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

    PBOC Support to Stay Even Amid Credit Upswing

    This article by Chang Shu and David Qu from Bloomberg Economics may be of interest to subscribers. Here is a section:

    The robust rate of credit expansion this year doesn’t rule out continued monetary easing. We think that’s still needed to help the economy find a solid footing, though the focus should increasingly shift to targeted measures.

    Broad-based easing is still needed to provide liquidity to the banking sector so it can sustain the expansion in credit. The need is higher in 1H and we continue to see the possibility of reductions in the reserve requirement ratio, with the first potentially coming as early as in April.

    There’s less of a necessity for an interest rate cut, in our view.

    Targeted measures are important for channeling funding to sectors in greater need of funding -- small, private firms -- to lower their effective borrowing costs.

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    Gold and Other Metals Decline on 'Surprise' U.S. Data

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

    Most measures of the PPI are a bit stronger than expected, as well as jobless claims,” Tai Wong, head of base and precious metals derivatives trading at BMO Capital Markets, says in phone interview  With the “surprise positive economic data, especially the PPI, if you are thinking that the Fed’s next move is going to be a rate cut, this moves that further away” “It will probably keep the Fed neutral for longer”

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    The great Steelmageddon debate

    This report by Timna Tanners for BoA Merrill Lynch, dated March 25th which may be of interest to subscribers. Here is a section:

    Production of battery grade cobalt blows up First Cobalt's stock

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

    “Producing a battery grade cobalt sulfate is one of our most significant accomplishments as the majority of refined cobalt for the electric vehicle market is produced in Asia. With no cobalt sulfate production in North America today, First Cobalt stands to become the first such producer for the American electric vehicle market," Trent Mell, President & CEO said in the press release.

    “Electric vehicle demand in North America will keep growing," Henrik Fisker, First Cobalt director and CEO of electric vehicle manufacturer Fisker Inc., said. "Companies such as Fisker continue to introduce new, affordable EV models to the market. Automakers and battery manufacturers have a responsibility to ensure any materials we use in our batteries are sourced in an ethical way.  The restart of the First Cobalt Refinery is an important step towards producing battery materials in America with a clean record from mine to machine.”

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    Palladium Sags as Prices Gyrate on Auto Demand Concern

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

    Palladium headed for the first decline in four sessions as U.S. President Donald Trump’s threat to shut down the border with Mexico added to concerns over the outlook for the auto industry, the biggest consumer of the metal.

    Analysts said a border closing would rapidly ripple through a U.S. economy in which supply chains are closely integrated with Mexico, especially hitting the carmakers. Volatility in palladium, used in auto catalysts to curb pollution, has surged in the past week as investors assess slowing vehicle sales against the outlook for supply shortfalls that drove prices to record highs last month.

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    Flooding prompts criticism of way Missouri River dams run

    This article from ky3.com may be of interest to subscribers. Here is a section:

    "I was told point-blank, 'Flood control is not our top priority. It is not. Period.' They were very firm on that point," Hawley said. "I said, 'You've got to be kidding me.'"

    Corps officials say they work to balance all the priorities Congress approved when operating the dams, but no single priority outweighs all the others. Their operating model tries to maximize the benefit to several priorities when possible.

    Hawley said Congress should consider "serious reform," such as deciding if the Corps should be taken out of the Department of Defense and placed under direction of another agency, such as the Department of Transportation or the Department of the Interior.

    The Corps manages the Missouri River's system of dams and locks and decides when and how much water is released from reservoirs into the river. The severe flooding this month in Nebraska, Kansas, Iowa and Missouri has renewed criticism of the Corps' management of the river.

    Officials estimate that the flooding caused more than $1 billion of damage to farms in Nebraska and Iowa, destroying stored crops and killing livestock. And the damage total will grow as floodwaters recede and other states assess conditions.

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    Lynas looks to WA, not Wesfarmers, for its Malay solution

    This article by Hamish Hastie, Colin Kruger and Darren Gray for the Sydney Morning Herald may be of interest to subscribers. Here is a section:

    "These discussions are preliminary in nature and no formal submission for any change has been presented to the EPA," a spokeswoman for the agency said.

    The discussions could help solve the problems in Malaysia which threaten the company's future, and made it vulnerable to what analysts and investors described as a low-ball bid from Wesfarmers on Tuesday.

    Lynas faces an uncertain future after the Malaysian  government imposed strict new conditions on its billion-dollar Malaysian operation which could force it to shut down in
    September.

    This includes the permanent removal of a residue with naturally occurring radiation, Water Leached Purification Residue (WLP), from Malaysia.

    According to institutional investors, Lynas discussed plans last month to relocate some of its rare earths processing  back to Western Australia. All processing is currently handled
    in Malaysia.

    Lynas chief executive Amanda Lacaze denied there was any plan to extract and retain the controversial WLP residue in WA - the state where it is mined - but did confirm it planned to expand its processing operations outside of Malaysia.

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    Palladium hit by 'Barrage of Selling'

    This note by Justina Vasquez for Bloomberg may be of interest to subscribers. Here it is in full:

    The rally in the U.S. dollar triggered an investor exodus from precious metals on Wednesday. Spot palladium led declines as mounting concerns over global growth threaten the outlook for demand for the commodity used mostly in auto catalysts. The slump accelerated as the price of the least-liquid asset among its peers broke below the $1,500-an-ounce level, triggering “a barrage of selling,” Miguel Perez-Santalla, a sales and marketing manager at refiner Heraeus Metals New York LLC, said.

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    Gold: Ringing the bell

    Thanks to a subscriber for this note from UBS which may be of interest. Here is a section:

    Investment Strategy: 'Trading Sardines?'

    Thanks to a subscriber for this note from Jeffrey Saut who I had the pleasure of meeting at the American Association of Professional Technical Analysts's (AAPTA) conference on Friday. Here is a section:

    "When investors hear yield curve inversion, they automatically think 'recession.' That’s because every recession since 1962 has been preceded by an inversion. But, not every inversion has been followed by a recession, so keep that in mind."

    Myth number two is that we are into the late part of the business cycle. If that is true why are the late cycle stocks acting so poorly? I have argued that the economic downturn was so severe, and the recovery so muted, that what we have done is elongate the mid-cycle. This implies there is much more time until the mid-cycle ends and the late cycle begins.

    Myth number three has it that earnings are going to fall off a cliff. I do not believe it. Certainly earnings momentum has slowed, but earnings continue to look pretty good to me. And, if the earnings estimates for the S&P 500 are anywhere near the mark, the SPX is trading at 16.3x this year’s earnings and 15.5x the 2020 estimate. I think with 2Q19 earnings myth number three will evaporate.

    As for Friday’s stock market action, readers of these missives should have found last week’s action as no surprise. I have talked about the negative “polarity flip” that was due to arrive last week for a few weeks. How deep the pullback/pause will be is unknowable, but I have stated I do not think it will be much. It was not only the economic data, and PMIs, that sacked stocks, but as I have repeatedly stated it was also the Mueller Report. The result left the senior index lower by ~460 points and the S&P 500 (SPX/2800.71) resting at the lower end of my support zone of 2800 – 2830.

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