Aluminium hits 6-1/2-year peak on supply worries as nickel rallies

Aluminium prices hit a fresh seven-year high Wednesday and the price for nickel also jumped to its highest level since 2015 as concerns rise about Russian supplies following US sanctions.

Aluminium prices have rallied by over 20% since the US Treasury sanctioned Russian producer Rusal on April 6, abruptly cutting off its supply to global markets. They rose by 3% Wednesday to hit $2,490 a tonne.

The price could hit as high as $3,000 a tonne if Rusal’s exports remain locked out of global markets. Rusal is the biggest producer of aluminium outside of China, accounting for around 7% of global production. It also relies on international imports of bauxite and alumina to make the metal, a supply chain that could also be in jeopardy following the sanctions.

Miner Rio Tinto said Wednesday it is “in the process of declaring force majeure” on its contracts with Rusal, which include an agreement to supply alumina as well as bauxite to Rusal’s refinery in Ireland.

Russia also accounts for around 10% of the global supply of nickel, which is used to make stainless steel and batteries for electric cars. That’s raised fears that the metal could struggle to reach global markets. The nickel price rose by 3% in trading on the London Metal Exchange Wednesday to hit $14,870, its highest level since February 2015.

UK Inflation Drops More Than Expected and GBP drops follows

Sterling dropped abruptly on Wednesday after data on UK inflation came in substantially below market estimates.

The pound was recently lower by 0.54% to $1.4208. Sterling had climbed on Tuesday to $1.4376, the highest level since the Brexit vote in June 2016.

Inflation fell much more sharply than expected in March, raising questions over whether the Bank of England will push forward with a widely expected increase in interest rates in May. UK economic data outcomes have increasingly underperformed relative to consensus forecasts in recent months, warning that analysts’ models may be overly rosy and opening the door for another downside surprise. Such a result may clash with a recent build in priced-in BOE rate hike expectations, cooling bets on a near-term increase and sending the British Pound lower.

The annual change in the consumer price index fell to 2.5% in March from 2.7% in February. Analysts had expected the rate of inflation to remain unchanged.

How and why did it happen though? The decline in the headline inflation rate came from a fall in the rate of goods inflation from 3% in February to 2.4% in March. Goods prices are thought to be more sensitive to the exchange rate. The year-on-year change in the retail price index, which is used in some government debt contracts, fell to 3.3% from 3.6%.

USD Continues to Remain Soft Against The G10 Trading Pairs

Trump’s currency comments weigh on US dollar outlook heavily. The US president tweeted on Monday that “Russia and China are playing the currency devaluation game”. “Not acceptable!” he added.

Mr Trump’s remarks raised quite a few eyebrows among currencies strategists, not least given that China’s currency, has in fact risen 3.6% this year on the dollar, after a 6.8% jump in 2017, according to Reuters data.

Trump’s behaviour is somewhat understandable. Since Trump took office in January 2017, the dollar has weakened substantially against most currencies, including the Chinese yuan and, until the United States imposed sanctions on Russia in the last few weeks, the ruble. Mr Trump is indeed correct that the rouble has been falling heavily lately. However, that is largely a response to new US sanctions on Russia, sparked by Russian support for the Syrian regime. True, the rouble is off 6.5% on the year. But Russia’s currency was down a milder 2.2% before the announcement earlier this month of US sanctions against the country.

While Mr Trump’s comments “make no sense”, they still had an impact on the foreign exchange market. The dollar index, a measure of the buck against half a dozen peers, is down 3% for the year, and has tumbled 11.3% since Mr Trump’s inauguration in January 2017, according to Investing.com data.

 

Pound Hits Highest Level Since Brexit

The pound touched its highest level since the Brexit vote on Tuesday ahead of EU-UK negotiations this week.

Sterling edged up 0.1% in early Asia trading, touching $1.4354, its highest intraday level since the June 2016 UK referendum and moving past the prior post-Brexit high, hit on January 25.

The British currency, which has gained since the UK and EU last month forged a conditional agreement on the terms of a Brexit transition, on Monday crossed above the $1.43 mark for only the second time since the Brexit vote but it is still well off the $1.49 level it traded at just prior to the vote.

While the pound has gained more than 5 per cent against the dollar this year, analysts remained cautious heading into the EU-UK trade talks this week

This year has been a good one for the pound: It has climbed 5.8% against the greenback, leaving it as the top performer among the G-10 currencies. The gains have come after the UK and EU forged last month a conditional agreement on the terms of a Brexit transition.

 

Oil Prices Sink as shale concern lingers and Syria fears subside

Oil prices dropped and government bonds weakened on Monday, after the US and Russia avoided any direct military engagement during an American-led strike in Syria.

Having last week breached the $73 a barrel mark for the first time since late 2014, Brent crude fell as much as 2% in London trading. US Treasuries — an asset that investors typically turn to during periods of geopolitical tension — were also under pressure, with the yield on the two-year note touching the highest in 10 years.

The oil price had risen nearly 10% in the run-up to the strikes, as investors bulked up on assets, such as gold or U.S. Treasuries, that can shield against geopolitical risks

The prospect of the US and its allies launching a military strike against the Syrian government helped drive the oil price higher late last week. Investors feared a strike risked a clash with Russia that is supporting the government of Syrian president Bashar al-Assad, who is accused of a chemical weapons attack.

Seems like the market hope is that the fact that the Syrian air strikes were targeted and that Russia haven’t further inflamed the rhetoric so far, means that we can slowly move on.

The yield on the two-year Treasury note rose 2 basis points to 2.38%, the highest level since 2008. That was echoed across other major government bond markets, with the yield on the 10 -year German Bund rising 3bp to 0.54%, the yield on the equivalent 10-year UK gilt up 4bp at 1.47% and the French 10-year yield climbing 3bp to 0.77%.

The speed with which the oil price on Monday relinquished gains made in the run-up to the military action on Saturday reflects a broader pattern of how crude has reacted to tensions in the Middle East over the past two decades, analysts say.

All Quiet on the Western Front: Financial Markets seem to ignore the geopolitical tensions for now

The US-led military strike against Syria’s alleged chemical arms infrastructure was a one-time move according to the UK Foreign Secretary Boris Johnson even as the US signaled it’s ready to punish the Middle Eastern country again if it keeps using banned weapons. The announcement made seems to be highly pro-market oriented, as western leaders do realise that actions against Syria might seriously shock the markets especially the commodities ones.

For now, traditional risk markets left unmoved but worries persist as US likely to ramp up Russian sanctions. The lack of a flight to safety is most apparent on short-dated US government debt, where sustained selling took the yield on the 2-year Treasury to its highest since September 2008, at 2.3867%.

European bourses are holding their ground after a steady showing in much of Asia and investors are not moving into haven assets, in a measured market response to the weekend’s US-led military strikes against Syria. European equity markets opened flat to +0.25%, traditional safe haven currencies the JPY and CHF were little changed while oil edged lower after last week’s bullish surge. European macro-calendar is empty on Monday shifting focus on sentiment and the US retail sales data due on Monday afternoon.

The conclusion in general: The US-led military intervention in Syria did not yet spur any massive currency market reaction as it is seen as being unilateral and once-off action. Oil prices are coming off last week’s three-year highs as investors hope that the conflict will not escalate.

Russia: Russian assets are looking exposed on expectations of sanctions from Washington on Moscow, where President Vladimir Putin remains an ally of Syrian leader Bashar al-Assad.

The rouble is weaker by a further 1.5% to Rbs 62.9930 per dollar, leaving it around last week’s intraday nadir of Rbs 65 — a level it previously traded at in late 2016.

Sources:

https://www.ft.com/content/5c993d18-4116-11e8-93cf-67ac3a6482fd

https://www.investing.com/news/stock-market-news/european-shares-steady-after-usled-strike-on-syria-wpp-falls-1395715

https://www.fxstreet.com/analysis/european-fx-outlook-life-after-striking-syria-sees-us-dollar-little-changed-201804160557

https://www.dailyfx.com/forex/market_alert/2018/04/16/Markets-Brush-Off-Geopolitics-Gold-Nears-Strong-Support.html