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David Fuller and Eoin Treacy's Comment of the Day
Category - Precious Metals / Commodities

    China opens its borders to billions of dollars of gold imports

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

     

    About 150 tonnes of gold worth $8.5 billion at current prices is likely to be shipped following the green light from Beijing, four sources said. Two said the gold would be shipped in April and two said it would arrive over April and May.

    The bulk of China's gold imports typically comes from Australia, South Africa and Switzerland.

    The People's Bank of China (PBOC), the country's central bank, controls how much gold enters China through a system of quotas given to commercial banks. It usually allows metal in but sometimes restricts flows.

    "We had no quotas for a while. Now we are getting them ... the most since 2019," said a source at one of the banks moving gold into China.

    The size of the shipments signals China's dramatic return to the global bullion market. Since February 2020, the country has on average imported gold worth about $600 million a month, or roughly 10 tonnes, Chinese customs data show.

    And
     
    India's demand for bullion has also rebounded from a pandemic-induced slump, with record-breaking imports in March of 160 tonnes of gold, an Indian government source told Reuters this month.

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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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    A Mystery in 10-Year Treasuries Has Links to Carry Trade Blowup

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

    Hedge funds are snapping up 10-year Treasury futures, and no other maturity, presenting a puzzle. The answer may lie in the collapse of a popular carry trade last year.

    The highly-leveraged basis trade involved going long cash bonds and selling futures, to profit from the difference between the two, but came asunder in March 2020 when investors stampeded to buy the latter at the peak of coronavirus fears and upended the spread. Now the gap -- the so-called gross basis -- has reversed and favors shorting cash bonds and buying futures.

    Of course, it’s not quite that simple. In futures markets, the counterparty who is short determines which specific cash bond traders have to deliver, adding another element of risk to the transaction. But with so-called ultra 10-year Treasury futures, there are only two bonds in the delivery pool, limiting that risk compared to other contracts.

    That could be one reason why leveraged funds have built up net-long positions of almost 230,000 ultra 10-year futures, despite this year’s Treasury market slump, according to the latest data from the Commodity Futures Trading Commission. As for the original strategy -- there are no signs of it returning anytime soon.

    While returns from this year’s trade are much lighter, a play based on 10-year ultra futures is most attractive, according to one trader who asked not to be identified as he isn’t authorized to speak publicly.

    Cash Bond Pressure
    A sense of how the cheapest-to-deliver 10-year Treasury bond has performed against futures can be seen in the implied repurchase rate for the note. It flipped from positive to negative in the first quarter, indicative of greater selling pressure on cash bonds than futures.

    “With the sudden and significant rates selloff in late February, Treasuries came under pressure, underperforming futures quite noticeably,” wrote Morgan Stanley’s Kelcie Gerson in a note this week. “On an outright level, futures/cheapest-to-deliver bases reached the widest levels seen since last March/April.”

    Across the rest of the Treasuries curve, hedge funds hold net short positions, though well below last year’s levels after the collapse of the original basis trade.

    Market
    A gauge of aggregate leveraged fund short futures positions -- which would likely be mirrored by long cash bonds in a basis trade -- has dropped by over $300 billion since last year’s February peak, according to calculations by Bloomberg.

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    S. Africa Central Bank Governor Sees Room to Keep Rates Low

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

    South Africa’s central bank is likely to maintain its accommodative monetary policy stance to support the economy for as long as it has room to do so, according to Governor Lesetja Kganyago.

    “As long as inflation is remaining contained, the central bank would have no reason to remove the accommodation that we are currently providing,” Kganyago said Thursday in an interview with Bloomberg TV.

    The monetary policy committee has cut the benchmark interest rate by three percentage points since the start of 2020, of which 275 basis points of easing was in response to the impact of Covid-19 on the economy. That’s taken the rate to a record-low 3.5%. Last month’s decision was the first time since the 2020 rate cuts in which no member voted for a reduction and expectations have now shifted to when the first hike will come.

    While the implied policy rate of the central bank’s quarterly projection model, which the MPC uses as a guide, indicates two rate increases this year of 25 basis points each -- next month and in the fourth quarter -- policy makers see risks to the inflation outlook as balanced and feel that they can continue to offer support to the economy, Kganyago said.

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    Russia Scores New Bond Record as Yields Drop on Summit Hopes

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

    Russia sold a record volume of ruble bonds as state banks continued to prop up demand and sanctions jitters faded after U.S. President Joe Biden proposed a summit with Russia’s Vladimir Putin.

    The Finance Ministry sold 213 billion rubles ($2.8 billion) of fixed-coupon debt due in March 2031 in its second auction of the day, beating a record set two weeks earlier. The yield on Russia’s 10-year bonds fell the most since November as Tuesday’s phone call between the leaders appeared to reduce the possibility of penalties targeting the nation’s local OFZ debt.

    “We’re seeing considerable demand once again, with big local players buying about 70% of both offerings today,” said Stanislav Ponomarev, a money manager at Transfingroup JSC in Moscow. “There’s been demand from foreigners since the morning, but it looked more like they were closing short positions rather than increasing their Russia allocations.”

    The prospect of fresh sanctions has been mounting for the best part of a month and the recent troop buildup on the border with Ukraine has added to the tensions. State banks have stepped in to backstop the recent auctions as foreigners stay clear.

    “The market was extremely negative on Russia,” said Sergei Strigo at Amundi Ltd. “Now there is a pullback on renewed hope of some sort of normalization in relationships, even if it’s short-term. Levels on the ruble and OFZs look much more attractive.”

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    Trafigura Sees Green Copper Supercycle Driving Prices to $15,000

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

    Trafigura expects the metal to breach $10,000 a ton this year, before entering a range of $12,000 to $15,000 a ton over the coming decade. Other ardent copper bulls including Goldman Sachs Group Inc., Bank of America Corp. and Citigroup Inc. have similarly strong near-term forecasts, but Trafigura has set itself apart with its lofty long-term target.

    Goldman expects copper to hit $10,500 a ton within 12 months, while Citi sees it reaching $12,000 next year in its bull-case forecast. In the years to come, that’s likely to become the floor for prices as the industry revalues the metal, according to Trafigura.

    “You can’t move to a green economic environment and not have the copper price moving significantly higher,” Bintas said. “How can you have one without the other?”

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    Lumber Frenzy Drives Up Home Prices as Suppliers Can't Keep Up

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

    “Each part of the supply chain has different issues,” said Brooks Mendell, chief executive officer of forest-supply researcher Forisk Consulting in Georgia. “There is not a sawmill that I have talked to in two years that has all their slots filled.”

    This is a big turnaround from just two years ago. In 2019, weak demand prompted a steady stream of output reductions and mill closures from companies including Canfor Corp. and West Fraser Timber Co., the world’s biggest lumber supplier. That left producers flat footed amid the unexpected demand boom as the pandemic kept people indoors, sparking a wave of do-it-yourself upgrades, full-scale renovations and purchases of bigger homes.

    When demand held strong throughout the winter, typically a seasonal lull, mills didn’t have time to replenish their inventories. Now, stockpiles are “extremely lean” as North America heads back into peak building season and lumber prices will stay high “for the foreseeable future,” Devin Stockfish, the CEO of Weyerhaeuser Co., said last month.

    Lumber futures have more than tripled since the pandemic started, touching an all-time high of $1,157.50 per 1,000 board feet on Monday.

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    Fragile Planet 2021

    Thanks to a subscriber for this report from HSBC which may be of interest. Here is a section on renewable energy materials availability:

    Here we look at the 2019 share of global production and at the share of global reserves for countries around the world. We use data from the United States Geological Survey’s Mineral Resources Program, and the World Nuclear Association. While production data are considered relatively accurate, reserves data is imperfect, given lack of exploration is some areas. However, we take a view that if countries have reserves, but have zero production currently, then there are likely to be technical, financial and/or institutional factors to overcome to allow production in the near future. (Note that we were unable to access reserves data for the commodities Indium and Gallium, and only included production numbers). We create a blended metric for production and reserves values for these commodities (weighting them all equally), in order to score and rank countries in this area. South Africa is ranked first here, followed by China and Chile. Australia comes in fourth, making it the highest ranking DM country on this indicator.

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