Market Wrap: A Momentous Day for The UK & Will China’s ‘One Belt’ Plan Boost Commodities?

by Nov 2, 2017

The Bank of England takes a step that has been due for years..
If November 1st was Fed day, November 2nd is BoE day. The latest monetary policy announcement from the Bank of England came, and the central bank fulfilled expectations – raising interest rates for the first time in a decade – though only from 0.25% to 0.5%. The push higher will come as inflation in the UK continues to rise, squeezing everyday peoples savings. This announcement moved the Pound down further still against the Euro and Dollar. Elsewhere in central bank news, Trump is expected to name Jerome Powell as head of the Federal Reserve, replacing predecessor Janet Yellen, who made one of her final statements yesterday as Fed Chair. Just like with his pick of Neil Gorsuch for the Supreme Court, Trump has said people will be ‘impressed’ with his choice of Powell. This is unlikely though, atleast from a democrat perspective, considering Powell is a Republican who is allegedly in favour of lowering regulations on banks and is himself a multi-millionaire. In indices, usually after a rally like the one we saw across the world yesterday, markets pull back a bit – today is no exception. Asia stocks were a mixed bag today, mostly lower except the TOPIX. Euro stocks were similarly lacklustre (see right hand side of chart here. In equities, Facebook results were impressive yesterday, but Mark Zuckerberg poured water on proceedings by pointing out that due to the Russia investigation, the firm would be spending a lot more money on security in future, thus impacting profitability, so the share price fell again. Tesla stock also fell (as most people expected it would) after earnings showed a loss per share of $2.92 vs $2.29 expected by analysts. This was due to ongoing production issues with its Model 3 sedan (the first mass market electric car). In commodities, gold prices are way off their early October peak of $1,304, sitting closer to $1,275. Copper is also down this week, though Goldman Sachs is bullish on its long term prospects. According to the Financial Times, Goldman is forecasting a 130,000 tonnes copper market deficit next year (versus a 150,000 surplus previously) thanks to strong global growth helping demand. Speaking of commodities and the countries which are rich with them, new data out from the World Bank says that Sub-Saharan African economies have set a new record in reforming their business climates, adopting record numbers of business reforms for the second year in a row. This is good news for mining companies based in the region such as BHP Billiton, Rio Tinto, Acacia and Anglo American, especially as they will be doing more and more business there in future. A better business climate means smoother dealings and faster projects in Africa – all good news for businesses. Rio Tinto’s Chief Executive of energy and minerals said at a Bloomberg event this week, “From a mining perspective, Africa is the largest untapped source of growth for our industry,” adding, “It provides us with the opportunity, in partnership with the east, to be part of the once-in-a-lifetime transformation story of Africa.” The ‘east’ obviously refers to China and other Asian customers that buy 70% of Rio’s products. Indeed, with China building so much, many investors are expecting a bull run in commodities due to the ‘One Belt, One Road’ plan put forward by President Xi Jinping. In theory, billions of dollars worth of commodities will be needed to build ports, roads, railways and the like to make his vision come to life (connecting Asia’s economies seamlessly to Africa and the Mediterranean). However, so far the project has had very little impact on commodity demand in China, so prices are not really moving all that much yet.  

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