World coffee prices have all adjusted down after a series of sharp increases. Although concerns about supply remain until the end of the year, strong selling pressure from Brazil has contributed to pushing prices down in the short term.
The Brazilian Monetary Policy Committee (COPOM) has announced a 0.5% cut in the Real's base interest rate to 13.25% per year. This has raised concerns that the Real will go negative again, even though farmers are the immediate beneficiaries and agricultural products of all kinds will be boosted in sales.
Strong selling pressure emerged from Brazil, fueled by falling interest rates and speculation that the country’s monetary policy would ease in the coming months. The central bank cut interest rates more than expected and signaled more such adjustments to come. The loosened monetary policy has helped to flood the market with new crop production.
After the first interest rate cut in three years by the Brazilian Copom, in contrast to the US Fed, appeared to trigger a flight from risky assets, US stocks turned lower and US Treasury yields were pushed to their highest level since November 2022.
While the ICE – London inventory report on August 3 continued to decrease by another 260 tons, down to 51,050 tons, it could not prevent robusta coffee prices from ending their increasing streak.
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| Domestic coffee prices today, August 4, decreased by 300 - 400 VND/kg in some key purchasing localities. (Source: Premiumwishes) |
At the end of the trading session on August 3, the price of robusta coffee on the ICE Futures Europe London exchange decreased. The price of robusta coffee futures for September 2023 delivery decreased by 29 USD, trading at 2,645 USD/ton. The price of November delivery decreased by 16 USD, trading at 2,516 USD/ton. Trading volume was high.
Arabica coffee prices on the ICE Futures US New York floor also decreased, with the September 2023 delivery period increasing by 2.20 cents, trading at 164.75 cents/lb. Meanwhile, the December 2023 delivery period decreased by 2.35 cents, trading at 164.00 cents/lb. Trading volume was high.
Domestic coffee prices today, August 4, decreased by 300 - 400 VND/kg in some key purchasing localities.
Unit: VND/kg. (Source: Giacaphe.com) |
Following the interest rate moves of major economies, the BoE on August 3 also announced to raise the interest rate of the pound by 0.25% to 5.25%/year, the highest level in the past 15 years, to control inflation in the UK which is hotter than many other economies. At the same time, the BoE also warned that borrowing costs may still increase even though inflation has decreased.
Most economists had forecast such an increase after the central bank raised interest rates by half a percentage point at its previous meeting.
UK inflation fell more than expected to 7.9% in June 2023. However, the MPC warned that it was too early to conclude that the economy was at or very close to a turning point. Prices in the UK are still rising at a faster rate than other advanced economies such as the US, Japan and the eurozone, where many are hoping interest rates will peak soon.
Immediately after the BoE's rate hike, the pound slid and UK government bond yields fell.
The pound fell to a five-week low of $1.2623, while the yield on two-year UK government bonds - which are highly sensitive to short-term interest rates - fell from 4.94% to 4.92% immediately after the BoE's announcement.
The bank's updated forecasts show that even if interest rates rise further, the economy would still have to wait until mid-2025 to see inflation fall back to the BoE's 2% target.
The BoE expects GDP growth to remain steady at a quarterly rate of 0.2% in the coming period, but momentum will be dampened by the impact of higher interest rates, even as the economy avoids a recession.
The bank also expects inflation to continue to fall in the coming period, averaging 6.9% in the third quarter of 2023 and 4.9% in the fourth quarter. If that comes to fruition, it would be good news for British Chancellor Rishi Sunak, who has pledged to halve inflation (to 5.4%) by the end of the year.
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