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25 March 2021
Video commentary for March 24th 2021
Eoin Treacy's view
A link to today's video commentary is posted in the Subcsriber's Area.
PBOC, BOJ May Be Driving Some of the Stock Rout Infecting Asia
This article by Wes Goodman for Bloomberg may be of interest to subscribers. Here is a section:
China hasn’t been this frugal in its cash offerings to banks in almost a year.
The People’s Bank of China has avoided net injections of short-term liquidity into the financial system since late last month, increasing concern that access to funds is becoming more difficult. The CSI 300 is headed for its steepest monthly loss in more than two years.
Japan’s Nikkei is falling for a fourth straight day after the BOJ said last Friday that it’s scrapping its annual target for stock purchases.
Stocks in both China and Japan had gotten used to these forms from the central banks. Now this backing, while not going away, is ebbing, and that could mean less central bank handholding for equities.
Eoin Treacy's view
The PBoC has been quite vocal in stating they do not want a bubble to form. They have very different priorities from the Federal Reserve. China’s administration wishes to preserve social harmony at all costs. In their view that is the only way to ensure the continued survival of single party rule. That means they will prioritise stability over asset price growth in the property or stock markets.
If that means restricting liquidity to the banking sector and curtailing the reach of the tech sector, those are deemed acceptable measures for China. The ChiNext Index is full of smaller companies that purportedly represent high growth. The Index has experienced it largest pullback since the lows and will need to find support soon if the benefit of the doubt is to be given to the recovery.
Taiwan Raises Red Alert Over Water, Cuts Chipmakers' Supply
This article by Debby Wu and Cindy Wang for Bloomberg may be of interest to subscribers. Here is a section:
Taiwan stepped up its fight against its worst drought in decades, further reducing water supplies to areas including a key hub of semiconductor manufacturing in the central part of the island in an effort to stop reserves from running dry.
The government issued its first red alert on water supply in six years Wednesday, warning that reservoirs in several parts of central Taiwan are running dangerously low. Authorities will cut the water supply to companies in two major science parks in Taichung by 15%, economics minister Wang Mei-Hua said at a briefing in Taipei.
Water will also be cut to non-industrial users across Taichung and Miaoli County two days a week, Wang said. The measures will come into effect from April 6.
While Taiwan Semiconductor Manufacturing Co. and Micron Technology Inc. both have chip-making operations in Taichung, Wang said the restrictions would not affect their production. TSMC’s headquarters further north in Hsinchu has been spared further restrictions for now.
TSMC says it plans to increase the amount of water it uses from tanker trucks but the new restrictions would not affect operations, according to an emailed statement. A Micron representative in Taiwan declined to comment, saying the company is now in a quiet period.
The relative dry spell is putting pressure on the Hua said government to ensure continued supplies to water-intensive industries, such as its crucial semiconductor manufacturing, at a time when global companies are clamoring for computer chips. A shortage of semiconductors has slowed output at automakers worldwide, prompting TSMC and its peers to run their fabs at close to full capacity to try and keep up with demand.
Taiwan’s usually ample supplies of water have plummeted after a significant drop in rainfall last year. The situation was further exacerbated by the fact that no typhoons made landfall in Taiwan in 2020.
Wang said earlier this month that Taiwan has sufficient water reserves to keep its technology companies operating smoothly until late May, when seasonal rains usually replenish supplies depleted during the drier winter months.
The meteorological situation adds to a new challenge to TSMC just as it’s grappling with competition from Samsung Electronics Co. and Intel Corp., which has unveiled a $20 billion plan to create a foundry business that will make chips for other companies.
Eoin Treacy's view
The world is swiftly waking up to how dependent the global economy is on Taiwan. Rising geopolitical tensions, a global shortage of chips and water concerns mean there will be concerted efforts to ensure there is significant investment in additional sources of alternative supply.
In Copper Country, Lawmakers Want a Bigger Share of the Windfall
This article by James Attwood and Tom Azzopardi for Bloomberg may be of interest to subscribers. Here is a section:
The proposal is unnecessary and risks thwarting investment, according to government and industry representatives. Responding to criticism that Chile didn’t tax producers enough in the last supercycle, Energy and Mining Minister Juan Carlos Jobet said the current royalty system will generate more after a surge in prices pushed up earnings.
In his first term in office a decade ago, Pinera introduced a complicated system of payments that now charges large producers a variable rate on operating profit of as much as 14%. A new tax on sales wouldn’t bring in more than the current system, according to Diego Hernandez, head of mining society Sonami. Mining Council boss Joaquin Villarino warned against rushing through legislation just because copper has traded above $4 a pound for several weeks.
While consensus is building that highly profitable sectors such as mining should help finance the pandemic recovery, a heavier tax burden would add to rising costs associated with labor and the environment, BTG Pactual raw-materials analyst Cesar Perez-Novoa said.
“When doing the math, the cost competitiveness of Chile as a mining jurisdiction comes down,” he said. “So it matters.”
Eoin Treacy's view
Copper is in a bull market and demand growth is likely to continue to increase as the focus of stimulus and economic recovery settles on renewable energy and the electric vehicles sectors. That introduces additional use cases for the metal in addition to the traditional telecommunications and infrastructure sectors.
Eoin's personal portfolio: stock market index short closed
Eoin Treacy's view
One of the most commonly asked questions by subscribers is how to find details of my open traders. To make it easier I will simply repost the latest summary daily until there is a change.
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