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

    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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    Shale CEO Sees Producers Staying Disciplined at $70 Crude Oil

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

    America’s shale producers will keep output in check even as global crude oil prices near $70 a barrel, Ovintiv Inc. Chief Executive Officer Doug Suttles said in an interview with Bloomberg Television.
    Explorers are focused on low growth, strong operating performance and returning cash to shareholders, Suttles said. Ovintiv is prioritizing paying down debt and maintaining its dividend, he said.

    Private operators’ ability to weigh on oil prices by ramping up production is limited after recent tie-ups with publicly traded companies, Suttles said. While closely held producers have more influence on the natural gas market, “it’s a little bit of a concern, not a big one,” he said.

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    OPEC+ Confirms Plan to Gently Hike Supply as Demand Recovers

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

    The global oil market “is on the one hand positive, we see a recovery of demand and higher global GDP estimates,” Russia’s Deputy Prime Minister Alexander Novak told Rossiya 24 television after the OPEC+ committee’s conference call. Nevertheless, the group must keep monitoring the coronavirus situation across many regions, including Asia, he added.

    “We see that some countries record higher coronavirus numbers, like in India and Latin America, which raises some concerns about further growth of demand,” Novak said.

    Crude futures held gains after the OPEC+ gathering, trading 0.4% higher at almost $66 a barrel in London.

    Strong Demand

    It was the OPEC+ Joint Ministerial Monitoring Committee that initially recommended sticking to their planned output increase. Ministers from the panel then asked other OPEC+ members to cancel the full meeting scheduled for Wednesday, and instead they drafted Tuesday’s statement by exchanging diplomatic messages.

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    Porsche's Electric Taycan Sales on Course to Eclipse Iconic 911

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

    “Established models have supported this excellent result along with the latest additions to our product range, above all the new model variants of the all-electric Taycan,” Porsche sales chief Detlev von Platen said of the brand’s 36% first-quarter surge. “We can look back on a very positive start to the year.”

    The Taycan, which Porsche recently flanked with a more spacious version, is a litmus test for the carmaker’s costly shift to electric vehicles. Boosting EV sales with Porsche will be key to maintaining healthy margins as the division is VW group’s biggest profit contributor by far.

    Porsche’s total global deliveries rose to 71,986 vehicles in the first quarter, driven mainly by demand in China, its largest market. The compact Macan SUV was the brand’s best-selling model, ahead of the larger Cayenne. Porsche will launch a battery-powered version of the Macan next year that’s underpinned by a new platform for upscale electric cars co-developed with sister brand Audi.

    Porsche remains optimistic about business prospects this year even as a global shortage of semiconductor parts disrupts production plans across the industry. Order books “continue to develop very well,” Von Platen said.

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    U.S. Infrastructure Plan May Lift These Three Brazilian Stocks

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

    Two weeks ago, Biden unveiled a $2.25 trillion plan to overhaul the country’s physical and technological infrastructure. He has said the plan needs to go far beyond bridges and roads and has called for investment in electric vehicles, renewable power and the electric grid.

    Shares of Gerdau and Tupy are up 27% and 15% this year, respectively, while the benchmark Ibovespa index is down 0.6% and Weg is little changed.

    “Limited geographical diversification puts a cap on Brazilian companies seizing this moment, but we can see some clear winners,” the analysts said. “Although we believe they have not gone unnoticed by the market, recent performance indicates that the impact is likely larger than what is currently priced in.”

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    Hydrogen could be the future of energy - but there's one big road block

    This article from reneweconomy.com.au may be of interest to subscribers. Here is a section:

    The hydrogen embrittlement challenge is a highly complex materials and engineering problem. There are many aspects that still need to be understood before tangible solutions can be proposed.

    For example, what are the conditions for hydrogen entry into different metals? Can this be controlled? Is it possible to completely stop hydrogen entry in metals using coatings or other surface treatments? What if these coatings get a scratch? If the hydrogen does get in, under what conditions will it cause failure of the metal? How much hydrogen is too much? How quickly will it accumulate? Can we design new engineering alloys that can better resist hydrogen embrittlement for the global hydrogen economy? If so, will the new alloys be economically feasible?

    These questions can only be answered through collaboration between researchers and engineers who have a deep understanding of hydrogen embrittlement.

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    The Giant Ship Blocking the Suez Canal Is Finally Freed

     This article by Jack Wittels and Ann Koh for Bloomberg may be of interest to subscribers. Here is a section:

    Egyptian authorities were desperate to get traffic flowing again through the waterway that’s a conduit for about 12% of world trade and about 1 million barrels of oil a day. This has been the canal’s longest closure since it was shut for eight years following the 1967 Six Day War.

    Firms including A.P. Moller-Maersk A/S and Hapag-Lloyd AG were forced to reroute their ships via the southern tip of Africa, which can add two weeks on to a journey between Europe
    and Asia.

    Shipping experts anticipate that the disruption will last for months because of schedules being upturned and the uneven wave of cargo that will hit ports down the line.

    While the hit of the canal’s $10-billion-per-day closure will likely be small given that global merchandise trade amounts to $18 trillion a year, the prospect of hundreds of ships being thrown off schedule will ensure cargo delays in the weeks if not months ahead. The dozen or so container carriers that control most of the world’s ocean freight capacity are already charging record-high rates on some routes, and shortages of everything from chemicals and lumber to dockside labor already abound.

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