News

05.10.2023 – Puzzling over a possible Bank of Japan intervention: just now, the consumptive and otherwise rather sluggish yen made some interesting twitches.

After the flare-up of new interest rate fears in the U.S., the shockwaves reached into the forex market – the dollar gained, the yen even cracked the 150 level, which was the lowest since October last year. However, then the violent countermovement. In the four-hour chart of USDJPY, the large swings stand out, strongly deviating from the small candles before.

Source: Bernstein Bank GmbH

How the pictures resemble each other: In September and October of last year, the Bank of Japan intervened when the domestic currency slid to a 32-year low of 151.94 per dollar. According to the financial blog ZeroHedge, the Bank of Japan burned through the equivalent of $65 billion in support purchases at the time – and did so in three steps. The intervention series had been the first since 1998.

No comment in Tokyo

And now? Finance Minister Shunichi Suzuki has so far avoided making a clear statement on whether Japan has intervened again. Speaking to reporters, Suzuki said he did not rule out any option to curb excessive volatility. So much for the verbal intervention.
Looking at official policy and possible means, the Finance Ministry is probably well inclined to intervene, judged Yoshimasa Maruyama, chief economist at SMBC Nikko Securities. And the Bloomberg news agency recently reported that Masato Kanda, a senior official at Japan’s Finance Ministry, was in close contact with officials in the United States. He said both sides agree that excessive movements in the forex market are not welcome.

Flight into gold
An intervention would also be realistic because even the Japanese are saying goodbye to the yen and buying gold – these are flight movements that have so far been seen more in the Turkish lira or the ruble. In any case, the “Financial Times” reported a good two weeks ago that the price of gold per gram in yen has exceeded the mark of 10,000 for the first time. Specifically, the major gold trader Tanaka Kikinzoku reported 10,100 yen. Private households with high cash holdings in particular are apparently stocking up in order to compensate for the loss of purchasing power in the wake of rising inflation.
We are curious to see how the matter continues – and wish successful trades and investments!

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

 

04.10.2023 – The interest rate scare is back: interest rates on U.S. government bonds are rising. The Federal Reserve is also pouring oil on the fire. And the U.S. jobs market is hotter than expected.

The past two days brought heavy warning shots for the bulls. No wonder, for example, the Nasdaq 100 dipped, shown here on the four-hour chart.

Source: Bernstein Bank GmbH

U.S. bonds, in particular, worried investors. For example, the yield on the ten-year T-note just marked a 16-year high of 4.802 percent. And interest rates on the thirty-year Treasury bond also climbed to 5.011, the highest level since 2007.

Bond sell-off
This means that investors are selling existing bonds until the yield reaches the expected level of new bonds to be issued. Since there are more attractive coupons on new bonds than on current issues when the prime rate is higher, existing bonds become less attractive. In addition, large counterparties interested in reliable coupon payments – such as pension funds or insurance companies – divert money from the equity market to the bond market when interest rates rise.
JPMorgan Asset Management warned that there is a risk of further sell-offs in the equity market: “We have not anticipated such an increase in rates. This is something which will at least slow down, or even reverse the progress of equity markets,” judged analyst Vincent Juvyns.

Hot job market
The JOLTS report – the acronym stands for Job Openings and Labor Turnover – also gave fodder to the bears. For example, the number of job openings rose again after previously falling for three months in a row. The Labor Department registered 9.6 million job openings in August, up from 8.9 million in July. Most analysts had expected a decline to 8.8 million.
The report raises the risks of more rate hikes – as the Fed fears a wage-price spiral in its fight against inflation. “The Fed won’t make policy decisions based on one JOLTS report, but it does keep the risks tilted toward another rate hike,” judged Nancy Vanden Houten, an economist at Oxford Economics.

Warnings from the Fed hawks

Already on Monday, Loretta Mester, head of the Cleveland Fed, expressed herself accordingly. She said, “I suspect we may well need to raise the fed funds rate once more this year and then hold it there for some time.” Atlanta Fed President Raphael Bostic said the Fed still has a long way to go on inflation, and he, too, wants to keep rates higher “for a long time.” In addition, Governor Michelle Bowman pushed for multiple rate hikes.
Higher interest rates make it more expensive for businesses to borrow, which ultimately lowers profits and thus weighs on stock prices. According to “Barchart.com,” the market now sees a 31 percent chance that the Fed will raise rates by 25 basis points at its Nov. 01 meeting. In addition, another 52 percent chance for another 25 basispuntke for the December 13 meeting. Only from the second half of 2024, the central bank would lower interest rates again because of a possible economic weakness.
We continue to keep an eye on the situation on the interest rate front for you – Bernstein Bank wishes successful trades and investments!

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

02.10.2023 – There is no all-clear for the bulls in the wheat market: the current slump is the strongest since the financial crisis in 2008 – for the fourth quarter in a row the market went downhill. The main reason is Russia. And the Midwest in the USA has defied the drought.

In the past three months, the price of wheat has fallen by around 11 percent, according to the financial blog “ZeroHedge”. Since the beginning of 2022, the price has more than halved, but here is the daily chart. Michael Whitehead, head of agribusiness at ANZ Group Holdings, said: “This may be the new, low price level for wheat.” Friday’s crop report from the US was responsible for the latest crash.

Source: Bernstein Bank GmbH

The US Department of Agriculture said the harvest in the 2023/24 marketing year was better than expected. For example, the USDA reported 1.812 billion bushels in its “Small Grains Summary” – the government forecast had been only 1.734 billion bushels. Analysts polled by Reuters had even expected only 1.729 billion bushels.

Strong harvest in Russia

News at the other end of the world also put pressure on prices. Farmers in the Russian Federation are about to harvest a record wheat crop – Russia is one of the world’s dominant exporters. “We have seen wheat prices substantially decline basically as a result of Russia,” Michael Magdovitz, senior commodity analyst at Rabobank, told Bloomberg. About a fortnight ago, Fastmarkets reported that Russia was heading for its second-biggest harvest ever, probably 90 million tonnes.

The bears are loose
No wonder that the market is predominantly sceptically positioned: the commodity broker Blue Line Futures counted about 66,000 long positions against about 169,000 short contracts. Bullish factors are hardly discernible at the moment. Only an escalation of the Ukraine war is likely to reverse the trend: The Financial Times recently warned that Russia’s Black Sea ports handle around 70 per cent of wheat exports. And Morgan Stanley added that the El Nino weather phenomenon could trigger a new “inflation shock”. We are keeping an eye on the situation for you – and wish you successful trades and investments!

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

27.09.2023 – The Federal Trade Commission and 17 states have filed an antitrust suit against the online mail order company Amazon. Investors reacted slightly alarmed.

The FTC accuses Amazon of preventing merchants on its platform from offering lower prices on other marketplaces. In addition, Amazon forces sellers to ship their products with its own logistics service if they want to be part of the Prime subscription. This leads to higher prices for consumers. Amazon shares fell after the FTC announcement in New York, here is the four-hour chart. But before you panic sell now, we advise a sharp look behind the scenes

Source: Bernstein Bank GmbH

Of the two states now suing, only two are Republican-led. Thus, it looks like the Democrats are going after Amazon quite decisively. Which we don’t believe – this looks like theatrical thunder in the nascent presidential campaign; as if the Dems are fighting for the little people against the big corporations they themselves have nurtured for years. Or there is an internal party battle going on between the idealists and the monopoly forces. We don’t see a real threat of break-up.

Amazon donates to the Dems

Because according to “OpenSecrets”, Amazon donated around $4.5 million in the 2022 political cycle, almost all of it to Democrats. This has been going on for years. Far more important is the fact that Amazon CEO Jeff Bezos is the owner of the “Washington Post” – and this is the house paper of the left-wing cultural chic.
Coincidentally, the WaPo has just put two shots across Joe Biden’s bow: First, columnist David Ignatius, icon of the Dem elite on the East Coast, called for Biden not to run about a fortnight ago. And then the WaPo followed up with a poll together with ABC News: According to the poll, Trump is a whopping 10 percentage points ahead of Biden. No other study has come up with such figures so far.

Shadow boxing against the mega-caps
It is also worth taking a closer look at FTC head Lina Khan. She is considered part of the progressive Democratic camp and was appointed by Biden. Before Khan took up her post at the FTC in June 2021, she was involved in an investigation in the US Congress in which Apple, Amazon, Facebook and Google were declared monopolies and “structural separations” were proposed. Nothing has happened. Moreover, the current antitrust suit is already the fourth that the FTC has filed against Amazon.

In addition, the lawyer has suffered several defeats – including trying to prevent the takeover of Activision by Microsoft. Did we forget to mention that the mega-caps mentioned are all big donors to the Democrats?
Our conclusion from all this: we currently lack the belief that Amazon is really in danger. Admittedly, a negative news flow is likely to hurt the stock, and who knows, maybe there will be some surprising turns. But at some point the issue will be off the table; and a split might even appeal to investors. So keep an eye on the real-time news. Bernstein Bank wishes you successful trades and investments!

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

26.09.2023 – Hear, hear: Panic reigns among private investors on the Frankfurt stock market. At least that’s what the Handelsblatt writes. And refers to a new, internal survey.

Stephan Heibel from the analysis company AnimusX, who evaluates the weekly survey in the “Handelsblatt”, now sees the DAX at the crossroads at the 15,400 point mark – so far, every setback has ended here at the latest. If the support holds, the summer lull could end. However, if the German benchmark index breaks through to the downside, the sell-off could intensify and a longer-lasting bear market could follow. The picture shows the daily chart.

Source: Bernstein Bank GmbH

The “Handelsblatt” stated that the mood among private investors had collapsed. The reasons for the pessimism: The announcement of the Federal Reserve to leave the interest rates longer up. In addition, there is a hangover in AI and cloud stocks. Further, the “class warfare” in the U.S. auto industry and ongoing tensions with China are weighing.

Violent crash

But back to the latest survey. According to the Handelsblatt, the market sentiment of the more than 8,000 private investors surveyed plummeted to minus 4.5 points. And this is an extreme value. Expert Heibel stated, “From values below minus four points, we speak of fear and panic.” Investor sentiment had fallen by 5.8 points on a weekly basis – in the past 22 months, it had only fallen more sharply this June, when there was significant profit-taking after the record high. While 19 percent of those surveyed the previous week still saw the DAX in an upward trend, this figure is now only 3 percent. Instead, almost one in two now sees a downward impulse.
Paradoxically, optimism about the future has increased – from the extremely high 4.0 points of the two previous weeks to 4.6 points. The propensity to invest has also risen and, at 3.9 points, has reached its highest level since the start of the Ukraine war in March 2022. Accordingly, on a weekly basis, the group of potential buyers rose by five percentage points, while that of potential sellers shrank by three percentage points. We are therefore curious to see how the DAX will continue. Whether long or short – we wish you successful trades and investments!

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

21.09.2023 – The Federal Reserve did pause on interest rates, as expected. However, Fed Chairman Jerome Powell’s announcement was unexpectedly hawkish. Perhaps interest rates will remain at the elevated level for quite some time. Or for all time, as the “Wall Street Journal” rumored.
The reaction of the Nasdaq 100 is quite clear – after the interest rate decision, it went downhill for the time being. Here is the hourly chart.

Source: Bernstein Bank GmbH

This is what happened: Yesterday, the U.S. Federal Reserve left key interest rates at the 5.25 to 5.5 percent level. The interest rate pause was largely expected – because the Fed is in a dilemma: Economic growth recently proved to be stronger than the central bankers had expected and predicted. But the same is true of stubborn core inflation, which was 4.2 percent in July and just under 4 percent for the year to date. The Fed’s monetary policy target is only 2 percent inflation.

Interest rate forecast raised
However, there are certainly indications for the market: In its current forecast – these are the much-cited dot plots in the real-time news – the Fed expects an average key interest rate of 5.6 percent at the end of the year. For 2024, an average of 5.1 percent is expected – in June, it had been 4.6 percent.

Nothing is forever
Bloomberg commented that the Fed had hinted at significantly higher interest rates in 2024 and 2025. As is so often the case, the Wall Street Journal summed up the mood in the financial market most succinctly and quite pointedly: “Higher Rates Not Just for Longer, but Maybe Forever. According to this, the Fed could consider a higher neutral interest rate than before to be appropriate, i.e. the interest rate at which inflation on the one hand and unemployment and economic output on the other are in a stable equilibrium.
Our conclusion: The “always” is, of course, just a linguistic trick to secure the readers’ attention – nothing lasts forever. After all, even sustained high oil prices could stall economies worldwide and push interest rates back down – so keep an eye on the big picture. Bernstein Bank wishes successful trades and investments!

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

07.09.2023 – Moscow and Riyadh shock the market with statements on production cuts. The oil price picks up. Another factor for the bulls is the war in Ukraine.

On Tuesday, the oil price had climbed sharply to the north, here the four-hour chart of Brent. In the meantime, the price of the European variety to the highest level since last November, before a reset was pending. Nevertheless, fears of stagflation immediately circulated on the stock exchange floor: stifled economy with high inflation.

Source: Bernstein Bank GmbH

The background: At the beginning of July, the latest round of announcements of production cuts by the oil states had begun. And on Tuesday, Russia and Saudi Arabia announced that they mean business: Both want to extend production cuts until the end of 2023, taking 1.3 million barrels per day off the market. With this, the two oil exporters shocked the market: “It was absolutely a surprise,” judged Nadia Martin Wiggen, director at the commodity-focused hedge fund Svelland Capital. She added: “When we look toward the start of next year after these cuts, we’re going to see OECD commercial stock levels at lows we haven’t seen except in very big years.”

Goldman responds

Goldman Sachs commented that there are now upside risks to its own oil price forecast. So far, the Goldmen have assumed a price for Brent of $86 for December 2023 and $93 for December 2024. The upside risk to the forecast at the end of this year is $2 per barrel, he said. If nine OPEC-plus countries did not reverse half of the production cut announced in April in January 2024, the upside risk would be $107 per barrel, he said. However, oil countries are unlikely to target prices well above $100 per barrel. The reasons for this: a possible reaction from the U.S. fracking industry and the high political importance of the price of gasoline in the United States.
According to the “Frankfurter Allgemeine Zeitung”, the Landesbank Baden-Württemberg continues to see a price of 80 dollars per barrel for the North Sea variety Brent by the end of the year. The oil states could also roll back production cuts if demand is weak.

USA and Ukraine
But: Another bullish factor was reported yesterday by the American Petroleum Institute. According to the API, inventories fell by 5.2 million barrels, compared with 2.1 million barrels expected.Then there is an issue with petroleum that has just been pointed out by the brilliant Institute for the Studies of War: Apparently, the Russian defense industry cannot produce enough tires for the army. The worn-out tires are likely to make it difficult to move forward in the coming fall and winter in rain, slush and snow.
We think Moscow will probably take countermeasures and buy more tires through its allies North Korea and China. Even if Ukraine uses newer equipment, winter tires are likely to be in demand here as well. Both are likely to be felt on the global oil market.
We are curious to see how the oil price will develop and whether the world’s central banks will not counter the expected energy inflation in winter with higher interest rates. Whether long or short – we wish you successful trades and investments!

_______________________________________________________________________________________________________________________________________________

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

05.09.2023 – Intervention will come: The yen is too weak, eroding purchasing power. And the acceptance of the Japanese leadership. In the event that an expert is right with this thesis, traders should take a closer look at the foreign exchange.

We had already talked about Japanese monetary policy several times. Tokyo is the last central bank in the world to resist higher interest rates. This so that Japan bonds held by banks and insurers do not implode. The result is a fading yen. We could have shown you the euro, the dollar or the pound – everywhere it is the same picture with a few nuances. But today we have brought you the chart of CHFJPY in the weekly view.
Switzerland only has a key interest rate of 1.75 percent versus minus 0.1 percent in Japan. However, the Alpine republic is a haven of stability with a steely currency – which is due to the country’s exceptional “export products.” The discreet banking sector, luxury tourism in the Alps, watches or the pharmaceutical industry make Switzerland rich. So if the yen is to catch up, Japan will have to come up with something.

Source: Bernstein Bank GmbH

If Masaki Kondo of the Bloomberg news agency is right, a turnaround in Japanese monetary policy must indeed be in the offing at some point. Because the cheap money causes heavy collateral damage in politics. Everything becomes more expensive, Japan has to import many goods, and the budget shrinks. Kondo just judged, “Prime Minister Fumio Kishida’s falling popularity adds to the risk that the Bank of Japan may surprise investors again with a policy shift that will make voters happier.”

Politically dangerous
Political stress has been a factor in Bank of Japan intervention since late last year, he said. When the supported the yen last October, it was not only an intervention in the yen’s decline – but approval ratings for the Kishida administration had just tested new lows. It was the same, according to Kondo, with the first Yield Curve Control limit hike in December and the most recent YCC change in July.

The analyst hastened to point out the independence of the central bank. But: “Yet there is a clear line that connects the weak yen to inflation, and inflation to unhappy voters. When it comes to the timing of actions that can take some of the sting out of inflation, recent history indicates opinion polls are at least worth watching.”

The new central bank governor, Kazuo Ueda, also has national politics in mind, he said, as evidenced by his vote with the premier before the Jackson Hole meeting on Aug. 22. Of course, he said, Kishida also has problems outside monetary policy: for example, anger over a national ID card is growing, the low birth rate is a concern, and discussion is raging over radioactive effluent from Fukushima. However, the link from the weak yen to inflation is obvious. Therefore, it is wise to keep an eye on the opinion polls.
In our opinion, a renewed intervention in favor of the yen or a change in monetary policy are indeed options that traders and investors should keep an eye on. Bernstein Bank wishes good luck!

____________________________________________________________________________________________________________________________________________________________________

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7

31.08.2023 – Jerome Powell held out the prospect of higher interest rates and still kept the market calm. So the Jackson Hole feat was accomplished.

What if the world does slide into an economic crisis? A little-noticed indicator is sending out signs that it could indeed come to that: Zinc remains bearish.

We see zinc as a leading indicator for the old economy: the low price certainly points to low global demand. Or is a bottom just forming here? Here is the weekly chart. The analysts at Trading Economics see the price at around $2,173 per ton on a one-year horizon.

Source: Bernstein Bank GmbH

Zinc is in demand in key sectors of industry. The blue-white, brittle metal is used, for example, in automobile manufacturing and mechanical engineering to protect steel against corrosion. The same applies in construction wherever iron and steel are exposed to wind and weather – for example as sheet metal in roofs or in rain gutters. About half of the production is used to protect against rust and weathering.
As zinc oxide, chloride or powder, the metal is used in the chemical and pharmaceutical industries. Further, zinc is found everywhere in the home: alloyed with copper as brass in fixtures, lamps, doorknobs and so on.

Tightening versus recession

The website “Tradingeconomics.com” stated that concerns about a continued thightening kept the price of zinc down. Higher interest rates could choke off demand in Europe and the US. We add: In Germany, we also see a bursting of the real estate bubble and falling corporate profits, triggered in part by high energy prices.
Indeed, recent data from the US also point to a slowdown. For example, the second estimate for US gross domestic product was revised downward. Namely, from 2.4 to 2.1 percent. In the labor market, the ADP National Employment index also signaled a contraction, with 177,000 versus the expected 195,000.
Weaker economic figures are still interpreted on the stock market to mean that the Federal Reserve will then have to scale back tightening. And so will the rest of the world’s central banks. But analyst Simon White of Bloomberg commented that there is a lot of catching up to do in the stock market on recession risks.

Construction crash in China

And then there’s China. The real estate market in the Middle Kingdom looks pretty bad: Vacancies, bankruptcies of project developers, half-finished building ruins. We have already discussed the ghost towns in the People’s Republic here on several occasions. The crisis has hit developers such as Evergrande Group, Country Garden, Kaisa Group, Fantasia Holdings, Sunac, Sinic Holdings, and Modern Land. Now “Tradingeconomics.com” hopes for rescue measures by Beijing.
After all, the website recently pointed to lower inventories on the LME commodity exchange in London. However, global demand for zinc will only increase by about 1.4 percent this year, according to S&P Global. And supply, meanwhile, will rise 1.9 percent, it said. After all, smelting in China remains rather constrained because of energy problems, he said.
The conclusion to be drawn from all this: We suspect that construction companies and auto groups will immediately buy larger quantities of galvanized steel if they expect demand to pick up. So keep an eye on the real-time news: When optimism increases, so does the price of the commodity. New recession worries are accompanied by a drop in the price of the blue-white metal. Zinc thus serves as a weather vane for all those involved in the stock market. Whether long or short – we keep an eye on the situation for you!

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The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice. CFDs are complex instruments and are associated with the high risk of losing money quickly because of the leverage effect. 68% of retail investor accounts lose money trading CFD with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.7