Data released yesterday by the U.S. Department of Labor showed that U.S. CPI rose 7.5 percent year-on-year in January, a 40-year high. As a result, expectations of fed rate hikes have strengthened, with U.S. 10-year Treasury yields rising to 2 percent, the highest since August 2019. On Thursday, all three major U.S. stock indexes closed lower.
Russia's Kremlin envoy said the quadripartite peace talks on Thursday lasted nearly nine hours without any visible results. After the peace talks, it remains unclear how Ukraine views the situation in the Donbass region.
According to CCTV news, Saudi Arabia issued a notice on the afternoon of the 10th local time that it would carry out air strikes against the Yemeni Houthi armed strongholds in the city of Sana'a, the capital of Yemen. In its announcement, the multinational coalition called on the Sana'a people to stay away from "sensitive military locations" to avoid unnecessary casualties.
U.S. inflation hit another 40-year high, and expectations of a Fed rate hike have risen
On February 10, local time, data released by the U.S. Department of Labor showed that the U.S. Consumer Price Index (CPI) rose 7.5% year-on-year in January due to strong consumer demand and supply shortages related to the epidemic, reaching the highest since February 1982.
Economists say that means U.S. inflation is above 5 percent for the eighth consecutive month, which would pose a challenge to the Fed, which has been trying to slow price increases without dampening growth.
James Knightley, chief international economist at ING, said: "This is not good news for the Fed to fight for inflation to return to its 2% target. Rising inflation will do little to address supply chain tensions and worker shortages, but they may help de-energize the economy and allow demand and supply to begin to move toward a better balance at the cost of weak growth. ”
Expectations for a Fed rate hike rose further after the release of the U.S. CPI, which continued to hit its highest growth rate in nearly four decades, which continued to beat expectations.
According to CME "Fed Observation", the probability of the Fed maintaining interest rates in the 0%-0.25% range in March is 0%, the probability of raising rates by 25 basis points is 5.3%, and the probability of raising rates by 50 basis points is 94.7%; the probability of maintaining interest rates in the 0%-0.25% range in May is 0%, the probability of raising interest rates by 25 basis points is 0%, the probability of raising rates by 50 basis points is 4.1%, the probability of raising rates by 75 basis points is 75.2%, and the probability of raising rates by 100 basis points is 20.6%.
Current currency market pricing shows that the market expects the Fed to raise interest rates by a cumulative 100 basis points over the next three meetings. On February 10, EST, the swap rate market once expected that the policy rate federal funds target rate could rise to 1.12% after the June Fed meeting, more than 100 basis points higher than the current effective rate of 0.08%.
That means the Fed could have to raise rates by 50 basis points at one of its meetings in March, May and June, twice as much as the 25 basis points it would normally raise rates, and that would be the first time since 2000 that a meeting decided to raise rates by 50 basis points. If the Fed adheres to the pace of raising rates by 25 basis points at a time, it will have to meet temporarily and urgently in the first half of the year to add a 25 basis point rate hike in addition to the existing fixed schedule.
While market traders are now leaning towards a 50 basis point hike by the Fed in March, the current market pricing is almost entirely reflective of a 50 basis point hike in March. Notably, the U.S. 10-year Treasury yield rose to 2 percent on Thursday, its highest since August 2019.
On Thursday, St. Louis Fed President James Bullard said he supported raising interest rates by a full percentage point in early July, including a 50 basis point hike for the first time since 2000, to counter the hottest inflation in the United States in nearly four decades.
As the top Fed official with voting power at this year's FOMC meeting, Bullard stressed that the Fed's focus is on fighting inflation. His plans include spreading out interest rate hikes at three meetings and shrinking the Fed's balance sheet starting in the second quarter, followed by deciding on the interest rate path in the second half of the year based on the latest data. However, Bullard said there was no final decision on whether to raise rates by 50 basis points in March, saying that powell would be heeded in terms of the size of the hike.
Citi economist Andrew Hollenhorst wrote in a note that details of the core CPI in January showed inflation persisted around 6 percent and spread more broadly, rather than slowing down as the Fed predicted. "We now expect the Fed to raise rates by 50 basis points in March and then by 25 basis points four times in May, June, September and December (a total of 150 basis points in 2022)," he said. Three additional rate hikes are expected in 2023. He expects strong core inflation to continue in February and core PCE inflation to be above 3.5% in the fourth quarter, which is well above target for the Fed, which is median the Fed's December economic forecast at 2.7%.
Affected by the soaring expectations of interest rate hikes after the US inflation data broke the table, all three major US stock indexes closed lower on Thursday. The S&P 500 fell 83.10 points, or 1.81 percent, at 4504.08. The Dow Jones Industrial Average closed down 526.47 points, or 1.47 percent, at 35,241.59. The NASDAQ composite closed down 304.73 points, or 2.10 percent, at 14,185.64 points.
Head of Russia's Foreign Intelligence Agency: Ukraine is preparing for war
According to CCTV news, on February 10, Russia's foreign intelligence director Nareshkin told the media that Ukraine is preparing for war intensively and has made no secret of it. All of Ukraine's militant armed forces are already concentrated on the line of contact with Donbass, and hundreds of tons of military equipment and ammunition are being transported to Ukraine from U.S. military bases in Europe, from Britain and Canada. A team of advisers and instructors for NATO special forces is being formed. There was even news of the existence of multinational extremist teams.
Nareshkin said the Ukrainian Security Service and armed forces were prepared to provoke on the line of contact and intended to document it in the form of fabricating a Syrian "white helmet." The White Helmets are active in armed areas controlled by the Syrian opposition and have been questioned for falsifying videos and having links to terrorist groups. The number of "propaganda teams" in the Western media on the ground is also doubling.
Nareshkin pointed out that Western accusations against Russia for "invading" Ukraine are baseless. Russia did not have any plans for an "invasion" in the past and does not have, and everything that has happened around this issue is a well-planned provocation, which is a very dangerous and malicious lie. Russia is well aware of the driving force behind it and the means they use. Nareshkin stressed that war is not in the interests of the Russian and Ukrainian peoples and that in any case it will have heavy consequences.
The situation in eastern Ukraine has recently become more tense. The Ukrainian side said that Russia's concentration of troops in the Ukrainian-Russian border area poses a threat to Ukraine's security. The Russian side pointed out that the military forces of NATO countries and other forces are becoming more active in the Russian border areas, which forces the Russian side to remain vigilant, and Russia is taking necessary measures to ensure border security.
The Saudi-led multinational coalition will airstrike the Houthis in Sana'a, Yemen
According to CCTV news, Saudi Arabia issued a notice on the afternoon of the 10th local time that it would carry out air strikes against the Yemeni Houthi armed strongholds in the city of Sana'a, the capital of Yemen. The multinational coalition accused the Houthis of using these strongholds to launch drone strikes against Saudi Arabia, saying that "the Houthis' attacks on civilian targets show that they have chosen to escalate the situation."
In its announcement, the mn coalition also called on the Sana'a people to stay away from "sensitive military locations" to avoid unnecessary casualties. According to information released by the multinational coalition, the coalition has launched 18 air strikes in Yemen in the past 24 hours, destroying 12 Houthi strongholds in Yemen and killing and injuring "large" armed personnel.
Saudi Arabia led multinational coalition spokesman Turki Maliki confirmed to the outside world on the afternoon of the 10th local time that the multinational coalition shot down a drone carrying explosives on the same day, but the drone wreckage fell into Abha International Airport, causing 12 people to be injured, and the injured came from different countries.
OPEC Monthly Report: Oil demand is expected to rise with the economic rebound
On Thursday evening, Beijing time, OPEC released its monthly crude oil market report. OPEC maintained its 2022 global crude oil demand growth forecast at 4.2 million b/d and raised its 2022 OPEC crude oil demand forecast by 100,000 b/d. OPEC's monthly report said that oil demand is expected to rise as the economy rebounds.
The outlook for demand in OPEC's monthly report is more optimistic, and it expects industrial activity to also accelerate, thereby boosting diesel demand. At the same time, domestic, regional and international flights have shown signs of recovery, and liquidity has recovered significantly.
The recently released EIA short-term energy outlook report is also more optimistic, raising the average oil price expectations for this year and next year, and the average price of WTI crude oil and Brent crude oil is expected to be 79.35 US dollars / barrel and 82.87 US dollars / barrel in 2022, respectively, compared with the previous expectation of 71.32 US dollars / barrel and 74.95 US dollars / barrel. The EIA also raised its 2023 U.S. crude oil production forecast to 12.6 million b/d.
In terms of production, OPEC's latest monthly report said that second-hand data showed that OPEC crude oil production increased by 64,000 barrels per day to 27.98 million barrels per day in January, which was lower than the increase in production promised in the OPEC+ agreement.
Pessimism has been repaired, and the non-ferrous sector has strengthened across the board
Yesterday, pessimism was repaired, and non-ferrous metal prices strengthened across the board. Among them, international copper rose 4.06%, Shanghai copper rose 3.97%, Shanghai aluminum rose 2.13%, Shanghai zinc rose 2.36%, Shanghai nickel rose 2.23%, and lead, which had previously performed lower, also rose more than 2%. During the night session, the price of non-ferrous metals continued to rise.
Sun Kuangwen, director of all non-ferrous metals research and development at Xinhu Research, told reporters that Fed officials released a dovish signal, and U.S. stocks rose sharply, stimulating market risk appetite, while the domestic macro side also has expectations for further easing. In this context, the bullish sentiment in the market is high, pushing up the price of non-ferrous metals, with copper with strong macro financial properties in the front.
ECB President Christine Lagarde made unexpected hawkish remarks last week, saying it was a surprise that euro zone inflation rose in January, and that although inflation is expected to ease this year under the existing monetary policy plan, the ECB is ready to adjust all its instruments in a timely manner. The remarks have prompted investors to revise their monetary policy expectations for the ECB for 2022, shifting from dovish to hawkish. This week, however, some ECB officials expressed concern about inflation-forecasting models, arguing that existing models are difficult to predict rapidly changing consumer markets, prompting another turn in investor sentiment. South China Futures metals analyst Xia Yingying said.
In addition to macro optimism, Sun Kuangwen said that the basic face of low inventories is also supported by non-ferrous metal prices. Overall, in the state of supply recovery less than expected or even frequent disturbances and consumption maintaining a strong momentum, metal inventories fell to a historic low, the accumulation during the domestic Spring Festival was less than expected, and overseas inventories continued to decline.
"At present, although there have always been expectations of recovery growth on the supply side of non-ferrous metals, under the influence of the epidemic and energy supply shortages, the supply recovery is far less than expected. Specifically, the sharp rise in natural gas prices in Europe at the end of the year and the beginning of the year has caused electricity prices to soar, zinc and aluminum smelters have reduced production in the case of increased losses, and rising energy prices have also pushed up production costs. The epidemic continues to disrupt the production of nickel and tin in Southeast Asia, resulting in a lower than expected recovery of production. Recently, the domestic aluminum market has also been disrupted by the supply due to the local epidemic. Sun Kuangwen said.
From the consumer side, Sun Kuangwen said that non-ferrous metal consumption continues to perform strongly, although the epidemic situation in developed economies such as Europe and the United States is still severe, but the attitude of countries to the epidemic is obviously relaxed, and many countries have even lifted the epidemic prevention and control, which has boosted consumption, including metals; and the acceleration of new energy development has also provided new growth points for the consumption of copper, aluminum, nickel, tin and other metals. Overseas consumption continues to drive strong domestic exports, while the marginal relaxation of real estate policies has also stimulated the expectation of improvement in traditional consumption and stimulated the willingness to replenish the treasury.
Looking forward to the first quarter, Sun Kuangwen said that metal prices are expected to remain strong. However, we must also pay attention to the risk factors that affect the trend of the metal sector, among which it is worth paying attention to the changes in the domestic real estate market, and the negative impact of the long-term continuous downturn in the real estate market on the overall consumption is likely to be continuously magnified. There is also a need to pay attention to the COVID-19 pandemic, the impact of Fed policy on short-term metal prices, and the impact of geopolitical uncertainty and global climate anomalies on global energy supply.
In Xia Yingying's view, there may be a certain degree of differentiation within non-ferrous metals in the first quarter of this year. Specifically, the fundamentals of copper in the first quarter or showed a weak supply and demand pattern, and the pressure of the Fed to raise interest rates has always existed, which is also the main reason for the pressure on copper prices. The trend of nickel and aluminum may be relatively similar, and they have strong upward momentum, but the logic behind it is slightly different, the former is mainly driven by the exuberance of the demand side, and the latter is driven by the supply side and the continuous decline in inventories at home and abroad. Zinc is likely to maintain a volatile strong market.
Soda ash and glass rose strongly
Yesterday, soda ash and glass futures recorded sharp gains. As of the afternoon close, the main contract of soda ash futures rose 6% to close at 3125 yuan / ton; the main contract of glass futures rose 3.28% to close at 2359 yuan / ton.
Soda ash futures climbed strongly, and the main contract broke through the 3,000 yuan / ton mark and hit a new high in the near future. Zhang Linglu, an analyst of Everbright Futures Resources, told reporters that there has been no substantial change in the supply and demand level of soda ash period, and the current trend is mostly driven by emotions.
"From a fundamental point of view, the overall operating rate of the soda ash industry this week was 83.4%, down 0.8 percentage points week-on-week, and the weekly output was 561,600 tons, although the production level was high, but there was a slight decline recently." During the Spring Festival, due to the reduction of downstream orders, logistics suspension and other factors, inventories increased by about 180,000 tons this week. Although the accumulation of enterprises is a seasonal phenomenon, the accumulation of inventory this year is not as good as in the same period of previous years, which brings strong support to enterprise quotations. Zhang Linglu said that in addition, the number of raw material soda ash inventory days before the Spring Festival of downstream glass enterprises is about 40 days, but the procurement of raw materials so far in the Spring Festival is relatively small, the inventory of raw materials of glass enterprises has declined, and the market also has strong expectations for the replenishment of soda ash by glass enterprises in the future.
Zhang Linglu believes that on the whole, the recent soda ash spot market has not changed significantly, and the short-term soda ash disk will continue to maintain an upward trend, but the current soda ash fundamentals may be difficult to support the long-term and sustained sharp rise of the disk, and the recent fluctuations of coal, crude oil and natural gas will also have an impact on the price of soda ash.
Glass futures also recovered strongly yesterday, refreshing a 5-month high. Wei Chaoming, an analyst at Founder Medium-term Futures, told reporters that from the perspective of the glass spot market, the domestic float glass market transactions recovered rapidly after the holiday, and the price rose one after another, and the rally was strong. Before the holiday, the processing plant has less stock, most of the small and medium-sized processing plants have almost no stock, and some traders continue to replenish after the festival, and the production and marketing of the float factory quickly return to the state of volume, which promotes the price to strengthen. In the short term, the downstream processing plants will concentrate on the start of operation, the production and sales of float factories will continue to be in good condition, the price is still expected to rise further, and the long-term focus is on the changes in downstream orders.
"From the supply point of view, the national float glass production line totaled 304, 263 in production, the daily melting volume totaled 174375 tons, a decrease of 600 tons compared with the week before the festival, East Taitai Glass Special Glass Co., Ltd. 600T/D second line on January 28 released water cooling repair. On the demand side, after the holiday, the processing plants are concentrated in stockpiling, the traders continue to take the goods, and the production and sales of float factories in most areas quickly return to the state of volume. At present, the start of processing plants is still limited, and most processing plants will resume operation on February 10-15. Short-term market stocking demand can still be continued, focusing on changes in processing plant orders. In terms of inventory, in the first week after the Spring Festival, the total inventory of production enterprises in key monitoring provinces was 43.42 million weight boxes, an increase of 8.32 million weight boxes over the week before the festival, an increase of 23.70%. Wei Chaoming said.
In addition, Wei Chaoming said that the mainland real estate market is expected to turn from cold to warm, and the release of demand after the completion of housing in 2022 will also push up glass prices. According to the caliber inventory data of 13 provinces of Zhuo Chuang Information, the inventory increase during the Spring Festival in 2022 was 8.32 million heavy boxes, significantly lower than the 17.42 million heavy boxes increased in the same period of 2021 and the increase of 19.52 million heavy boxes in the same period of 2020.
Soybean meal and rapeseed meal have risen one after another, hitting a new high in recent years
After the holiday, the spot prices of soybean meal and rapeseed meal continued to rise. Yesterday, the main contract of soybean meal futures rose as high as 3843 yuan / ton, a new high in nearly 8 years, and rose 2.39% as of the afternoon close. The main rapeseed futures contract also hit a record high of 3489 yuan / ton in the intraday, and then fell back from the high before the afternoon close, but still rose 1.56%. During the night session, soybean meal and rapeseed meal futures continued to rise, and the main contracts both closed up more than 2%.
"Recently, the reasons for the successive rises in domestic soybean meal and rapeseed meal mainly include the following points: First, in the early morning of February 10, the USDA released a new monthly supply and demand report, which lowered Argentina's 2021/2022 soybean production forecast from the previous 46.5 million tons to 45 million tons (market expectations were 44.51 million tons) to Brazil 2021/ The 2022 soybean production forecast was lowered from the previous 139 million tons to 134 million tons (the market expectation was 133.65 million tons), the report confirmed the fact that South American soybean production was reduced, and global soybean production was reduced by 8.7 million tons from the previous month; second, the US soybean library sales ratio also fell slightly from 8.03% last month to 7.42%, and the global soybean supply pattern turned tight again from the previous loose expectations; third, some domestic oil mills were still on holiday, limited start-up, and meal spot pick-ups were tight, thus supporting prices. Chen Chen, a researcher of agricultural products at Sanli Futures, said.
Chen Chen told reporters that in this rise, in fact, it is not only the impact of South American supply concerns, but also the impact from the news. On February 9, the National Grain and Oil Information Center released the "Monthly Report on the Supply and Demand of the Oilseeds Market", predicting that the production of protein meal in the mainland in 2021/2022 will be 96.35 million tons, an increase of 70,000 tons year-on-year; the expected import volume will be 4.67 million tons, an increase of 290,000 tons year-on-year; the expected annual feed consumption of protein meal will be 97.23 million tons, an increase of 480,000 tons year-on-year; the expected export volume will be 1.04 million tons, a year-on-year decrease of 60,000 tons; and the annual protein meal supply and demand gap is expected to be 40,000 tons. The existence of the gap mentioned in the monthly report means that supply is tight, which has led to the price of soybean meal and rapeseed meal rising in the past two days and hitting a new high in recent years yesterday.
From the perspective of the future market, Chen Chen believes that the space for soybean meal and rapeseed meal to continue to rise this time is still limited, because before the release of the USDA report, some institutions have lowered their production forecasts, the supply of tight sentiment in the market has long been reflected, the current price of imported soybeans and soybean meal also fully reflects the fact of tight supply, and the benefits have been released in advance. Judging from the USDA supply and demand report in February, the soybean production data in Brazil and Argentina was lower than expected, and the data was more favorable but limited. On the domestic side, with the end of the Spring Festival holiday and the passing of the peak season for meal consumption, oil mills have begun to operate, crushing operations will also begin to rise, and the tight spot supply will gradually ease. In addition, the weather changes in South America that plague the market still exist, and if the precipitation situation improves, Argentine soybean production may still be adjusted upwards. Therefore, in general, the short-term high oscillation of soybean meal is strong, but the future market does not rule out the possibility of rushing higher and falling back.
This article originated from Futures Daily
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