There was a bullish mood in markets at the end of last week following the Federal Reserve's decision on Sept. 21 to keep U.S. interest rates unchanged, as expected. On the same day, the Bank of Japan unveiled adjustments to its policy aimed at steepening the yield curve.
The Federal Reserve noted, however, that the case for higher interest rates has strengthened, and three of the 12 members of the Federal Open Market Committee voted for higher interest charges. Nevertheless, most analysts concluded that the interest-rate trajectory has been lowered. An increase is still widely expected in December, but many analysts now expect only two rate increases in 2017.
Japan's central bank has brandished new tools that it hopes will raise low price expectations. In a measure described by the Financial Times as "novel," the bank has set a cap on yields for 10-year government bonds and vowed to overshoot its 2% inflation target. The bank also formally announced that its buying program will favor funds tracking the market-capitalization ranked Topix index, rather than the more opaque Nikkei 225 Average. This caused a sharp price movement for those companies with different weightings on the two indexes.
In Russia’s elections, the ruling United Russia party of President Vladimir Putin has secured a crushing three-quarter majority in the Duma, the lower house of parliament. Not a single member of Russia's liberal opposition won a seat in the election, which Putin described simply as "good," saying Russians had voted for stability in the face of economic difficulties and threats from abroad.
On bond markets, U.S. Treasuries maintained their recent upward price trend, with yields on the policy-sensitive, two-year note falling to 0.77%. Yields on European government bonds also fell last week, with the German 10-year Bund yielding minus 0.09%.
The European Bank for Reconstruction and Development last week launched an unusual US$350 million investment fund. The EBRD has invited sovereign wealth funds from China and Azerbaijan to invest US$250 million and US$100 million, respectively, into long-term investments in eastern Europe. The investment deepens China's relationship with an organization that it only joined in January.
Good news last week for U.S. investment banks, which took the top five slots in a global league table compiled by Coalition Development Ltd. The ranking, which includes the revenue from market activity as well as investment banking, saw Deutsche Bank retreat to sixth place, with the top places being taken by JP Morgan, Goldman Sachs, Citigroup, Bank of America Merrill Lynch and Morgan Stanley.
Barclays, which was in seventh place in the Coalition ranking, last week published a research report in which Kevin Norrish, its head of commodity research, signaled a "turning point in investment flows in commodities." According to the bank, commodities saw investment inflows of US$54 billion in the first eight months of this year, which is an all-time high for the period. If this trend continues, 2016 will mark the first year of significant net inflows into commodities since 2011.
Gold has been by far the single most popular commodity investment so far this year, with flows into physically-backed, exchange-traded products climbing to a net US$27 billion.
The biggest beneficiary of market interest last week was nickel, whose price jumped almost 10% to US$10,640 per tonne — a level last reached two months ago. Analysts attributed the increase to a crackdown by the Philippines on the country's mines that are failing to meet new environmental and social standards.
Other major metals also enjoyed a welcome recovery from the previous week's turmoil. The price of aluminum strengthened 4.0% to US$1,641 per tonne, and zinc and gold rose 2.6% and 2.3%, respectively. Copper and iron ore (62% Fe) were up around 1.8%, and thermal coal built on recent gains with a 3.6% rise to close last week at US$68.90 per tonne.