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STOCKS REVERSE LOSSES, GBP RECOVERS, RISK-OFF SENTIMENT DOMINATES

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STOCKS REVERSE LOSSES, GBP RECOVERS, RISK-OFF SENTIMENT DOMINATES
  • GBP/USD was the strongest performer during the Asian session as both sides suspended their campaign amid the murder of a British lawmaker
  • USD was on a rollercoaster ride as investors don’t know where to stand between the upcoming Brexit vote, a dovish Fed and mixed US data
  • EUR/USD is unable to break the 1.1137 support on the downside, closest support can be found at 1.1098
  • NZD/USD held ground after better-than-expected business and consumer confidence data, the bias remains on the upside with a first resistance at 0.7148
  • The Canadian dollar could consolidate after a 0,50% gain against the greenback as crude oil prices put an end to a 4-day losing streak
  • With risk sentiment low investors are shunning less risky assets in favour of safe havens. USD/JPY is strengthening and currently trading around 104 for a single dollar note. EUR/CHF dropped below 1.0800 for the first time in six months before bouncing back. Gold has reached an 18-month high and silver is trading close to its highest level so far this year.

GBP/USD was the best performer during the Asian session and rose another 0.35% after Brexit fears eased as both sides suspended their campaign amid the murder of a British lawmaker. The pound sterling bounced as high as 1.4294 in Tokyo before stabilising at around 1.4250. As expected the BoE meeting was a non-event. The bank rate was kept at 0.50%, while the asset purchase target was left unchanged at £375bn.

Yesterday, the US dollar was on a rollercoaster ride with investors finding it difficult to know where to stand between the upcoming Brexit vote, a dovish Fed and mixed US data. Headline CPI came in worst-than-expected, printing at 1.0%y/y, versus 1.1% expected. The core gauge rose 2.2%y/y in May, matching estimates. Finally, the Philadelphia business confidence index rose to 4.7 (versus 1.0 expected) in June from -1.8 in the previous month. EUR/USD fell from to 1.1295 to 1.1131 yesterday before climbing as high as 1.1272 in Tokyo, unable to break the 1.1137 support (low from June 3rd). The closest support can be found at 1.1098 (low from May 30th).

In New Zealand, manufacturing business confidence rose to 57.1 in May from an upwardly revised figure of 56.6 in the previous month. The consumer confidence gauge climbed 2.3% to 118.9 in June from 116.2 in May as the Kiwi economy continue to weather relatively well the global slowdown. NZD/USD held ground at around 0.7050 in Wellington after hitting 0.6969 during the European session. The bias remains on the upside with a first resistance at 0.7148 (high from June 9th).

The Canadian dollar was better bid this morning as crude oil prices put an end to a 4-day losing streak. The loonie gained as much as 0.50% against the greenback and reached 1.2899 before consolidating at around 1.29, while the West Texas Intermediate rose roughly 1% to $46.60. The international gauge, the Brent crude jumped 1.50% to $47.75.

In the equity market, Asian regional markets reversed losses overnight. The Japanese Nikkei surged 1.07%, while the broader Topix index was up 0.75%. In mainland China the Shanghai Composite was up 0.31% and the tech-heavy Shenzhen Composite rose 0.63%. Offshore, Hong Kong’s hang Seng was up 0.49%. Further south, the S6P/ASX went up 0.32%, while in New Zealand the S&P/NZX was off 0.60%.

Yann Quelenn, market analyst: “Risk-off sentiment dominates: Investors are shunning less risky assets in favour of safe havens. While stock indices are declining, USD/JPY is strengthening and currently trading around 104 for a single dollar note. EUR/CHF dropped below 1.0800 for the first time in six months before bouncing back. Gold has reached an 18-month high and silver is trading close to its highest level so far this year. There are several reasons for this. Brexit anxieties are clearly significant and the current patient stance from most central banks is definitely taking its told on investor sentiment. Indeed, the world’s biggest economy is constantly disappointing markets by failing to raise rates and not leading other economies on a sustainable recovery path.

Meanwhile, negative interest rates seem to be the new normal. The German 10-year government bond is yielding negative for the first time in its history. This is the symbol of the overall risk-off sentiment. The price of money is negative for most maturities. We are still bullish on precious metals as we think that central banks may continue to ease globally until the end of the year. Yet, in the very short-term, a relief rally is still possible after the Brexit mist clears, but global fundamentals will remain very fragile.” —

Today traders will be watching the trade balance from Italy; housing starts and building permits from the US; CPI and core CPI from Canada; in Europe, Draghi will speak at CET 17:00

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Barclays announces new trade finance platform for corporate clients

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Barclays announces new trade finance platform for corporate clients 1

Barclays Corporate Banking has today announced that it is working with CGI to implement the CGI Trade360 platform. This new platform will provide an industry leading end-to-end global trade finance solution for Barclays clients in the UK and around the world.

With the CGI Trade360 platform, Barclays will provide clients with greater connectivity and visibility into their supply chains, allowing them to optimise working capital efficiency, funding and risk mitigation. By utilising cloud based functionality for corporate banking clients, Barclays will also be able to offer a leading client user experience through easy access and real-time integration to essential information, combined with the latest trade solutions as the industry-wide shift to digitisation continues to accelerate.

This move underpins Barclays commitment to supporting the trade and working capital needs of their clients and reinforces a commitment to innovation that has been central to the bank for more than 300 years.

James Binns, Global Head of Trade & Working Capital at Barclays, said: “We are delighted to announce our move to the CGI Trade360 platform and to have started the implementation process. We have a longstanding partnership with CGI, and the CGI Trade360 platform will mean we can continue delivering the best possible trade solutions and service to our clients for many years to come.”

Neil Sadler, Senior Vice President, UK Financial Services, at CGI, said: “Having worked closely with Barclays for the last 30 years, we knew we were in an excellent position to enhance their systems. Not only do we have a history with them and understand how they work, but part of the CGI Trade360 solution includes a proof of concept phase, which is essentially seven weeks of meetings and workshops with employees across the globe to guarantee the product’s efficiency and answer all queries. We’re delighted that Barclays chose to continue working with us and look forward to supporting them over the coming years.”

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What’s the current deal with commodities trading?

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What’s the current deal with commodities trading? 2

By Sylvain Thieullent, CEO of Horizon Software

The London Metal Exchange (LME) trading ring has been the noisy home of metals traders buying and selling for over a hundred years. It’s the world’s oldest and largest metals market and is home to the last open outcry trading floor. Recently however, the age-old trading ring, though has been closed during the pandemic and, just a few weeks ago, the LME announced that it will remain so for another six months and that it is taking steps to improve its electronic trading. This news fits in with a growing narrative in commodities about a shift to electronic trading that has been bubbling away under the surface.

Something certainly is stirring in commodities. The crisis has affected different raw materials differently: a weakening dollar and rising inflation risks bode well for some commodities with precious metals being very attractive, as seen by gold reaching all-time highs. Oil on the other hand has had a tough year and experienced record lows from the Saudi-Russia pricing war. It has been a turbulent year, and now prices look set to soar. While a recent analyst report from Goldman Sachs predicts a bullish market in commodities for the year ahead, with the firm forecasting that it’s commodities index will surge 28%, led by energy (43%) and precious metals (18%).

Increasingly, therefore, it seems that 2020 is turning out to be a watershed moment for commodities, and it’s likely that the years ahead will bring about significant transformation. And whilst this evolution might have been forced in part by coronavirus, these changes have been building up for some time. Commodities are one of the last assets to embrace electronic trading; FX was the first to take the plunge in the 90s, and since then equities and bonds have integrated technology into their infrastructure, which has steadily become more advanced.

The slow uptake in commodities can be explained by several truths: the volumes are smaller and there is less liquidity, and the instruments are generally less exotic, essentially meaning it has not been essential for them to develop such technology – at least not until now. This means that, for the most part, the technology in commodities trading is a bit outdated. But that is changing. Commodities trading is on the cusp of taking steps towards the levels of sophistication in trading as we see in other asset classes, with automated and algo trading becoming ever prominent.

Yet, as commodities trading institutions are upgrading their systems, they will be beginning to discover the extent of the job at hand. It’s no easy task to upgrade how an entire trading community operates so there’s lots to be done across these massive organisations. It requires a massive technology overhaul, and exchanges and trading firms alike must be cautious in the way they proceed, carefully establishing a holistic, step-by-step implementation strategy, preferably with an agile, V-model approach.

The workflow needs to be upgraded at every stage to ensure a smooth end-to-end trading experience. So, in replacement of the infamous ring, these players will be looking to transform key elements of their trading infrastructure, including re-engineering of matching engines and improving communications with clearing houses.

However, these changes extend beyond technology. For commodities players to make a success of the transformation in their community, exchanges need to have highly skilled technology and change the very culture of trading. All of which is currently being done against a backdrop of lockdown, which makes things much more difficult and can slow down implementation.

What is clear is that coronavirus has definitely acted as a catalyst for a reformation in commodities. It is a foreshadowing of what lies ahead for commodities trading infrastructure because, a few years down the line, commodities trading could well be very different to how it is now, and the trading ring consigned to history.

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Afreximbank’s African Commodity Index declines moderately in Q3-2020

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Afreximbank’s African Commodity Index declines moderately in Q3-2020 3

African Export-Import Bank (Afreximbank) has released the Afreximbank African Commodity Index (AACI) for Q3-2020. The AACI is a trade-weighted index designed to track the price performance of 13 different commodities of interest to Africa and the Bank on a quarterly basis. In its Q3-2020 reading, the composite index fell marginally by 1% quarter-on-quarter (q/q), mainly on account of a pull-back in the energy sub-index. In comparison, the agricultural commodities sub-index rose to become the top performer in the quarter, outstripping gains in base and precious metals.

The recurrence of adverse commodity terms of trade shocks has been the bane of African economies, and in tracking the movements in commodity prices the AACI highlights areas requiring pre-emptive measures by the Bank, its key stakeholders and policymakers in its member countries, as well as global institutions interested in the African market, to effectively mitigate risks associated with commodity price volatility.

An overview of the AACI for Q3-2020 indicates that on a quarterly basis

  • The energy sub-index fell by 8% due largely to a sharp drop in oil prices as Chinese demand waned and Saudi Arabia cut its pricing;
  • The agricultural commodities sub-index rose 13% due in part to suboptimal weather conditions in major producing countries. But within that index
    • Sugar prices gained on expectations of firm import demand from China and fears that Thailand’s crop could shrink in 2021 following a drought;
    • Cocoa futures enjoyed a pre-election premium in Ghana and Côte d’Ivoire, despite the looming risk of bumper harvests in the 2020/21 season and the decline in the price of cocoa butter;
    • Cotton rose to its highest level since February 2020 due to the threat of storm Sally on the US cotton harvest, coupled with poor field conditions in the US;
    • Coffee rose 10% as La Nina weather conditions in Vietnam, the world’s largest producer of Robusta coffee, raised the possibility of a shortage in exports.
  • Base metals sub-index rose 9% due to several factors including ongoing supply concerns for copper in Chile and Peru and strong demand in China, especially as the State Grid boosted spending to improve the power network;
  • Precious metals sub-index, the best performer year-to-date, rose 7% in the quarter as the demand for haven bullion continued in the face of persistent economic challenges triggered by COVID-19 and heightening geopolitical tensions. In addition, Gold enjoyed record inflows into gold-backed exchange traded funds (ETFs) which offset major weaknesses in jewellery demand.

Regarding the outlook for commodity prices, the AACI highlights the generally conservative market sentiment with consensus forecasts predicting prices to stay within a tight range in the near term with the exception of Crude oil, Coffee, Crude Palm Oil, Cobalt and Sugar.

Dr Hippolyte Fofack, Chief Economist at Afreximbank, said:

“Commodity prices in Q3-2020 have largely been impacted by COVID-19. The pandemic has exposed global demand shifts that have seen the oil industry incur backlogs and agricultural commodity prices dwindle in the first half of the year. The outlook for 2021 is positive however conservative the markets still are. We hope to see an increase in global demand within Q1 and Q2 – 2021 buoyed by the relaxation of most COVID-19 disruptions and restrictions.’’

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