Monday, April 23, 2018
Markets fear rising bond yields. The bond vigilantes aren’t exactly wreaking havoc on global finance just yet, but yields on 10-year treasury notes have spiked in recent days, sitting just shy of 3 percent. Higher yields have global implications, with across the board increases in borrowing costs, threats to emerging market assets, and volatility in global equities. The explosion in the U.S. federal budget deficit, combined with looming fears of a trade war and geopolitical risks are heightening concern, pushing up yields.
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- U.S. Treasury yields have been on the rise this month, threatening emerging market assets.
- As the 10-year Treasury yield approached 3 percent last week, the MSCI Emerging Markets Index suffered its largest two-day decline since March.
- Rising rates could spark fears of correction in equities over fears of ballooning borrowing costs.
Markets
Iran and China look to break away from dollar. The U.S. dollar is under attack from a growing number of countries looking to switch to different currencies. China launched its yuan-denominated oil futures contract in March, which could bolster the Chinese currency and make yuan-denominated oil trade more attractive, eventually threatening to push the dollar off of its perch. More recently, Iran pledged to begin using the euro in place of the greenback for its foreign currency accounting. The dollar is not in danger of losing its top status, but efforts such as these could slowly chip away at the dollar’s position.
EU and Mexico look to upgrade trade deal. Mexico and the European Union have reached an agreement in principle to make changes to their trade arrangement, after two years of negotiations. The increasingly hostile position towards NAFTA from the U.S. accelerated the talks between Mexico and Europe. The new agreement will end Mexican tariffs on European food and beverages while also allowing European companies to sell more services in Mexico. Some of the sticking points included car imports to Europe that were partially-assembled in Mexico, as well as European dairy in the Mexican market. Details still need to be released, but both sides said they are close to a deal. “Trade can and should be a win-win process and today’s agreement shows just that,” said Jean-Claude Juncker, the commission president. Related: Cartel's, Pirates And Corruption Cost Mexico $1.6 Billion Per Year
French President visits Washington as Europe wants relief from steel tariffs. French President Emmanuel Macron arrives at the White House on Monday as part of a three-day visit. At the top of the agenda for the French President will be seeking an exemption from U.S. steel tariffs for Europe. Also, Macron hopes to convince President Trump to stick with the Iran nuclear deal, arguing that there is no “Plan B.”
Commodities
Aluminum prices tumble as U.S. softens position. The turmoil in the aluminum market saw another twist after the U.S. Treasury Department said it would relieve sanctions on Russian aluminum producer Rusal if Oleg Deripaska gave up control of the company. Aluminum prices had surged on fears of supply shortages after the Russian company was hit by U.S. sanctions earlier this month. But the conciliatory tone from Washington caused prices to crash more than 8 percent on Monday.
Investment outlook for commodities brightens. The stock market has been volatile as of late, with plenty of geopolitical risks looming, but the investment case in commodities looks better than at any moment in the last few years. The PowerShares DB Commodity Index Tracking is up 9 percent since February. "Long-term when you look at the global picture, it sets itself up for a measured supercycle," Mike Wilkins, commodities expert for Fidessa, told CNBC. "Beyond the rhetoric and saber-rattling, there is a good, compelling story for growth and continued uptake in the end for commodities, especially base metals."
Gold, silver, oil down on rising dollar. Gold prices fell to a two-week low after the U.S. dollar and treasury yields rose. The 10-year yield on Treasuries is near 3 percent, a psychological threshold that could spell trouble for global equities. Yet, the rise of yields also undercuts the case for safehaven assets such as gold, silver and other commodities. "Gold prices dropped back to the levels of around a week ago, with easing geopolitical tensions, the stronger USD and gains in U.S. rates affecting the market," ANZ analysts said in a note.
Energy
Pipeline attack knocks Libyan oil offline. Libya’s oil production fell by 80,000 bpd after a pipeline attack, the country’s National Oil Corp. said on Sunday. The pipeline connects the 300,000-bpd Waha oil field in eastern Libya to the Es Sider export terminal, Libya’s largest oil port. Repairs could take a few days. Libya’s oil production has rebounded strongly in the past few years, seeming to stabilize at 1 million barrels per day. However, the latest attack is a reminder that the country’s oil sector is still vulnerable to volatility and instability.
HSBC cuts off lending to oil sands. Europe’s largest banks, HSBC (NYSE: HSBC), announced a decision to no longer offer financing to oil sands producers. HSBC, with $2 trillion in assets under management, said that it would also cut off funding for Arctic drilling and new coal-fired power plants. The bank joins a growing list of financial institutions that are withdrawing funding for energy production deemed to be incompatible with climate objectives. Related: China's Economy Soars Despite Trade War Fears
OPEC happy with current deal, likely to keep cuts in place. OPEC officials met in Jeddah last week to take stock of the oil market, and told reporters that they are content with the current production limits and the pace of rebalancing. There was heightened attention around the meeting because the global crude oil inventory surplus has largely been depleted, raising questions about whether OPEC might alter the agreement at its June meeting. Judging by the comments after last week’s meeting, OPEC looks set to keep the limits in place at least through the end of the year.
Cryptocurrency
Indian court scrutinizes central bank’s crackdown on cryptocurrencies. A Delhi high court issued a notice to the Reserve Bank of India (RBI) on April 22 over the central bank’s crackdown on cryptocurrencies earlier this month. The RBI ordered banks to withdraw or close their relationships with cryptocurrencies by July. However, the move is not a done deal and could lead to litigation. A petition filed by Kali Digital Eco-Systems, which hopes to launch its own digital currency, argues that the RBI did not provide a sufficient justification for the crackdown. “It (the RBI directive) has come with this overarching order that can be challenged on several counts,” Anirudh Rastogi, managing partner at law firm TRA, which represents several bitcoin exchanges in India, told Quartz earlier in April.
Malta has become a cryptocurrency haven. Two of the world’s largest cryptocurrency exchanges are set to locate in Malta, and analysts say many more will follow their lead. Why? Malta is writing rules for exchanges that will provide certainty. Plus, a lenient tax system makes the island attractive. Malta is competing with Japan, South Korea and Hong Kong to become a premier location for cryptocurrency exchanges.
Cryptocurrency rally continues, pushing market cap close to $400 billion. Bitcoin prices have staged a rally as of late, edging back up towards $9000. Meanwhile, a variety of other cryptocurrencies are hovering at multi-month highs, and the entire crypto market stands just shy of $400 billion. As of late, nine out of every ten trades in the crypto space have been “buy” orders, a reflection of rebounding sentiment in digital currencies after a rough few months.
By Josh Owens for Safehaven.com
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