that are the main reason the strongly performing high yield currencys like the Kiwi and Aussie Dollar and the South African Rand has lost ground against Sterling and the Dollar.

Sterling tarnished by poor economic data

Sterling’s recent resurgence hit the skids this morning after manufacturing and lending economic data both disappointed expectations.Sterling tarnished by poor economic dataThe PMI survey for the manufacturing sector came in at 52.10, well below the estimated 54.20 proving that the UK economy continues to struggle in 2011.

Mortgage approvals were also down while Money Supply, the figure that measures the worth of assets held by the public rose less than expected.

The weakness in Sterling has been compounded by some euro strength.

News that a solution to the Greek short term funding difficulties has been established has boosted the supported the single currency.

The crux of it appears to be that a proposal from certain core Eurozone countries for an early rescheduling of Greek debt would be dropped and that a new package of aid loans for the country was being hammered out.

Putting a package together by the end of June that is both water tight for the money markets and acceptable to the ‘lenders’ looks a tall order.

The likelihood of success is further undermined by a report in the German newspaper, Frankfurter Allgemeine Zeitung that said that it was now an almost cast iron certainty that the IMF will not pay across its proportion of the 5th tranche of aid from the existing bail-out following Greece’s lack of adherence to the terms of the original agreement.

The Euro accordingly had a busy opening with Eurodollar still near its 4 week high.

Although it does appear that the worst is over in relation to Eurozone scare stories, it is doubtful that the Euro is a good buy at these heightened levels.

If the report concerning the IMF is correct and if comments about a further funding requirement for Ireland become more wide-spread, expect to see the Euro head south.

At present however, risk appetite is again on the rise with equities and commodities in demand and bond spreads closing slightly.

Euro focus of thin wise money markets trading

Risk appetite took a step backwards and the euro dipped in thin trading and with Europe re-joining the fray (although not with any real commitment as yet) it doesn’t appear that sentiment regarding money markets like currencies, interest rates or sovereign debt issues has changed one iota.
Euro focus of thin wise money markets tradingTrading sessions in the days around the weekend were light in volume and low in movement with thin US markets almost totally on their own for long periods.

We did see commodities and equities ease as a result of a decision from a major futures exchange to increase the margin for trading silver prompting a wave of profit taking in both silver and gold.

This then filter through to forex trading and, coupled with a comment from ECB President Trichet who said that maintaining a strong Dollar was in the US interest, caused the Greenback to make a bit of a recovery.

Last Friday’s data from the US was on the slightly weaker side of ‘as expected’ with new home sales roughly in line but the Dallas Fed manufacturing index marginally softer.

With the escalation of tensions in the Middle East / North Africa region now encompassing Syria, the Euro has headed back to its last week’s highs, with the Dollar again recording fresh lows against the Swiss Franc as oil once again turns higher.

We are scheduled to get several risk events this week that will test the market’s resolve on its bearish stance for the Dollar.

The first of these is the FOMC rate announcement tomorrow afternoon but more important will be the press conference that follows.

Despite growing concern that 1st Qtr GDP in the US will emerge as softer than originally hoped, expectation is that Ben Bernanke will send a clear signal to the market that the current tranche of QE, scheduled to end in June, will finish as planned.

There is currently no reflection of tightening monetary conditions in the forex market so, dependent upon the tone of the Chairman’s comments tomorrow, there appears good potential for a stronger Dollar going forward.

US Dollar falls as wise money investors focus on the positive

As US corporate results continuing to surprise on the positive side the wise money is increasing their investment risk profiles. US Dollar falls as wise money investors focus on the positiveThe Dollar accordingly came under renewed pressure with investors again off-loading the Greenback to invest in equities and commodities as well as in the commodity based currencies.

This latter strategy is especially attractive at present with these currencies currently offering a big pick up in yield when compared to that of the US currency.

So, the Aussie reached a post-floatation high at 1.0775 and with the Dollar index hitting a 3-year low, both the Euro and Sterling touched 16-month highs at 1.4640 and 1.6517 respectively.

Gold was up again and USD/CHF hit an all time low.

One can argue that with ongoing developments in the Eurozone debt market and continued evidence of economic recovery in the US that the spot market has got it wrong but that would be a bit like King Canute trying to turn back the tide.

Go with the flow but watch carefully for the turn in sentiment.

Back to Europe. The 2 debt offerings, from Spain and Portugal were better received than had been feared with the former successfully auctioning 10 and 13-year bonds, admittedly needing to pay a higher yield but on the positive side, garnering better coverage than at the last similar offering.

Portugal also achieved its desired cash raising, via a 3 and 6-month bill sale, but in this case, not only was demand down but the yield demanded was higher than the last, pre-bail-out, rate.

This doesn’t make any real sense and obviously indicates the market’s trepidation over the future path of the country’s financial well-being.

With a further escalation of fears of a Greek debt restructuring as well as concern over the Irish demands for a renegotiation of the terms of its own bail out, the correlation between bond yields of the Eurozone constituent states was become fractured.

Yields on 10-year bonds issued by Greece, Ireland and Portugal are respectively 15%, 10.5% and 9.3% compared to the yield on 10-year German bunds of 3.3%.

If the market’s perception was that the current problems were containable then spreads of this magnitude would not exist. Numbers say more than words ever can…..

USA debt rating downgraded by Standard & Poors hits global markets

Standard & Poor’s cut the outlook on US sovereign debt for the first time ever from stable to negative although retaining the current ratings at their highest possible levels of AAA and A-1+. USA debt rating downgraded by Standard & Poors hits global marketsThe adjustment was explained as being a warning to the US that its constantly swelling debt pile was unsustainable and that corrective measures would need to be introduced immediately.

The negative outlook implies that if nothing changes in the next 2 – 2 1/2 years, then an actual downgrade has a 1 in 3 chance of being triggered.

It is by no means certain that this will occur, but should shake up opposing US politicians enough to start the remedial action moving forward.

Suffice to say, the announcement provoked a flight from risk.

Equities fell, bond yields rose, commodities came off and with them, the commodity based currencies such as the AUD and CAD.

Gold and silver both rose, as did the Swiss Franc and oddly, the US Dollar.

The news is now old and largely irrelevant to today’s trading so we are back to the factors that were affecting the market yesterday morning – Eurozone debt issues, the Libyan situation and Chinese economic policy.

We are still getting mixed messages concerning a possible Greek debt restructuring with Jurgen Stark, an ECB Executive Board member commenting that debt restructuring is a very costly process and that it creates more problems than it solves.

An EU source stated that Greece had accepted that a ‘mild’ restructuring of its debt was unavoidable.

ECB President, Trichet, when asked about the subject this morning, fended off the questions saying that Greece should concentrate on applying the aid plan.

Market participants however, remain firmly in the ‘glass half empty’ camp waiting for confirmation of some degree of debt adjustment.

Greece are attempting to raise just over €1 billion today via a short term bill auction and the outcome of the sale will be crucial to market thinking going forward and bond yields are telling the story.

The Euro remains vulnerable to developments from the Greek situation.