Copper and industrial metals collapse over China crackdown and a stronger dollar

Posted on June 18, 2021June 18, 2021 by Vrasidas Neofytou

Industrial metals have lost their popularity recently, with prices falling sharply from their multi-year highs as China tries to cool off soaring commodities prices, coupled with the rebounding US dollar and the prospects for Fed’s rate hikes in 2023.

Growth-sensitive commodities have been on a bullish uptrend, making higher highs since last summer, driven by a stronger-than-expected post-pandemic demand recovery, especially from industrial-led Asian economies combined with tight supplies and falling inventories.

Commodities under pressure amid a stronger US dollar:

The expectations that Federal Reserve will start hiking interest rates in 2023 and tapering its massive pandemic-relief stimulus have bolstered the US dollar and US Treasury yields, causing a widespread sell-off in the commodity market.

The DXY-US dollar index against six major peers hit a two-month high of 92 level and was headed for its best week in nearly nine months, making dollar-denominated commodities more expensive for holders of other currencies.

China’s crackdown:

However, the main reason behind the recent weakness across the board has been the willingness of China to rein in surging commodities prices fuelled by robust industrial and manufacturing recovery after pandemic in the country.

China, which is the world’s top consumer of commodities, plans to release the state’s strategic reserves of key industrial metals, such as copper, zinc, and aluminium to push ballooned prices back to a normal level.

Industrial metals have risen by more than 50% since March 2020, lifting the Chinese producer inflation towards 12-year highs, damaging the demand growth in the Chinese economy.

Market Reaction:

Despite the global economic recovery which supports the demand for raw materials, the entire industrial metal complex has been hit hard in recent weeks.

Copper, the de-facto leader in the industrial metal sector, posted a fresh 2-month low of $4,15/lb on Friday morning, down by almost 15% since topping at $4,85 in mid-May.

Copper, 4-hour chart

Hence, the prices of the other industrial metals, Palladium, Platinum, and Aluminium have also lost more than 10% in the period, while Lumber (which is been used also in the construction industry) hits hard the most by losing more than 50% from historic records reached on early May.

Hawkish Federal Reserve sends EUR/USD to $1,19 and Gold towards $1,800/oz

Posted on June 17, 2021June 17, 2021 by Vrasidas Neofytou

The EUR/USD pair extended recent losses, breaking below the key psychological level of $1,20 on Thursday morning, while Gold fell to as low as $1,800/oz as the surprised hawkish stance by Federal Reserve triggered a rally on US dollar and Treasury yields.

US dollar and Treasury yields advance amid Federal Reserve’s hawkish stance:

US dollar, the world’s reserve currency shines again, following the Federal Reserve’s latest monetary policy decision and updated forecasts for economic growth and inflation in the United States.

The DXY-US dollar’s index against six major currencies rallied above 91.75 level, for the first time since April, while the US 10-year Treasury yield rose to 1.57% level, well above the 4-month low of 1,43% reached a few days ago.

The US central bank kept its benchmark interest rate on hold (near to zero) and bond purchase programme intact, while it pointed to two rate hikes in 2023. Investors were surprised from the Fed’s rate dots where the median expectation is now for 2 hikes in 2023 with only 2 dots away from 2022 also showing a hike.”

Hence, FED expects US GDP to grow by 7.0% in 2021 vs 6.5% previously predicted, whereas the Personal Consumption Expenditure price index (PCE), the Fed’s preferred inflation gauge, is seen at 3.4% for 2021 and 2.1% for 2022.

Fed’s chair Jerome Powell said during last night’s press conference that the US economy ultimately remained “a ways off” from reaching “substantial further progress” toward the Fed’s goal of maximum employment that would signal a start to tapering.

However, investors expect the FED to start gradually tapering its massive pandemic-relief monetary stimulus and hiking interest rates sooner than previously anticipated since the employment data has been trending in the right direction while the US inflation rising faster-than-expected.

Market Reaction:

The greenback has been outperforming across the forex board, with the rate of EUR/USD pair falling to as low as $1,1940 on Thursday morning, posting its lowest level since mid-April. Euro has lost almost 400 pips since topping at $1,2350 on January 2021, despite improved economic outlook in Eurozone after pandemic.

EUR/USD pair, 4-hour chart

The USD/JPY passed 110 key resistance level, while GBP/USD broke below the $1,40 mark for the first time since early May.

The commodities-linked currencies Canadian, Australian, and New Zealand dollars retreated from yearly highs against the dollar as well despite improved economic data and higher crude oil prices.

Precious Metals tumbled on soaring dollar and yields:

Gold prices tumbled yesterday following Fed’s policy meeting, falling to as low as $1,800/oz (1-month low) while the silver price broke below $28/oz key support level on stronger US dollar and firmer Treasury yields.

The higher interest rates and firmer greenback have been negative events for precious metals since they increase the opportunity cost of holding the non-yielding and dollar-denominated gold and silver metals.

US equities hit fresh record highs ahead of the Fed’s policy meeting

Posted on June 16, 2021June 16, 2021 by Vrasidas Neofytou

The Dow Jones and S&P 500 indices reached fresh record highs supported by the ongoing rally in value and cyclical stocks on the back of a faster-than-expected post-pandemic economic re-opening.

The tech-heavy Nasdaq Composite, staged a comeback as investors shrugged off inflation fears and began rotating back to growth and technology companies as bond yields fall.

Market participants now await the next two-day Federal Reserve policy meeting, to be held later this week, for further clarity on the central bank’s timeline to taper monetary support.

Although the Fed is not expected to take any action, its forecasts for inflation, interest rates, employment and the economy could influence market direction.

The US dollar index, hovers near a 5-month low in the 90 region, as forex traders speculate that the Federal Reserve will reiterate its dovish policy until maximum employment and higher wages are reached.

Despite a hotter-than-expected consumer inflation reading for May, the 10-year US Treasury yield which influences mortgages and other important lending rates, fell to 1.45%, its lowest level in 3 months, and well below its 2-year peak of 1.77% reached in March.

The price of Gold has lost more than 2% this week, falling back below 1,850 dollar per ounce, as the Federal Reserve eases concerns about inflation and downplays any talk for tapering its stimulus measures.

Who is right about inflation?

Posted on June 16, 2021June 23, 2021 by George Kessarios

May CPI in China came in about 1.3%, below the average estimate of 1.6%. This was mostly due to weak pork prices. Please note the CPI Index in China is heavily geared towards food. The producer price index on the other hand rose by a whopping 9% Y/Y, mainly driven by oil, metals and chemicals.

Chinese PPI is a function of higher commodity prices, not due to internal factors. This means inflation is not exported outwards. So, what happens in China in CPI or PPI terms, stays in China. In other words, don’t expect China to be an exporter of inflation as many have suggested. Please note that for the last 30 years or so, China is a deflation exporter, not an inflation exporter.

Last Thursday headline CPI in the US rose 5% Y/Y, the fastest pace since 2008. Used car and truck prices were partially to blame, posting an almost 30% rise Y/Y.

It is the norm for economies to experience pent up demand when coming out of a recession. However, this time around we also have supply chain disruptions due to the pandemic, but also supply chain disruptions because of politics.

But a rise in commodity prices due to supply shortages and disruptions has always been temporary. This is the main reason why Central Banks insist inflation will be transitory.

But the question is, what does the market have to say about all the inflation talk? The market is taking the inflation talk with a big yawn. We have not seen a correction in equities, nor a huge rally in bonds. In fact, when US CPI figures was published last Thursday, the 10-year US bond rallied and yields fell below 1.5%, after rising to almost 1.75% several months ago.

So insofar as the market, the message from the bond market is that it is siding with the Fed, and so far, it is not worried about persistent rising inflation expectations.

Finally let us not forget that even if inflation persists for the next several quarters, the reasons why inflation has been low for a long time have not changed. And the two main reasons are demographics and technology innovation.

Exhibiting at the iFX EXPO Dubai 2021

Posted on June 11, 2021June 11, 2021 by Exclusive Capital Team

Exclusive Capital’s team had the pleasure to be a part of the iFX EXPO Dubai, happening from the 19-20th of May in the Grand Hyatt Hotel Convention Centre. We had a great opportunity to welcome visitors to our booths, represent the company and connect with industry professionals from all around the globe.

For us, the iFX EXPO was highly anticipated being the first live event since the beginning of the pandemic, and our team was very excited to meet in person with our clients, partners, service providers to share this experience.

During the days of the expo, Exclusive’s team took part also at the speakers’ panel joining the discussion on the topic “The Clash of the Asset Classes: Stocks, Crypto, Currencies”.

A big thank you to our team, expo organizers, our clients, and partners for sharing this experience with us.

We are looking forward to more great live events like this in the near future and the next iFX EXPO!

Bitcoin under pressure on rising regulatory concerns

Posted on June 10, 2021June 10, 2021 by Vrasidas Neofytou

Digital currencies have entered June with significant pressure, continuing their downtrend spiral towards multi-month lows driven by increased regulatory concerns and after the recovery of Colonial Pipeline Co.’s ransom as evidence that crypto isn’t beyond government control.

Market reaction:

Bitcoin has a volatile week so far with the price falling as much as 10% to $31,000 on Tuesday afternoon before rebounding to $37,000 on Thursday morning.

The world’s largest cryptocurrency is down almost 45% from its April 14^th record highs of $65,000, shaking confidence in the crypto market. The digital currency is now up only about 15% since the start of 2021, even though it is still more than tripled in price from a year ago.

Ethereum, the second-largest digital currency, accelerated its slide below the $2,500 level, down almost 40% from recent all-time highs of $4,400 hit on May 12, 2021.

The popular-among youngest traders- Dogecoin dropped to as low as $0,30 cents, before recovering to $0,34 cents on Thursday morning. The Doge, a crypto token that started as a joke, is currently down roughly 55% from its all-time high of $0,75 cents.

Crypto sell-off amid recovery of Colonial Pipeline ransoms:

What caused the recent sell-off in the crypto market is not so clear, however, some analysts believe that it may be related with to unexpected news that US law enforcement officials had managed to recover all the $2.3 million worth of Bitcoin ransom paid to DarkSide, the cybercriminal gang from Russia behind a crippling cyberattack on Colonial Pipeline last month.

Court documents said investigators were able to access the password for one of the hackers’ bitcoin wallets. The money was recovered by a recently launched task force in Washington created as part of the government’s response to a rise in cyberattacks.

Investors and other participants in the crypto-asset ecosystem were caught in surprise as the recovery of the ransom is a strong signal that the FBI or any other law enforcement has the ability and the knowledge to track cryptocurrency and seize funds from private crypto wallets.

Hence, the event is a sign that FBI has acquired the know-how to chase hackers (online criminals) even when they operate outside of the USA to prevent ransomware attacks in the future.