Monthly Archives: June 2016

The copper price is brightening despite the Brexit vote that rocked the markets

Augustin Eden and Mike van Dulken from Accendo Markets tell Hot Commodity why copper is faring well in a tumultuous week following the Brexit vote…

What a turnaround in the markets this week. Talk of fresh restraint concerning US monetary policy normalisation (a 2018 rate hike, anybody?), reassurances from China that it will continue to meddle in its financial markets as required and hopes of coordinated central bank intervention have all helped boost the price of copper via a weaker US dollar and improved risk sentiment. This has in turn stopped a good portion of the record bearish speculative bets on the commodity, providing further support. You wouldn’t be wrong in concentrating exclusively on Brexit this week, but it’s probably time to start remembering that the wider world does still exist – even more so the fact that the wider world is far more of a going concern for the UK’s FTSE 100 blue chip miners than the country in which their shares are merely listed.

In particular, for all its imperfections, China is a godsend when it comes to copper. The world’s 2nd largest economy may be slowing (no arguments there) but it still currently buys 40 per cent of all the copper produced annually around the world. The Chinese government is doing everything it can to paint a positive picture, while regulators intervene in financial markets to keep all the balls in the air. And with ‘fiscal support’ (whatever that actually means in China’s case) constantly warming up on the touch-line, the positive impact on classic risk plays in the UK’s mining sector has helped offset global growth concerns emanating from Brexit.

Base metals haven’t been rocked as much as everyone thought they might have by the Brexit hit to global market sentiment. We know the miners are less exposed to the UK economy than they are to emerging markets and we’ve got this fantastic tool in the Chinese government primed to act the very moment things start to turn sour. Aside from the safe havens, copper could now be set to benefit most of all as trade talks commence in North America – with energy production a major talking point – and with the potential longer term for more of that between the UK and China. Energy is likely to be on the agenda here too, with the UK facing an impending shortage as coal plants close to be replaced by, er, well, nothing has been decided yet. But many renewables are likely to require a lot of a certain red metal to transmit what they can harness naturally.

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

US interest rates: Ignore the scaremongers, non-farm payrolls aren’t enough to derail Yellen

When Janet Yellen speaks in Philadelphia later today, everyone will have just one question on their minds – when will the US Federal Reserve next raise interest rates?

Fed members had been hinting at another rate hike over the summer, but equities are today trading higher – and the dollar is weaker – in anticipation of no change over the summer months, following last Friday’s highly disappointing non-farm payroll (jobs) numbers.

Official data on Friday showed that the US economy added 38,000 jobs last month – the fewest in more than five years – which pushed back expectations of a rate rise until later in the year.

But NFP data is a very small part of the story – and Fed chair Yellen knows it. The surprisingly low figure has been seen as an anomaly by some market commentators, contrasting with broader signs of a US economic recovery.

“Something about the NFP numbers don’t add up for me, when you compare them to more positive recent data such as regional reports from the Beige Book,” said Kully Samra, managing director of Charles Schwab in London.

“Two Fed members have already implied that the figures were an anomaly and I expect Yellen will do the same. I don’t think the NFP data would change the stance of the Fed.”

Perhaps a bigger factor in the expected no-change result at the 15 June meeting of US policymakers is the imminent risk of Brexit, ahead of Britain’s EU referendum vote on 23 June.

“I was amazed as to the degree of importance the Fed puts on the EU referendum,” said Samra. “It was mentioned in the minutes of the last meeting due to its potential impact on the global financial markets.”

Augustin Eden, research analyst at Accendo Markets, agreed. “Suffice to say that a US rate hike seems unlikely either in June or July given the iffy print and added headwinds provided by an intensifying Brexit whirlwind,” he said.

“[But] there remains an outside chance the FOMC will act despite the dire jobs number – it was after all just one number – since to do so would at least signal that US economic conditions are right and that the Federal Reserve is not hiding anything from us.”

While a rate rise now looks more likely later in the year, this should not simply be put down to the NFP number and certainly does not mean the US economy is doing badly. It’s actually faring pretty well, the Fed just needs to convince the markets, as Samra explains.

“There is a difference between where the Fed and where the market wants rates to be,” he said. “Rates have been low for so long and there is a disparity about how strong the economy is.

“It’s all about the consumer – they’re at the heartbeat of the domestic economy,” he added. “Data shows they are continuing to spend and they’re slowly borrowing more. The US is the strongest developed economy. It’s forecast to grow at well over two per cent this year.”

Brexit and the Fed: stock market investors should brace themselves for a bumpy June

This week, Mike van Dulken and Augustin Eden of Accendo Markets tell Hot Commodity why we should brace ourselves for a bumpy June…

An optimistically cautious end to May was punctured by a surprise surge for the Leave camp in the latest UK Brexit poll. Whether this says more about what Guardian readers are thinking as they pack their bags and buggies in preparation for this summer’s festival season, or does indeed reflect a wider swing in sentiment is unclear – and will surely remain so until the result is announced. Remember how polls at the last UK general election showed that they’re not always spot on? Nonetheless, polls are seldom ignored and two markets that certainly didn’t ignore this one were cable (the GBP/USD exchange rate) and the FTSE 100.

The two are only really semi-co-dependent. The FTSE 100 contains so much international exposure as to be almost entirely US dollar sensitive, but the fact that these two markets got a big dose of volatility at the end of May and into June says much about current market sentiment: it’s cautious and it’s jumpy. Cautiously nervous? Nervously cautious? Whichever it is, it doesn’t like loud bangs!

Whoever chose June as the month in which the UK would vote on its future relationship with, let’s face it, the rest of the civilised world could not have predicted that we’d also find ourselves once more staring down the barrel of the US Fed’s proverbial interest rate cannon. And while a mere 25bp rate hike is surely nothing to be worried about, now we’re here, it’s natural to wonder what effect one will have on the other. Might the Fed hold off because of Brexit risk? After all, last September it held off because of “international headwinds”. International headwinds have been a feature of the world for, like, ever. Yet Brexit has no real precedent. On the other hand the Fed went ahead in December, right in the middle of a hideous time for stock markets, just because some jobs were added in the US economy.

The dilemma that faces policymakers right now is hardly a subtle one. June is sure to be a tumultuous month because, right in the middle of it, there’s a potentially paradigm-shifting referendum in the UK. Whatever the outcome, the potential for considerable political unrest in both the UK and Europe is very real indeed, so July may also throw up the sorts of international headwinds the FOMC loathes so much.

All that considered, June might actually present the more realistic opportunity. Will the US simply get it out of the way and adopt the brace position for what will surely follow?! Whatever happens, we can be sure that the FTSE 100 index and the GBP/USD pair will find themselves with few hiding places, if any, for the remainder of the year. It’s time to buckle up.

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.