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

    Email of the day on yield curve de-inversion and lack of demand for Treasuries

    Eoin, you’re rightly highlighting the dangers of the steepening Yield Curve, or rather “uninversion” currently being undertaken. Typically though, this is a result of the Fed doing a U-Turn and cutting rates at the front end to soften the impact of a sluggish economy, or one in recession.

    In this instance, it’s the other end of the curve showing the movement, only higher, as inflation continues to be a concern and the demand for longer term bonds isn’t enough to match the considerable supply. How does the change in dynamic to this “uninversion” influence your thinking?

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    Rio Tinto CEO Says Chinese Steel Demand Is Close to Peaking

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

    “We are foreseeing that the peak steel demand in China is about to be reached,” he said during an interview at Bloomberg headquarters in New York. “Not because the Chinese economy is not growing, but just because of the maturity it has reached.”

    The notion that China’s steel market is poised to contract this decade — after many years of breakneck growth — is widely held across the industry. Rio’s rival BHP Group reckons annual output has reached a plateau just above a billion tons each year that will stretch into 2024. Analysts at Capital Economics Ltd.
    said demand and supply probably peaked in 2020.

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    Sugar Rises as India Output Fears Overshadow Huge Brazilian Crop

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

    Meanwhile, mills in Brazil’s Center-South are boosting production. Below-average rains are expected for the country’s cane areas this month, favoring the harvest, Hedgepoint Global Markets analyst Livea Coda said in a Thursday report. The expectation of good Brazilian supplies in the short term is helping to keep a key spread between October and March futures lower.

    “Markets do not seem so tight during this third quarter, but they are expected to become tighter from the fourth quarter onwards,” she said.

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    Cocoa Hovers Near 12-Year High on West Africa Supply Concerns

    This article from Dow Jones may be of interest. Here is a section:

    Cocoa futures traded near a 12-year high on worries about West African output.

    Prices are up more than 40% year-to-date and are expected to keep rising, supported by concerns that global supplies will remain strained amid adverse weather conditions. Heavy rain in West Africa already has knocked young pods from trees and facilitated the spread of black pod disease, which thrives in humid conditions.

    Uncertainty also remains over the El Nino weather phenomenon, with analysts at StoneX anticipating that impacts will persist into early next year.

    “The long-term uptrend in the cocoa market remains in place, as low production out of West Africa is expected to keep supplies tight,” ADM Investor Services wrote in a note on Monday.

    Ivory Coast, the world’s top cocoa producer, is in the midst of negotiations over new environmental rules for European exports, and Ghana has hiked farm-gate prices in an effort to fend off smuggling. Still, there has been recent optimism that good weather could support a better harvest in Ivory Coast and some areas of Nigeria.

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    Incredible markets

    Thanks to a subscriber for this thought-provoking article by Charles Gave. Here is an English translation:

    What are these risks?

    There is one and only one: that the dividends paid by the companies that make up the S&P 500 index do not collapse, as happened from 1929 to 1934.

    And so, for those who think that capitalism is finally going to experience its great final crisis, it is better to have gold.

    But in the event that this dear system of exploitation of man by man were to survive as it has always done throughout history, well, I could live to be two hundred years old without any problem, my capital remaining mine.

    Which is not nothing.

    But the value of my capital can vary very greatly, which I don't care about as only the dividend payments matter to me.

    Today, transforming my gold into shares is almost indifferent to me.

    Let's imagine that in the coming months, the stock market falls by 50%, that gold stays where it is, that the yield therefore increases from 1.7% to 3.4% and that the ratio goes from 1 to 1.5.

    At that point, I can sell half of my gold and buy the equivalent in shares, which allows me to double my annual income.

    If the ratio passes, after a fall in gold from 1 to 0.5, on the other hand, I must sell my shares to buy gold.

    And this is undoubtedly why the ratio has oscillated between 1.5 and 0.5 for a century and a half.

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    Lithium Americas Surges on Reports It Has Lithium-Rich Deposit

    This note may be of interest. Here is a section: 

    Lithium Americas shares rise more than 6%, one of the leading gains on the S&P/TSX Composite index, after research and media reports suggest that the company’s Thacker Pass project is located on a US lithium deposit that could be among the largest in the world.

    Lithium reserves in the McDermitt Caldera, located along the Nevada-Oregon border, could contain between 20 and 40 million metric tons of the metal, according to findings from Lithium Americas volcanologists and geologists in an Aug. 31 research report.

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    China's Commodities Imports Surge as Coal Hits All-Time High

    This article may be of interest. Here is a section:

    “With inventories relatively low, the prospects of further stimulus measures triggered restocking across commodities, which should keep demand strong in the short term,” ANZ Group Holdings Ltd. said in a note after Chinese customs released its latest trade figures on Thursday.

    Still, the country’s recovery from the pandemic has fallen well short of expectations and confidence among households and businesses is fragile. Deflationary pressures in the economy and a weaker currency have added to the headwinds faced by importers, although fears that the yuan will slide further may have motivated some to front-load purchases.

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    Money, Politics Imperil Indonesia's $21.5 Billion Climate Deal

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

    The initial promise of peaking Indonesia’s power sector emissions by 2030 at no more than 290 million tons of carbon dioxide, about 20% below a baseline level for the year, looks out of the question. An alternate scenario laid out in the draft plan would raise the target maximum to 395 MT of CO2, to account for the construction of new captive plants to serve growing industrial power needs.

    Officials have said they are aiming to have a revised—perhaps final—investment plan before COP28 begins in Dubai at the end of November, taking on public feedback. But to do that, they will need to come to agreement on at least three major, interrelated issues: the money, the emissions target and the mechanics of the coal phaseout, including changes to Indonesian laws and policies that hold back wider green progress.

    And

    But there may not yet be enough in either bucket. There is just $289 million in grants, with half earmarked for technical assistance—funding for experts, consultants and advisors to model and support the energy transition. Almost all of the rest is loans, at interest rates to be determined later.

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