Comment of the Day
Video commentary for February 14th 2022
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: oil and gold firm, bond yields pause near 2% and Wall Street choppy in the region of the trend mean. Mostly commodity currencies have base formations. Japanese yields testing resolve of the BoJ's yield curve control, Chinese stocks remain lacklustre.
CPI Is Old News; Focus on Growth
Thanks to a subscriber for this report from Morgan Stanley (NYSE:MS) which may be of interest. Here is a section:
My view - A link to the full report is posted in the Subscriber's Area.
Q4 earning from the major cloud companies impressed but guidance was much less enthusiastic. Shares of Amazon, Google and Microsoft initially bounced on that their earnings and subsequently gave up much of their advances. They are now steadying once more.
Precious Appraisal
This note from Heraeus may be of interest to subscribers. Here is a section:
For ICE vehicles, Euro 7 could mean more PGM demand to meet tighter emissions limits, but the risk is that it could also become too expensive to make ICE cars that meet the new emissions standards. Most automakers’ new model announcements make it clear that they intend to continue to develop ICE platforms compliant with Euro 7 rather than abandoning the ICE. Extensive hybridisation is likely to be used. Nissan has said Euro 7 will raise the costs of developing ICEs to unsustainable levels and has stopped gasoline engine development for the European market.
Potential PGM demand upside could be considerable. Assuming a similar jump in autocatalyst loadings as for earlier tightening of standards, European PGM demand could increase by several hundred thousand ounces. The BEV market share is growing rapidly, reaching 9.1% in 2021 (source: ACEA), and that additional demand takes account of BEVs potentially exceeding 20% of light-vehicle sales in 2025.
Palladium and rhodium would benefit the most, as the majority of cars will still be gasoline or gasoline hybrids. Diesel cars’ share of the market may be only 12% in 2025. Platinum demand would also receive a boost from its use in gasoline autocatalysts and commercial vehicles, which will still be mostly diesel. This year, automotive palladium demand from Western Europe is forecast to be ~1.5 moz as vehicle production is predicted to recover from the semiconductor chip shortage. The global recovery could move the palladium and rhodium markets into deficit. With ICE vehicle production forecast to grow further by 2025, the introduction of Euro 7 could keep the palladium and rhodium markets tighter for longer, supporting prices
My view - A link to the full note is posted in the Subscriber's Area.
Carbon emissions hit an all-time high last week near €97 and are now consolidating. The stated EU objective has been to get the price to €100. That price was deemed necessary to enable new carbon free solutions, like hydrogen, to be economic. We are now at that point so it is a good time to think about the future of both legacy and future energy solutions.
Goldman Sees 'Reverse Currency Wars' as Inflation Gathers Pace
This article from Bloomberg may be of interest to subscribers. Here is a section:
Mounting inflationary pressures are likely to make central banks more sensitive about weakness in their currencies, which could add fuel to the global tightening cycle, Goldman Sachs (NYSE:GS) strategists George Cole and Michael Cahill wrote in a client note Monday.
This scenario is a regime shift from the competitive depreciation seen over the past decade as central banks acted to protect the appeal of their export markets
To offset a single percentage point weakening in the currency, G-10 policy rates would need to rise 10bps on average, Goldman analysis using a financial-conditions framework showed
Implication is higher G-10 policy rates as each central bank pressures the others, as well as “higher rate volatility relative to FX volatility”
NOTE: Rates volatility reflected in the ICE BofA MOVE Index is the highest since March 2020, while currency vol on JPMorgan’s benchmark index is the highest since late December
Japan’s policy “bears watching” as the central bank’s tolerance of yen weakness has been a key anchor for global yields, Goldman said
My view - Amid rising energy and commodity prices, a weak currency becomes a liability for importers. One of the few tools they have is to allow their currencies to appreciate versus the Dollar.
The Dollar Index is currently appreciating because the general consensus is the Fed will raise rates quicker than either the ECB or BoJ. Since both of those central banks experienced a great deal of difficulty in getting off the zero bound ahead of the pandemic, they are likely to have similar difficulty now. That’s true even if Germany is experienced surging inflation.
The Chart Seminar 2022
With global vaccination rates rising, the prospect of anti-COVID pills on the horizon and the promise of travel restrictions being dropped, it is time to start thinking about venues for The Chart Seminar in 2022.
Please drop sarah@fullertreacymoney.com a line if you would be interested in attending an event next year, as well as your preferred location.
At present I am looking at a late May date for a London seminar and I am open to other times and locations subject to demand.
Eoin's personal portfolio: short reopened February 2nd 2022
One of the questions subscribers as most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.