Dollar and gold await Federal Reserve policy announcement
26 Aug 2021Over the last few days, the US dollar has lost some of its positive momentum from earlier in August as investors look towards the Jackson Hole Summit. Annual inflation in the US for July came out at 5.4%, the same elevated reading as June. Unemployment has also fallen to 5.4%, down from 5.9% in June. These data points are likely to influence the decision making of the US Federal Reserve when it meets next in September. Gold, and the dollar are likely to be influenced directly by the policy course adopted by the central bank.
Growth catches up with value
13 Aug 2021Looking at year to date performance, growth stocks caught up with value in July closing the gap between the two factors that had opened in the first quarter. Favourable economic data, encouraging second quarter earnings, steadily easing Covid restrictions in many parts of the world, and signs of pent-up demand among businesses and consumers are all offering broad support to equities across factors and sectors. This reinforces the view that growth and value can coexist amid a favourable macro backdrop for equities.
Treasury yields bounce back at the start of August
13 Aug 202110-year US Treasury yields have bounced back from below 1.2% at the start of August to 1.36% (as of 11 August 2021). This is still meaningfully below the recent peak of over 1.7% at the end of March. Strong US jobs report in July is likely to influence the decision making of the US Federal Reserve when it meets next in September. By then, the central bank will also have the inflation figures of July and August which, if high again, could challenge the Fed’s recent narrative of inflation being transitory.
Volatility in oil prices continues
13 Aug 2021Oil prices are continuously in a tug of war between improving demand prospects in the near term and increased supply pressures over the medium term. As travel restrictions ease in many parts of the world, and risk sentiment rises, demand outlook continues to improve and more reports of draws from current inventories are seen. On the other hand, the Organization of the Petroleum Exporting Countries and its Partners (OPEC+) have announced their intention of gradually bringing supply back to pre-pandemic levels by the end of next year. Oil prices are likely to continue responding to demand and supply dynamics in the meanwhile.
Dollar makes gains but how far can it go?
06 Aug 2021The US dollar pulled back towards the end of July after making meaningful gains in June. Growth concerns emanating from the Delta variant have helped lift defensive assets including US Treasuries and the dollar in recent months. However, we observe that periods of strong increases in the US budget deficit and current account deficit are usually followed by periods of dollar depreciation. This structural force is only in its early phases and so we could see the dollar resuming its depreciation path it started in 2020 in the coming months.
Extreme weather conditions in Brazil dampen coffee’s supply outlook
06 Aug 2021Brazil, the world’s largest producer and exporter of coffee, has faced extreme weather conditions in 2021 which have lent buoyancy to coffee prices. Earlier in the year Brazil suffered a historic drought which lowered the outlook for production in the current low-yielding year 2021/22. However, the extreme dry weather conditions in Brazil at the start of the year have been followed by extreme cold weather conditions, the coldest since 1994 according to Rural Clima. This has led to damaging frosts at key plantations in Minas Gerais – a south-eastern inland state that produces 70% of Brazil’s Arabica beans. Extreme weather conditions are lowering crop estimates.
Tin at new record highs
06 Aug 2021Tin prices have surpassed their previous record high achieved in 2011 as supply tightness is helping boost prices. Power outages in China and mining disruption in other key producing countries including Myanmar, Indonesia, Malaysia, and Rwanda have caused investors to price in near term tightness in the tin market. Tin’s demand is supported by a cyclical boost in electronics in the short term and growth in emerging technologies like renewable energy and 5G in the long term.
Copper prices buoyant again amid a favourable outlook
30 Jul 2021International Copper Study Group data indicates that copper markets were in a surplus of close to 70,000 tonnes in the January to April 2021 period. While that is a lower surplus than the corresponding period last year, if that trend continues, we could see copper markets in a surplus for the full year 2021 in contrast to the sharp deficits that we saw for the full year 2020. However, we believe that with a growing number of infrastructure projects being sanctioned boosting demand for copper and some of the big mining countries, like Chile, facing supply hurdles, the market will tighten to a deficit. The Chilean government’s proposal to introduce royalty tax on copper miners will likely discourage mine expansion.
Source: WisdomTree, Bloomberg. Data as of 28/07/2021.
Dollar makes gains but how far can it go?
30 Jul 2021The market has interpreted the Federal Reserve (Fed) to be somewhat more hawkish lately than other central banks, widening the expected interest rate differentials between the US and other countries, thus providing upward dollar pressure. However, we observe that periods of strong increases in the US budget deficit and current account deficit are usually followed by periods of dollar depreciation. This structural force is only in its early phases and so we could see the dollar resume is depreciation path is started in 2020 in coming months.
US equities make gains on strong second quarter earnings
30 Jul 2021The S&P 500 Index has continued to reach new highs in July as encouraging second quarter earnings have added further stimulus to the rally. According to FactSet’s earnings insight of 26 July 2021, the blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) net profit margin for the S&P 500 for Q2 2021 is 12.4%, which is above the year-ago net profit margin and above the five-year average net profit margin (10.8%).