Risk off tone weighs on markets
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
A stronger USD created headwinds for the commodity sector. Traders remained on edge amid heightened tensions in the Middle East.
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Market Commentary
Crude oil prices held steady amid a broader risk-off tone across markets, as traders monitored Israel’s response to Iran’s weekend attack. Top Israeli military officials said their country had no choice but to respond, even as Western and Arab nations tried to convince Prime Minister Netanyahu that such a move would harm Israel’s interests. There is a growing sense of calm in oil markets with each attack that doesn’t result in disruption to supply easing concerns that this could be a major issue for the oil market. Nevertheless, the stakes are high. Iran is a major oil producer and ship tracking data shows exports are over 1.5mb/d. Moreover, any disruption to trade via the Strait of Hormuz could have much bigger implications. Even OPEC which has around 6.5mb/d of spare oil capacity would struggle to contain such disruptions.
Global gas prices extended recent gains amid the renewed threat to supplies from the rising tensions in the Middle East. Traders were keen to snap up any available cargoes amid the threat to LNG tankers traversing the Strait of Hormuz. Japanese buyers were particularly active in the spot market, looking for additional cargoes for summer delivery. The market remained concerned about supply from Freeport’s LNG facility, which is currently offline. However, the operators are hoping it can resume operations by the end of the week.
Base metals edged lower as the stronger USD weighed on investor appetite. However, traders also contemplated the impact of the latest US and UK sanctions on Russia metals. While spot prices were lower, the spread with longer dated futures contracts tightened as traders reacted to the sanctions. The urgency to get their hands on metal now, as opposed to several months’ time when the sanctions are expected to tighten the market considerably, was high. Data from the LME showed a fresh request to remove 79,100t of aluminium from warehouses in South Korea. UK rules on citizens trading Russian metal had seen inventories from the country build up in warehouses. Its estimated more than 90% of inventories of aluminium on the LME are from Russia. Investors positioning data shows speculators have increased their bullish LME bets by 3,817 net long contracts to 135,986t. The sanctions could trigger a surge of Chinese copper onto the market. Reports suggest Chinese smelters are preparing to boost overseas shipments after the recent prices moves. While China is a major importer of refined copper, it occasionally exports refined metal when profitable.
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Iron ore futures halted a three-day rally after fresh data underlined the perilous state of the Chinese steel industry. Figures showed crude steel production in March fell 8% y/y to only 88mt.
Gold edged higher despite Fed Chair Jerome Powell signalling the central bank has no plans to lower interest rates in the near term. Powell said it will likely take longer to gain confidence that inflation is heading towards the Fed’s goal. He also indicated more time is required for the central bank’s restrictive monetary policy to work. The stronger USD also weighed on investor demand. Nevertheless, safe have demand remained strong amid the rising tensions in the Middle East.?
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Assistant Vice President, Wealth Management Associate
11 个月Thanks for posting