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David Fuller and Eoin Treacy's Comment of the Day
Category - Fixed Income

    Solar Power's Decade of Falling Costs Is Thrown Into Reverse

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    For the solar industry, the timing couldn’t be worse. Renewable energy finally has a champion in the White House and ambitious climate goals have been announced across Europe and Asia.

    At the center of the crisis is polysilicon, an ultra-refined form of silicon, one of the most abundant materials on Earth that’s commonly found in beach sand. As the solar industry geared up to meet an expected surge in demand for modules, makers of polysilicon were unable to keep up. Prices for the purified metalloid have touched $25.88 a kilogram, from $6.19 less than a year ago, according to PVInsights.

    Polysilicon prices are expected to remain strong through the end of 2022, according to Roth Capital Partners analysts including Philip Shen. 

    And the problem isn’t limited to polysilicon. The solar industry is facing “pervasive upstream supply-chain cost challenges,” panel manufacturer Maxeon Solar Technologies Ltd. said in April.

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    South African Central Bank Maintains That Next Rates Move Is Up

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    The Reserve Bank’s hawkish stance is likely to draw criticism from politicians and labor unionists, who say it should be doing more to support the economy and reduce unemployment that’s at a record high.

    The central bank cut the key rate by 300 basis points last year. Its contribution to an economic recovery will now be predictable policy, according to Deputy Governor Kuben Naidoo.

    “You need low, predicable rates during the recovery to support economic activity, to encourage people to lend, to encourage businesses to invest,” he told reporters. “That’s the contribution of the SARB during a crisis.”

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    Bitcoin Plunge Wipes $500 Billion From Value in Crypto Rout

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Bitcoin is now down more than 50% from its record of almost $65,000 set in April. Fueling the volatility is Tesla CEO Elon Musk, whose social-media utterances have whipsawed the crypto community. A statement from the People’s Bank of China on Tuesday reiterating that digital tokens can’t be used as a form of payment added to the selloff.

    The selloff dominated market chatter on a day when equities also were tumbling and the Federal Reserve was set to release minutes from its latest meeting. #Cryptotrading was trending on Twitter, where critics and fans alike were in a tither over the rout. Critics had warned for weeks that the moves in crypto assets were unsustainable and that any sign of a selloff would lead to a rout.

    “This is going to be the first ‘welcome to crypto’ day for a lot of new entrants,” said Stephane Ouellette, chief executive and co-founder of FRNT Financial. “The history of these assets has been littered with aggressive rallies and sickening selloffs.”

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    Eurozone in Double-dip Recession as Mediterranean Economies Risk Another Lost Summer

    This article from The Telegraph may be of interest to subscribers. Here is a section:

    But Robert Alster at Close Brothers Asset Management warned of a divide between industrial economies in the north and tourist-reliant nations in the south, despite the start of UK tourism to Portugal. This could spark a return to the two-speed Europe which raised questions over the stability of the bloc after the financial crisis.

    Mr Alster said: “The risk now is that the north/south divide continues to widen. Germany’s economic growth is not far behind the UK’s, with its vaccination programme set to overtake, whereas Spain’s economy has been hardest hit,” he said.

    “The northern countries have benefited from strong manufacturing growth, with the US and China driving global demand, whereas the Southern countries are on tenterhooks to see whether the European tourism season can go ahead.”

    Two consecutive quarters of contraction mean the currency area is officially in recession again, despite not fully recovering from the initial shock of Covid.

    GDP remains more than 4pc below its pre-pandemic peak at the end of 2019.

    Employment fell by 0.3pc in the first quarter of 2021, meaning the number of people in work is still almost 3.6m below its pre-Covid level.

    Jack Allen-Reynolds at Capital Economics said the jobs market should soon start to recover too, but that the rebound in hiring will probably be quite slow.

    He said: "Many firms will be able to raise output by increasing employees’ working hours before they start taking on more staff."

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    Gold Miners Rise With Prices on Weaker Dollar, Inflation Worry

    This note from Bloomberg may be of interest to subscribers.

    Earlier, gold was buoyed by signs that money managers and exchange-traded fund investors are turning more positive on the precious metal
    Gold spot price was up as much as 1.3%, silver +2.8% intraday; U.S. Dollar Index (DXY) fell as much as 0.2%
    Precious metal miners intraday gainers include HL which rose as much as 15%, EDR CN +11%, GGD CN +11%, CDE +8.9%, FR CN +7.4%, K CN +6.1%, FVI CN +6.5%
    Goldman said in a note that “gold tends to perform well when realized inflation is elevated and rising, while the dollar suffers, especially as the Fed stays on hold”
    Meanwhile, copper miners also got a boost as price climbed on Monday, lifted by concerns of supply disruptions in Chile and signs that Chinese demand is picking up
    Some of the copper/base metals miner that gained intraday include TKO CN, FCX, FM CN
    TECK also gained, which was partially helped by rise in coal equities on higher natgas prices

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    Email of the day on India's demographics

    You say that India has a significant demographic tailwind, taking the consensus view that that is an investment plus; one that is embedded in so many analyses on India. For a challenge to this listen to the Meb Faber interview with Vikram Mansharamani, 50 minutes in for 5 minutes, on his take on India and why in fact the demographics are a head not a tail wind: https://www.youtube.com/watch?v=cM40JZ3NSNk&t=30s

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    McDonald's, Amazon Accelerate Push Toward Higher Minimum Wage

    This article for Bloomberg may be of interest to subscribers. Here is a section:

    McDonald’s Corp. announced Thursday it will raise hourly wages by about 10%, bringing the average wage at its restaurants to more than $13 an hour. Chipotle Mexican Grill Inc. said earlier this week it will set hourly starting wages at $11 to $18. Target Corp. and Costco Wholesale Corp. have increased theirs to $15 and $16, respectively.

    McDonald’s is hiring 10,000 new employees at its company-owned stores over the next three months alone, and Walmart Inc. brought half a million people on board last year. Chipotle is hiring 20,000 workers across the U.S., and Target needs workers for the 30 to 40 stores it will open this year.

    Amazon.com Inc. also upped the labor market ante Thursday by announcing plans to hire 75,000 people in the U.S. and Canada at starting pay that will average more than $17 an hour. New employees will get hiring bonuses of $1,000 and those fully vaccinated for Covid-19 will get additional $100.

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    The Days of Low Treasury Yields Are Numbered

    This article by Bill Dudley may be of interest to subscribers. Here is a section:

    Today, there’s ample reason to expect a positive term premium to return. For one, the Fed has a new, more patient monetary policy stance. As a result, inflation will be higher and more variable — a risk that must be compensated with higher long-term yields. Also, keeping inflation in check will require a higher peak fed funds rate, reducing the risk that the Fed will again get pinned at the zero lower bound. Beyond that, deficit financing is expanding the supply of government bonds: Treasury debt outstanding has quadrupled since 2007, and the Biden administration is seeking to add several trillion dollars more. Meanwhile, one big source of demand for the bonds is set to dwindle as the Fed phases out its asset purchases, most likely next year.

    Putting the pieces together, one can expect a 10-year Treasury yield of at least 3%: The 2.5% floor set by the federal funds rate, plus a term premium of 0.5% or more. But that’s not all. The Fed says it wants inflation to exceed its 2% target for some time, to make up for previous shortfalls. This, in turn, could stoke inflationary fears and lead markets to expect a higher path for future short-term rates. As a result, the 10-year Treasury yield could more than double from the current 1.6%. And if persistent deficit financing prompts concern about growing U.S. debt, the yield could go to 4% or higher.

    Anyone who has been in finance for less than a decade has rarely seen 10-year Treasury note yields above 3%. So what’s coming could, for many, be quite a shock. The secular bond bull market that began nearly 40 years ago is finally ending.

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    China's Surging Factory Prices Add to Global Inflation Risks

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    The widening gap between CPI and PPI “suggests an uneven recovery of the economy,” said Raymond Yeung, chief China economist at Australia & New Zealand Banking Group Ltd. “Despite the commodity boom, the service sector has yet to catch up.” 

    Wages are lagging and the central bank will likely keep its policy stance “largely neutral,” he said. The People’s Bank of China is seeking to scale back the stimulus it pumped into the economy during the pandemic last year, worried by the build up of debt. Economists expect policy makers to slow the pace of credit expansion rather than raise interest rates. The Communist Party’s Politburo, China’s top decision-making body, said last month there won’t be any sharp reversal of macroeconomic policies. China aims to keep consumer inflation at around 3% this year, but an NBS official said in a recent interview that the headline index is expected to be “significantly lower” than the official target in 2021.
     

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