Market Talk – July 6, 2023

ASIA:

Goldman Sachs has stated that Western countries may need over $25 billion in investments to match China’s supply of rare earths. The concern arises from Beijing’s export restrictions on minor metals, leading to fears that rare earths could be the next target. Currently, China accounts for 90% of global refined output of rare earths, and Europe and the U.S. are eager to reduce their dependence on Chinese supply. China’s recent decision to impose export restrictions on two minor metals used in semiconductors and electric vehicles has further intensified concerns about the availability of rare earths. China dominates the production of neodymium and praseodymium (NdPr), with over 70% of global mining and over 90% of downstream metal and magnet production. This year, China’s NdPr output is expected to reach around 50,000 tons, up from 34,000 tons in 2021. As a result, the market has moved into surplus, prompting Goldman Sachs to lower price forecasts for NdPr. According to the bank’s estimates, it would cost the West between $15 billion and $30 billion to replicate China’s annual output of 50,000 tons of ND PR.

The major Asian stock markets had a mixed day today:

• NIKKEI 225 decreased 565.68 points or -1.70% to 32,773.02
• Shanghai decreased 17.37 points or -0.54% to 3,205.57
• Hang Seng decreased 577.33 points or -3.02% to 18,533.05
• ASX 200 decreased 89.80 points or -1.24% to 7,163.40
• Kospi decreased 22.71 points or -0.88% to 2,556.29
• SENSEX increased 339.60 points or 0.52% to 65,785.64
• Nifty50 increased 98.80 points or 0.51% to 19,497.30

The major Asian currency markets had a mixed day today:

• AUDUSD decreased 0.00314 or -0.47% to 0.66226
• NZDUSD decreased 0.00249 or -0.40% to 0.61531
• USDJPY decreased 0.538 or -0.37% to 144.102
• USDCNY increased 0.0011 or 0.02% to 7.26200

Precious Metals:

• Gold decreased 7.28 USD/t oz. or -0.38% to 1,910.04
• Silver decreased 0.402 USD/t. oz or -1.74% to 22.703

Some economic news from last night:

Australia:

Trade Balance (May) increased from 10.454B to 11.791B

No economic news from today:

EUROPE/EMEA:

Financial markets are predicting that the Bank of England (BoE) will raise interest rates to 6.5%, which would be the highest level in 25 years, early next year. This expectation has led to an increase in the yield on short-dated government bonds to levels not seen since mid-2008. Rate futures indicate a 2 in 3 chance that the BoE will raise rates to 6.5% or higher by its February 2024 meeting. The BoE recently raised rates by 0.5% due to concerns about persistent inflation. A survey conducted by the BoE showed mixed signals regarding inflation. While businesses’ plans to raise prices were at their lowest in 15 months, expectations for consumer price inflation in the medium term reached a five-month high of 3.7%, above the BoE’s 2% target. Yields on 10-year, 5-year, and 2-year government bonds increased, reaching their highest levels since 2008, reflecting market anticipation of higher interest rates. Gilts underperformed compared to U.S. and German government bonds, resulting in wider spreads versus Bunds.

The major Europe stock markets had a negative day today:

• CAC 40 decreased 228.52 points or -3.13% to 7,082.29
• FTSE 100 decreased 161.60 points or -2.17% to 7,280.50
• DAX 30 decreased 409.04 points or -2.57% to 15,528.54

The major Europe currency markets had a mixed day today:

• EURUSD increased 0.00237 or 0.22% to 1.08747
• GBPUSD increased 0.00257 or 0.20% to 1.27297
• USDCHF decreased 0.00246 or -0.27% to 0.89624

Some economic news from Europe today:

UK:

Construction PMI (Jun) decreased from 51.6 to 48.9

Germany:

German Factory Orders (MoM) (May) increased from 0.2% to 6.4%

Euro Zone:

Retail Sales (MoM) (May) remain the same at 0.00%

US/AMERICAS:

According to the ADP National Employment Report, private sector employment in the US increased by 497,000 jobs in June 2023, beating the Dow Jones estimate of 180,000. The report also noted that the distribution of job gains was “fragmented” as increases were concentrated in just a few industries, including leisure and hospitality, which added 208,000 positions, and natural resources and mining, which saw a gain of 94,000. Construction added 64,000 jobs, but multiple other categories had declines. From a size perspective, companies with 500 or more employees added 106,000 jobs, while those with fewer than 50 workers added 235,000. The ADP report also showed that pay growth is still strong but showing signs of decelerating. The report comes ahead of the more closely watched non-farm payrolls report from the US Labor Department, which is expected to be released on July 8, 2023.

US Market Closings:

• Dow declined 366.38 points or -1.07% to 33,922.26
• S&P 500 declined 35.23 points or -0.79% to 4,411.59
• Nasdaq declined 112.61 points or -0.82% to 13,679.04
• Russell 2000 declined 30.67 points or -1.64% to 1,842.23

Canada Market Closings:

• TSX Composite declined 293.2 points or -1.46% to 19,810.69
• TSX 60 declined 18.67 points or -1.54% to 1,192.51

Brazil Market Closing:

• Bovespa declined 2,123.51 points or -1.78% to 117,425.7

ENERGY:

The oil markets had a mixed day today:

• Crude Oil decreased 0.15 USD/BBL or -0.21% to 71.640
• Brent decreased 0.414 USD/BBL or -0.54% to 76.236
• Natural gas increased 0.0142 USD/MMBtu or 0.53% to 2.6712
• Gasoline increased 0.0245 USD/GAL or 0.97% to 2.5428
• Heating oil decreased 0.0048 USD/GAL or -0.19% to 2.4885

The above data was collected around 13:11 EST on Thursday

• Top commodity gainers: HRC Steel (3.24%), Oat (2.27%), Corn (2.86%) and Coffee (1.88%)
• Top commodity losers: Soybeans (-1.89%), Wheat (-2.16%), Coal (-3.31%) and Silver (-1.74%)

The above data was collected around 13:17 EST Thursday.

BONDS:

Japan 0.410% (+2.9bp), US 2’s 5.04% (+0.084%), US 10’s 4.0572% (+11.22bps); US 30’s 4.01% (+0.064%), Bunds 2.627% (+14.8bp), France 3.187% (+16.2bp), Italy 4.382% (+21.3bp), Turkey 16.28% (+20bp), Greece 4.046% (+26.7bp), Portugal 3.381% (+17.3bp); Spain 3.698% (+16.6bp) and UK Gilts 4.655% (+15.9bp).