Commodities Advance Boosts Miners as European Equities Decline

Did Brexit Create a Central Bank Inflation Trade-Off?
  • Silver tops $20 an ounce as nickel rises to eight-month high
  • Italian banks decline after ECB sends letter to Monte Paschi

Precious metals led commodities higher, boosting mining stocks, on speculation central banks in some of the world’s leading economies will step up monetary stimulus in the wake of Britain’s decision to leave the European Union.

Silver touched a two-year high and gold rallied for a fourth day after the Brexit vote spurred demand for havens. Brent crude held above $50 a barrel as Nigerian militants threatened more supply disruptions, while nickel climbed to an eight-month high after the Philippines announced plans to audit mining operations. Miners in the Stoxx Europe 600 Index gained while automakers and builders fell. Currencies of commodity producers were the best performers. The Ibovespa rallied to an eight-week high in Sao Paulo.

Gold and other raw materials have advanced on speculation the U.K.’s June 23 vote to leave the EU will trigger further stimulus from the European Central Bank and Bank of Japan while reducing the chance that the Federal Reserve will raise interest rates this year. Global equities last week rallied by the most in four months as policy makers worldwide sought to reassure investors they would take steps to limit the economic fallout of so-called Brexit and ensure financial markets kept functioning. The securities tumbled by the most since 2008 on the day after Britain’s referendum.

“Investment demand for metals continue on expectations of a dovish Fed, growth worries and central bank policies putting more and more sovereign bonds into negative yields,” Ole Hansen, the head of commodity strategy at Denmark’s Saxo Bank A/S, wrote in an e-mail. “The policies of the ECB and BOJ are already ultra loose and further stimulus could be added following the Brexit vote.”

A BOJ report on Monday revealed the nation’s companies cut their forecasts for inflation for five years’ time, adding to pressure on the central bank to boost stimulus. In China, an official factory gauge retreated to the dividing line between improvement and deterioration last month, while a measure of services perked up, weekend data showed.

U.S. stock futures edged higher while the main financial markets were closed for the Fourth of July holiday. Some Middle Eastern markets will close this week for religious observances.

Commodities

Silver soared as much as 7 percent, its biggest intraday gain since 2014, before paring its advance to 2.9 percent as it traded at $20.326 an ounce at 4:21 p.m. in New York. Holdings in silver-backed exchange traded funds expanded to a record last month, and assets in gold ETFs are now at the highest since August 2013 as investors bet on a continued low-yield environment. Gold bullion rose 0.6 percent on Monday.

“Brexit has created all sorts of fear and loathing across markets,” Commonwealth Bank of Australia analysts including Tobin Gorey, wrote in a note, adding that investors are cutting back on risk. “Gold and silver, as we would expect, benefit the most from safe-haven demand flows.”

Brent crude slipped 0.5 percent to $50.10 a barrel. A militant group operating in Nigeria’s southern oil-producing region said it attacked five crude-pumping facilities, dealing a blow to the government’s effort to enforce a cease-fire.

Nickel, which is used in the production of stainless steel, rose 2.3 percent to more than $10,000 a ton in London. It surged 5.6 percent on Friday after the Philippines announced its audit plans, threatening to curb supplies from the southeast Asian country. Less than a third of miners operating in the nation are compliant with international standards for responsible mining, according to the government.

Stocks

The Stoxx Europe 600 slipped 0.7 percent, after posting is biggest four-day rally since February. The volume of shares changing hands was about 30 percent lower than the 30-day average, with the U.S. market closed for the Independence Day holiday. S&P 500 Index futures gained 0.2 percent.

Canadian stocks rose for a fourth day, aided by commodity producers. The S&P/TSX Composite Index advanced 1.4 percent, with Barrick Gold Corp. and Suncor Energy Inc. leading the gauge higher.

The Ibovespa advanced to its highest level since mid-May as iron-ore producer Vale SA rallied. Power utility CPFL Energia SA gained the most since February 2015 after State Grid Corp. of China agreed to acquire Camargo Correa SA’s 23 percent stake in the company. Frozen food maker BRF SA contributed the most to the index’s gains.

Industrias Penoles SAB, the Mexican company that owns the world’s largest silver mine, jumped 7.1 percent, bringing its gain this year to 179 percent. Mexico’s IPC equity index closed the session little changed after a 4-day winning streak.

The MSCI Emerging Markets Index rose 0.5 percent to the highest since April. It is up 6.1 percent in five days, the best performance for the period since March 7.

Italy’s FTSE MIB Index fell 1.7 percent, the biggest decline among western-European markets, as Banca Monte dei Paschi di Siena SpA and Banca Popolare dell’Emilia Romagna SC lost more than 6 percent. The ECB has asked Monte dei Paschi to draw up a plan for tackling its bad-loan burden, a sign the nation’s banks are under pressure to bolster their finances.

The U.K.’s FTSE 100 Index lost 0.8 percent. The gauge of megacaps is close to entering a bull market, boosted by a weaker pound and a rally in miners of precious metals. Glencore PLC climbed 4.4 percent on Monday.

Poland’s equity benchmark dropped 1.2 percent after Deputy Prime Minister Mateusz Morawiecki said assets held by privately-owned pension funds would be transferred to private-pension accounts and a state fund as part of a plan to overhaul the pension system. The zloty weakened 0.4 percent versus the dollar, the worst performance among 31 major currencies after Brazil’s real.

The Shanghai Composite Index climbed 1.9 percent. The Hang Seng China Enterprises Index of mainland shares traded in Hong Kong rose for a third day, advancing 1 percent, headed for its highest close since June 10, as trading resuming after a holiday on Friday. India’s benchmark rose 0.5 percent.

Currencies

The Australian, Canadian and New Zealand dollars appreciated at least 0.5 percent, buoyed by the pickup in commodity prices.

The British pound rose 0.2 percent versus the dollar, after Chancellor of the Exchequer George Osborne floated the possibility of a lower corporate tax rate and before Bank of England Governor Mark Carney outlines the available macroprudential tools on Tuesday. The currency tumbled 8.1 percent in June, the most since 2008, as the U.K.’s decision to leave the EU shocked investors and triggered political upheaval in the country.

Japan’s yen was little changed at 102.53 per dollar. It declined 0.3 percent last week as BOJ Governor Haruhiko Kuroda said more funds could be injected into the market should they be needed. The haven currency touched 99.02 in the wake of the vote for Brexit, its strongest level since 2014.

Brazil’s real led losses among 31 major currencies and dropped 1 percent as the central bank intervened to weaken the currency.

Bonds

The yield on Australia’s 10-year government bonds increased by five basis points to 2 percent, after sinking to a record 1.95 percent in the last session. The nation’s inconclusive vote raises the prospect Prime Minister Malcolm Turnbull’s Liberal-National coalition -- or the main opposition Labor Party -- will be forced to work with a handful of disparate independent lawmakers in order to stay in power. Ballot counting doesn’t resume until Tuesday.

“It looks like another three years of de facto minority government, which is not a great outcome for the economy and investment markets,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd., which manages more than $110 billion in Sydney.

The Reserve Bank of Australia is expected to leave interest rates unchanged at a policy review on Tuesday, according to all 27 economists surveyed by Bloomberg. Swaps indicate a better-than-even chance of an easing in August following the next inflation reading.

The cost of insuring corporate debt fell for a fifth day, according to data compiled by Bloomberg. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies advanced 1.2 basis points to 80.39 basis points and the high-yield benchmark advanced three basis points to 347 basis points.

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