Comment of the Day
Video commentary for March 7th 2021
A link to today's video is posted in the Subscriber's Area.
Some of the topics discussed include: Russian default probability, commodity prices surge but ease on speculation US unilateral ban on Russian oil imports will be forestalled, Dolar firm, China weak, gold shares breaking out.
Oil Shocks and Recessions
My view - The two things anyone seeking to predict future trouble in the stock market looks at are the yield curve spread and oil prices.
The spread the 10-year and the 2-year is down to 23 basis points, from 120 in October. At the current pace of compression, it could be negative by the end of the week.
The 10-year - 3-month has generally moved ahead of the 10-2 spread but is not doing so on this occasion. That is because bond funds are focusing on short duration bonds because inflationary pressures take a bigger toll on long-dated issues.
Email of the day on lithium and rare earths
Just renewed my subscription for another year. Keep up the good work!
Reference your commentary on 25 Feb re Iain Little’s article on the effects of the Ukraine conflict and commodity supply, you may be interested in the attached research note by Maquarie on the growing strength of the lithium and rare earths supply/demand fundamentals.
My view - Thank you for this insightful report and your long support of the service. Here is a section:
We estimate that 80% of the EVs used motors that contained rare earths, while 100% of PHEV used motors that contained rare earths. Our demand forecasts for rare earths assume one standard passenger PHEV consumes 4-6kg of rare earth magnets while a pure EV uses 5-10kg of rare earth magnets for its motors.
The demand for rare earth magnets would be supported by growth in accelerating offshore wind power capacity installation and higher penetration of inverter air conditioners, as the world is moving towards its climate change goals. We have forecast rare earth magnets intensity of 0.67 tons per MW for direct drive wind turbines and 0.1kg per unit for inverter air conditioners.
A widening deficit remains our base case in the medium-term, with the speed at which new entrants can enter the market presenting a key risk to our base case. In the longer-term the market deficit starts to widen significantly from 2027, suggesting that more new sources of supply will be required to meet the shortfall.
China's Ambitious GDP Goal a Boost to Slowing World Economy
This article from Bloomberg may be of interest to subscribers. Here is a section:
“What China publishes as a target and what they actually aim to achieve are two separate things,” said Freya Beamish, head of macro research at TS Lombard. “The actual number will be published close to the target. But the reality could be significantly weaker.”
China’s economic links with Russia and Ukraine are a small part of its overall foreign trade and investment, so Beijing may calculate that it can largely insulate its economy from global instability, as it did during the global financial crisis and coronavirus pandemic.
“China has tended to capture larger shares of global trade when there are global problems,” Huang said. “They may have been lulled into a feeling that the Ukraine situation won’t hurt them.”
Beijing has pledged to accelerate fiscal spending without increasing debt by using unspent funds from previous years and state-owned enterprise profits. The funding from such sources mean the stimulus will be relatively small-scale.
“The government’s growth target is probably the upper edge of what China can reasonably achieve without large-scale stimulus,” said Adam Wolfe, an economist at Absolute Strategy Research in London. “It’s much more of a stretch target than last year’s.”
My view - China’s growth target will need to be supplemented by liquidity provision if it is to be achieved. That’s particularly true given the macro background of undefinable ripple effects from cutting Russia off from Swift.
The Chart Seminar June 6th & 7th in London
My view - Now in its 53rd year, the first venue for The Chart Seminar in the post pandemic era will be in London on June 6th and 7th at the Army & Navy Club.
To reserve your place please contact Sarah@fullertreacymoney.com.
Delegate Rates:
Full fee: £1799
Each additional delegate: £850
Fuller Treacy Money Subscriber rate: £850
Prices exclude VAT where applicable
Eoin's personal portfolio: equity index long closed at a small loss March 1st
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.