Morning Market Wrap
Overnight Markets:
The overnight cash markets ended with a mix of performances:
- Nas: +0.27%
- Dow: -0.48%
- SPX: -0.15%
During the session, the benchmark US 10-year yields displayed considerable volatility, initially seeing some selling pressure before bouncing back to close almost flat at 4.1062%. This stability in yields seems to be influencing equities. The US cash session has been on a decent run lately, so the cautious stance ahead of the Non-Farm Payrolls (NFP) and Unemployment data release (Sydney time) is rational.
Metals and Macro:
In line with equities, precious metals (PMs) exhibited a similar trend, appearing to be capped in their upward movement. It's worth noting that silver's outperformance compared to gold's hesitance is interesting and makes it potentially more susceptible to downside movement if any factors were to disrupt the progress. It's also interesting to observe that despite the recent decrease in yields and weakening USD, gold's performance has been somewhat subdued, contrary to mainstream expectations. While gold is not intrinsically tied to pure "risk on" sentiment, the present market dynamics of risk on/off, yields, and USD make gold's behavior somewhat puzzling. This might lead some to consider the idea of investing in Gold and Silver equities for a combined beta move in equities while also gaining exposure to PMs. However, this is a mere suggestion and not financial advice.
Base metals seem to be following a similar pattern to gold. Given the risk-on/risk-off and yield dynamics, if yields are indeed dropping due to economic slowdown (signifying no more rate hikes), then demand for base metals might also be diminishing. This sentiment appears to align with last night's performance of the base metals basket, where Ni, Cu, and Al struggled, closing -1.36%, -0.42%, and flat respectively. LME 3-month Tin also rolled down 1.22%.
Energy and Battery:
In the energy sector, both Natty Gas and Coal (NEWC) saw limited activity overnight, ending at -0.22% and +0.32% respectively. Market participants are closely monitoring the upcoming EU and North American winter demand, which many expect. This anticipation suggests that any market movement resulting from these expectations might be short-lived. The oil market experienced a robust upswing last night, with the WTI Oct contract gaining +2.3%. This climb is attributed to ongoing output cuts by OPEC until year-end, which naturally bolsters prices. One might wonder whether OPEC will attempt to leverage US government purchases, given the need for the US to replenish its reserves. However, from an inflation standpoint, higher oil prices are counterproductive, as they contribute to inflationary pressures. Hence, while higher oil prices might bolster oil-exporting nations' economies, they might exacerbate global inflation concerns.
Iron ore continued its Asian session push, surpassing recent highs before experiencing a sell-off into the close, ultimately finishing the session with a +0.24% gain at $116.22 USD/t. FMG's historical discount to these prices could usually attract attention, but the news of the CFO's resignation raises concerns about the company's operations moving forward. It would be advantageous for FMG to capitalize on these unexpectedly high iron ore prices.
Today's FM daily and weekly prints reveal lower pricing across the board:
Weekly:
- Hydroxide down -7.14% and closing below 200,000 at 195,000.
- Carbonate down -8%, printing 205,000.
- Hydroxide -3.23%
- Carbonate -3.28%
Lithium Futures Prices remain around lows, with Wuxi Futures closing at 200CNY/kg and GZ Futures recovering to flat on the Asian session after experiencing a decline of up to -2.7%, still trading at a discount to Wuxi at 186,850CNY/t. US and China Lithium equities, which had seen unexplained positive flows across the sector two days ago, are now retracing, possibly turning to market proxies. Among these, ALB stands out, maintaining recent highs, while its peers trend downward.
Local Markets:
Australian futures indicate a negative open of -38pts or -0.52%. Our market's underperformance relative to the US can be attributed to its substantial exposure to mining names. Not much notable occurred during yesterday's session, and the ongoing trend has been for negative opens followed by a grind throughout the session. It's prudent to be prepared for a similar pattern today.
Data (Sydney Time):
At 9am, Australia will release its final PMI figures, followed by China's Final Manufacturing PMIs at 11:45am, which could potentially impact markets if they vary from expectations. The next 24 hours will center on Tier 1 Data, namely the FOMC and Unemployment figures from the US tonight. These numbers carry significant weight, as they could solidify the narrative of a pause in the Fed's actions going forward. Currently, there's an 89% probability of no change priced into the next Fed meeting on September 28th. This substantial expectation will significantly influence the market's outlook leading up to that meeting.
That concludes today's report. Have a great day!