Copper and iron ore prices dropped, and zinc and aluminium slid to multi-month lows
Oil prices hit seven-week lows on Tuesday as a weakening demand outlook weighed on commodities, while bond, currency and stock markets traded cautiously ahead of central bank meetings in the U.S. and Japan and a slew of major corporate earnings reports.
Brent crude futures hit $79.36 as traders focused on concerns over Chinese demand instead of tensions in the Middle East or Venezuela, and turned sellers.
Copper and iron ore prices dropped, zinc and aluminium slid to multi-month lows, while there was little by way of support from China’s Politburo, which at its July meeting announced no new detailed measures to boost the economy.
The S&P 500 has stabilised after a two-week downturn and futures were flat late in the Asia session.
European futures rose 0.1%, with moves kept small by the two-day policy meetings in Washington and Tokyo that loom over markets and wrap up on Wednesday.
Japan’s Nikkei, which declined around 6% last week, was down 0.1% in afternoon trade. MSCI’s broadest index of Asia-Pacific shares outside Japan declined 0.4%.
Japanese government bond yields dropped with the 10-year JGB yield down 2.5 bps at 1%. Ten-year U.S. Treasury yields were steady at 4.186%.
The term ‘calm before the storm’ has been heard across the floors, said Chris Weston, head of research at Pepperstone in Melbourne. This is a day for position management and to review broad exposures.
Markets are pricing almost no chance of a U.S. rate cut this week, but have fully priced a 25-basis-point cut in the Fed Funds rate for September and so expect policymakers to sound dovish.
In Japan, a wider range of outcome is on the table, with markets pricing an almost 60% probability of a 10-basis-point rate hike and expecting to hear about how the BoJ plans to edge its way out of an enormous bond-buying programme.
The dollar and yen drifted, but kept in fairly compact ranges after recent breakout moves.
The euro bought $1.0821 and some pressure remained on the Australia dollar, which has been dragged down by declining commodity prices. The Aussie, which bought around $0.68 less than three weeks ago, traded at $0.6557.
The yen, which has bounced back sharply from a 38-year low of 161.96 per dollar hit early in July, wavered at 154.67 per dollar.
We are at an interesting intersection for yen here, said Nathan Swami, head of currency trading at Citi in Singapore, with this week’s central bank meetings possibly sketching a shift in the rates outlook and the yen’s trajectory.
It is too early to tell if the factors driving yen weakness have changed permanently. For now, this appears more like a short-term correction to the USD/JPY higher trend, but we feel there is downside risk that needs to be priced into a trade, Swami added.
