Aluminum prices continued to recover after recently touching their lowest levels in four months, supported by the return of Chinese buyers to the market as lower prices encouraged demand, according to ING analysts Warren Patterson and Ewa Manthey.

The analysts noted that aluminum prices came under pressure last week after production capacity in the Middle East returned more quickly than expected following the ceasefire, easing concerns over supply disruptions.

Even so, they maintained that the market remains on track to record a supply deficit this year, saying, "We continue to expect the market to remain in deficit this year."

The report added that expectations of a continued supply deficit are providing fundamental support for the recent recovery in prices, even as supply conditions in the Middle East improve.

Another key factor supporting prices has been the continued decline in China's spot aluminum inventories.

"China's spot aluminum inventories have fallen for a twelfth consecutive session to 1.09 million metric tons, more than 25% below the peak reached in April," the analysts said.

The persistent decline in inventories points to stronger demand or continued supply tightness in the Chinese market.

The report also noted that renewed attacks on vessels near the Strait of Hormuz have heightened concerns over shipping risks, adding another layer of uncertainty to regional supply flows.

Speculative appetite weakens despite improving market fundamentals

Despite improving market fundamentals, the report said investor appetite for speculative positions in aluminum has continued to weaken.

Citing the latest Commitments of Traders Report (COTR), ING analysts said speculative sentiment continued to deteriorate.

They added that net long positions in London Metal Exchange (LME) aluminum contracts fell by 14,891 contracts for a fourth consecutive week, reaching 53,923 contracts in the week ended July 3, the lowest level since May 2019.

The continued decline in net long positions reflects growing caution among speculative investors, despite expectations of a supply deficit and falling inventories in China.

The report said the market is currently balancing two opposing forces. On one hand, the faster-than-expected recovery in Middle Eastern production has eased supply concerns. On the other, signs of tight supply continue to emerge in other parts of the world.

ING analysts concluded that declining inventories in China and rising shipping risks through the Strait of Hormuz should continue to support aluminum prices, even as investors reduce their bullish positions in financial markets.

Bitcoin (BTC) extended its price correction during Wednesday's trading, falling below the $63,000 level after failing to break above the key $64,000 resistance, as renewed tensions in the Middle East dampened investors' appetite for risk.

Stablecoin market contraction adds pressure on the largest cryptocurrency

A sharp contraction in the stablecoin market during June also pointed to declining liquidity and weaker buying power across the cryptocurrency market.

US forces launched a fresh wave of strikes against Iran on Tuesday following reports that three oil tankers had come under attack in the Strait of Hormuz, adding further strain to the fragile ceasefire agreement between the two countries.

In response, Iran's Revolutionary Guard said it had targeted 85 US military sites in Bahrain and Kuwait, accusing Washington of violating the ceasefire agreement. It also claimed to have shot down a US MQ-9 drone over southern Iran.

At the same time, the United States revoked a key waiver that had allowed Iran to sell oil in global markets.

The latest developments have heightened concerns over potential disruptions to shipments through the Strait of Hormuz, driving crude oil prices higher.

Analysts believe the renewed escalation threatens the fragile temporary agreement between Washington and Tehran, weighing on high-risk assets led by Bitcoin, which slipped below the $63,000 mark. They warned that any further escalation this week could trigger a deeper correction in the cryptocurrency.

Stablecoin market contraction raises concerns despite modest institutional demand

In another sign of market weakness, data shared by Walter Bloomberg on X showed that the stablecoin market contracted by 2.4%, or $7.7 billion, during June, bringing its total market value down to $312 billion and marking its largest monthly decline since the collapse of TerraUSD in 2022.

The contraction coincided with a roughly 20% decline in Bitcoin over the month, signaling lower liquidity and weakening buying power across the digital asset market.

The report noted that if this trend continues through July, Bitcoin and the broader cryptocurrency market could face additional selling pressure, as a shrinking stablecoin supply typically indicates fresh capital is leaving the crypto ecosystem, increasing downside risks.

Meanwhile, institutional demand has shown modest improvement since the beginning of the week.

Data from SoSoValue showed that spot Bitcoin ETFs recorded net inflows of $21.44 million on Tuesday, marking their third consecutive session of positive inflows.

However, those inflows remain modest compared with the scale of outflows recorded over recent weeks, making them insufficient to offset the pressure weighing on Bitcoin prices.

The report added that if ETF flows turn negative again, Bitcoin could face another wave of price correction in the near term.

Oil prices jumped more than 5% on Wednesday, climbing to their highest levels in two weeks after US President Donald Trump declared that the memorandum of understanding aimed at ending the conflict with Iran was "over," reviving fears of disruptions to oil supplies from the Middle East.

Brent crude futures rose $4.27, or 5.76%, to $78.43 a barrel by 11:27 GMT, while US West Texas Intermediate crude futures gained $3.91, or 5.55%, to $74.35 a barrel.

Risks return to the oil market

Both benchmarks climbed to their highest levels since June 22 after closing nearly 3% higher on Tuesday following the US decision to revoke the general license that had allowed the sale of Iranian crude oil.

Trump said on Wednesday that the memorandum of understanding signed with Iran to end the conflict was "over," adding that he no longer wanted any dealings with Tehran.

The agreement, brokered by Pakistan last month, had given both sides 60 days to hold negotiations but came under mounting pressure after the United States carried out fresh strikes against Iran.

"The market is once again being forced to price in the risk that renewed attacks on shipping, or a broader breakdown in US-Iran relations, could delay the normalization of supply flows through the Strait of Hormuz," said Ole Hansen, Head of Commodity Strategy at Saxo Bank.

US Central Command said on Tuesday that the latest US airstrikes were launched in response to Iranian attacks targeting three commercial vessels transiting the Strait of Hormuz. Iran's Revolutionary Guard later announced that it had struck US military sites in Bahrain and Kuwait early on Wednesday.

The latest developments have renewed concerns over oil tanker traffic through the Strait of Hormuz, which handled around one-fifth of global energy supplies before the conflict erupted in late February.

Meanwhile, the spread between prompt Brent contracts and those maturing three months later widened to $2.36 a barrel, the highest since June 16, as the market shifted back into backwardation after remaining in contango through July 6. The move reflects traders' reassessment of near-term supply risks in the Middle East.

Backwardation, where prompt prices trade above longer-dated futures, typically signals tight near-term supplies.

Supply concerns return as tanker traffic slows despite expectations of lower prices in 2026

"Trump's declaration that the memorandum of understanding is over raises the likelihood of the Strait of Hormuz being closed again as the escalation enters a new phase," said Saul Kavonic, Head of Energy Research at MST Marquee.

Vessel-tracking data showed that at least four oil and gas tankers altered course and abandoned attempts to transit the strait as renewed attacks on shipping heightened security concerns.

Following the ceasefire agreement signed by the United States and Iran last month, oil prices retreated to pre-war levels, while traders increased their bearish positions in oil futures, betting on further price declines.

Since the conflict began, several countries have drawn on their strategic oil reserves to offset supply shortages.

Separately, HSBC lowered its forecast for Brent crude to average $80 a barrel in 2026, down from a previous estimate of $95, citing expectations that oil exports from the Gulf region will return to normal by the end of September.

Meanwhile, trade sources said on Wednesday that China had eased restrictions on refined fuel exports for the remainder of July and had also allowed one independent refiner to resume shipments after a four-month suspension.

The US dollar steadied near a one-week high on Wednesday after President Donald Trump declared that the temporary memorandum of understanding with Iran aimed at ending the conflict between the two countries had "come to an end," while the New Zealand dollar jumped following the central bank's decision to raise interest rates.

The US Dollar Index, which tracks the greenback against a basket of six major currencies, was little changed at 101.17, remaining close to its highest level since July 2 as investors continued to favor the safe-haven currency amid heightened geopolitical uncertainty.

Geopolitical tensions support the US dollar

Jane Foley, Head of FX Strategy at Rabobank, said the US dollar had responded to the latest developments, although markets have become accustomed to treating Trump's remarks with a degree of caution.

"These comments may be intended to bring the other side back to the negotiating table, but they are nevertheless likely to increase market anxiety," she said.

In energy markets, Brent crude futures climbed 6.24% to $78.82 per barrel, extending gains for a second consecutive session.

Trump's comments came after Iran's Revolutionary Guard announced on Wednesday that it had targeted US military sites in Bahrain and Kuwait, following a wave of US airstrikes against Iran in response to attacks on oil tankers in the Strait of Hormuz.

New Zealand rate hike and Fed minutes in focus

Meanwhile, the New Zealand dollar rose 0.26% to US$0.5691 after trimming part of its earlier gains, following the Reserve Bank of New Zealand's decision to raise its benchmark interest rate by 25 basis points to 2.50%, in line with broad market expectations, as policymakers continued efforts to contain inflationary pressures.

The central bank said that "further removal of monetary stimulus is likely to be required" to bring inflation under control.

Westpac analysts wrote in a research note that one of the main reasons behind the rate hike was concern that financial conditions would have become more accommodative had the official cash rate remained unchanged.

Later on Wednesday, investors will turn their attention to the minutes of the Federal Reserve's June policy meeting, the first held under new Fed Chair Kevin Warsh.

Francesco Pesole, FX strategist at ING, said the minutes should provide a clearer picture of how seriously policymakers are considering additional interest rate hikes.

"Based on officials' remarks following the meeting, we see limited scope for a dovish surprise and expect the minutes to reinforce the Fed's hawkish message, providing further support for the US dollar," he said.

However, Pesole added that he does not expect a major breakout for the greenback, as markets may be reluctant to significantly increase rate hike expectations following last week's weaker-than-expected US employment data.

Other currencies

The US dollar rose 0.24% against the Japanese yen to ¥162.48, extending gains for a fourth consecutive session as traders continued to monitor the possibility of intervention by Japanese authorities.

The euro was little changed at $1.1405, while sterling slipped 0.1% to $1.3334.