Industrial metals down as risk-off sentiment continues in markets
15 Sep 2022Risk sentiment turned bearish again following comments from Jerome Powell at the Jackson Hole Symposium at the end of August. As equities pulled back, so did industrial metals. To overcome this broader sell-off in markets amid fears of recession, industrial metals needed some glimmer of positive economic data. Unfortunately, that did not materialise. Typically, manufacturing activity in China, the world’s largest consumer of industrial metals, has a notable bearing on metal prices. China’s Manufacturing Purchasing Managers’ Index (PMI) went into contractionary territory in August after being expansionary for the two preceding months. Thus, the reprieve industrial metals experienced in the second half of July, disappeared in August.
More hawkishness from central banks weighs on precious metals.
15 Sep 2022Powell’s speech at Jackson Hole didn’t help gold. If there was any expectation of a dovish pivot from the Federal Reserve anytime soon, it was eroded after the symposium. More hawkishness from the Fed means strength for the US dollar and gains in US Treasury yields – neither of which is a welcome sign for gold. Both things continued to materialise last month, and so did the expected impact on gold. But Fed hawkishness at a time when the US is already in a technical recession, and sentiment is largely risk-off in equity markets, should result in greater demand for defensive assets. This has not yet materialised given net outflows from precious metals exchange traded products globally in the last month and speculative positioning on futures also largely declining. This, to us, suggests that gold’s credentials as a hedge against economic risks are currently underappreciated – something that may get rectified in the coming months.
Gold loses more shine as dollar keeps its positive momentum
06 Sep 2022The US dollar has reached its highest level in two decades with the dollar basket just under 110 as of 05 September. Among the commodities most impacted by this dollar strength are precious metals. Gold, silver, and platinum have all pulled back sharply in recent weeks. At the same time, the euro has hit its lowest level in two decades against the dollar as Europe faces the prospect of recession amid a deepening energy crisis.
Bearish sentiment prevails in stocks
06 Sep 2022Markets have continued to retreat since Jerome Powel’s hawkish speech at the Jackson Hole symposium on August 26. The CBOE Volatility Index has spike and remained high in recent days crossing 25, its highest level since the middle of July. Over the last 1 month, for the S&P 500 Index, energy stocks have continued to deliver strong positive performance while semiconductors, software, and internet companies have been the biggest losers.
Treasury yields rise and dollar appreciates on Powells Jackson Hole comments
02 Sep 2022Hawkish comments from the Federal Reserve Chair at Jackson Hole have put additional upward pressure on US Treasury yields and the dollar. The dollar is gaining grounds vs the euro on expectations of further policy divergence between the Federal Reserve (Fed) and the European Central Bank (ECB), i.e., more aggressive rate increases from the Fed. Having said that, the tone from the ECB is becoming progressively hawkish which could help partially alleviate euro’s relative weakness against the dollar in the coming weeks.
Jerome Powell's Jackson Hole comments weigh on equity markets
02 Sep 2022On Friday 26 August, US Federal Reserve Chair Jerome Powell made what markets perceived to be a more hawkish speech than expected. Powell suggested the central bank will ‘keep at it’ until the job is done suggesting interest rates will continue to rise and remain high to tackle inflation even as recessionary risks start to mount. Equity markets endured a negative reaction immediately upon hearing these remarks.
Dollar remains upbeat
26 Aug 2022The US dollar has gained further ground in recent days alongside an increase in US Treasury yields as markets continue to expect hawkishness from the Federal Reserve. Dollar strength has been putting pressure on many commodities, notably gold and silver. The Euro has fallen below parity against the dollar for the first time in two decades.
Stocks under pressure from economic data and Federal Reserve concerns
26 Aug 2022US Composite Purchasing Managers’ Index (PMI) came at 45 in August registering a second consecutive month of contraction in total business activity across services and manufacturing. This has dented risk sentiment ahead of the US Federal Reserve’s Jackson Hole economic policy symposium (25-27 August). We note, however, that if weaker economic data impels the Federal Reserve to become less hawkish, this is likely to be welcomed by equity markets.
Platinum following gold's movements
19 Aug 2022Platinum’s recent recovery has occurred concurrently with gold highlighting the correlation among precious metals. Gold, in turn, is reacting to the US dollar – a weaker dollar supports gold, and a stronger dollar creates headwinds for gold. Platinum may also find additional support from improving automobile sales. Passenger vehicle registrations have steadily risen in the first six months of 2022. This helps platinum demand given its primary industrial use is in autocatalysts for internal combustion engine vehicles.
Zinc prices rise on expectations of supply tightness
19 Aug 2022Despite headwinds from recessionary fears, zinc prices have bounced back strongly since the second half of July. Zinc production is an energy intensive process and with Europe facing a tight energy market this coming winter, it is expected that several European zinc smelters will cut production. The zinc futures curve is in backwardation (higher spot prices than futures prices) reflecting this expected tightness.