Spooky Sell Signal
Here are some of the biggest stories from last week:
Dig deeper into these stories in this week’s review.
In a long-anticipated move, the Fed reduced its benchmark federal funds rate by half a percentage point to a range of 4.75% to 5%, marking the start of its first easing cycle since the pandemic. The bumper half-point cut, which was larger than forecasters had generally anticipated, suggests the central bank is trying to preempt any potential weakening in the US economy and labor market after holding rates at a two-decade high for over a year. But the Fed was careful not to commit itself to a similar pace going forward, saying future moves would be based on how the economy, labor market, and inflation progress in the months ahead.
In the latest "dot plot" of officials' forecasts, most projected the federal funds rate would decline to 4.25% to 4.5% by the end of 2024, indicating the possibility of either a large half-point reduction at one of the two remaining meetings this year or two quarter-point cuts. This represents a larger reduction than the quarter-point cut most officials anticipated in June, when the dot plot was last updated. Policymakers also projected the federal funds rate would drop by another percentage point in 2025, finishing the year between 3.25% and 3.5%. By the end of 2026, they estimated it would fall to just below 3%.
Across the pond, the Bank of England held interest rates steady at 5% in a move widely expected by economists. It also kept the pace at which it reduces its balance sheet of bond holdings – a process known as quantitative tightening – unchanged at £100 billion a year. But in updated forecasts, the BoE said that it now expects economic growth to slow to 0.3% in the third quarter, slightly weaker than the 0.4% predicted in its August forecasts. Inflation is anticipated to pick up to 2.5% by the end of the year, slightly lower than the 2.8% previously projected.
China’s economy lost further momentum in August as activity cooled across the board, raising the risk of the government missing its annual growth target. Data over the weekend showed measures of factory output, consumption, and fixed-asset investment all slowed by more than anticipated, while the unemployment rate unexpectedly rose to a six-month high. Industrial production rose 4.5% in August from a year ago, down from 5.1% in the previous month and below economist forecasts of 4.7%. Retail sales, meanwhile, increased by 2.1%, slowing from July’s 2.7% and missing projections of 2.5%. Finally, the urban unemployment rate climbed to 5.3%, up from 5.2% in July and the highest since February.
The report paints a gloomy picture of China’s economy, intensifying calls for more aggressive stimulus measures to get growth back on track before it’s too late. Even before this latest data, a vast majority of global banks had already expected the world’s second-biggest economy to expand by less than 5% this year. (For reference, the government has an official 2024 growth target of “around 5%”).
Over in the UK, consumer prices rose by 2.2% in August from a year earlier – the same pace as in July and in line with economist expectations, but slightly below the BoE’s 2.4% forecast. While downward pressure came from lower prices at the pump, restaurants, and hotels, these were offset by a significant rise in airfares. This surge in air travel costs was strong enough to drive services inflation up to a more-than-expected 5.6% in August, from 5.2% in July. That could worry the BoE, which closely monitors services inflation as a more telling measure of domestic price pressures. However, the pickup was anticipated by the central bank and is expected to prove temporary.
The headline figure holding steady just above the BoE’s 2% target puts the central bank on track to lower interest rates further in the coming months, following its first cut since 2020 in August and a pause this week. Traders are currently betting on a quarter-percentage point reduction in November, followed by a high chance of another in December. And those cuts can’t come fast enough considering that borrowing costs are still elevated and are choking economic growth. Case in point: data last week showed the UK economy unexpectedly stagnated for the second consecutive month in July, disappointing analysts who had forecast a 0.2% expansion.
Copper is essential for many industries critical to meeting net-zero emission targets, including renewable energy, power cables, and EVs. And as the decarbonization megatrend accelerates, demand for copper is surging. Problem is, existing mines are set to produce less of the metal in the coming years as reserves run dry, and firms aren’t investing enough into new sites to make up the difference – let alone increase output. Instead, they seem more interested in buying copper-focused rivals, as demonstrated by BHP’s failed takeover attempt of Anglo American.
That’s why many analysts predict a future copper shortage, which is only going to be made worse by the exponential growth of AI, according to BHP. After all, the metal is used extensively to build, power, and cool the data centers that AI applications rely on. Case in point: the world’s biggest mining firm expects data centers to account for up to 7% of total copper demand by 2050, up from less than 1% today. All in all, the company forecasts global copper demand will rise to 52.5 million tons a year by 2050, up from 30.4 million tons in 2021 – a 72% increase.
To be sure, current copper demand – as opposed to that in a few years, when AI and the energy transition gather speed – looks weak. That’s mainly down to slowing economic growth and a property slump in China, which accounts for about half of the world’s consumption of the metal. So although BHP is optimistic about the long-term prospects for copper, it expects the market to be in a surplus this year and in an even bigger one in 2025. That poor near-term outlook has caused the metal’s price to slump by over 14% since its peak in May. It has also led Goldman Sachs to slash its 2025 price forecast, with the investment bank now expecting copper to average $10,100 per ton next year – sharply lower than its prediction four months ago that the commodity would hit an all-time high of $15,000.
General Disclaimer
The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.
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Spooky Sell Signal
Gold Shines at New Highs
The ECB Cuts Again
Slowing Disinflation
Golden-Week Rush
China’s Massive Package
The ECB Cuts Again
Banks Turn Bearish On China
Million-Dollar Gold Bar
Bonds Are Back
Black Monday
Diverging Rate Decisions
Still Strong
Smaller Is Better
The Name Is Bond, Green Bond
Landslide Victory
AI-Frenzy Takes a Break
Bye Apple, Hello Nvidia
The Fed Stays Put
An Indian Rollercoaster
The Name’s Bond, Convertible Bond
Nvidia Does It Again
A Small Relief
From Boom To Bust
Higher For Longer
Still Magnificent
Halve And Havoc
Stubborn Inflation
Choc Shock
An End Of An Era
Britain Bounces Back
China's Goal
Bye iCar, Hello iAI
Nvidia Beats Expectations
Germany Overtakes Japan
Riding The Dragon
China’s Falling Behind
India Outshines Hong Kong
Aging Dragon
US Inflation’s Accelerating
Tesla Lost Its Crown
2023 Market Wrap-Up
The Last Samurai
Fed Teases 2024 Rate Cuts
Bond Market's License to Thrill
Cyber Week Bonanza
OpenAI's Leadership Shuffle Drama
Inflation’s Cooling In The US And UK
Back Into Deflation
Triple Hold On Rate Hikes
The US Economy Is Still Flexing Its Muscles
Inflation’s Refusing To Come Down
Investors Are Bracing For A Dip
An End In Sight
Rate Hike Recess
End Of An Era
China's #1 Ambitions Are Fading
Americans’ Piggy Banks Are Running Low
Trying To Break The (Wage-Price) Spiral
China: A Nation In Deflation
Uncle Sam Gets Downgraded
Twin Hikes
Stagnating Dragon
A Tale Of Three Inflation Stories
Silver Is Shining Bright
UK Inflation: Defying Gravity
The Fed Calls A Timeout
A One-Two Punch
Shrinking Dragon
Keep Calm And Carry On
The AI-ffect Of The AI Mania
SLOOS: Crunch Time Looms
Last Republic
LVMH Pops The Bubbly
India Takes The Population Throne
The End Is Nigh
OPEC Drops the Pump
Why Gold Is Glittering
Can't Stop Won't Stop
To Hike Or Not To Hike
China’s An Underachiever
Cash Is King
What Energy Crisis?
The Name’s Bond, Japanese Bond
The AI War Has Begun
Hikes Everywhere
What Recession?
Shrinking Population
Grab Your Box And Leave
A Gloomy Prediction
It's Darkest Before The Dawn
Elon Fires Himself…
Triple Whammy
No More Zero-Covid?
Eight Billion And Counting
Another One Bites The Dust
No Santa Pause
Big Tech, Big Disappointment
The Lettuce Won
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