2 days ago
Metal stocks fall as hawkish Fed signals pressure prices
Metal company shares fell sharply on Monday.
Hindustan Zinc, Vedanta, National Aluminium Company and Hindalco all lost value.
Investors became worried that the US Federal Reserve may raise interest rates again.
This followed comments from Federal Reserve Chair Kevin Warsh about controlling inflation.
Higher interest rates can make commodities and company shares less attractive to investors.
Gold, silver, aluminium and copper prices also weakened.
Rising US bond yields and profit-taking added to the selling.
Jefferies still prefers Hindustan Zinc over Hindalco and expects Hindustan Zinc could perform well.
It raised its target price for Hindustan Zinc to ₹750.
Hindustan Zinc fell as much as 4.7%, while Vedanta and National Aluminium Company declined nearly 4%.
The Nifty Metal index dropped more than 2% amid a broader market sell-off.
Hawkish comments from US Federal Reserve Chair Kevin Warsh increased expectations of further interest-rate hikes.
Gold and silver prices also declined as bond yields rose and investors booked profits.
Jefferies remained bullish on Hindustan Zinc but kept a ‘Hold’ rating on Hindalco Industries.
- Who
- Metal companies including Hindustan Zinc, Vedanta, National Aluminium Company, Hindalco Industries and Hindustan Copper; US Federal Reserve Chair Kevin Warsh; and brokerage Jefferies.
- What
- Metal stocks and the Nifty Metal index fell as metal and precious-metal prices weakened.
- Where
- Indian stock and commodity markets, alongside global markets and US bond markets.
- When
- Monday, August 31; the article also cites Warsh’s comments on Friday.
- Why
- Hawkish Federal Reserve comments increased expectations of higher interest rates, while rising bond yields, inflation concerns, geopolitical tensions and profit-taking pressured prices.
Market pressure view
Constructive Jefferies view
Near-term direction for metal stocks
Market pressure view
Higher-for-longer US interest-rate expectations, rising bond yields, weak commodity prices and profit-taking are pressuring metal shares.
Constructive Jefferies view
Jefferies said supply concerns remain supportive for some metals and retained a bullish view on Hindustan Zinc.
Zinc and silver versus aluminium
Market pressure view
Aluminium prices were 10% below their June-quarter average, weighing on the outlook for Hindalco despite supply disruptions.
Constructive Jefferies view
Jefferies prefers zinc and silver over aluminium, citing stronger zinc and silver prices and favourable implications for Hindustan Zinc’s earnings.
Key facts
- Hindustan Zinc decline
- Fell as much as 4.7% to ₹592.05.
- Other major stock declines
- Vedanta fell 3.7% to ₹276.50; National Aluminium Company fell 3.8% to ₹369; Hindalco fell 3% to ₹1,005.30.
- Nifty Metal index
- Declined more than 2% in intraday trading.
- Gold and silver
- Spot gold fell 0.3% to $4,439.31 per ounce, while spot silver declined 0.5% to $66.68.
- Rate-hike expectations
- Markets priced a 57% chance of a Federal Reserve rate hike in September, up from 36% before Warsh’s comments.
- US inflation
- Personal Consumption Expenditure rose 3.7% year-on-year in July, above the Federal Reserve’s 2% target.
- Jefferies target prices
- Jefferies raised its Hindustan Zinc target to ₹750 and Hindalco’s to ₹1,140.
Sources
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