1. The Chip Crisis in Automotive is on the Agenda
2. 3 Critical Topics in Oil Markets
3. Gold Price Looks to the Fed as Focus Shifts to 2023 Rate Hikes

The Chip Crisis in Automotive is on the Agenda

The Chip Crisis in Automotive is on the Agenda

The ongoing chip crisis in the global automotive supply chain continues to have an impact on production. Honda and Toyota are temporarily halting their production lines in North America as adverse weather conditions have adversely affected the supply chain with the chip crisis.
Honda decided to stop production at auto plants in the USA and Canada for a week due to the ongoing contraction in chip supply and supply chain problems due to adverse weather conditions.

Toyota Motor Corp. said the cold front has reduced the supply of petrochemical products, impacting production in the U.S. and Mexico. Some lines, shifts, or potentially entire plants are expected to be temporarily halted for several days in Kentucky, West Virginia, and Mexico, spokeswoman Shiori Hashimoto said Wednesday, without providing further details.

The Japanese automaker expressed the impact of factors such as “the effects of Covid-19, the density at some ports, microchip tightness and the harsh winter conditions experienced in the past few weeks”, and said that these problems will cause some production cuts in all US and Canadian factories next week.

While Honda does not specify the number of vehicles that will be affected by the discontinuation of production, “purchasing and production teams working to mitigate the situation” was said.

The carmaker will halt work at plants in Marysville and East Liberty in Ohio, as well as others in Indiana, Alabama and Ontario, potentially for a week, the spokesperson said by phone Wednesday, without specifying the volume of vehicles affected. Honda made 1.45 million vehicles in North America last year, down 20% from 2019. The Japanese company has 12 manufacturing plants in the U.S. and one in Canada.

Mitsubishi UFJ Morgan Stanley Securities Co. has said the shortage could reduce Honda’s output by 300,000 units, while Toyota is less affected because it isn’t as reliant on foreign semiconductor companies.

Honda slid as much as 1.8% in Tokyo on Wednesday, the most in a week. Toyota pared a 1.6% loss and was little changed as of 2:27 p.m.

3 Critical Topics in Oil Markets

3 Critical Topics in Oil Markets

Prices in oil markets focused on the monthly report of the International Energy Agency, the Federal Reserve’s signals from the Fed’s front, and the high-level talks between the US and China.

Oil prices rose before the monthly report of the International Energy Agency, which investors care about for signals about the course of global demand.

US crude oil futures, which lost up to 2 % in the last 3 trading days, exhibited a positive outlook in the first trades. A similar trend was recorded on the Brent oil side.

The signals that will emerge from the Fed’s interest rate meeting in the oil markets will also be watched carefully. In addition, the markets will follow the official data that will come after the private sector data on US crude oil stocks. If the official data are in line with the private sector data, it will be the first time since mid-February that there will be a retreat in stocks.

Despite the recent recession in oil prices, prices have increased by more than 30 percent since the beginning of the year as OPEC + countries’ production cuts pressured the supply side.

Oil markets also focused on the initial talks between the US and China after Joe Biden’s inauguration.

Senior officials from both sides will meet in Alaska, USA. Although the Beijing administration stated that it wanted the resumption of relations with the United States, which had been at the lowest level of a long time, Washington stated that the talks to be held in Alaska would be one-off, and their continuation was dependent on the improvement in China’s attitude.

“We look forward to the opportunity to lay out in very clear terms to our Chinese counterparts some of the concerns that we have about the actions they’re taking,” U.S. Secretary of State Antony Blinken said on Wednesday in Tokyo.

Blinken and national security adviser Jake Sullivan will meet China’s top diplomat Yang Jiechi and State Councilor Wang Yi in Alaska, fresh off of visits to allies Japan and South Korea aimed at emphasizing the U.S. commitment to the Indo-Pacific in the face of Beijing’s rise.

China hopes the meeting will help set a broad framework for resuming engagement, rather than resolve specific issues, a person in Beijing familiar with planning for the talks told Reuters. However, Biden officials have been explicit that Alaska is not a return to regular dialogue, which under previous administrations did little to resolve Washington’s concerns with Beijing.

“We expect that there are parts of the conversation that could be difficult,” White House press secretary Jen Psaki told reporters.

Gold Price Looks to the Fed as Focus Shifts to 2023 Rate Hikes

Gold Price Looks to the Fed as Focus Shifts to 2023 Rate Hikes

In global markets, all attention is directed to the Fed’s interest rate decision and the expectations to be released from the meeting, while gold prices are cautious on the new trading day.

While pricing in all asset classes in global markets focuses on the messages that will emerge from the Fed meeting, investors are also observed to be cautious on the commodities side.

The ounce price of gold followed a horizontal motion around $1,735 in the first transactions on the new day. While a similar pricing was recorded on the silver side, the decline in palladium prices was noteworthy.

It was seen that the dollar increased, albeit limited, in global markets before the Fed. In addition, prices close to the 1-year peak were observed in bond yields. The US 10-year government bond yield was flat at 1.62 percent, while the Australian 10-year bond yield rose three basis points to 1.73 percent.

Philip Futures Senior Commodity Manager Avtar Sandu, in his assessment of gold prices, predicted that the Fed could develop a discourse against increasing inflation concerns and even make a move on the bond purchases to offset rising bond yields, drew attention to the fact that gold would be positively affected by this.

The Fed will announce its interest rate decision in the shadow of rising US bond yields and thus inflation expectations. Following the decision, Fed Chairman Jerome Powell will appear before the cameras. However, at the meeting, where interest rates are expected to be kept in the 0-0.25 percent band, the main focus of attention is expected to be the “dot plot” containing the mid-term forecasts of the Fed members due to the rapid economic recovery.

‘’Don’t rule out a 10-year Treasury Note yield as high as 2.25% this year,’’ — that’s the message from Wells Fargo Securities’ Michael Schumacher, ahead of Wednesday’s Federal Reserve interest rate decision.

“The fiscal stimulus is enormous, and the vaccine rollout seems to be accelerating quite a bit — not just here in the U.S.,” the firm’s head of macro strategy told CNBC’s “Trading Nation” on Tuesday. “A lot of things are coming together to push yields up.”

Two-thirds of the economists surveyed in the Bloomberg survey do not expect the Fed members’ estimates to reflect the rate hike until 2023. However, some Fed members are likely to raise their 2023 rate forecast points, according to economists. In December estimates, only one member predicted an interest rate hike in 2022, and five members predicted at least one rate hike by the end of 2023.

“The first thing I and most people will look at is whether we have one rate hike in 2023 — that is the main risk,” said Thomas Costerg, senior U.S. economist at Pictet Wealth Management. “That would represent an unraveling of the dovish line held by Powell up to now.”

Although economists expect the Fed decision to emphasize the improved economic outlook, they do not expect a change in verbal orientation for interest rates and asset purchases.