Beyond Forex - Metals, Oils, Indices, Bonds, Equities March 20th

Metals


Gold – so US interest rates continue to rise, but this won’t be seen as a negative for gold so long as the Federal Reserve is playing catch up with inflation. To this extent, Friday’s manufacturing PMI reading at 1.45pm GMT could provide the best potential for the precious metal’s rally to take a pause for breath. Although this is a relatively low level measure of inflation, it has the ability to cut through the fact that there’s an awful lot of potential for gold on the upside, even from levels just above $1200/oz.

Oil

Over the last couple of weeks we have been dealing with some conflicting messages in terms of supply of crude. Production of shale in the Permian basin of Texas is running significantly better than had been expected, yet the IEA is anticipating a global deficit of 500,000 bpd by the middle of the year. This latter point was sufficient to push crude above $50/barrel, but the move was short lived, emphasising the risk the market faces. Opec isn’t due to convene again until May 25th but any hints over what happens next to the temporary production cuts could have a significant impact on prices.

Indices


The FTSE-100 has found much support over the last nine months as a result of Sterling’s demise. However there’s some chatter to suggest that the currency’s slide may be at a turning point and we’ve certainly seen very positive reactions to the upbeat data releases in recent days. There are two obvious potential triggers to be watching for now. Firstly, Theresa May’s formal triggering of Article 50 to start the clock ticking on Brexit. If it serves as a catalyst for buying GBP then it seems inevitable that the FTSE-100 should slide as a result. Secondly, UK retail sales will be released at 9.30am GMT on Thursday. There’s some concern that consumer demand may be tailing off as growth in wages starts to falter again but anything that disproves this will have the potential push the Bank of England to reconsider its rate policy.

Bonds


The Federal Reserve acted as expected last week in hiking interest rates for the second time in three months, but this has thrown open a debate as to just how much more activity we’ll see between now and the end of 2018. Commentators are suggesting we have a further six or seven quarter point hikes to come, pushing rates out to 2.25% or 2.50%, but Fed Fund Futures are some way below this, implying a rate as low as 1.75% by December 2018. Either the rhetoric needs to be toned down, or treasury yields have to improve.

Equities

It’s a busy week ahead for BMW with the publication of the 2016 Annual Report on Tuesday, followed by the analyst and investor conference on Wednesday. The company is notably struggling in North America despite success elsewhere so any comments regarding this will be closely followed. BMW has also reiterated its commitment to a new plant in Mexico, which it claims can remain viable even without sales into the US. BMW’s shares don’t seem to have played much of a part in the global equity market rally – is now the time for them to start catching up?

Agricultural Commodities


Coffee prices have for the last couple of weeks been receding from recent highs as a disappointing Vietnamese harvest season draws to a close, but any respite here could be short lived. Indonesia’s harvest season is up next, but expectations are that production will be around 17% lower than last year with drought affecting many growing regions, whilst the outlook for Brazil’s higher quality harvest later in the year looks little better, either. Again climatic factors have been in play, there’s typically a two year cycle working in the country’s production, whilst some farmers have been replacing drought-damaged plants with other crops like black pepper, too. Buying on the dips here could present rich pickings.

This article comprises the personal view and opinion of the STO Investment Research Desk and at no time should be construed as Investment Advice.

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