Metals and Asian Stocks Surge on Firm Rate Cut Expectations

by | May 20, 2024 | 0 comments

Brent crude futures surged to a one-week high of $84.25 a barrel after a helicopter crash killed Iran’s president and Saudi Arabian state news reported a health issue for the king, sparking concerns of new instability in the Middle East.

Metals and Asian Stocks rise as investors expect a rate cut, Asian stocks are at two-year highs with investors anticipating interest rate cuts and China stepping up its efforts to shore up its troubled housing market. Copper and gold hit all-time high prices on May 20th as well.

Brent crude futures gained $1.75 per barrel to $84.25, the highest in a week after Iran president Ebrahim Raisi died in a helicopter crash. On Saudi Arabian state news of King’s health that raised concerns of potential instability in the Middle East further movement was observed on crude prices.

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Gold prices jumped 1% to $2,449.89 while Shanghai copper futures rose almost 7% to a record ¥88,940/tonne before closing at $11,104.50 in London: this comes amid deepening supply shortages causing fears among investors, driving copper prices higher; also gold reached an all time high, silver stood firm at its highest level since over eleven years ago.

Tight supply and signs of resilient global growth are supporting copper prices with ANZ analysts saying that it might be difficult to drive down the cost of copper too much farther now; they also mentioned that there had been record first- quarter imports into China totaling 566 tons which helped push up the price too.

“The market is playing the theme of a recovery in the global economy,” said Yuya Fukue, a trader at Rheos Capital Works Inc., Japan’s third largest brokerage by value according to data compiled by Bloomberg. “With copper hitting a record high and other commodity prices strong.”

The MSCI broadest index of Asia-Pacific shares outside Japan edged up 0.4%, Japan’s Nikkei added 0.7% to five-week highs and global shares were near last week’s record peaks again; S&P 500 futures rose 0.10%, FTSE futures increased 0.10% and European futures also gained 0.10%.

This followed recent weak US inflation data and hints from Europe that central bankers could lower rates as soon as June which has now shifted market focus to upcoming policy speeches, meeting minutes, a central bank decision in New Zealand and Nvidia’s financial results.

“The week ahead will be dominated by Federal Reserve speakers and minutes shaping the outlook of policy risks ahead with a bias towards easing rather than tightening,” said Bob Savage, the head of markets strategy & insights at BNY Mellon.

Two-year US Treasury yields ended last week four basis points lower at 4.825 percent and remained steady in Asian trading. The ten-year yield declined 8.4bps to 4.42% last week.

Japanese Market Movements

The speculation grows for Japanese interest rates finally rising from zero as government bonds experience their longest period of rising yields in more than a decade: yields on Japan’s benchmark ten year bond rose 2.5 bps to reach 0.975%, the highest since 2013; however, the huge gap with U.S yields kept yen mostly unchanged.

“This is an important change because if Bank of Japan starts raising interest rates it means long-end yields would have to go up too; we are just beginning to see this happening”, ANZ head of Asia research Khoon Goh noted something like that.

Currency Market Dynamics

The dollar fell the most in a week and half against the euro last week, but was steady in Asia on Monday. The euro rose to $1.0880 from $2.0883 earlier this month, as yen remained unchanged at 155.70 per dollar (Bloomberg News). The Australian dollar went up by 1.4 percent last week ending at $0.6697 on Monday morning today afternoon while New Zealand’s currency fluctuated around $0.6127.The Reserve Bank of New Zealand is expected to retain its main cash rate at 5.5% during its meeting on Wednesday.

Australia’s central bank minutes as well as those of the Federal Reserve are due this week which will also include flash global PMIs.

Commodities Update

Political unrest in New Caledonia helped push up nickel prices, one of the region’s major exports. Silver exhibiting similar trends with gold broke through above $30 an ounce (Reuters).

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