Pre-Market Stocks: The broken nickel market is a warning to Wall Street

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Pre-Market Stocks: The broken nickel market is a warning to Wall Street

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What’s happening: The LME was hoping to resume business as usual on Wednesday. But it had to put an end to nickel e-commerce shortly after it resumed due to a technical glitch.

Darwei Kung, a DWS portfolio manager, said his team tried to execute trades at 4am ET. “It lasted two minutes,” or less, he told me.

On Thursday, the price of the metal dropped to $ 41,495 per ton, its daily cap, as traders rushed to sell shortly after the market opened.

Take a step back: The trade in many commodities, including other metals, agricultural products like wheat and energy, has been turbulent since the pandemic disrupted supply chains.

But the invasion of Ukraine – a major exporter of wheat and corn – and subsequent sanctions on Russia, a major exporter of oil, gas, nickel, aluminum and palladium, made matters worse. Traders are struggling to determine if there will be shortages, leading to major price movements.

“It clearly appears that some of these markets are broken,” Warren Patterson, head of commodities strategy at ING, told me.

The problems have been more extreme in the nickel market. The LME had to stop trading for the first time since 1988 last week after prices doubled within hours. The roots of the chaos have been traced back to Xiang Guangda, whose company, Tsingshan Holding Group, made big bets that the price of nickel would drop. The gamble failed after the invasion caused the metals to surge.

But there are also signs of tension elsewhere. Patterson said the number of traders betting on oil has plummeted as people wait on the sidelines for a lull in volatility.

Brent crude futures, the benchmark for global crude, jumped above $ 139 a barrel after the invasion, only to drop nearly 30% a week later.

Why it matters: When traders pull out of the market because they think conditions are too dark and money runs out, it only sets the stage for larger swings, as there are fewer potential buyers and sellers.

“[It’s] a vicious circle, ā€¯Patterson said.

Such fluctuations can make it difficult for the market to function properly. Traders can receive “margin calls” from their brokers or other market participants, asking them to insure against escalating losses by issuing more money. If they don’t have the money, the situation can quickly deteriorate, setting off a chain of unexpected consequences.

The European Federation of Energy Traders, a trading group whose members include BP (BP) and Trafigura, recently warned governments and central banks that the market needed emergency support in the face of historic volatility. They said there was a “significant risk” that traders may not have the money to deal with margin calls, which could cause severe instability.

“It is not impossible to predict a situation where generally healthy and healthy energy companies, with portfolios of significant and valuable assets, are unable to access the liquidity to meet these unprecedented margin requirements,” they wrote in a letter from the ‘8th of March.

The Fed raises interest rates for the first time since 2018

The Federal Reserve minimized interest rates at the start of the pandemic. Now, for the first time since 2018, it is starting to raise them again, in an attempt to put a stop to higher inflation in decades.

The latest: on Wednesday, the Fed raised its benchmark interest rate by a quarter of a percentage point and indicated it was prepared to aggressively withdraw from the support of the crisis-era economy if necessary. Officials have predicted six further hikes this year.

“We believe the economy is very strong and will be able to withstand tighter monetary policy,” Fed Chairman Jerome Powell told reporters after the announcement.

Shares rose after the news, even as US futures retreated Thursday morning. The S&P 500 was up 2.2% on Wednesday, while the high-tech Nasdaq Composite jumped 3.8%.

Investors were heartened by the Fed’s emphasis that its next steps will hinge on the latest economic data. Fears have grown that if the Fed withdraws the stimulus too quickly, it could push the economy into a recession.

Stocks in mainland China and Hong Kong, which were hit earlier this week, continued to rebound after Beijing pledged to bolster the market and support the country’s economy.

Hong Kong’s Hang Seng gained 7%. The Shanghai Composite gained 1.4%. Tech giant Alibaba, which has faced severe selling pressure, has jumped 43% in the past two trading sessions.

What’s more: The Bank of England, which is a few steps ahead of the Fed, pushed its main interest rate to pre-pandemic level on Thursday.

Will Russia default on its debt?

Russia says it ordered investors to send $ 117 million in interest payments due Wednesday to investors in an effort to avoid its first international default in more than a century. But he’s not out of the woods yet, reports my CNN business colleague David Goldman.

This is because the funds the country used to pay off the debt came from Russia’s frozen foreign assets, sanctioned due to its invasion of Ukraine, so it’s unclear whether investors will get their money.

Anton Siluanov, the Russian finance minister, told state media Russia Today that the country has met its obligations to creditors.

But the “possibility or impossibility of meeting our foreign currency obligations is not up to us,” Siluanov said, according to RT, warning that the payment may fail if the United States refuses it.

“We have the money, we made the payment, now the ball is on the American court,” he said.

A Treasury spokesperson said the United States will allow payments to be made.

That said: More payments are coming soon, some much, much bigger. And if Russia tries to pay in rubles, not dollars, that would be a default, according to Fitch Ratings.

If the Russian government fails to honor its foreign bonds for the first time since the Bolshevik revolution, it will spark a race to determine which investors have lent money to Moscow and whether their potential losses could reverberate through the financial markets.

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US housing commencement and building permits for February, as well as initial jobless claims for last week, were released at 8:30 am ET.

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