Volatility in (precious) metals and some other commodities persists

KBC Market Research Desk KBC Bank

Markets

Global trading yesterday still lacked a clear (macro) storyline. US ADP private job growth disappointed slightly at 22k (from 47k). The US services ISM also failed to copy the strong upward surprise from the manufacturing measure published earlier this week. However, at 53.8 (unchanged) the index still suggests a decent growth momentum. The activity index at 57.4 was solid. Orders (53.1) and employment (50.3) slightly disappointed but don’t ring any alarm bells. Prices paid holds near recent levels at 66.6. Nothing to change the Fed’s wait-and-see assessment. US yields changed between -1.6 bps (2-y) and +2.4 bps (30-y ). While technically insignificant, curve steepening for now still looks the by default market bias in a context of tentatively higher global volatility/rising risk premia. In EMU, January inflation printed exactly as expected (-0.5% M/M and 1.7% Y/Y (from 2%). Core inflation eased slightly from 2.3% Y/Y to 2.2%. Services inflation slowed from 3.4% to 3.2%. The move confirms the expected drop due to (mainly energy-related) favourable base effects. However, it’s no reason yet for the ECB to profoundly change its policy assessment. German yields eased between 2-3 bps across the curve, but easily held between recent (rather tight) short-term ranges. On other markets, volatility in (precious) metals and some other commodities persists (silver and gold rebounded, but closed well off the intraday top levels) and might be a source/pointer for underlying market uncertainty. Similar story for equities with sector rotation out off some tech (and software) names back into more cyclical value stocks (Dow +0.53,; Nasdaq -1.51%). It didn’t bring a clear message for FX markets. DXY gained modestly (close 97.62), but this move mainly mirrors yen weakness (USD/JPY close 156.9). EUR/USD finished marginally softer at 1.1807.

Asian risk sentiment remains fragile this morning following yesterday’s tech correction in the US. Commodities/metals (gold, silver, copper) are ceding further ground. The dollar slightly outperforms (DXY 97.77, EUR/USD 1.1795, USD/JPY 157). A strong Japanese 30-y bond auction eased concerns going into this weekend’s parliamentary elections (30-y: -7.7 bps to 3.56 %). Later today, in the US some second tier labour market data (Challenger Job cuts, jobless claims and JOLTS job openings) will be published. Major surprises are probably needed to trigger a meaningful market reaction. The ECB at is first policy meeting of the year is widely expect to keep its policy rate unchanged at 2%. At the press conference, ECB Chair Lagarde probably will receive questions on whether the recent rebound of the euro might ease inflation more than assumed until now. We expect the Fed Chair to hold the stance that it won’t react to minor deviations from the expected (growth and inflation) path/forecast. Next to the ECB, also the BoE is expected to hold the policy rate unchanged (at 3.75%). New forecasts (downward revision for inflation?) but also comments on what the BoE sees as a neutral rate might shape market expectations on when and how many (1 or 2) rate cuts are still possible later this year. The EUR/GBP decline shows tentative signs of slowing. We also keep an eye at the policy meeting of the Czech National bank (expected unchanged at 3.5% , but with a lingering debate on a final fine-tuning rate cut). The decision will be preceded by January inflation data this morning.

News and views

The US administration yesterday hosted a critical minerals summit with 55 countries. Vice President JD Vance pitched the idea of a “preferential trade center for critical minerals protected from external disruptions”. The EU and the US committed to sign a Memorandum of Understanding to bolster supply-chain security. Similar agreements are set up with Japan and Mexico with the concept of coordinated price floors being openly discussed. Earlier this week, US President Trump announced plans for a nearly $12bn critical minerals stockpile. The heavy concentration of these minerals (China) is the main problem with the US fearing they could be used as a tool of leverage and geopolitics.

US President Trump raised the stakes for today’s diplomatic talks between the US and Iranian foreign minister Araghchi in Muscat, Oman. He warned that Iran’s leaders should be very worried. Talks center around Iran’s nuclear programme with the violent suppression of mass protests being put on a sidetrack. The US has been cumulating military assets in the region, having to down an Iranian drone earlier in the week. Oil prices trade volatile the past couple of days, but remain elevated at currently $68/b.

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KBC Market Research Desk

KBC Bank

KBC's Market Research Desk publishes a number of short-term reports.

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