Bloodbath: “Nightmarish Picture” For Iron Ore Triggers Metals Mayhem

Ok, let’s see, what is it, Thursday? Yeah, it’s Thursday.

So that means the House is going to try one more time to push through a hastily-put-together healthcare bill in what’s being billed (get it?) as a “do or die” moment on the whole GOP/Trump “repeal and replace” meme. If you’re thinking “wait, I thought we already had a ‘do or die’ moment and it died,” you’re correct. It’s back from the dead. And it may get killed again this afternoon. We’ll see.

Here’s Majority Leader Kevin McCarthy hilarious assessment:

We will be voting on the health care votes. Because we have enough votes. It’ll pass.

Got that? So that should be good for a bit of algo knee-jerking later today.

Moving on to markets, the metals complex is in fucking free fall. Iron ore futs in China were limit down on the day…

…and copper extended Wednesday’s decline as LME inventories rose 12% to 317,850 tons, the highest in six weeks.

“Iron ore’s center of gravity is constantly moving lower,” Zhao Chaoyue, an analyst at China Merchants Futures Co. told Bloomberg. “Concerns about the glut have always been there. Port stockpiles are maintaining near a record and there’s a consensus that supply will go on expanding, especially in the second half.”

“Iron ore demand is waning, which, against backdrop of near-record/record inventories and aggressive Chinese and seaborne supply, paints a nightmarish picture,” Axiom’s Gordon Johnson said in a note this morning, adding that if you look at the data, iron ore is “on precipice of a spectacular decline [and] we would be adding to shorts in FMG, CLF, RIO, and X.”

And then there was rebar which ended down 6.4% on Shanghai Futures Exchange. As Bloomberg goes on to detail, “daily volume for the most-active contract surged above 10 million lots, or 100 million tons of steel — about an eighth of what the nation produces in a year,” while hot-rolled coil ended limit-down.

STEEL REBAR, HOT-ROLLED COIL FUTURES SLUMP BY LIMIT IN CHINA

All of this comes after base metals put up their worst daily showing of the year, plunging on worries about the outlook for Chinese demand and a stronger greenback. Copper fell hard on Wednesday on supply jitters.

You get the idea. Absolute bloodbath.

Meanwhile, in FX, the broad dollar struggled to hold on to post-Fed gains:

But USDJPY approached 6-week highs:

And the aussie fell below 0.74 for the first time since early January:

We also got some econ data out of Europe. Here’s a quick rundown of the prints you should care about:

Eurozone April Composite PMI 56.8 vs Flash Reading 56.7
- Index rises to 56.8 from 56.4 in March; Year ago 53
- Highest reading since April 2011
- New Orders fall to 55.9 vs 56.2 in March
Eurozone March Retail Sales Up 0.3% M/m; Est. Up 0.1% M/m
- Eurostat reports retail sales up 2.3% y/y; est. up 2.1% y/y.
- Forecast range -0.6% to 0.3% m/m from 24 economists
U.K. April Services PMI 55.8 vs 55 in March; Est. 54.5
- Forecast range from 53.5 to 55.4 from 34 economists
- Index rises to 55.8 from 55 in March; Year ago 52.3
- Highest reading since Dec. 2016
- Ninth consecutive month of expansion
- New Business rises to 57.5 vs 56.6 in March
- Highest reading since Dec. 2016
- Ninth consecutive month of expansion

Finally, here’s SocGen’s overnight take:

The FOMC left rates on hold, as expected, said nothing in the statement about plans to shrink the Fed’s balance sheet (that’ll come later) but did strike a sufficiently upbeat tone in the economic assessment to persuade the rates market to price in a June hike with confidence. The labour market has strengthened ‘even as growth has slowed’. Household spending rose only modestly ‘but the fundamentals underpinning the continued growth of consumption remained solid’. Inflation ‘has been running close to the committee’s 2% objective’. The message seems clear —they plan to look through recent soggy data and expect a bounce. However, as the second line on chart 1 shows, for all the market’s confidence in a June hike, pricing of a second one by December has moved very little and the priced-in probability is only 54.4%.

For the dollar, it’s the longer-term rate outlook which matters and that hasn’t moved. 10year yields (chart 2) are up a couple of basis points. 1year rates in 5years’ time are 3bp higher than before the FOMC, but at 2.49% certainly don’t price in a 3% ‘terminal’ Fed Funds rate. The dollar’s been tracking the moves in forward rates closely enough but as the global economy improves and the rate outlook elsewhere changes, the DXY index has been making a series of lower highs and lower lows. The little bounce we are seeing now doesn’t alter that picture at all. It would take a break of 101.5 to change that.

The final French Presidential debate has been described as messy and brutal this morning, but it’s hard to see it changing the opinion poll picture much. If the betting market prices a 90-% chance of a Macron win, the FX market is probably a little less sure, but expects something like an 80% chance of a 1-figure EUR/USD rally and a 20% chance of a 5-figure fall. For the rest of the week, we’re probably stuck in a range. Final PMIs will confirm the Eurozone economy’s doing well, and still convince me that there’s more than a 1-figure rally in store for the Euro over the next month or two, but despite wanting to stick with EUR/JPY/JPY and EUR/GBP longs, I expect we’ll end the week quite close to current levels.

The most striking moves are still in commodities. Industrial metals prices are weak, iron or prices are showing no sign of stability and oil prices are still testing 2017 lows repeatedly. Supply and softer Chinese data combine in a pretty toxic mix. In G10, AUD is taking the brunt of the metals move, though NZD is being dragged down too, and oil prices are keeping NOK and RUB in the bottom five global currencies for the week. Short NOK/SEK is an attractive trade to hedge downside risk, more so than going short a very cheap Canadian dollar. The Norges Bank is expected to leave rates on hold this morning and with no monetary policy report due, we may not get much guidance on the longer term outlook.