On the commodities space, much talks about the impact of the 2014 export ban in Indonesia could drive a significant disruption in copper, bauxite and nickel markets. Barclays forex charts analysts noticed the plunge in Indonesian tin export by 88% M/M to 0.8Kt in September. This is below the average refined exports of 8.5Ktm in January to August 2013. It fell because of their contradicting convictions to the export ban.
Barclays forex charts analysts believe that the Indonesian government has provided no go signal to miners yet that the ban will not happen and the government itself has not agreed on the final policy application, as consultations with concerned parties continue. This was confirmed as meetings with ore producers that have mining operations in Indonesia imply that.
A ban is well expected while the complicated situation remains influx, as producers were generally extremely nervous about the policy ramifications. However, in the case of nickel mining, the talks suggested that RKEF NPI producers could shift to a lower grade ore input from alternative sources from an average 1.8% Indonesian ore to a lower grade of 1.5%. This is possible if there will be a full ban on ore exports. Even then, larger input requires it and the effect of lower nickel output would press for costs to climb up to approximately $3,000/t from $12,500/t.
The overall investor sentiment towards nickel was optimistic on price points, due particularly to risks associated with the Indonesian ore export ban. This, along with increased visibility of supply rationing (excluding China), given enormous margin pressures at the existing LME price levels.
Mexico Rates vs. Forex Charts
Barclays forex charts analysts reported that they already hit their target on 5y TIIE receiver against 5y US swap payer. They initiated the trade at 421 bps in June, which targets 350 bps. It is currently trading at 347 bps.
The opportunity for the trade was based on three forex charts strategies. It is becoming more visible that the growth momentum between the US and Mexico is diverging. Another thing, Barclays thought local rates in Mexico were highly “penalised” due to the summer season sell off in the US rates which represents an attractive risk premia. Lastly, the broker hinted that the fair value spread between US and Mexico rates on the intermediate portion of the curve should be lower than its historical average.
The alterations on the reforms will yield into lower rates and stronger growth in Mexico. A significant development on the reform has already been materialised ever since the trade was initiated. The trade was supported by the dovish stance of Baxico, with forex charts surprise of a 25 bps cut at the onset of September. This news has become more dovish after the disappointing economic data and benign inflation news releases. Hence, Barclays expects a cumulative 50 bps rate cut over the next two central bank meetings.