Forex Markets Quiet as Focus Turns to Inflation Data This Week

Forex

Summary:

The forex markets have been relatively quiet during today's Asian session, with currency pairs staying within Friday's range.

The forex markets have been relatively quiet during today's Asian session, with currency pairs staying within Friday's range. Major stock indexes are also demonstrating mixed performance in a tight range. Inflation data from the Eurozone and the US will be closely monitored this week. Although these figures are crucial in determining the future rate path, reactions to this week's data may be somewhat subdued, given that both ECB and Fed meetings will not reconvene until May.

Ongoing developments in the banking crisis will continue to be a significant driving factor for all financial markets. As for currencies, Yen has emerged as the biggest winner for the month, seemingly bolstered by risk aversion and falling benchmark treasury yields in other markets. European majors follow closely behind, despite banking sector troubles. Commodity currencies and Dollar have been the weakest performers. It remains to be seen whether Yen could experience further gains before the month's end and which currencies will be most affected.

Fed's Kashkari warns of recession risks amid banking sector stress

Fed President Neel Kashkari expressed concerns in a recent CBS "Face the Nation" interview about the recent stress in the banking sector, warning that it could lead to a widespread credit crunch and ultimately push the US into a recession. Kashkari stated, "What's unclear for us is how much of these banking stresses are leading to a widespread credit crunch. Would that slow down the economy? This is something that we're monitoring very, very closely."

He acknowledged that the situation is still relatively new, saying, "Right now, the stresses are only a couple of weeks old." However, Kashkari pointed out some positive signs, such as a slowdown in deposit outflows and a restoration of confidence among smaller and regional banks. He noted, "There are some concerning signs. The positive sign is deposit outflows seem to have slowed down. Some confidence is being restored among smaller and regional banks."

Despite these positive developments, Kashkari emphasized the potential risks if capital markets remain closed due to nervous borrowers and lenders, stating, "If those capital markets remain closed because borrowers and lenders remain nervous, then that would tell me, okay, this is probably going to have a bigger impact on the economy."

ECB's de Guindos on rate hikes: Data-Dependent and cautious amid banking sector uncertainty

ECB Vice President Luis de Guindos recently shared his thoughts on the central bank's approach to future rate hikes, emphasizing a data-dependent and cautious stance in light of the uncertainties arising from the financial sector problems in the US and Switzerland.

In an interview, de Guindos stated, "We raised rates by 50 basis points in March and we are open-minded with respect to the future… We are not pre-committing to any action."

The impact of the US banking system and Credit Suisse events on the Eurozone economy is a pressing concern for the ECB. Over the coming weeks and months, de Guindos noted that the central bank would need to evaluate whether these events would lead to tighter financing conditions.

The ECB Vice President acknowledged that such events increase uncertainty and may result in tighter credit standards in the Eurozone, potentially affecting the economy with lower growth and inflation. However, de Guindos explained that it is too early to determine the intensity of this factor.

Regarding the ECB's inflation target, de Guindos emphasized the importance of a timely return to 2% inflation within the two-year projection horizon and highlighted the crucial role of core inflation in achieving this goal.

He stated, "Headline inflation will decline quite rapidly over the next six to seven months as the base effects play in favor of a rapid reduction in inflation… What we want to see is a steady and clear convergence towards the 2% target. In that respect, core inflation is going to be key. It is very difficult to converge towards the 2% target in a sustainable way without a clear decline in core inflation."

Inflation Data Takes Center Stage as Central Banks Weigh Next Policy Decisions

As we head into a week highlighted by inflation data, central banks are gearing up to navigate their policy decisions based on the numbers. Australia's monthly CPI, Eurozone's CPI flash, and US PCE inflation will be under close scrutiny as monetary authorities assess their next moves.

RBA has suggested the possibility of hitting the pause button in May, but the final call will largely rest on how inflation unfolds. On the other hand, ECB is expected to proceed with tightening in May, but the ultimate peak interest rate will be influenced by the pace at which inflation decelerates.

Market participants consider Fed current 4.75-5.00% interest rate as the peak already, contrasting with Fed's own projection of 5.1%. Once again, inflation trends will be the deciding factor here.

Besides inflation, other significant economic indicators to watch this week include US consumer confidence, Japan's industrial production and retail sales, Canada's GDP, Australia's retail sales, and New Zealand's ANZ business confidence.

Here are some highlights for the week:

· Monday: Japan corporate service price index; Germany Ifo business climate: Eurozone M3 money supply.

· Tuesday: Australia retail sales; US goods trade balance, house price index; consumer confidence.

· Wednesday: Australia CPI; Germany Gfk consumer climate; Swiss Credit Suisse economic expectations; UK mortgage approvals, M4 money supply; US pending home sales.

· Thursday: New Zealand building permits, ANZ business confidence; Germany CPI flash; ECB monthly bulletin;US Q4 GDP final, jobless claims.

· Friday: Japan Tokyo CPI, industrial production, retail sales, housing starts; China PMIs; Germany import prices, retail sales; UK Q4 GDP final, current account; Swiss retail sales, KOF economic barometer; France consumer spending; Germany unemployment; Eurozone CPI, unemployment rate; Canada GDP; US personal income and spending with PCE inflation, Chicago PMI.

Source: ActionForex.Com

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Samantha Luan

Forex

USD: Dollar support comes from Europe

The dollar regained some ground in the past two trading sessions, largely thanks to developments overseas (in Europe) rather than any material improvement in US-related drivers. This safe-haven demand is mostly related to banking stress on the other side of the Atlantic. As widely discussed last week, the Federal Reserve has likely failed to offer clear enough communication and this leaves rate expectations – and by extension, the dollar – very strictly tied to US financial stress.

Markets have turned increasingly doubtful that the Fed will be able to tighten policy any further, and have simultaneously speculated on an early start to the easing cycle. Fed funds futures currently price in only a 30% chance of a rate hike in May while fully pricing in a 25bp cut in July, and a total of 80bp of easing by year-end.

The variables that currently drive that pricing for Fed hikes/cuts are the following: a) developments with US regional banks; b) the stance of the US Treasury on extending deposit insurance; c) Fedspeak. On the first two – interconnected – points, the newsflow may still be rather volatile. The US regional banking crisis has not gone away, with deposits either leaving the banking system altogether or being moved to larger institutions, and there are still multiple banks being highly scrutinised and likely to hit the headlines and market sentiment at any time.

On the Fedspeak, we heard from Neel Kashkari over the weekend. While being normally one of the most hawkish voices in the FOMC, he sounded quite alarmed about the risks of a credit crunch hitting the economy and generating a deeper economic slump. In a week without much exciting data in the US – consumer confidence and PCE are the only highlights – Fed speakers will be in focus.

From an FX perspective, the resurgence in banking stress in Europe forces some softening of our bearish dollar view for the moment, at least until we can get more clarity on the stability of the EU banking sector. Still, we continue to see the Fed as mostly carrying downside risks for the greenback, as the lack of clear communication leaves the door open for dovish speculation as the US regional crisis remains unresolved and is keeping the monetary policy outlook in the US in stark contrast (for now) to that of most European central banks. On balance, we see more balanced risks for DXY this week, but volatility may remain elevated, and if anything our preference remains for a higher EUR/USD.

EUR: Reassessing risks?

A jump in markets' perceived risk on Deutsche Bank and other European lenders last Friday brought financial stress back to Europe after a prolonged period of tentative calm as markets digested the fallout from the Credit Suisse takeover. Futures today point to a rebound in European equities, possibly suggesting last week's concerns may have been overdone. At the same time, we have learned how market conditions can change extremely rapidly in the current environment, and Friday's turmoil suggests that confidence among European bank bondholders is far from fully restored after the Credit Suisse saga.

While our general view favours a higher EUR/USD on the back of monetary policy divergence, last Friday brought a warning not to jump to the conclusion that this banking turmoil is turning into a US-only story – and therefore into a straight-line bullish EUR/USD. Still, a move to 1.10 in the coming weeks remains a very tangible possibility. For this week, re-testing 1.0900 would already be a very welcome sign for EUR/USD bulls.

Today's Ifo reading in Germany is the main highlight of the week until Friday's CPI flash estimates in the eurozone. In the meantime, the focus will be on the many European Central Bank speakers.

GBP: All eyes on Bailey

Domestic drivers for the pound are concentrated at the front this week. Today and tomorrow, we'll hear from Bank of England Governor Andrew Bailey, and his words will be weighed very carefully by markets given that the March BoE meeting did not include a press conference. He will speak today at a BoE event and testify tomorrow to the Parliament's Treasury Committee about the Silicon Valley Bank collapse. Markets are already pricing in another hike by the summer, so the bar for a hawkish surprise to lift GBP does seem relatively high. Our economists do not expect any more hikes.

With virtually nothing to highlight on the data side, GBP may be moved by Bailey's words but should rapidly default to being driven by external factors. Essentially, GBP/USD is a USD story and EUR/GBP is a EUR story. We still think cable can reach 1.2500 this quarter, and that the EUR looks marginally more attractive than GBP, and EUR/GBP should move back to 0.8900.

CEE: Hawks return to stage

For the first time since the recent global turmoil, attention returns to the region this week. Two new MPCs are scheduled to hold hearings today in Hungary's parliamentary economic committee. A meeting of the National Bank of Hungary is scheduled for the day after. In line with surveys, we expect rates to remain unchanged and central banks to maintain a hawkish tone, especially with the recent forint sell-off and weaker levels. In addition, Friday marks the end of the non-binding deadline for the approval of the legislative package to unlock some of the EU money. Thus, some headlines on this topic can be expected in the coming days. We expect the government to find an agreement with the European Commission (EC), but the EC's first reactions to Hungary's progress may be negative, bringing uncertainty to local markets.

The Czech National Bank (CNB) will meet on Wednesday, and we expect unchanged rates and a hawkish tone here as well. As in Hungary, weaker FX and still too high inflation do not allow the CNB to ease up on rhetoric despite dovish expectations priced in by the markets.

March inflation in Poland will be released on Friday and should show the first slowdown since the February peak. The market expects a drop from 18.4% to 16.1% however we expect a lower number around 15.5% year-on-year.

No doubt the FX market in the region will again be driven mainly by the global narrative. However, we should see some local stories as well. The main focus will be on the Hungarian forint, which may find it very hard to find its way between the possible dovish worldview of new MPCs, the hawkish NBH and the mixed headlines coming from the EU story. Moreover, the forint maintains the highest beta to global news, which may result in high volatility this week. We remain bullish on the forint and should head back below 380 EUR/HUF, however this week may bring more pain on the way lower. We see a much clearer picture for the Czech koruna, which should be supported by the CNB's hawkish tone. The market is currently pricing in a roughly 130bp rate cut by the end of the year and the CNB meeting should be a catalyst to reassess these expectations. If the global story allows it, we should see the koruna below 23.50 EUR/CZK.

Source: ING

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Samantha Luan

Forex

While US markets managed to close higher for the second week in succession, despite concerns about their smaller regional banks, European markets have struggled, and although the DAX and FTSE100 managed to close the week higher, drawing a line under 2 weeks of declines, concerns over the continent's banking sector have weighed on sentiment overall, with a big sell-off on Friday.

Having started last week in a positive fashion after the news that UBS had stepped in to bail out Credit Suisse sentiment took a turn for the worst in the wake of last week's rate hikes from the Federal Reserve and Bank of England and further hawkish noises from the European Central Bank.

In particular, the banking sector took another leg lower, with the Euro Stoxx Banks index closing lower for the 3rd week in succession with the likes of Deutsche Bank getting hit particularly hard.

It's not immediately clear what set off this latest set of jitters, although the cost of insuring banks' AT1 debt has increased since the events of the previous weekend. This increase in costs might have something to do with the recent weakness, as well as perhaps some portfolio lightening when it comes to investor exposure to European banks more broadly.

The recent rally off the lows of September/October last year has seen these banks put in some strong gains on the back of an improved economic outlook for the European economy as energy prices declined to levels last seen before the Russian invasion of Ukraine.

The problems at Credit Suisse have undermined that positive narrative and with ECB President Christine Lagarde insisting that there is no trade-off between financial stability and price stability, there are increasing concerns the ECB could be on the cusp of another policy mistake, which could make things worse, a la 2008.

Having realised way too late that inflation was not transitory and starting to raise rates too late, they appear to be on the cusp of another mistake by tightening too aggressively, in the face of an economic slowdown.

Lagarde's comments last week that there is no trade-off between financial stability and price stability come across as naïve in the extreme, as there is always a trade-off between the two, and bond markets are pricing that already, with the sharp drop in yields that we've seen in the past few days.

As we look to start a new week there is no question that investors and markets, in general, are much more concerned about the health of the banks than they were a few weeks ago, with the big question now being what happens next, given that the capacity of central banks to ride to the rescue this time is limited by still high levels of inflation. These concerns about further tightening are set to get another test at the end of this week, with the latest flash CPI numbers for March from Germany and the EU, with a particular focus on core CPI

Banks are already retrenching when it comes to lending, while consumers squeezed by higher interest rates will be reluctant to take on new borrowing, which is likely to impact on the prospects for the global economy over the next few months.

As we look ahead to a new week as well as the end of the month and the end of the quarter, what was at one point set to be a positive start to 2023, could well turn out to be anything but, with all of the optimism of January and February, being replaced by concerns over financial and economic stability.

Today we'll get to see how the recent turmoil of the last few weeks has affected German business confidence for March with the latest IFO survey which could see a slowdown from the pickup we saw in February.

We also have the latest CBI retail sales numbers for March which could continue to reflect the improvement we've started to see in consumer sentiment since the end of last year.

EUR/USD – failure last week at 1.0930 area saw the euro slip back as it continues to trade sideways finding support at the 50-day SMA. Could see further weakness in the coming days towards the 1.0620 area.

GBP/USD – failed above the 1.2300 area last week slipping back from the 1.2343 level. The pound continues to feel vulnerable to slipping back while below the highs for this year at 1.2447. We currently have support at the 1.2170 area, and below that at 1.2020.

EUR/GBP – ran out of steam at the 0.8865 area last week, but still has trend line resistance at the 0.8900 level. Also have strong trend line support at 0.8720, from the lows last August. Support also at 0.8780.

USD/JPY – slipped back to the 129.65 area last week, before rebounding strongly. Friday's rebound could see a test of resistance currently at the 131.80 area.

Source: CMC

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Owen Li

Commodity

Twenty years ago last week, US tanks rolled across the Iraqi border. And nearly to the day, Saudi Arabia and Iran signed a Chinese-mediated deal to restore diplomatic ties. During those two decades, America's unipolar moment faded, it achieved its longed-for "energy dominance", but that dominance is nowhere less apparent than in the Middle East.

The motivations for the 2003 American invasion have been deeply debated, and varied between proponents and depending on the audience. Unlike Saddam Hussein's earlier seizure of Kuwait, it was not a "war for oil".

Certainly, Iraq's military and economic power depended on its petroleum, and it had earlier threatened to dominate the hydrocarbon-rich Arabian Gulf with its invasions of revolutionary Iran and then its smaller GCC neighbour. A stable, pro-American Baghdad might indeed help assure the US's dominance over this critical area.

Various figures in the Bush administration had hopes that a post-invasion Iraq might be detached from OPEC, that they could privatise its petroleum industry, or that a flood of new Iraqi oil might bring down oil prices, which then seemed uncomfortably high at around $30 per barrel.

Richard Perle, a leading neo-conservative advocate for the war and an influential defence official at the time, said in July 2002: "Iraq is a very wealthy country. Enormous oil reserves. They can finance, largely finance the reconstruction of their own country."

The White House press secretary, secretary of defence Donald Rumsfeld, deputy secretary of defence Paul Wolfowitz and others made similar comments.

But the US did not seize Iraqi oil for its own use or determine who should have access to it and who should be denied.

Indeed, ex-president Donald Trump repeatedly complained that the US should have done so, saying in 2011, "In the old days, when you had a war, to the victors belong the spoils. You go in. You win the war and you take it", and repeating that theme numerous times in 2016, 2018 and, regarding Syrian oil, 2019.

Instead, the occupation authorities were remarkably lackadaisical about rebuilding the Iraqi petroleum industry, in the middle of an insurgency, a civil war and the takeover of the oil hub Basra by the Mahdi Army militia.

Two decades of war, sanctions and brain drain had devastated the sector. Outside the semi-autonomous Kurdistan region, Iraqi nationalism won out over American free-market ideology and there was no significant foreign investment. As late as 2010, output was below 2001 levels.

Why America's 'Energy Dominance' Waned in The Middle East_1

That failure contributed to the remarkable global oil price surge up to the middle of 2008, which was supercharged by China's runaway economic growth.

When the 2008-2009 financial crisis caused prices to crash, the Iraqi government finally offered its major fields to international oil companies in competitive bids. The winners were a fairly balanced mix of Americans, Japanese, Europeans, Malaysians, South Koreans, Russians, Chinese and others.

Far from plundering Iraq's resources as the western left alleged, these companies ended up with extremely harsh contracts that left them with just one or two dollars per barrel profit and low or negative returns on capital after shouldering long bureaucratic delays, late payments and lack of required infrastructure.

The last American corporation, ExxonMobil, is in a protracted process of withdrawal; Equinor (then Statoil), Occidental and Shell left the oil sector years ago, though Shell hangs on in gas. Russia's Lukoil has repeatedly threatened to go. Chinese companies secured most of the spare stakes.

Last month, Baghdad finally signed six exploration and field development contracts that had been in limbo since its 2018 bid round; three went to Sharjah-based Crescent Petroleum and the other three to Chinese firms.

The Iraqis have grown concerned that China is too dominant in their oil business — Chinese service and engineering companies also play a big role, including operating the giant Majnoon field on the border with Iran, after Shell withdrew.

Nevertheless, they have not improved their terms enough to entice new entrants and the painful experience of France's TotalEnergies in exhaustive negotiations for an oil, gas, power and water package deal will deter others.

Iran, now a major gas and electricity provider to Iraq, also plays an important, usually negative, behind-the-scenes role in the energy sector.

The Kurdistan region's claim to an independent oil sector appeared as a relative success, but it emerged out of the hasty, messy constitutional compromises of 2005.

On Saturday, Turkey ceased pumping oil from Kurdistan through its territory, in deference to a Paris arbitral tribunal's finding in favour of Baghdad. This is a potentially devastating blow to the generally western-aligned government in Erbil.

The US ended up playing the role it had hoped Iraq might. Its surge of shale oil production brought down prices sharply from 2014 and gave the Obama administration the confidence to impose stringent sanctions on Iran's oil exports.

OPEC realised it could not tackle both shale and Russia together. It brought Moscow into the OPEC+ alliance in 2016.

The US has stepped up as a critical provider of oil and gas to Europe following Vladimir Putin's invasion of Ukraine.

But Washington's moment of "energy dominance" may have been fleeting, as its shale oil expansion runs out of steam.

President Biden visited Saudi Arabia in July hoping for more OPEC output to compensate for losses from Russia.

Instead, the organisation consulted its own interests and cut output in November, apparently wisely given the recent sharp price drops.

American commentators from right to left welcomed the idea that shale would free the US from dependence on the Middle East.

But that goes both ways.

Now the largest importer from, and exporter to Iraq, Iran and Saudi Arabia, is Beijing, not Washington. Then China was able to mediate the restoration of Riyadh-Tehran relations.

If and when it wants, China will be able to call the shots in Baghdad too.

Source: The National News

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Devin

Commodity

The European Union has unveiled the accelerator in its drive to reduce the bloc's import dependency for critical minerals and metals.

The Critical Raw Materials Act (CRMA) "will significantly improve" Europe's domestic extraction, processing and recycling capacity for metals such as lithium and rare earths, according to Ursula von der Leyen, president of the European Commission.

The Act comes with targets for production and for reducing dependency on any single third country. China currently dominates the supply chain for many of the entries on Europe's list of "strategic" metals.

The EU is also playing catch-up with the United States, which is already investing heavily in critical metals capacity under the aegis of the Defense Production Act and the Inflation Reduction Act.

Europe may, however, have given itself a competitive edge by moving to streamline project permitting, a tortuous process that often drags on for years before the first shovel hits the ground.

(Moving) Targets

The CRMA covers a subset of the EU's critical minerals list, with particular focus on battery metals like lithium, nickel, cobalt and manganese and magnet inputs such as boron and rare earths.

Copper is on the list as an enabler of all things electric but aluminium and zinc aren't, which is a striking omission given the recent shrinkage of European production capacity.

Germany's Speira has joined the list of casualties, this month announcing the full closure of its Rheinwerk aluminium smelter due to high energy costs.

"Today's strategic raw materials list must not be the finished picture," warned Evangelos Mytilineos, president of industry group Eurometaux.

It probably won't be. The CRMA includes a provision for periodically updating the list to reflect evolving economic importance and supply risks across the critical metals spectrum.

For those metals on the list the target is for the region to mine 10%, process 40% and recycle 15% of what it consumes annually by 2030. By which time not more than 65% of any strategic metal's consumption will be able to come from a single third country.

These are ambitious targets given Europe currently sources 97% of its magnesium in China, which also has a complete monopoly on the processing of heavy rare earths and graphite.

Europe's lithium extraction can in theory meet the 10% target but it hinges on multiple new projects, many of them using innovative technology.

Recycling lithium-ion batteries is also a technical challenge that has to be resolved at scale to meet the 15% recycling target.

Permitting

In terms of maximising domestic mining and processing capacity, Europe is following the United States in instructing all national governments to go back and look at what may have been left behind in tailings ponds and historic mine sites.

Operators of existing mines and plants should prepare an economic assessment study of what they're losing in "waste" streams. It's a policy that has already significantly closed the U.S. dependency gap for tellurium and scandium.

However, Europe has overtaken the United States in one key area, aiming to streamline the permitting of "strategic" projects to ensure a maximum time-line of two years for mines and one year for processing plants.

All such projects should be considered as being "in the public interest" by the relevant national authority when considering environmental impact.

The U.S. Administration has come under fire for using the Inflation Reduction Act to incentivise domestic mining while simultaneously blocking development of mines on federal land. The green-on-green environmental clashes seem set to continue until there is a long-overdue rewrite of the General Mining Act of 1872.

Collective Buying and Stockpiles

Many strategic metals markets are opaque, not easily financially hedged and concentrated on the supply side, according to the CRMA. All of which "increases the negotiating power of sellers and increase prices for buyers".

It calls for the Commission to set up a system for collective purchasing by interested buyers, a mechanism already trialled in the gas market.

It also recommends the accumulation of strategic metal stocks to buffer against unexpected supply disruptions. Europe has no strategic metal inventory, unlike the United States, China and South Korea.

Member states may have their own stockpiles and "as a first step and considering the lack of relevant information", the 27 countries in the bloc should report to the Commission what, if anything, they are holding.

Given such a humble starting point, it seems unlikely EU strategic metal reserves are going to come any time soon, if they come at all.

Metallic Arms Race

The EU accepts it will never be fully self-sufficient in most if any of the metals it's identified as being critical to its industrial and defence sectors.

The CRMA advocates diversifying supply in favour of "reliable partners" and creating "mutually beneficial partnerships with emerging market and developing economies".

It represents a further tectonic decoupling of global supply chains.

What started as a response to China's dominance of critical metals supply has been accelerated by Russia's invasion of Ukraine.

Russia has historically been a major supplier of aluminium, copper and nickel to Europe's industrial sector to the extent that the EU has to date held back from sanctioning Russian material even as the United States imposes penal import duties.

But the metals world is clearly starting to split between West and the East.

It's a messy process, witness the dispute between the EU and the United States over the exclusion of European products from the electric vehicle subsidies introduced in the Inflation Reduction Act.

That particular hurdle may shortly be cleared, German newspaper Handlesblatt reporting that a draft agreement has been reached.

It is evidently in neither side's interest to compete with each other in the context of reducing resource ties with China and Russia.

Assuming future trans-Atlantic harmony can be achieved, something akin to a metallic NATO will start to take ever clearer shape.

Source: Mining

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Cohen

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Energy - Speculators cut further longs

Despite the weakness in the oil market towards the end of last week, ICE Brent still managed to settle almost 2.8% higher WoW and more importantly, hold above US$70/bbl in the recent sell-off. Price action in early morning trading today is looking more positive with both Brent and WTI trading stronger.

It shouldn't come as too much of a surprise that positioning data shows that speculators once again cut their net long in ICE Brent significantly. The managed money net long fell by 63,459 lots over the last reporting week to 169,925 lots as of last Tuesday. This reduction was driven largely by longs liquidating (42,880 lots), but there was also a fair amount of fresh shorts added (20,579 lots). The latest data show that most of the gross longs that we saw added over January and February have now been closed out. Given the more neutral spec positioning, this leaves speculators with quite a bit of room to push the market higher. Although, obviously for that, we will need to see a change in sentiment and an easing in concern over recent developments in the banking sector.

There are reports that Nigeria is finding it difficult to find buyers for its April loadings of crude oil. Bloomberg reports that somewhere between 20-25 shipments are still unsold for the month. This comes at a time when strike action in France (which is a relatively large buyer of Nigerian crude) has led to refiners reducing runs, which obviously weighs on crude oil demand. In addition, some seasonal maintenance is ongoing at several European refiners, which will not be helping matters.

EU energy ministers are set to meet this Tuesday to discuss a number of topics, including natural gas demand reductions. The 15% voluntary demand reduction agreed upon last year, is set to expire at the end of March. The current proposal sees the 15% voluntary demand cut extended through until March 2024. Our balance suggests that from April 2023 through to March 2024, the EU will only need to see around a 10% demand cut to ensure a comfortable supply/demand picture for the region.

Metals – LME aluminium on-warrant stocks decline

LME on-warrant aluminium stockpiles fell by 4,825 tonnes for a fifth consecutive day to 426,975 tonnes on Friday, the biggest fall since 10 March. Most of the outflows were reported from warehouses in Asia. Net outflows for the week totalled 10,925 tonnes as of last week compared to the inflows of 10,825 tonnes a week earlier. Meanwhile, exchange inventories declined for the fifth straight session, falling by 6,625 tonnes to 532,725 tonnes at the end of last week.

Data from the Shanghai Futures Exchange (ShFE) shows that weekly exchange inventories for aluminium declined by 18,170 tonnes to 293,291 tonnes as of Friday. This was the first weekly decline in stocks since December. Among other metals, copper stocks fell 11.6% WoW to 161,152 tonnes, whilst lead inventories fell 25% WoW to 37,537 tonnes.

The latest reports suggest that operations at the Las Bambas copper mine in Peru are back to normal, as MMG Ltd. confirmed over the weekend that 'the mining processing and transport of concentrate is back to full capacity' following the end of roadblocks by community protestors.

Chinese refined nickel net imports have slumped to near a record low after domestic producers ramped up production levels. Data from Chinese Customs shows that net imports of refined nickel fell 85% MoM (lowest since October 2019) in February. The latest forecast from Mysteel shows that domestic refined nickel output may rise 39% YoY to 245.9kt in 2023 as smelters process Indonesian intermediate products and recycled material.

The LME will resume Asian trading hours for its nickel contract from today. The LME will be hoping that this leads to a boost in volumes and helps to improve liquidity. Asian trading hours for the LME nickel contract were suspended last year following the significant short squeeze seen in the market in March last year.

Agriculture– Ivory Coast cocoa shipments slow

The latest reports from the International Cocoa Organization (ICO) show that cocoa exports from the top producer, Ivory Coast, stood at 540kt between October 2022 to January 2023, down 9.3% YoY. Total arrivals of beans at ports in the Ivory Coast for the season (as of 19th March) were 1.75mt, down from 1.82mt from the same period last year.

The latest CFTC data shows that money managers reduced their net bearish bets in CBOT wheat by 8,757 lots over the last week to 86,500 lots as of 21 March. The move was predominantly driven by short covering. Similarly, the speculative net short in CBOT corn decreased by 12,238 lots to 41,896 lots, while for soybeans, speculators reduced their net longs by 16,875 lots, leaving them with a net long position of 110,786 lots.

Source: ING

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Samantha Luan

Economic

Asia's economic data and policy calendar this week is light, which is perhaps just as well because investors' focus is firmly fixed elsewhere - the global banking crisis and what it means for growth, markets, and policy.

Some may balk at recent events being termed a 'crisis', but consider: two of America's top 25 banks have collapsed; a global giant, Credit Suisse, has been swallowed up; worries over another, Deutsche Bank, are mounting; the Fed has taken emergency steps and provided backstops worth hundreds of billions of dollars.

Fears over deteriorating credit conditions are rising, despite the swift and bold action from U.S. and Swiss authorities. Fed and European Central Bank officials raised the warning flags on Sunday, echoing soundings from across the private sector last week.

This is the precarious backdrop to the final week of the quarter. The turmoil and volatility across interest rates and fixed-income markets since Silicon Valley Bank was shuttered by California regulators on March 10 has been severe.

Asia will not be immune. If safe-haven buying and rising demand for dollar liquidity and collateral pushes up the dollar, economies in the region will be under pressure.

Weakening domestic exchange rates push up price pressures, forcing central banks into a corner - tighten policy when growth is slowing, or allow inflation to rise? A stronger dollar also, all else equal, tightens financial conditions.

Currency market volatility has been surprisingly subdued since the banking crisis flared up. Maybe that is about to change.

Bank stocks have tumbled but stocks in general, and particularly the interest rate-sensitive tech sector, have held up better. More speculative corners of the investment universe, like Bitcoin and cryptocurrencies, have significantly outperformed.

The Nasdaq is up two weeks in a row, and still up 3% for the month, while Bitcoin is up 35% since SVB collapsed.

How much longer can they defy gravity? If bond yields and implied rates are plunging because a looming credit crunch makes recession far more likely, risk appetite is likely to change accordingly.

Perhaps the Fed and other central banks can achieve the holy grail of a soft landing, and take the seemingly contradictory policy steps of promoting financial stability and tackling inflation without any further ructions in the financial system.

Perhaps.

Trade figures from Hong Kong and Thailand are the main Asian data points on Monday. Later in the week Vietnamese GDP, a Thai interest rate decision, Japanese retail sales and unemployment are on the docket, while the preliminary PMIs for March across the continent - including China - start filtering in.

Here are three key developments that could provide more direction to markets on Monday:

- Germany Ifo index (March)

- ECB's Schnabel speaks

- BoE Governor Andrew Bailey peaks