Comment of the Day
24th May 2023
Eoin Treacy
May 25
Video commentary for May 24th 2023
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Wall Street eases on debt ceiling fears, bonds yield rise, gold and copper ease, oil firms, Uk inflation surprising on the upside, dividend aristocrats under pressure from yields.
UK Price Shock Sends Bond Yields to Levels Last Seen Under Truss
This article from Bloomberg may be of interest to subscribers. Here is a section:
UK bond yields are back to where they were when Liz Truss was in No. 10 after a shocking inflation report prompted traders to bet on more rate hikes from the Bank of England.
The inflation rate came in higher than all economists forecast — sending wagers on future interest-rate hikes soaring and lifting yields to levels last seen when the former Prime Minister rattled markets with her unvetted mini-budget.
The rate on 10-year securities now pays a premium of more than 50 basis points over equivalent US notes, around the biggest seen in more than a decade. A key part of the curve inverted the most since February, a sign bond traders are positioning for short-term borrowing costs to remain elevated for longer.
“It’s a terrible inflation print that really sets the UK apart from other major developed economies,” said Derek Halpenny, head of research, global markets EMEA & international securities at MUFG Bank. “The scale of divergence on the inflation path risks undermining policy credibility.”
Eoin Treacy's view
The whole point of creating an ex-food and energy inflation measure was to reduce the impression inflation is out of control. We have rather the opposite condition at present because the core figure is breaking out to new highs while the broad measure is contracting. That’s not good news because the core measure is centred on shelter and services and only a steep recession is likely to have a meaningful effect on the price of either.
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Big Oil veteran Exxon wants to become part of Big Shovel
This article from Quartz may be of interest to subscribers. Here is a section:
And Exxon Mobil’s new bet on lithium gives it exposure, with all the potential upside in revenue and profits, to the red-hot market for electric vehicles and batteries.
Global demand for lithium is expected to surge in the coming years, far outstripping supply as the world shifts towards renewable energy systems. These require batteries to store electricity for later use, given the variable nature of wind and solar. By 2050, according to an estimate from the International Energy Agency, the world will need to mine 26 times more lithium than it did in 2021.
Lithium-ion batteries are currently the most widely used type of battery, the supply chain for which is dominated by China. Chinese battery giants are also investing heavily in developing sodium-ion batteries, which could potentially offer an alternative to lithium-based ones.
Eoin Treacy's view
The lithium carbonate price peaked at the end of last year at CNY/tonne of 600,00. and hit a low at the end of April at around CNY177,000. A rebound is now underway which confirms a low in the region of the 2016 and 2018 peaks. It is reasonable to expect a great deal of volatility in lithium prices but the evidence of a higher plateau is now more convincing.
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Debt-Ceiling Fears Drive Early June T-Bill Yields Above 7%
This article from Bloomberg may be of interest to subscribers. Here is a section:
Treasury-bill yields slated to mature early next month surged, driving them above 7% amid building concern that talks in Washington will fail to resolve the debt-ceiling crisis and the US might default.
The rate on the June 1 and June 6 maturities soared more than a percentage point on the day, while others for early June also climbed sharply. By comparison, the earliest June tenors yield around 4 percentage points above the May 30 issue.
Eoin Treacy's view
The Fed minutes reflected a split decision between hiking and holding rates. They are not talking about cutting rates but they seldom do until they are actually doing it. The next question is how quickly a deal on the debt ceiling will be made.
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Eoin's personal portfolio: two investment positions sold
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.
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