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What Trade War? Africa Sidesteps Tariffs, Starts Free-Trade Pact

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

Africa, largely ignored in a U.S.-China trade war that could roil economies worldwide, is quietly piecing together the world’s largest free-trade zone.

The African Continental Free Trade Area comes into force on paper on Thursday after the required 22 countries ratified the deal a month ago. Once it’s passed by all 55 nations recognized as part of the African Union, it would cover a market of 1.2 billion people, with a combined gross domestic product of $2.5 trillion. The potential benefits are obvious, if the usual hurdles of nationalism and protectionism don’t yet stand in the way.

The deal would help the continent move away from mainly exporting commodities to build manufacturing capacity and industrialize, said Jakkie Cilliers, head of African Futures and Innovation at the Pretoria-based Institute for Security Studies. Boosting intra-regional trade would spur the construction of roads and railways, reducing the infrastructure gap in Africa, he said.



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Energy Prices Crash in Europe as Old and New Fuels Vie for Share

This article by Mathew Carr, Jeremy Hodges and Eddie van der Walt for Bloomberg may be of interest to subscribers. Here is a section:

“LNG is now so cheap it’s competing with coal almost,” said Caroline Bain, chief commodities economist at Capital Economics Ltd., who sees slowing demand for coal. “It’s not actually falling off a cliff. We think it’s going to be a long slow death rather than tomorrow.”

The price slump is one sign of Europe’s determination to phase out coal as it seeks to slash climate warming emissions without holding back the economy. Renewables are also in the fight for market share, with onshore wind and solar power “fast becoming cheaper than average power prices in Europe’s largest markets,” according to a research by BloombergNEF.

Front-month Dutch gas prices, a benchmark for Europe, plunged 50% this year as record volumes of LNG landed in northwest Europe. Coal for next year has dropped 30% after a mild winter left inventories at European ports unusually high.

“There’s too much coal,” said Hans Gunnar Navik, a senior analyst at StormGeo AS. As “natural gas out-competes coal,” renewable generation is replacing both of them, he said.



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Rare Earth Stocks Give Abundant Returns as Investors Pile In

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

The People’s Daily, a flagship newspaper of the ruling Communist Party, said in a commentary that the U.S. shouldn’t underestimate China’s ability to fight the trade war. The country is “seriously” considering restricting rare earth exports to the U.S., the editor-in-chief of the Global Times, a newspaper affiliated with the Communist Party, said in a tweet. An official at the National Development & Reform Commission told CCTV that people in the country won’t be happy to see products made with exported rare earths being used to suppress China’s development.

 

The U.S. relies on China for about 80% of its imports of rare earths, the group of materials that are used in everything from electric cars to high-tech military equipment. Rare earths, which include elements such as cerium and dysprosium, are relatively abundant in the Earth’s crust but mine-able concentrations are less common than other ores.

China produces about 70% of the world’s mined rare earths and its industry is dominated by a handful of producers including China Northern Rare Earth, China Minmetals Rare Earth Co., Xiamen Tungsten and Chinalco Rare Earth & Metals Co. Some of the country’s listed rare earths stocks are small caps, making them easy targets of speculation.

The country has taken a proactive approach to managing the global market, Bank of America Merrill Lynch said in a report, citing steady exports in the 1990s that depressed prices and a 40% reduction in its export quota in 2010 that led to a spike.



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Gold in the Age of Eroding Trust

Thanks to a subscriber for this edition of Ronald Peter Stoeferle and Mark Valek’s always interesting report. Here is a section:

Trust is the basic value of interpersonal cooperation and the cement of our social order. The erosion of our “trust capital” can be observed in many areas of society.

The breakdown of trust in the international monetary order is manifesting itself in the highest gold purchases by central banks since 1971 and the ongoing trend to repatriate gold reserves.  

Gold reaffirmed its portfolio position as a good diversifier as trust in the “Everything Bubble” was tested in Q4/2018. While equity markets suffered doubledigit percentage losses, gold gained 8.1% and gold mining stocks 13.7%.

The normalization of monetary policy was abruptly halted by the stock market slump in Q4/2018. The “monetary U-turn” that we already forecasted last year has begun. 

Recession risks are significantly higher than discounted by the market. In the event of a downturn, negative interest rates, a new round of QE, and the implementation of even more extreme monetary policy ideas (e.g. MMT) are to be expected. 

When it comes to trust in investments, our vote is clear. Trust looks to the future, forms itself in the present, and feeds itself from the past. Gold can look back on a successful five-thousand-year history as sound money.



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Incessant Rain Puts U.S. Farmers on Insurance-Deadline Watch

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

Claims known as prevented plant pay out when farmers are unable to sow crops at all. With unceasing rain keeping farmers out of fields, growers are increasingly weighing how best to get paid and ease the impact from the bad weather and an escalating U.S.-China trade war.

“You hate to farm for insurance, but in a year like this, you keep that in the back of your mind,” Nelson, whose farm is near the east-central town of Paola, said by phone. Storms across the Midwest and Great Plains have resulted in the wettest 12-month stretch on record in the U.S., with the deluge closing refineries and snarling Mississippi River traffic. Crucially for agriculture markets, it’s also hampered crop planting. Worries over tighter supplies due to the soggy weather drove Chicago corn futures to surge as much as 3.9% on Friday, topping $4 a bushel and rising to the highest level in almost a year.


The wet weather’s showing no signs of easing. Severe weather that broke out late Sunday across the Central U.S. and into the Midwest is expected to continue to cause havoc. The insurance deadline for sowing has already passed for some farmers in southwestern Missouri, southeastern Kansas and western Tennessee. They now have to decide whether to plant with less coverage, or make prevented-plant claims.



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Bad News for Markets Offers Little Help to Gold as Metal Dithers

This article by Joe Richter and Marvin G. Perez for Bloomberg may be of interest to subscribers. Here is a section:

With an equities rally wavering, trade relations between world’s two largest economies deteriorating and U.S. borrowing costs slipping, the commodity often seen as a haven in times of turbulence is encountering troubles of its own. Gold prices are headed for a fourth straight monthly drop, and have seesawed between weekly gains and losses since late April.

Bullion, which hasn’t posted more than three straight daily gains since March, has been stuck in a fits-and-starts pattern as signs of resilient growth and a rising dollar counter concern that the world economy is set to slow. Even increased wagers that the Federal Reserve will ease monetary policy this year haven’t been enough to sustain rallies in bullion, which can benefit from low rates because it doesn’t pay interest.

“Prices are kind of range bound, nobody is making any money, so on the margin, people are just disinterested,’’ said John Laforge, the head of real asset strategy at Wells Fargo Investment Institute, which oversees 1.9 trillion. “You really need something fearful out there, which is the scary part. You really need something that rattles markets for gold to take off.’’



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Franklin Says Aussie Bonds to Rally as RBA May Ease Four Times

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

Overnight swap markets are currently pricing in two RBA cuts by November. Westpac Banking Corp. economist Bill Evans on Tuesday brought forward his forecast for the first reduction in the cash rate to June, with a second to follow in August. Commonwealth Bank of Australia and Royal Bank of Canada expect the same.

JPMorgan Chase & Co. though says two cuts may not be enough. “From where we are today, this is still not sufficient to fully neutralize risks to the RBA staff’s current forecasts, suggesting risks to a sub-1% cash rate,” economist Ben Jarman wrote in a note.

Franklin Templeton’s Canobi expects the RBA to lower borrowing costs three to four times over the next nine to 12 months as tepid inflation weighs. “We never felt that inflation has really had a grip since the RBA started easing in 2016, and it still looks pretty weak,” he said.



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Google Cuts Off Huawei Smartphones From Some Android Services

This article by Dan Strumpf and Yoko Kubota - for the Wall Street journal may be of interest to subscribers. Here is a section:

From now, Huawei will be able to use only the public version of Android and won’t have access to proprietary apps and services from Google, according to a person familiar with the matter. Though existing phones are expected to keep functioning largely as usual for now, users could lose some app functions, including some artificial-intelligence and photography features, the person said.

In a separate move, German chip maker Infineon Technologies AG said it was terminating the delivery to Huawei of some components originating in the U.S., in a sign that even non-U.S. suppliers to Huawei are being swept up in the U.S. trade restrictions. Infineon didn’t specify which components were affected by the action but said the “great majority” of products it sells to Huawei aren’t subject to trade restrictions.

Separately, Qualcomm Inc., San Diego, has suspended shipments to Huawei of its chips, and some employees have been told not to communicate with the Huawei side, according to a separate person familiar with the matter. Qualcomm chipsets are used in certain Huawei smartphone models. Huawei also designs a large number of its own chips for higher-end phones.



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Stock Rally Gains Momentum on Risk Bet, Bonds Fall

This article by Randall Jensen and Vildana Hajric for Bloomberg may be of interest. Here is a section:

This has become a pattern where you get a big aggressive statement from the administration that might impact trade and then the market reacts aggressively as it did on Monday and then it seems to back off,” Chicago-based Susan Schmidt, head of U.S. equities at Aviva Investors, said in an interview. “Business is still doing well. I think if the market can stay focused on the facts and the data, then I think the market will hold.”

Strong economic data and earnings, along with hints from the Trump administration that it may be willing to compromise on trade has helped stocks rebound from the battering they took when the tariff battle with China flared. But the headlines have come fast and furiously, most recently President Donald Trump signed an order that’s expected to restrict Chinese telecommunications firms from selling in the U.S.



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A Fed Cut This Year Is Now Being Priced In as a Near Certainty

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

The rate on the January fed funds futures contract implies that the central bank’s benchmark will fall to 2.075% by the end of 2019. This is more than 25 basis points below where the effective fed funds rate stood Friday, showing traders are fully pricing in a quarter-point reduction. The implied rate on the contract ended last week at 2.15%.

This is happening as China threatens retaliatory tariffs on some American imports, an escalation in the trade war with U.S. President Donald Trump. The clash is fueling concern about economic growth, prompting a key part of the U.S. yield curve to invert again -- a sign to many that the risk of a recession has increased.

While “China/U.S. trade ripple effects certainly affect the Fed’s outlook, I think this is more of a macro move,” said Todd Colvin, senior vice president at futures and options broker Ambrosino Brothers in Chicago. “It’s not about whether or not the Fed sees policy shifts, that is, as much as it’s looking at
global growth woes, or increased market volatility.”



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