Bonds

Lower-than-expected inflation data, along with weaker personal consumption price data and a disappointing consumer sentiment index, provided an additional boost for stocks this morning, as this lessened fears of another rate hike. Wall Street rebounded and the broader commodity sector did well. For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.

A new type of Lithium-ion battery and the end of Chinese support for the Electric Vehicle (EV) industry could weaken global demand for Lithium. At the same time 8.5 million tons of lithium, equivalent to 10% of the current world reserve, were recently found in a deposit in Iran. The price of Lithium Carbonate, the essential raw material, halved in anticipation of lower demand and increased supply. For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.

Stocks were generally higher at midday, but lack any strong impetus to move higher. Consumer spending grew less than expected in the fourth quarter, reflecting apprehension over the direction of the economy. That, combined slower GDP growth, continues to fuel Wall Street’s argument that the Fed “must” pivot its policy in the months ahead to end rate rises, and start rate cuts. However, Labor market data out today illustrate have a very tight jobs market, which continues to feed wage inflation. No easy answers … For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.

Real economic data is beginning to reflect the benefit of moderating US long-term interest rates in housing demand and equity prices. Recent housing market data suggests that consumers are adjusting to a modestly higher rate environment, and still have enough confidence in the economy to make new home purchases. For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.

The health of banks remain in focus on Wall Street, as traders monitor Congressional hearings on the recent bank failures. Wall Street seems to accept that pain is an inevitable product of the Federal Reserve’s monetary tightening designed to break the back of inflation. Financial markets were marginally lower, awaiting new data points on inflation, rates or the health of the banking sector. For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.

Gold has attempted to breach the $2,000 mark over the past two weeks as bond yields sank and banks failed. Was this a reminder of the Metal’s safe-haven status? While the Federal Reserve will continue to reduce the size of its balance sheet, selling bonds or at least not rolling them over at maturity, it added $394 billion, or 5% of its balance sheet holdings over the past three weeks as a lender of last resort to calm markets given banking failures. For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.

Fears of more failures in US regional banks were allayed after Silicon Valley Bank was purchased by First Citizens BancShares, Inc., easing contagion fears. There’s a cost to the bank failures – many of which were the product of poor decisions. But there’s a bigger cost to be paid by the erosion of confidence in the nation’s banking system. Investors hope that the recent actions by regulators have come a long way toward reinstating confidence in the banking system, although we still likely have some bumpy times ahead. For more detailed market commentary go to StoneX Market Intelligence, https://my.stonex.com/.

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/.

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.

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 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.

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.

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.

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.

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.

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.)

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?