Bulletins
MARKET COMMENTARY
LME copper traded in the range of $8210-$8629 in December. Although the trading volume was low in the last month of the year due to the holidays, the markets were active with the news that the coronavirus restrictions in China would be eased, the Fed's interest rate decision and the announcements made by the Fed authorities.
Markets started the month positively as the expectations that the epidemic restrictions in China will be eased and the economy will improve increased the risk appetite. The consumer price index, which was announced in the 49th week in China, increased by 1.6% in November, in line with the expectations.
LME copper started the 49th week with a rise, but fell to $8322 in the middle of the week due to the pressure of the strong dollar and concerns about global economic growth. It tested the level of $8618, the highest level it has seen since June 23. LME copper finished the week at $8485.5, up 0.16% on a week-on-week basis.
In the 50th week, US consumer prices were announced as 0.1% in November, below the expectations of 0.3% month-on-month. In addition, the Fed increased the policy rate by 50 basis points to the range of 4.25%-4.5%, and predicted that the target range for the policy rate would be above 5% in 2023. LME copper tested $8629, the highest level since June 23, finding support from the weakening of the dollar and the rise in expectations that interest rate hikes will slow the pace after the announcement of lower-than-expected US inflation. Copper prices finished the week down 2.51% at $8303, as concerns over an increase in COVID-19 cases in China and interest rate hikes by major central banks fueled fears of an economic slowdown.
In Week 51, markets extended losses after the Bank of Japan (BOJ) raised the short-term interest rate to -0.1% and the 10-year bond yield band from 25 basis points to 50 basis points. Although LME copper fell to $8210 due to the increasing COVID-19 cases in China, negatively affecting industrial production and raising concerns about demand, it ended the week at $8378.50 with a premium of 0.91%, finding support from stimulus expectations and weak dollar to support the economic recovery in China.
Although the transaction volume in the global markets was low in the last week of 2022 due to the Christmas and New Year holidays, the markets were moved by the statements that China will ease the coronavirus restrictions, investors followed the weekly unemployment and consumer confidence index data announced in the USA after the news from China.
In the last week of 2022, LME copper reached $8520, the highest level it has seen since December 14, supported by the news that coronavirus restrictions will be eased in China after the 2-day Christmas holiday. Afterwards, it reversed its gains due to increasing coronavirus cases and recession concerns regarding the global economy, closing the week on the sideways negative at $8374, losing 0.05%.
LME copper ended 2022 with losses of 14.16%, as major central banks hike interest rates, the dollar appreciates, making metals more expensive for buyers using other currencies, and demand concerns in China, the largest consumer.
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MARKET COMMENTARY
While LME copper behind a volatile month between $7449-$8600 levels in November, global markets were directed by the COVID-19 holders in China and the US dollar shaped by FED interest rate.
Copper prices, which have been under pressure for a while due to China's real estate crisis and Europe's energy crisis, tested the highest level since mid-September with a value of $8140 on November 4. LME copper gained 7.1% on November 4, its fastest rise since January 2009, expectation that China will ease its zero-COVID-19 policy measures, the weakening of the dollar and the support of a tight physical market. LME copper rose 7.6% in the first week of November, recording its best weekly gain since March.
LME copper slid as low as $7872 on Nov. 08 as China refused to consider easing its COVID-19 policy, and after weak economic data from China showed that production had been negatively impacted, risk appetite dampened.
LME copper tested its highest level since June with a value of $8600 on November 14, supported by expectations that China will support the real estate sector and ease strict coronavirus measures. However, LME copper, which changed direction with the weak housing data announced in China, increasing the concerns about the Chinese economy and therefore the country's copper demand, and the strong pressure of the dollar, closed negative for 5 days in a row.
The 47th Week agenda was the FOMC meeting. However, copper prices fell to $7858, the lowest level since November 4, as the new COVID-19 restrictions after increasing cases in China at the beginning of the week shadowed demand. LME copper rose as high as $8143 on November 25, finding support from China's real estate sector stimulus announcements and weakening dollar, after FED minutes indicated that slowing rate hikes would be appropriate soon.
In the last week of November, protests were held in China that the world's second largest economy, against strict coronavirus restrictions, raising concerns over the management of the virus. Copper prices slumped as low as $7850 as the uncertainty of the protests in China increased and investor sentiment diminished. LME copper, which started to make up for its own losses as China began to loosen these tight coronavirus restrictions after the protests, increased its gains with the support of Powell's statements that it could slow the rate hikes and the weakening dollar, and closed the month at $8285 with a premium of 11.30%.
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MARKET COMMENTARY
After sharp decline of mid September as the prospects of aggressive interest rate hikes globally and tightening monetary stimulus soured risk sentiment London copper prices started October with rose, supported by a softer U.S. dollar following weak economic data.
The dollar lost some support from a slide in Treasury yields overnight after data showed a slowdown in manufacturing, hinting that aggressive Federal Reserve rate hikes are already being felt. A weaker dollar makes greenback-priced metals cheaper for holders of other currencies.
LME copper continue to gained after the London Metal Exchange said it will restrict new deliveries of the metals from Russia’s Ural Mining & Metallurgical Co. and one of its subsidiaries on the first week of October. Metals shot up earlier on 6th October, but gradually rolled back their gains as the day wore on to finish mostly lower. LME news out late on 5th October banning UMMC metal resulted in a knee-jerk reaction to the upside. However, the gains began to fizzle over the course of the US session as demand concerns and a rise in the dollar weighed on sentiment. Intraday swings were quite large; copper moved in a $300/ton range. 3m LME copper hitted its highest since Sept. 13 at $7,879 on the 6th October. Copper changed direction at the same day and fall to $7,544 level. Copper in London continue to fell till 20th October, as better-than-expected U.S. jobs data raised concerns the Federal Reserve would stick with its rate-hike campaign to bring down inflation.
Strengthening U.S. dollar, while COVID-19 flare-ups in China, the world's biggest metal consumer, added to demand woes on top of looming economic concerns.
Copper prices fell on $7,341.5 level on 20th October because of worries about demand weakening at top consumer China amid rising COVID-19 cases and the country's persistently stringent coronavirus restrictions. LME copper changed direction again on the 20th October, after China amid reports of potential easing in its COVID-19 restrictions. Copper prices kept edged higher, buoyed by a weaker dollar amid hopes the pace of U.S. interest rate hikes would slow down, although economic uncertainty lifted demand pressure until 27th October. But on 28th October Copper and other industrial metal prices fell, worries over demand in top consumer China amid rising coronavirus cases.
Chinese cities from Wuhan in central China to Xining in the northwest are doubling down on COVID-19 curbs, sealing up buildings, locking down districts and throwing millions into distress in a scramble to halt widening outbreaks. Pulled down by a stronger U.S. dollar and fresh coronavirus cases in top consumer China, sparking fears of softening demand for metals, LME copper fall to $7,420 level and closed the month at $7,444.
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MARKET COMMENTARY
LME 3 month copper price fluctated on $7220-$8153 band on September 2022. Base metal prices had weak start to September as demand outlook was clouded further by fresh data from major global economies that signalled tepid growth. Copper prices came under pressure as worries about demand in top consumer China were reinforced by weak data from the country's factories and a firmer dollar. Prices lost ground on 7th September as the U.S. dollar strengthened further amid worries about a recession in major economies. A strong dollar means it is more expensive for non-dollar buyers to buy the commodity. Copper ticked up on 8th September, supported by energy-related supply concerns, with sentiment also buoyed by mixed U.S. jobs data raising some hopes of a slower pace of interest rate hikes from the U.S. Federal Reserve. Prices of copper and other industrial metals continue to rose on 9th September, boosted by a weaker dollar, optimism about top metals consumer China and as persistent smelter shutdowns keep supply in check. 3M LME copper tested $8020 level.
Main issue for 37th Week was U.S. consumer price data. Copper prices fell 12th September, as traders grew cautious ahead of the release of the U.S. consumer price data that could give a hint to future rate decisions and the direction of global growth. Copper prices rose on 13th September, supported by a weaker dollar ahead of U.S. inflation data, LME copper edged up to $8153. But Copper prices turned lower on Tuesday (14th September) after U.S. inflation unexpectedly rose in August and pushed up the dollar as investors feared more hefty interest rate hikes that could curb economic growth and dampen metals demand. Copper reversed after data showed the U.S. consumer price index gained 0.1% last month, while economists polled by Reuters had forecast it would dip 0.1%. After the US inflation data copper started to falling trend. While hawkish stance of the US Fed will put pressure on copper prices in the medium and long term. Tight supply should sustain copper prices at highs in the short term. The LME copper cash-to-three-month backwardation hit a new high since the end of November 2021, reflecting tight supply in the spot market. Cash to three month copper backwardation tested $150.
Main issue for 38th week was FOMC meeting. Copper started to new week with concerns of a global economic slowdown lingered ahead of an expected interest rate hike by the U.S. Federal Reserve. The U.S. Federal Reserve delivered a hefty 75-basis-point rate hike on 21th September and the Bank of England went for a 50-bp rise on 22nd September to control inflation. Copper prices contiuned to fall as investors weighed prospects of improved demand from China against slowing global growth amid rising interest rates and an escalating Ukraine war.
Fears of weakening global economic growth and strongest US dollar weighed on copper prices. The week of 39, 3M LME copper price tested to $7220 level (the lowest level from 21 July). After the sharp fall, copper try to gather remaining of the September. And the news from London Metal Exchange (LME) gave support to copper. Prices of most LME metals rose 30th September, as China data showed a surprise expansion in September factory activity and a possible ban on Russian metal delivered to the LME raised supply concerns. 3M LME copper closed September the level of $7490 with %3.86 losses.
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MARKET COMMENTARY
While European markets started May with sales, American markets started with a increase despite the pressure from the Fed meeting. After the Fed, US indices increased their premiums with the messages Jerome Powell gave at the press conference.
At the FOMC meeting in May, it was decided to raise interest rates by 50 basis points, as expected. The Fed stated in its statement that it would start the balance sheet reduction operation from June. Speaking at the press conference after the decision was announced, Fed Chairman Powell stated that the US economy is strong, economic activity is possible to show a controllable cooling, and they think that the economy can handle interest rate hikes, adding that a 50 basis point rate hike is on the table in the upcoming meetings.
The most striking point in Powell's speech was that he stated that the interest rate hike by 75 basis points was not evaluated now, and after this discourse, rapid increases were observed in stock indices. However, in the next two trading days, very hard sales were observed in major European indices and US indices due to the concerns of recession possibility.
After Jerome Powell said at the press conference that the US is not in a wage-price increase cycle, the employment market is quite warm and the US economy is strong enough to handle interest rate hikes, the importance of non-farm employment data has increased even more. The data, which had an expectation of 380 thousand in the headline, exceeded the expectations and was announced as 428 thousand. The unemployment rate remained at 3.6%, while monthly hourly earnings rose 0.3%, worsening than expectations of 3.5% and 0.4%, respectively. Labor force participation in the American economy was 62.2% in April, below the expected level of 62.5%.
CPI in the USA, realized as 8.30%, above the expectation of 8.10% in the annual data, and as 0.3%, above the expectation of 0.2% in the monthly data.
The fact that the data was realized above expectations had a negative impact on the US stock markets, with the fear that the FED might be more hawkish in its decision to increase interest rates. Investors continued to be concerned about the economic effects of aggressive rate hikes to contain inflation.
In PPI, the headline figure was in line with the monthly expectation of 0.5%, while the producer price index in the basket excluding food and energy increased by 0.4%, below the expectation of 0.7%.
Powell stated that they would continue to tighten their monetary policy until inflation falls, and that they will need to consider acting more aggressively if they do not see clear and convincing evidence that inflation is falling. After Powell's hawk statements, on Wednesday, May 18, US indices experienced a daily depreciation of close to 5%.
Global markets started the last week of the month with a rising reaction after the hard sales they experienced. Another agenda item was the rumors that the United States might reduce some of the customs duties imposed against China during the time of Donald Trump. Positive expectations for China-US relations also supported the positive mood.
The minutes of the Fed's meeting on May 3-4 also gave support to Wall Street, showing that officials continue to believe the US economy is strong.
According to the minutes, while all of the officials supported the 50 basis point rate hike, "most of the participants" stated that it would be "appropriate" to increase interest rates at the same rate at the meetings in June and July.
Market players, who learned that 50 basis point increases were agreed in the next meetings, in order not to be left behind in case of future economic weakness and there are no surprises in the Fed meeting minutes, did not spoil their risk appetite.
With the recovery, US indices Dow Jones and S&P 500 closed flat on a monthly basis, while Nasdaq lost 2.05%.
Eurozone April retail sales figures, on the other hand, failed to meet expectations, with data showing an annual increase of 0.8%, which was expected to increase by 1.8%.
The Bank of England, on the other hand, increased the interest rate by 1% in line with the expectations.
The UK CPI was announced as 9% in April, just below the 9.1% expectation, at the highest level in 40 years.
While the CPI in China was announced as 2.1%, above the expectations of 1.8%, the PPI was announced as 8%, above the expectations of 7.7%.
The pessimism was felt in the weak economic data from China in the middle of the month. In April, industrial production in China fell 2.9% year-on-year, against expectations for a 0.5% increase. Similarly, retail sales declined by 11.1%, well above the 6.6% decrease expected.
To support its slowing economy, China lowered its five-year borrowing rate (LPR) more than expected by 15 basis points, but kept its one-year LPR rate unchanged. The five-year LPR affects mortgage pricing, with most analysts surveyed by Reuters predicting a 5 basis point cut in both rates.
Oil, started May with losses as lockdowns in China, a stronger dollar and rising recession risk bolstered concerns about the global demand outlook. Afterwards, oil prices, which were supported by the expectations that demand, will recover with the gradual relaxation of some of the strict coronavirus measures in China, made premium closures, supported by the EU's plans to impose a ban on Russian crude oil and the approach of the summer season when demand increased in the USA. Brent oil was appreciated by 12.35% and US crude oil by 9.53% on a monthly basis.
Gold, closed at $1,838 with a loss of 3.13% in May due to the rise in dollar and bond yields supported by the Fed's pro-tightening stance.
LME copper, which rose to $9,770 after the Fed meeting, could not rise above this level again due to recession concerns, declining risk appetite and harsh sales in global indices.
While demand concerns caused by the quarantines in China weighed down the price, it fell to $8,938, the lowest level in the last 7 months, on May 12.
LME copper, which moved upwards with the support of decreasing stocks and weakening dollar in the last week of the month, as well as the news flow about the loosening of restrictions in China and the incentives announced by China within the scope of reviving the economy. LME copper ended May with a loss of 2.83% at $9,439.
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MARKET COMMENTARY
April started with rising indexes, led by technology shares, with the news that Elon Musk bought 9.2% of Twitter. However, risk appetite was suppressed when FED official Brainard said that FED will continue to tighten its policies systematically and shrink its balance sheet rapidly as of May.
Among the remarkable items in the minutes of the FED's meeting held on March 15-16, it was stated that it would be appropriate to narrow the balance sheet to $95 million per month. It was also seen that many officials agreed to increase by 50 basis points, but accepted an increase of 25 basis points due to Russia's invasion of Ukraine, and that one or more 50 basis points would be appropriate in the future. The minutes showed that worries among officials that inflation was rising to levels that could pose a threat to the economy were intensified.
While Russian President Vladimir Putin stated that the agreement talks have come to a deadlock once again; US President Joe Biden has announced that the US will expand the size and scope of weapons it provides to Ukraine with a new $800 million military aid package.
In addition, the International Monetary Fund lowered its global growth forecasts for 2022 and 2023, saying that the economic impact from Russia's invasion of Ukraine will spread everywhere.
While Euro continued to fell with expectations that sanctions against Moscow would be increased due to allegations that Russia killed civilians in Ukraine, USD was supported by the loss in the Euro. The fact that the published FED minutes remained above expectations supported the rise in the dollar with the loss in Euro.
The dollar index, which retreated to the level of 99.750 for a short time, after the inflation data, continued to rise with the rising commodity prices amid the unrest in Israel and the intensifying war in Ukraine, as the dollar strengthened its shelter status.
On the other hand, James Bullard, one of the FED chiefs, said that the 75 basis point interest rate increase should be evaluated if needed. Neel Kashkari explained that the FED would have to "do more" to curb inflation if lockdowns in China further aggravate supply chain disruptions. Chicago FED President Charles Evans, who was in favor of 25 basis point rate hikes just a month ago, said he would not be bothered by rate hikes this year, which will include two 50 basis point hikes. These explanations were perceived as hawkish.
FED Chairman Powell's statements on a front-loaded rate hike and 50 basis points on the table at the May meeting were also met with hawkishness and led to sales.
US indexes ended April with Dow Jones 4.91%, S&P 500 8.80% and Nasdaq 13.26% loss.
The dollar index, started April at the level of 98.934, and ended the month at 102,959 with a premium of 4.73% with the news flow. Against the dollar, the euro fell 4.74% and the pound 4.28%.
On the economic data side, the March inflation data in the USA was announced on the headline, with an increase of 1.2% on a monthly basis in line with the expectation and an increase of 8.5% on an annual basis, despite the expectation of 8.4%. In the core, it was announced as 0.3% against the 0.5% expectation on a monthly basis and 6.5% against the 6.6% expectation on an annual basis.
Retail Sales came in at 0.5%, from 0.6% expected in March.
In the Beige Book, it was stated that the FED's increasing costs were passed on to consumers by companies over higher prices and this trend is expected to continue. He emphasized that the difficulties in finding employees continue despite the tightness in the employment market and increasing wages, that the most position changes are seen among low-wage workers, while the demand for housing continues to be strong, the supply remains limited.
While the manufacturing PMI data for April was announced at 59.7, above the expectations, the services data was realized as 54.7, below the forecasts.
In China, Caixin PMI Services data fell 8.2 points to 42, below the expectation of 49.7.
China's CPI and PPI data, on the other hand, came in at 1.5% and 8.3% YoY, respectively, above expectations.
GDP 1st quarter data was announced as 4.2%, better than the expected 4.2% and 4.8% in the previous data.
Eurozone PPI rose 1.1% in February, versus 1.2% expectations.
While the ECB kept the interest rate unchanged at -0.5% in line with the expectations, more dovish statements were followed compared to the FED.
The expectation that more sanctions will be imposed on Russia in oil prices created supply concerns and supported prices upwards.
However, there was a decline in prices due to the subsequent announcement that they would release 240 million barrels of oil from the reserves in order to close the gap in the markets, and the demand-reducing effect of the pandemic restrictions in China.
The prices, which started to rise again with Putin's statement that the neogations were deadlocked and the production might decrease in Russia, which is struggling with sanctions, ended April with a premium of 1.33% for Brent oil and 4.40% for US crude oil.
Despite the gains in the dollar index at the beginning of April, the pressures stemming from the crisis in Ukraine and increasing inflation increased the attractiveness of gold, which is seen as a safe haven, and gold failed to maintain this momentum and closed at $1,896 with a monthly loss of 2.11 percent.
LME copper started April strong at $10,368, supported by the decline in Chilean production and the possibility of further sanctions against Russia increasing the risk of supply shortages and hovered in the $10,153-$10,580 range until the last week of the month.
Supported by the US inflation data, LME copper maintained its strong course with China's announcement that it would take steps to support the economy.
However, LME copper, which has turned its direction down again with the strengthening dollar and demand concerns in China, has seen a decline due to China's decision to keep the benchmark interest rates constant instead of lowering them, and the decline in global indices.
LME copper, which fell below the level of $10,000 in the last week of the month, ended April with a loss of 6.30% at $9,714.
Another factor that affected prices downwards was the increasing stocks in the LME, with the stocks rising to their highest levels since October 2021.
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MARKET COMMENTARY
Global stock markets started March with a sharp decline amid rising commodity prices and concerns over rising energy costs.
Despite the intensification of the conflicts between Russia and Ukraine, the expectations that progress can be made in the negotiations supported the markets, while the eyes turned to the pandemic again after China quarantined the city of Shenzhen with a population of 17.5 million for at least a week.
Russian Foreign Minister Sergei Lavrov met with his Ukrainian counterpart Dmytro Kuleba in Antalya. However, the failure to achieve the desired result from the meeting caused the risk appetite to deteriorate again in the global stock markets.
President of Ukraine Volodymyr Zelenskiy said stated that peace talks are starting to sound more realistic, but more time is needed. Zelensky also requested the United States to establish a no-fly zone over part or potentially all of Ukraine by connecting online to the U.S. Congress.
In the second half of the month, Putin's demand for "hostile" countries to pay for Russian gas in rubles, and Foreign Minister Antony Blinken's official announcement that the US government believes Russia has committed war crimes in Ukraine and should be prosecuted were the highlights.
In the last week of March, the ceasefire negotiations and the possibility of a possible positive development, albeit low, supported the increase in risk appetite, while the indices were premium due to the announcements that the military operations in and around Kyiv would be reduced.
While optimistic statements came from the talks held in Turkey, the announcement that the Russian wing would cease operations in Kyiv and Chernihiv caused the atmosphere of peace to blow.
Afterwards, the inconclusiveness of the ongoing peace talks, with Russia stating that the negotiations had not yet been concluded and that there were many items to be understood, led to a regression in the risk appetite and the risk appetite turned negative again.
Right after the CPI inflation data announced in the US in line with the forecasts, European Central Bank President Lagerde stated that she may terminate the bond repurchase program faster than expected if the data allows.
CPI in the USA reached 7.9% in February, showing the fastest increase in 40 years. The PPI was announced as 0.8%, while it was expected to be 0.9% monthly, while the 10% expectation for the year was realized as 10%.
One of the most important agenda items, the FED, increased the interest rates by 25 basis points in line with the expectations, and stated that this level would be increased at every meeting for the rest of the year, signaling that it started an intense fight against inflation and put forward an aggressive interest rate increase schedule.
Although sales were observed in US indices and risky assets with the beginning of FED Chairman Jerome Powell's speech, the FED's attitude was not perceived as "hawk" by the markets in the continuation of the statements. In the market, which got over the Fed fear, there was no FED message interpreted as a hawk, and the indices were relieved.
However, the tone of Jerome Powell's speech the following week appeared to be more hawkish than his post-interest statements. Powell stated that although no final decision has been taken yet, the monetary policy committee may increase the pace of interest rate hikes if it deems necessary, start the balance sheet reduction in the coming May, and raise the policy rate above the neutral interest level. Emphasizing that the economy is strong, Powell stated that there are many examples of soft landings in the history of the USA, and this situation was interpreted that FED members saw high inflation as a greater risk rather than the risks related to economic growth.
The non-farm employment data for March was announced as 431 thousand, below the expectations of 490 thousand. The unemployment rate fell from 3.8% to 3.6%.
In line with the market expectations, the Bank of England decided to increase interest rates by 25 basis points.
The March CPI inflation data for the EU region, on the other hand, came in at 2.5%, well above the expectations of 1.8%.
While the PPI in China is expected to decline from 9.1% to 8.6%, the CPI was announced as 8.8%, while the CPI was announced as 0.9% in line with the expectations.
Manufacturing and services sectors in China contracted simultaneously for the first time since 2020, when the coronavirus epidemic hit the markets in March, pointing out that new steps should be taken through monetary or fiscal policy to stabilize the economy.
China statistics agency (NBS) announced that official manufacturing PMI data fell to 49.5, below the expectation of 49.9. Measuring non-manufacturing sectors, PMI decreased to 48.4 in March from 51.6 in February.
The risk aversion mode, which continued with the impact of the Russia-Ukraine war, continued to support the dollar. Supported by the increase in bonds and hawkish messages, the dollar index ended March with a 1.66% premium.
Oil prices started March with a sharp rise on the news that the USA was considering banning oil imports from Russia. The attacks on oil facilities in Saudi Arabia, the decline in crude oil stocks in the US and the news flow that oil exports from Russia's critical oil pipeline in the Black Sea region were stopped supported prices upwards. However, although the number of cases in China increased towards the end of the month and the positive news flow on the Russia-Ukraine line pulled prices back again, Brent petrol gained 6.85% and US crude oil gained 4.76% in March.
After rising to a 19-month high of $2,070 at the beginning of the month, gold prices started declining due to the ceasefire talks. Although prices were supported by US President Biden's harsh statements about Russia, the decline continued with the statements of Fed officials pointing out that interest rates could be increased faster than expected.
Investors refrained from taking large positions before the next round of Russia-Ukraine talks, while gold, which fell to the level of $1.889 after the meeting, rose again with the reaction buying following the hard selling. Thus, the ounce price of spot gold ended March at $1,937 with a premium of 1.54%.
In addition to oil, there was a sharp rise in the prices of other commodities, of which Russia is an important producer, at the beginning of the month. LME aluminum broke all-time records with $4,073.50 and LME zinc $4,896.
LME nickel, showed extraordinary movements and ended the last day of February with a premium of 72%. On Tuesday, March 01, after breaking the all-time record by rising sharply and rising more than 101% to $101,365, the London Metal Exchange announced that it had stopped nickel trading, which is thought to be the biggest crisis for the stock market in 145 years.
LME copper, on the other hand, started March at $10,738, testing the all-time record with $10.845, making its mark among the record-breaking LME metals. Afterwards, the US CPI data showed a decline to $9,947. In the second week, especially after the FED, the positive weather supported the prices upwards, while Powell's statements again suppressed the prices.
At the end of the month, LME copper ended March at $10,367 with a premium of 5.15%, although the increasing number of cases in China and economic data caused concerns about demand, although prices were suppressed.
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U.S. stocks made a positive start to February, with reaction buying at the bottom after the Fed anxiety and the volatility in the balance sheet season. In addition to the strong balance sheets, Google and Amazon, especially supported the indexes.
Speculation at the beginning of the month on whether the Fed's rate of tightening would increase by 25 or 50 basis points posed a threat to the positive outlook.
After the strong US employment data, the expectation of 5 interest rate hikes for 2022 strengthened in the market, while the decline in technology shares stood out as the factor that put pressure on indices in the USA.
US inflation increased to 0.6% on a monthly basis and 7.5% on an annual basis, surpassing previous and expectations data, reaching the highest level in the last 40 years.
After the data, the US 10-year and dollar index strengthened. The data strengthened the possibility of a 50 basis point increase in the Fed rate hike for March at the same time.
Fed Chairman James Bullard stated that he supports a total increase of 100 basis points at the next 3 FOMC meetings. Bullard also argued that the downsizing of the balance sheet should begin in Q2, adding that it may require asset sales. Thus, the possibility of an increase of 50 basis points for the first time since 2000, under the pressure of high inflation, strengthened its place on the agenda.
In the second half of the month, with the increase in tensions between Russia and Ukraine, the attention in the financial markets shifted to this direction. The markets came under pressure with the effect of the possibility of war.
While the US and the UK advised their citizens to leave Ukraine, the US has stated that Russia may begin military action against Ukraine from next week.
The Russian Ministry of Defense released images showing that some of its military units returned to the base after the exercises. However, US President Joe Biden said that they could not confirm this move yet and that Russia still poses a danger to Ukraine.
Although many of them are not confirmed, the news from the region created activity in the markets.
In the last week of the month, although the expectation that US President Biden and Russian President Putin could meet positively affected the markets, the statement from the Kremlin that Putin would recognize the regions demanding independence in Ukraine again led to a decline in the risk appetite.
Putin ordered the deployment of troops in the regions of Donetsk and Luhansk, which declared their unilateral independence from Ukraine, and signed agreements with the leaders of both regions that allow Russia to build military bases in these regions.
Joe Biden's widening of sanctions against Russia, the termination of the Nord Stream 2 pipeline by Germany and the imposition of new penalties on Russian company officials also suppressed the risk appetite. However, there was some optimism among investors as the White House's sanctions against Russia were not as extensive as initially expected. The inadequacy of the sanctions to reduce geopolitical risks brought the indices down again.
As a matter of fact, in the morning of February 24, Russian President Vladimir Putin launched a military operation against Eastern Ukraine, while Russian forces launched missile attacks on many Ukrainian cities and landed on coastal cities.
The news that Kyiv was about to come under Russian control, as well as Putin stated that his intentions was not to invade the whole country, triggered the purchase of risky assets led by technology shares. High volatility was observed in all assets.
The same day, the Biden administration announced new sanctions against Russia. It was stated that while a total of 5 big Russian banks, especially Sberbank, were included in the sanctions list, some people close to the Putin administration and their family members were also sanctioned.
No matter where in the world critical technology products such as micro-chips were produced, if they were produced using US technology, the export to Russia was also prohibited.
Last weekend, Western countries removed Russia from the international SWIFT payment system and took steps to prevent Russia from using its 630 billion dollars worth of foreign exchange reserves.
On the US side, Dow Jones ended the month with a monthly loss of 3.53%, S&P500 index 3.14% and Nasdaq 3.43%.
On the economic data side, according to the data announced in China, the service sector PMI index was realized as 51.4 points in January, above the 50.5 expectations.
January PPI data, which is expected to decrease from 10.3% to 9.5%, was announced as 9.1%, while CPI, which is expected to decrease from 1.5% to 1.0%, was 0.9%.
NBS manufacturing PMI data was announced as 50.2 against the expectation of 49.9, Caixin manufacturing PMI data was announced as 50.4, above the expectation of 49.3, and a recovery was seen in the construction sub-index in the data.
On the European side, the fourth quarter revised GDP data was announced as 0.3%, below the expectation of 0.4%, and the unemployment rate as 7%.
The manufacturing sector PMI index took the value of 55.8 points and increased compared to the previous period.
The last revised CPI for January was announced as 0.3%, in line with the expectations.
Among the prominent data in the USA, January Services PMI was announced with 51.2, 0.3 points above the expectations, similarly, the composite PMI was realized above the expectations with 51.1.
Non-farm employment data, on the other hand, was announced at +467 thousand, well above the expectation of 150 thousand. The unemployment rate was announced as 4% against the expectations of 3.9%.
PPI was announced as 1.0% while the monthly core was expected to be 0.5% and 9.7% while the annual core was expected to be 9.1%.
On the central banks side, the Bank of England increased the interest rate by 25 basis points to 0.50%, in line with the expectations, thus increasing the interest rate twice in a row for the first time since 2004.
Tensions between Russia and Ukraine put pressure on the euro, it increased gold and the dollar, which are seen as safe assets.
The dollar index rose to 97,735, its highest level since June 2020, while the euro tested its lowest level since May 2020 at 1.1105 against the dollar.
While it was a question of how the Fed before the tightening would be affected by this situation, expectations that events might delay the exit from monetary easing increased. At the beginning of the month, the possibility of increasing 50 basis points seemed high, but at the end of the month, this possibility almost disappeared.
Gold tested $1,974, its highest level since September 2020. On a monthly basis, the premium was 6.20%.
Oil started declining with the re-enforcement of the agreement signed in 2015, thus lifting sanctions on Iran's oil sales and profit-taking, as well as talks between the US and Iran that could lead to an increase in global supply. However, Russia-Ukraine tensions supported prices due to supply concerns and caused premiums. While Brent oil was at a premium of 10.72% in February, a premium of 8.59% was seen in US crude oil.
LME copper started February at $9,545 while trading volumes remained weak due to the Chinese Lunar New Year holiday. However, at the same time, LME copper tested its highest level since October 19 at $10,289, supported by increased risk appetite, the decline in stocks and the dollar index, and the expectation of taking steps to support the economy in China.
LME copper inventories fell as low as 70,125 to the lowest level since November 2005, while LME copper ended February at $9,859.50 with a premium of 3.36%.
LME aluminum, on the other hand, broke the record, while nickel tested $25.705, its highest level since 2011. Russia produces about 6% of the world's aluminum and accounts for about 7% of the global nickel mine supply.
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MARKET COMMENTARY
The first week of the new year started with an increase in volume as traders returned from the holidays. Despite the increase in the epidemic, the fact that the world economy has the potential to meet this has caused positive pricing with the increase in risk appetite.
The U.S. Food and Drug Administration has approved the third dose of Pfizer and BioNTech's coronavirus vaccine to be administered to children aged 12-15, reducing the six-month waiting period for a booster dose to five months.
More evidence is emerging that the Omicron variant affects the upper respiratory tract and causes milder symptoms than previous variants, the World Health Organization official said.
On the economic side, expectations for monetary policy were at the forefront, along with the Fed minutes. While the expectation that the Fed may raise interest rates earlier and faster, the board drew attention to the ongoing supply problem may last longer than expected and the downside risk posed by the Omicron variant.
In other news, Fed Chairman Jerome Powell appeared before the Senate Banking Committee regarding his re-nomination for a second four-year term. While underlining that necessary steps will be taken to combat high inflation, Powell stated that they will continue to pursue full employment and price stability targets while doing this. He also mentioned that the focus has shifted to price stability because the employment market is healthy, but the success to be achieved here will also positively affect the employment market. He also repeated the statement that the balance sheet reduction operation of the Fed will be carried out relatively faster and with larger steps, since the balance sheet of the Fed is larger than in previous periods. The President's statement was softer than the recent statements of other Fed members.
After Powell's explanations, the tense atmosphere partially dissipated and the risk appetite was supported, with the US inflation data being released at a level in line with expectations.
Retail sales rose only 1.7% year-on-year in December, below the projected 3.7%, according to data released in China. China's economy grew 8.1% in 2021 as industrial output rose steadily through the end of the year, offsetting the decline in retail sales, according to official data from China's National Bureau of Statistics.
The People's Bank of China also unexpectedly lowered loan rates by 10 basis points. China also made a new change in its monetary policy and economic outlook by lowering the benchmark housing loan interest rates. In response to tighter monetary policy and rising interest rates in major economies, China has lowered the reference interest rate for housing loans for the first time in nearly two years.
Towards the end of the month, in addition to the geopolitical risks in the Ukraine-Russia axis, the possibility that the Fed will be more hawkish than expected at the interest rate meeting and the selling pressure in the indexes increased.
In the statement text after the Fed meeting, it was stated that economic activity and labor market conditions continued to strengthen, but the sectors most affected by the pandemic recovered, but were affected by the recent sharp increase in cases.
While it was stated that inflation was considerably higher than the committee's 2% target and that it would be appropriate to start an interest rate hike in the near future, emphasizing the strong employment market, Powell stated that a March meeting was considered at the press conference.
Although Powell once again underlined that flexible behavior will be made according to the conditions, by stating the scenario that high inflation will be more permanent than envisaged, he stated that flexibility can be used in favor of a more hawkish attitude. Asset purchases will be terminated in March, and balance sheet reduction will begin after the interest rate hike.
To the question of whether interest rate hikes would be effective in reducing inflation without adversely affecting the employment market, he answered that there is plenty of room to increase interest rates without posing a risk to the labor market, thus negatively affecting the risk appetite in the market.
On the economic data side, inflation data in the USA was announced as 0.5% increase in December, exceeding the 0.4% increase expectation, and 7% on an annual basis, in line with the expectations and recording the largest increase in nearly 40 years.
The US PPI, was 9.7%, lower than expected (9.8%) but up from the previous month.
In the USA, the manufacturing sector PMI index for January was 55 points, below the expectation of 56.7, and recorded a decline compared to the previous period.
The last revised CPI data for the European Region in December was announced as 0.4%, in line with the expectations.
The dollar index, which made a slightly premium start to the new year, depreciated after non-farm employment and CPI data, falling to 94,629, the lowest level since November. Fed minutes, rising US bond yields and the US economy, which grew above expectations, supported the dollar. After rising to 97,441, the highest level since July 2020, towards the end of the month, the dollar index ended the month at 96,540 with a premium of 0.60% on a monthly basis.
While the Euro fell to its lowest level since June 2020 with 1.1119, it closed the month with a loss of 1.19% at 1.1233. The monthly loss in Sterling was also 0.62%, while the closing was at 1.3445.
Oil prices started the new year with a premium, amid concerns that global supply would decline with the impact of both the decrease in production in Libya and the uprising in oil producer Kazakhstan.
There are many reasons such as the more than expected decrease in oil stocks in the USA, the attack of the Houthis to the United Arab Emirates, the explosion in the Kirkuk-Ceyhan crude oil pipeline, the tension between Russia and Ukraine, and Goldman Sachs' expectation that the $100 level will be seen by the third quarter. Despite the profit realizations, Brent oil ended the month with a premium of 2.13%, USA crude oil 1.57%.
LME copper started the new year at $9,681 and ended January almost completely in negative correlation with the dollar.
Copper tested its highest level since October at $10,072 in the month, supported by the weakening dollar, after Powell made less hawkish statements than expected.
Other factors supporting the prices were the low stocks and the loosening of monetary policies in China.
China's central bank will implement more policy measures to stabilize the economy, Liu Guoqiang, vice-president of the People's Bank of China, said after the latest rate cut.
Towards the end of the month, the hawkish statements at the Fed press conference and the rising dollar and other industrial metals depreciated. LME copper, which dropped to $9,458, its lowest level since December 21, on the last trading day of the month, ended January at $9,539 with a loss of 2.21%.
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MARKET COMMENTARY
Global stock markets started December higher with the news that Omicron cases were showing mild symptoms. Asian markets also gained as the People's Bank of China eased its monetary policy.
The People's Bank of China has announced that it will reduce the amount of cash that banks have to hold in their reserves. With this move, China provided long-term liquidity to the economy for the second time to accelerate the slowing economic growth. While China, the world's second-largest economy, has recovered impressively from the pandemic, economic growth has lost momentum in recent months due to slowing manufacturing, real estate debt woes and ongoing coronavirus cases.
Pfizer CEO said the variant appears with milder symptoms but spreads faster and could lead to more covid mutations. British drug manufacturer GSK announced that the antibody-based coronavirus treatment developed with its US partner Vir Biotechnology is effective against all mutations of the new Omicron variant.
Concerns about the Omicron variant rose after British Prime Minister Boris Johnson said the UK was facing a "new wave of cases" from Omicron, and the World Health Organization said the Omicron variant posed a major "global risk".
Meanwhile, US President Joe Biden is preparing to sign an executive order directing it to purchase only zero-emission vehicles by 2035. The directive aims for the federal government to achieve net zero greenhouse gas emissions by 2050.
While consumer prices in the USA increased by 0.8% on a monthly basis, against the expectation of 0.7%, an increase of 6.8% was announced on an annual basis, in line with the expectation. With the data released in line with expectations, inflation in the USA reached the peak of 40 years. After the data, eyes were turned to the Fed meeting, which will take place on December 14-15.
While the PPI data for November was expected to be announced at a rate of 0.5% on a monthly basis, it was announced at a rate of 0.8% above the forecasts and rose to 9.6% on an annual basis.
In the middle of the December, policy meetings of central banks were on the focus. The possible tightening perception in the market before the announcements was reflected negatively on the stock markets.
On the Fed side, it was expected to move away from its temporary discourse on inflation, especially with the rapid rise in inflation in the last period, and it did. While supply/demand imbalances continue to trigger inflation, the reduction-tapering process of bond purchases has been accelerated and increased from $15 billion to $30 billion, and monthly bond purchases of $60 billion will continue as of January.
According to the median forecasts of the Fed, it is expected to increase interest rates three times in 2022 and three times in 2023. "The economy no longer needs supportive policies," Fed Chairman Jerome Powell said in his speech after the monetary policy meeting.
The Bank of England surprised the markets by raising the policy rate from 0.1% to 0.25%.
The European Central Bank decided to keep the interest rates constant and gave the message that it would gradually reduce its asset purchases.
The Bank of Japan did not change its loose monetary policy, but stated that it is still preparing to stop the supportive financial aid it started during the epidemic period.
Markets started the third week of the month, dropping more than 1% after Joe Biden's social spending and climate law draft a major hurdle. On the other hand the spread of cases originating from Omicron in the USA and Europe and the number of cases doubling every two to three days also brought the indexes down.
In the last week of 2021, despite the record levels of Covid-19 cases, global stock markets rose in general.
The UK will not receive new Covid-19 restrictions before the end of 2021 as the government awaits more evidence on whether healthcare can cope with high infection rates, the UK's Health Minister said in a briefing.
While the virus is expected to find more place on the agenda in January, supply chain problems in the global logistics sector are expected to continue in 2022. However, the 5.1% rise in industrial production in South Korea in November was seen as an indication that the bottleneck in the global supply chain has eased.
Regardless of the news about the course of the pandemic, the prominent news came from China, where authorities will allow full foreign ownership of passenger car production in the country from January 1, 2022.
Starting December at $9,476, LME copper started with the support of China's infrastructure investment commitment. LME copper rose to $9,795, its highest level since Nov.
Despite the year-end profit realization in LME base metal prices, the weak dollar was supported by easing Omicron concerns and increasing risk appetite. Although low trading volume has been observed in LME copper in recent weeks, it ended December at $9,755 with a premium of 3.22% and 25.81% year-on-year.
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