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September 27 2023

Commentary by Eoin Treacy

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?

Eoin Treacy's view -

Thank you for this topical question. I had a look at several past examples of when the 10-year – 3-month yield curve spread was inverted. The vast majority follow the process you describe at the beginning of your email.

Generally, the long-end pre-empts easing at the short end. In other words, the 10-year peaks before the 3-month. Then the 3-month collapses as interest rates are cut and the curve steepens into sharply positive territory.



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September 21 2023

Commentary by Eoin Treacy

September 19 2023

Commentary by Eoin Treacy

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.

Eoin Treacy's view -

China is currently restocking iron-ore inventories as demand increased following the end of lockdowns. However, the medium-term risk is that uncompetitive steel mills will shut down as the property sector goes through a downshift in new construction.

China has more steel production capacity than the rest of the world combined. Maybe they will repurpose that into production of military equipment which would support iron-ore demand.



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September 18 2023

Commentary by Eoin Treacy

Interesting Charts September 18th 2023

Eoin Treacy's view -

Cocoa – big trends often lose consistency at the penultimate high. Cocoa pulled back sharply for one week in August but recovered and jumped to a new high over the following five weeks. Today’s downward dynamic signals a peak of at least near-term but potential medium-term significance. Downside follow through will be required to confirm the signal.  



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September 14 2023

Commentary by Eoin Treacy

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.

Eoin Treacy's view -

Rising energy prices create demand for sugar as Brazil will turn towards more ethanol production. That’s just one example of how the uptrend in oil prices will have a knock-on inflationary impact on the wider global economy.



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September 13 2023

Commentary by Eoin Treacy

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.

Eoin Treacy's view -

Veteran commodities traders may remember there was an effort by chocolate makers several years ago to boost cocoa supply by providing funding for farm modernization and several invested in additional processing facilities. That fed growing demand but appears to have done little to improve supply.



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September 12 2023

Commentary by Eoin Treacy

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.

Eoin Treacy's view -

Gold does best when the stock market’s performance is nondescript, real rates are trending lower and the US dollar is weak. That is not generally the best time for the earnings yields to grow because secular bears generally mean excesses from the previous stock market bull cycle are being unwound.



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September 11 2023

Commentary by Eoin Treacy

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.

Eoin Treacy's view -

Lithium Americas has been in discussions with the US government about sourcing federal funding to build its Thacker Pass mine. In service to the goal they are in the process of splitting up. The North American company will contain the Thacker Pass mine, while the existing production in Argentina will be renamed Lithium International. The US government is insisting on no foreign interest in the resource base before they are willing to supply funds. 



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September 07 2023

Commentary by Eoin Treacy

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.

Eoin Treacy's view -

A jump in Chinese demand for industrial commodities would normally be cause for celebration among miners. China’s demand growth has been one of the primary reasons investors have been willing to give credence to the view that a new secular bull market in commodities is unfolding. The problem is the narrative does not match up with the price action.



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September 04 2023

Commentary by Eoin Treacy

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.

Eoin Treacy's view -

Talk is cheap. This is not the first time we have seen photo ops for politicians, and headline- grabbing promises of large capital infusions, only for reality to intercede a couple of years later. There is no getting around the fact that coal is cheap, available, and easy. Every other alternative is either more expensive, intermittent, or imported.

Developing countries have no time for handwringing. They have large young populations demanding improved living standards now. Moreover, European, and North American consumers are in no mood to write cheques, when their own living standards are declining and public services are under pressure.



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September 04 2023

Commentary by Eoin Treacy

Lithium Giant Albemarle Nears $4.3 Billion Liontown Takeover

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

A deal would cement the stunning rise of the Australian lithium sector, where the share prices of newly founded and previously little-known companies have soared more than 10-fold amid surging demand for the metal. The race for lithium has mining heavyweights, battery manufacturers and automakers from Rio Tinto Plc to Tesla Inc. chasing deals with firms with even early stage or pre-production projects.

Liontown, based in Perth, owns one of the most promising early-stage lithium projects in Australia, the world’s top exporter of the metal. It has supply agreements with major automakers including Tesla and Ford Motor Co.

US-based Albemarle, which already owns stakes in lithium mines in Australia and has a processing plant there, offered to acquire all of Liontown’s equity at A$3 a share. That follows a bid of A$2.50 in March.

Eoin Treacy's view -

Mercedes Benz threw down the gauntlet today by announcing it is willing to compete on range with Tesla. It’s 450-mile quick charging model is expected to be on sale by early 2025. That story represents the promise of the lithium sector. Most automakers expect to release large numbers of new EV models over the next several years. That’s a demand driver for lithium.

The challenge for the lithium sector is there has been a significant mismatch between supply and demand over the last decade. The first wave of new vehicles surprised miners. The surge of new supply outstripped demand for EVs. Then the surge of demand during the pandemic surprised miners. Now, China’s slow recovery has resulted in demand undershooting expectations. The result has been incredible volatility in lithium prices.



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August 30 2023

Commentary by Eoin Treacy

Cocoa Prices Surge on Poor Crop, Limited West Africa Sales

This article from Bloomberg may be of interest. Here it is in full:

Cocoa futures rallied in New York and London amid signs of weak forward sales from producing countries in West Africa that have been slammed by deteriorating crops. 

Even as heavy rains that wrought havoc on cocoa farms across West Africa have finally subsided, crop development continues to be very poor. Reports of swollen-shoot disease in top grower Ivory Coast and a shortage of fertilizers in the second-largest producer, Ghana, are among key concerns.

“Trees have not recovered as expected,” said Marex co-head of agriculture Jonathan​ Parkman, noting more research is needed to understand why the trees haven’t recovered better after the end of the rains.

Forward sales are also getting hit by confusion over new European deforestation regulations, Parkman said. Some sellers are afraid of getting hit with penalties if they can’t prove their beans come from a deforestation-free area. 

Eoin Treacy's view -

Europe’s efforts to enforce its climate doctrine on other countries are inevitably going to have unintended consequences. That’s particularly true for agriculture producers where producers don’t have the resources to produce according to extraterritorial rules. The commonality across crops where these kinds of rules are threatening to be enforced suggests cocoa is not an isolated incident.



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August 29 2023

Commentary by Eoin Treacy

Email of the day on silver's contango

I am asking why the next expiry in Silver futures is so much higher than it seems to me than in the past, is it simply because rates are higher?

Eoin Treacy's view -

Thank you for this question. You are correct the spread between the 1st and 2nd month contracts is wider than at any point since the 2020 panic of 2007. Interest rates do tend to affect the cost of margin which is reflected in the contango. Volatility and the extent of hedging activity are additional considerations.



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August 28 2023

Commentary by Eoin Treacy

Florida Faces Major Hurricane Threat as Idalia Strengthens

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

The exact spot Idalia will come ashore isn’t certain. “It cannot be emphasized enough that only a small deviation in the track could cause a significant change in Idalia’s landfall location,” Brown wrote. 

If it reaches forecast strength, Idalia would be the first major hurricane to hit Florida since last September when Hurricane Ian struck the western part of the state as a Category 4 storm, killing at least 150 people and causing more than $112 billion in damage, the hurricane center said. 

Idalia is expected to stay in the eastern Gulf, away from offshore oil and natural gas production. Most of the key citrus areas in central Florida would not be seriously impacted, World Weather Inc. President Drew Lerner said.

Eoin Treacy's view -

This has been a quiet hurricane season so far. It delivered the earliest named storm ever even before the official season began but since then there has been very little storm activity. That is now changing. Idalia is likely to strengthen to category 3 and will strike somewhere in the middle of the Florida peninsula. The trajectory of the storm will have a strong bearing on how much damage the citrus groves take. 



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August 24 2023

Commentary by Eoin Treacy

Corn Harvest Is in Trouble as US Heat Fuels More Damage

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

“Things are changing right in front of our eyes,” said Thayne Larson, who has grown alfalfa, hay, corn in Kansas for 50 years. “It’s so disappointing when you have what you thought could be a healthy crop, and then the conditions just become extremely, extremely challenging.”

Crops Go ‘Backwards’ 
With food security already under threat from Europe to Asia, the world has been counting on a big corn harvest to help keep food inflation at bay. A disappointing US harvest could have ripple effects on markets across the globe.

Much will come down to Iowa, the No. 1 US corn grower and where sixth-generation farmer Ben Riensche is for the first-time ever watching his crop go “backwards” because of the heat. 

His corn stalks went from bright and green to slightly gray. Instead of sitting tight against the plant, the corn ears are flopping down, the husk has turned brown and the bottom of the stalk — where the plants connects to the roots that go deep underground — looks like it’s been burned. It means that the plant is dead.

Eoin Treacy's view -

It’s been a particularly warm summer on the border of the great plains here in Dallas. I know people complain about the heat, but it is nothing compared to a summer in Melbourne, Australia. Selling cable phone and TV service door to door around Vicotria 24 years ago inured me to the heat but there is no doubt it has been very dry and hot in Texas.



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August 22 2023

Commentary by Eoin Treacy

Ex-JPMorgan Gold Traders Get Prison for 'Prolific Spoofing'

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

Smith and Nowak “used their positions as some of the most powerful traders in the worldwide precious metals markets to engage in an egregious effort to manipulate prices for their benefit,” Acting US Assistant Attorney General Nicole M. Argentieri said in a statement, adding the Justice Department was committed to holding “accountable those who engage in fraud and manipulation that undermines the investing public’s trust in the integrity of our commodities markets.”

Eoin Treacy's view -

Gold investors have been suspicious of the activities of institutional traders for decades. Rumours of active manipulation have been circulating for as long as I have been active in markets. The fact those rumours have been proved true further enhances the belief the system is rigged against the small investor. However, it is also worth considering that the volatility of the sector has not improved since spoofing cases have made headlines. Precious metals are still important and still trade in a very choppy manner.



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August 18 2023

Commentary by Eoin Treacy

On way back from Brics Summit in South Africa, Modi skeds a quick visit to Greece

This article from the Hindustan Times may be of interest. Here is a section:

Speculation about a Modi-Xi meeting has grown following a series of high-level contacts between India and China in recent weeks. Both National Security Adviser Ajit Doval and external affairs minister S Jaishankar have met top Chinese diplomat Wang Yi, who is currently the foreign minister, on the margins of multilateral gatherings in recent weeks.

The joint statement issued after the latest meeting between Indian and Chinese military commanders on the standoff on the Line of Actual Control (LAC) has also fuelled speculation about a Modi-Xi meeting in Johannesburg. The statement, issued after the talks held during August 13-14, had described the discussions as positive and constructive.

Eoin Treacy's view -

There is rampant speculation the BRICS countries are preparing to announce the creation of a gold-backed currency unit. I’m still at a loss as to how that will work. The five members are hardly bosom buddies and any monetary co-operation is more likely to involve greater use of the Renminbi in trade with  China. I do expect a memorandum of understanding to be signed amid plenty of photo ops. Six months from now there will be little evidence of progress.



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August 18 2023

Commentary by Eoin Treacy

Hurricane Hilary Intensifies as Storm Charts Path to California

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

Still, Hilary is expected to bring widespread heavy rain to California and the US Southwest, raising risks of power outages, mudslides and flooding along with disruptions to ground transportation and air travel. The rain could start in the region as early as Saturday, with the worst of it arriving late Sunday into Monday.

A wide area could get 2 to 4 inches, Douty said, which would be similar to the powerful winter storms that sometimes hit California and bring flooding. Desert communities, such as Palm Springs, as well as the many railroad lines that cross the area and pass through the mountains could also be imperiled, he said.

Flood watches cover parts of California, Arizona, Nevada, and Utah, including Los Angeles, San Diego and Las Vegas. Flooding could be worst across Southern California, especially around San Diego, the California Governor’s Office of Emergency Services said in a statement.

Eoin Treacy's view -

The cold (bone chilling) water off the coast of California is usually enough to deter the formation of hurricanes in the region. By the time Hilary makes it to Southern California it will have lost intensity. The biggest challenge from storms over the last several years has been rain rather than wind speed. On this occasion, the storm could drop anywhere from 2 to 4 inches of rain on Southern California. 



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August 16 2023

Commentary by Eoin Treacy

August 15 2023

Commentary by Eoin Treacy

China Halts Youth Jobs Data, Stoking Transparency Concerns

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

The move is the latest example of how President Xi Jinping’s government is limiting access to information in order to more closely guard data it deems sensitive and manage the narrative about the weakening economy.

China has over the past year limited access to corporate data, court documents, academic journals and raided expert networks serving businesses, hampering investors’ ability to assess the economy. Officials have also been downplaying economic risks like deflation, with some Chinese-based analysts saying they were instructed by regulators and their companies not to discuss the matter publicly.

Eoin Treacy's view -

When everything is going well the opacity of data is ignored. There have been doubts about the accuracy of China’s data for decades, so it is hardly surprising they have given up on printing data which does not gel with the official position. It is being viewed as a negative today because the problems are deep and the response is not what investors have come to expect. Cutting interest rates has only confirmed the depth of the issues facing the Chinese property/infrastructure sectors.



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August 08 2023

Commentary by Eoin Treacy

Secular bull markets versus industrial revolutions

Eoin Treacy's view -

I had the great pleasure of spending several days last week with David Brown talking about the drug discovery process, how artificial intelligence can be harnessed to speed it up, and how that all fits into the discussion around the evolution of a 3rd (some say 4th) industrial revolution. I discussed some of my updated thoughts on the subject in the Friday Big Picture audio/video. Here are some more; hopefully in a clearer format.

Before digging into the weeds, there is an important question to answer. Can you have a secular bull market without an industrial revolution? Of course the answer is yes. Industrial revolutions evolve over decades and can last a century. In that time there will be several long-term bull and bear market cycles through various asset classes.

For example, the evolution of China’s economy over the last 30 years was about the adoption of capitalistic economic policies and harnessing the labour of a billion people. That was a political decision to deploy lessons already learned elsewhere rather than new thinking. Secular bull markets in commodities develop because demand leaps higher before supply can adjust.



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August 04 2023

Commentary by Eoin Treacy

Wheat Gains After Ship Attack Temporarily Shut Russian Port

This article from Bloomberg may be of interest. Here it is in full:

Wheat futures rose, paring a weekly loss, after a major Russian grain-shipping hub was temporarily closed. 

Traffic from Novorossiysk port was halted for several hours on Friday after a Ukrainian drone attack on a naval vessel. The overnight assault was repelled without damage to port facilities, according to the Russian Defense Ministry. 

Although the closure was short-lived, it adds to uncertainty about Black Sea trade flows as the war escalates in the midst of this year’s harvests. Russia is the world’s top wheat shipper, and its farmers are collecting a second bumper crop. 

Chicago futures climbed as much as 3.5%, before paring the advance. Prices have been increasingly volatile after Russia attacked Ukrainian sea and river ports following its withdrawal from the agreement to allow Ukrainian crop shipments through the Black Sea last month.

Eoin Treacy's view -

Ukraine’s supporters and military donors fervently hope the country can continue to mount a stout defence, but they are cautious about the potential for escalation. However, the nature of war is tit-for-tat attacks that seek to deprive adversaries of the tools necessary to persist in resistance.



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August 02 2023

Commentary by Eoin Treacy

Thailand Mulls Suspending Rice Farming on Drought

This article from the Bangkok post may be of interest. Here is a section:

Thai government considers suspension of rice farming in central region to save water amid drought, Bangkok Post reports, citing Surasri Kidtimonton, secretary-general of the Office of the National Water Resources.

Rainfall this year has been lower than average triggering an expectation of drier rainy season

Hardest areas will likely to be the central provinces, which is considered the country’s main rice growing region

Region may face 40% drop in accumulated precipitation this rainy season, likely causing widespread water shortages

Water levels are also at low level at four main dams including Bhumibol in Tak province and Sirikit in Uttaradit province

Eoin Treacy's view -

Pressure on rice harvests across India, Pakistan and now Thailand have the potential to be a potent source of inflation in the region over the next several months. That’s not good news for regional central banks that were hoping to be able to ease policy.



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July 21 2023

Commentary by Eoin Treacy

Cocoa Factories Slowing Down Spell Trouble for Chocolate Makers

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

“The demand issues are multifold,” said Judy Ganes, president of consultancy J. Ganes Consulting, who has followed the market for more than 30 years. “There’s not just cocoa prices that are high, but sugar prices are also high, and manufacturers always look for ways to meet margins and work to put fewer chocolate chips in a cookie, or they shrink the bar sizes.”

Factories usually process cocoa several months before products are turned into chocolate. That means the slowdown likely signals the industry is expecting less demand ahead. Barry Callebaut AG, the world’s largest maker of bulk chocolate, said earlier this month that its sales volume fell 2.7% in the first nine months of the year, with its gourmet and specialists’ business seeing the biggest drop. 
 

Eoin Treacy's view -

The sweet tooth of the emerging middle class has allowed companies like Nestle, Chocoladefabriken Lindt & Sprungli AG and Hershey thrive, while simultaneously feeding a diabetes epidemic which has created of the most reliable streams of cashflow in any market. It’s truly a sign of consumer pressure when demand for an addictive product like chocolate declines.



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July 20 2023

Commentary by Eoin Treacy

Brazil's All-Powerful Sugar Industry Sours the Country on EVs

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

So far, Lula’s government is trying to support both technologies in a precarious balancing act. To appease the sugar industry, it will keep incentives for ethanol in place while simultaneously courting electric-car makers from China scouting new overseas factory sites with a compelling sales pitch: proximity to local battery-metal deposits, a growing domestic middle class and access to other Latin American markets with their own discretionary incomes to spend. It has worked, with at least two of China’s biggest carmakers — BYD Co. and Great Wall Motor Co. — planning to bring their vehicle production to the country’s shores. But even they plan to add some ethanol-fueled hybrids to their Brazilian lineups in what looks like a friendly — and savvy — gesture.

The discussion about electric cars is “very important for Brazil and for the world,” said Renan Filho, Brazil’s transport minister. But ethanol should be part of the conversation, too, he said. “Ethanol emits much less.”

Eoin Treacy's view -

The original reason for promoting ethanol as a transportation fuel was because of the high price of oil. The fact it produces fewer emissions is a modern day bonus that helps to compensate for lower efficiency. The rationale for electrification of the transportation sector depends on abundant cheap electricity. That implies investing in additional supply infrastructure and its safe to assume most of the hydroelectric opportunities have already been exploited.



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July 19 2023

Commentary by Eoin Treacy

Email of the day on rough rice

I am curious about the rationale behind taking the rough rice position, beyond the 1000D EMA which shows support in the region of $15. Despite El Niño, according to the FAO latest report July 7 (https://www.fao.org/worldfoodsituation/csdb/en/), there is no supply/demand imbalance in spite of a lower 2022/2023 production. After a slight draw on stocks for the current harvest season, they are due to increase in 2023/2024 as well as worldwide production (same forecasts from the USDA https://www.ers.usda.gov/webdocs/outlooks/106909/rcs-23f.pdf?v=4882.7).

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. India is talking about restricting exports to control inflation. Pakistan’s ability to export was impacted by the floods last year. The heat in Texas this year may damage the crop even if this summer is wetter than the last few years. That suggests to me that predictions of a jump in supply are overly optimistic.



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July 17 2023

Commentary by Eoin Treacy

European Power Prices Fall Below Zero With Green Power Boom

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

Electricity prices across Europe are set to fall below zero this weekend as the continent experiences a
surge of summer winds combined with the peak season for solar generation.

The sub-zero prices are a preview of what’s to come for European power markets if a flood of planned renewable power production isn’t met with a shift in demand. The hope is that eventually larger electric car fleets, smarter grids and better battery technology will catch up, but for now the mismatch is a headache for policy makers and companies. 

The risk is that a prolonged slump in prices could undermine the case for future investments, add costs for consumers and waste energy that could be used to cut demand for polluting alternatives.

Eoin Treacy's view -

At the same time that record high temperatures are being posted across southern Europe, one would think that record high renewable energy production would be greeted as a serious benefit. Now, if someone could prevail on countries to invest that excess power in air conditioning, they would have a lot less to worry about. Instead people could enjoy the summer heat and regional economies would be more productive.



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July 17 2023

Commentary by Eoin Treacy

Richemont Drops on Signs Luxury Demand Is Weakening in US, China

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

Richemont led luxury-goods stocks lower amid concerns that demand in the US and China, two of the biggest markets for the industry, is starting to sputter.

The Swiss owner of Cartier reported a surprise drop in revenue from the Americas in the three months through June.

While Richemont’s sales from Asia rose sharply, China reported slower-than-expected economic growth Monday, signaling signs of a possible pullback in consumer spending.

Richemont fell as much as 8.2%, the steepest intraday decline in more than year. LVMH dropped as much as 3.7% and Hermes fell as much as 4.2%.

The luxury-goods industry has been counting on a rebound in China after that country’s reopening would make up for weakness in the US market. Now Richemont and its peers are contending with the prospect that its two main growth motors are weakening.

Last week, Burberry Group Plc said the low end of the luxury market in the US softened.

Eoin Treacy's view -

Aspirational spending is heavily dependent on disposable income and availability of credit. The luxury goods sector thrived during the pandemic because consumers were flush with cash and had fewer options to spend it since travel and sports events were shut down. The sector leaped higher again when China’s lockdowns ended because investors were betting the post pandemic celebratory spending would be repeated. That has not been the case.



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July 17 2023

Commentary by Eoin Treacy

Russia Pulls the Plug on Ukraine Grain Export Agreement

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

Moscow had repeatedly threatened to leave the pact, citing obstacles to its own exports. It last agreed to a two-month extension in May, which ends Monday. The corridor’s shutdown will hit key buyers like China, Spain and Egypt.

“Unfortunately, the part concerning Russia in this Black Sea agreement has not been fulfilled so far,” Kremlin spokesman Dmitry Peskov said, according to Russian news agency Tass. “Therefore, it is terminated.” 

The move jeopardizes a key trade route from Ukraine, one of the world’s top grain and vegetable oil shippers, just as its next harvest kicks off. It also comes after Russia on Monday said Ukrainian drones damaged a key bridge to Crimea.

The pact — brokered by the United Nations and Turkey — has ensured the safe passage of almost 33 million tons of crop exports via the Black Sea since it was signed in July 2022, helping world food-commodity prices ease from the record levels reached after Russia’s invasion of Ukraine. However, it has been bogged down by red tape and slow vessel inspections in recent months.

Eoin Treacy's view -

Russia’s munificence in allowing Ukrainian wheat exports only extends as far as its own self interests. With the trend of war not going according to plans, the argument for providing Ukraine with any form of assistance is less and less convincing. There has been a lot of handwringing within NATO at the reluctance of countries to fall into line in sanctioning Russia. That ignores the reliance many countries have on the base commodities it exports.



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July 12 2023

Commentary by Eoin Treacy

Inflation at 3% Flags End of Emergency, Turning Point for Fed

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

None of this means it’s game over in the fight against price pressures — especially for the Fed, which is widely reckoned to be locked-in to another interest-rate increase later this month. Still, there’s now a better-than-even chance that a July 26 hike, which would take the benchmark US rate to 5.5%, could be the last in quite a while. 

That’s the way markets were betting after Wednesday’s data. Yields on short-term Treasury yields plunged, stocks rose, and the dollar was headed to the lowest in more than a year by one measure – all in anticipation that the Fed might ease up.

‘Coming to End’
“The new data could give the Fed reason to debate whether any further rate hikes after this month are needed,” wrote Ryan Sweet, chief US economist at Oxford Economics. “This tightening cycle by the Fed is likely coming to an end.”

Eoin Treacy's view -

CPI is back inside the pre-pandemic range but the core figure is still at elevated levels. That represents a partial win for the  Federal Reserve. The challenge is regular CPI is supposed to be more prone to volatility than the core figure.

Jerome Powell has stated he is focusing on the core services less housing figure. That has been steady around 4.5% since August 2022 and is the primary data point suggesting inflation is sticky. Nevertheless, traders are betting the July hike will be the last in this cycle. 



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July 11 2023

Commentary by Eoin Treacy

Cotton Hits Monthly High as Market Sees Demand Pickup From China

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

The US Department of Agriculture will release new numbers for the US and world cotton production on Wednesday. Analysts in a Bloomberg survey expect little change versus the report from the prior month, which already pointed to growing world cotton consumption. 

On the supply side, the cotton futures market is concerned about the condition of the US crop and the yield potential for the new marketing year, said Walter Kunisch, senior commodity market strategist at Hilltop Securities Inc. Heat in US top producer Texas creates challenges for the crop development, he said. 

In other markets, raw sugar gained following the release of data on the declining quality for sugar-cane crops in top exporter Brazil. Arabica coffee fell, narrowing its premium over robusta as the pace of Brazil’s harvest increases and El Niño threatens Vietnam’s production of the cheaper beans.    

Eoin Treacy's view -

The big surprise for my family, in driving the 1100 miles to Phoenix and home again to Dallas, was how green the desert is. When we first completed that drive in May 2021, during our migration out of California, the landscape was barren. The California and Texas droughts had leeched moisture from the landscape. This time, the topography was much more appealing despite high temperatures. 



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July 10 2023

Commentary by Eoin Treacy

Russia confirms BRICS will create a gold-backed currency

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

"Talk of BRICS gold backed currency seems like an echo chamber. They do not have the gold to back a currency meaningfully," said Marc Chandler, managing director of Bannockburn Global Forex. "Have we not learned anything from the EMU experience of monetary union without fiscal union. Color me profoundly skeptical."

Many analysts have been speculating about a new global currency to challenge the U.S. dollar's role as the world's reserve currency. In late March, Former Goldman Sachs chief economist Jim O'Neill wrote in a paper published in the Global Policy Journal that the U.S. dollar's dominance is destabilizing global monetary policies. He added that a BRICS currency, challenging the U.S. dollar's dominance, would bring stability to the global economy.

"Whenever the Federal Reserve Board has embarked on periods of monetary tightening, or the opposite, loosening, the consequences on the value of the dollar and the knock-on effects have been dramatic," he said.

Eoin Treacy's view -

A competing reserve currency group to the US Dollar would act as a competing force and promote responsible monetary and fiscal action over the long term. In the short term, the scrabble to accumulate gold would be enormously disruptive and would result in a devaluation of every other asset relative to the metal’s price. That kind of pain tends to be sprayed around and would not be confined to the financial sector. 



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July 05 2023

Commentary by Eoin Treacy

Fed Minutes Reveal Divisions Over Decision to Pause in June

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

Federal Reserve officials struck a tenuous agreement to pause interest-rate increases at their June meeting, all but committing to hike again later this month in a bid to keep fighting stubborn inflation.

The minutes from the Fed’s June 13-14 meeting show that while almost all officials deemed it “appropriate or acceptable” to keep rates unchanged in a 5% to 5.25% target range, some would have supported a quarter-point increase instead. 

“It was a little surprising given that the decision was sold as unanimous from Fed officials,” said Lindsey Piegza, chief economist at Stifel Nicolaus & Co. “It’s pretty clear that there was a divergence of opinions, with some officials pretty clearly giving some reluctance for a one-month pause.”

Eoin Treacy's view -

The likelihood of another hike in July is being priced into the Treasury market. Meanwhile, investors are betting the July hike will be the last because manufacturing data is underwhelming and the tide of higher rates will have a negative effect on consumer behaviour in due course. Student loan debt repayments starting up in October are an additional headwind.



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June 12 2023

Commentary by Eoin Treacy

Bunge Is Said to Near Deal to Buy Glencore's Viterra

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

Combining the two will create a trader big enough to take on the industry’s elite: Minneapolis-based Cargill Inc. and Chicago’s Archer-Daniels-Midland Co. The deal is the culmination of Bunge Chief Executive Officer Greg Heckman’s transformation of the once troubled St. Louis-based crop trader into a cash-rich oilseeds champion.

Eoin Treacy's view -

The size and influence of large soft commodity traders means they have a great deal of power to shape the market to their liking. That implies creating new markets for the commodities they trade, like ethanol or biofuels, and ensuring there are ready markets for those products through lobbying efforts. That’s the definition of an oligopoly. 



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June 08 2023

Commentary by Eoin Treacy

Jobless Claims Put FOMC Unemployment Forecast in Sight

This note from Bloomberg Economics may be of interest. 

OUR TAKE: The surge in jobless claims — to the highest level since October 2021 — is in line with our analysis of WARN notices, which suggested layoffs were set to spike. It’s increasingly feasible for the unemployment rate to reach the median FOMC participant’s 4.5% projection by year-end.

Initial jobless claims for the week ended June 3 increased 28k to 261k. The reading was above the consensus (235k) and Bloomberg Economics’ projection (240k).

The surge came from Ohio (6.3k), California (5.2k), Minnesota (2.7k) and Pennsylvania (2.0k).

Given recent fraudulent applications in Massachusetts, it’s possible that other states are experiencing similar issues. However, the four-week moving average also increased by 7.5k to 237k, well above the 218k pre-pandemic average from 2019. That suggests labor-market conditions are continuing to cool.

Continuing claims declined 37k to 1,757k for the week ended May 27, remaining above the pre-pandemic average of 1,699k. The insured unemployment rate — the number of people currently receiving unemployment insurance as a percentage of the labor force — remained at 1.2%.
We expect continuing claims to move higher given the surge in initial claims and tracking of WARN notices.

Eoin Treacy's view -

The pandemic introduced a massive spike into jobless data so the only way to get a viable chart is to cut it out. The most important historical fact is a move above 250,000 was a breakout in 2020 and is a base formation completion now too. Ahead of a decade of QE, a break above 400,000 was required to signal trouble. That also helps to highlight how the economy has been running with little spare labour margin for most of the last decade.



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June 06 2023

Commentary by Eoin Treacy

Gold Wavers as Traders Assess Fed Rate Path After Australia Hike

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

Gold swung between gains and losses as traders mulled the Federal Reserve’s interest-rate path after a surprise hike by Australia’s central bank.

The Reserve Bank of Australia unexpectedly raised its key rate and kept the door open to further hikes. Treasury yields rose alongside a strengthening dollar, keeping bullion’s upside in check. Traders have been increasingly betting the US central bank will hold rates steady at its June meeting, while keeping the option for hikes later open.

“After many traders were surprised by the hawkish rate rise by the RBA, fears are growing that the Fed might need to do a lot more tightening,” said Ed Moya, senior market analyst at Oanda.

Eoin Treacy's view -

The RBA’s willingness to continue raising rates is being shaped by concerns inflation is stickier than they hoped. The jump in the minimum wage is worrisome since it puts upward pressure on wage demands across the spectrum and that tends to also be sticky. 



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June 06 2023

Commentary by Eoin Treacy

Major dam breached in southern Ukraine, unleashing floodwaters

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

The dam, 30 metres (yards) tall and 3.2 km (2 miles) long and which holds water equal to the Great Salt Lake in the U.S. state of Utah, was built in 1956 on the Dnipro river as part of the Kakhovka hydroelectric power plant.

It also supplies water to the Crimean peninsula, annexed by Russia in 2014, and to the Zaporizhzhia nuclear plant, which is also under Russian control and which gets cooling water from the reservoir.

The International Atomic Energy Agency (IAEA) said there was no immediate nuclear safety risk at the plant due to the dam failure but that it was monitoring the situation closely. The head of the plant also said there was no current threat to the station.

Eoin Treacy's view -

The destruction of the Kakhovka is an obvious response to the beginning of the Ukrainian counter offensive. Back in February there were several stories about how Russia had opened the sluice gates at the dam to drain the reservoir. That action puzzled commentators at the time but the intention is now clear. 



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June 05 2023

Commentary by Eoin Treacy

China gas demand becomes more feasible at low LNG prices but challenges persist

Thanks to a subscriber for this article from S&P Global focusing on Chinese LNG demand. Here is a section: 

China's Shenzhen Energy closed a buy tender on May 30 seeking an August-delivery cargo,and the tender was awarded in the low $9s/MMBtu,according to several sources.

Prior to this, China's Guanghui Energy was heard to have partially awarded a buy tender for certain cargoes delivering from July 2023 to January 2024,S&PGlobal Commodity Insights reported earlier.

The prices of pipeline gas in China, which reflect crude prices 9-12 months ago, have been rising this year, with the average net import price above $8.5/MMBtu in April, showed calculations based on customs data

This means that the price advantage of pipeline gas over spot LNG is fading, which is expected to stimulate buying interest from importers who do not have sufficient long-term contracts in hand, market sources said.

"Rising prices of domestic pipeline gas in China could provide some incentive for downstream industries to switch to LNG," a Chinese importer said, adding that the current LNG prices were quite competitive and second-tier buyers could be more likely to come out to buy spot cargoes.

Eoin Treacy's view -

I was not previously aware of the look back relationship between current Chinese pipeline gas prices and the crude oil price a year ago. That suggests pipeline gas prices will begin to fall over the coming month since crude oil rolled over in June of 2022. 



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June 05 2023

Commentary by Eoin Treacy

Bitcoin Coders Feud Over Whether to Crush $1 Billion Meme Frenzy

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

Others defend the software innovation, called Ordinals, that allows Bitcoin’s blockchain to host large numbers of memecoins and nonfungible tokens — digital collectibles — for the first time, arguing it can have wider applications.

Developer Casey Rodarmor created Ordinals to enable users to inscribe digital content like videos, images and text on satoshis, the smallest unit of Bitcoin. There are 100 million satoshis in one Bitcoin. 

Rodarmor’s innovation took off this year and was seized on by pseudonymous blockchain analyst Domo to develop the Bitcoin Request for Comment — or BRC-20 — standard, which led to the explosion of memecoins.

There are now about 25,000 meme tokens on the Bitcoin blockchain with a market value of roughly $475 million, according to website brc-20.io. The figure had soared past $1 billion in early May.

Jameson Lopp, co-founder of crypto storage solutions provider Casa, said the Bitcoin network is meant to be an “auction market for the block space” — the place where data is stored — and Ordinals merely stoked demand for it.

Eoin Treacy's view -

This story is another version of the network capacity teething pains bitcoin has been going through since inception. The promise of peer to peer currency exchange is that it avoids banking fees and delays of days. The reality is it is complicated for the uninitiated and is a long way from instantaneous. When prices of the underlying move around a lot that does not help to build confidence. 



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June 02 2023

Commentary by Eoin Treacy

China Mulls New Property Support Package to Boost Economy

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

A mountain of developer debt — equal to about 12% of China’s GDP — is at risk of default and poses a threat to financial stability, according to Bloomberg Economics. That’s despite a slew of existing support measures for the industry, which include: 

Lower mortgage rates for first-home buyers if newly constructed house prices drop for three consecutive months
A nationwide cap on real estate commissions to boost demand
Allowing private equity funds to raise money for residential property developments
Pledging 200 billion yuan ($28 billion) in special loans to ensure stalled housing projects are delivered
A 16-point plan unveiled in November that ranged from addressing the liquidity crisis to loosening down-payment requirements for homebuyers

Speculation about further policy support helped propel a gauge of Chinese property developers to a more than 6% gain on Friday before the Bloomberg report, the most since December. In the coastal city of Qingdao, the government this week lowered the down payment ratio for first- and second-time home buyers in areas not subject to purchase restrictions, local media reported earlier on Friday.

Eoin Treacy's view -

Everyone can agree that moral hazard is a problem for economists. Create an incentive and resisting regulation ensure it will be exploited to the greatest extent possible by any and all means possible. Unbridled debt issuance is a hallmark of speculative activity in China. That’s been a clear feature of the housing/infrastructure boom. It was equally evident in the pace with which loans were made to foreign governments and projects as part of the Belt and Road Initiative. 



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May 31 2023

Commentary by Eoin Treacy

Exclusive Interview with Zoltan Pozsar: Adapting to the New World Order

Thanks to a subscriber for this interview from Ronald Stöferle and Niko Jilch. Here is a section:

These topics are becoming more mainstream. When I talk to the most sophisticated macro hedge funds and investors, the common refrain that comes back is they’ve never seen an environment as complicated as this. There is consensus around gold; it’s a safe bet, and everything else is very uncertain. This is a very unique environment. I think we need to take a very, very broad perspective to actively reimagine and rethink our understanding of the world, because things are changing fast. The dollar and the renminbi and gold and money and commodities. I think they are all going to get caught up.

Eoin Treacy's view -

There are a lot of moving parts in the global macro environment. The introduction of AI and the race for dominance is a wholly new development for example. The challenge with making big long-term predictions is that other events can happen before the prediction comes to fruition. 



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May 31 2023

Commentary by Eoin Treacy

Britain Comes to Terms With Its New Water Poor Reality

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

By 2050, the UK’s Environment Agency expects the gap between available water and what’s needed by homes and businesses to reach 4 billion liters per day in England — enough to fill 1,600 Olympic size swimming pools. Leaks are part of the picture, but so is a neglected network, some of which was built more than 150 years ago, that doesn’t store enough for times of drought, and water consumption that outstrips many other parts of Europe.

The crisis has become a national obsession. The public is furious with a privatized English water industry that has paid out millions to executives and shareholders while failing to keep pace with population growth and climate pressures, and the government and regulators that have allowed it to happen. As well as the threat of water shortages, underdeveloped pipes and treatment plants mean raw sewage is frequently dumped in rivers and the sea, causing environmental damage.

Now, after years of delays, the UK is racing to fix its broken water system before it’s too late. “The worst risk has not materialized yet,” says Jim Hall, a professor of climate and environmental risk at Oxford University and a member of the government’s official infrastructure adviser. “There is some sense until now that we’ve got away with it,” he says, but “a severe and prolonged drought could materialize at any time.”

Eoin Treacy's view -

The population of Greater London declined between the 1950s and early 1980s but then jumped around 50% over the last forty years. There was no incentive to invest in water infrastructure during a time of declining population growth and it takes a long time for institutional mindsets to change. Today, there is urgency to the investment case because urgent remedial action in both storage and usage are necessary. 



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May 30 2023

Commentary by Eoin Treacy

Treasuries Gain as Investors Assess Debt-Ceiling Accord Impact

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

Mounting rate-hike expectations have pushed short-term yields up relative to longer-term ones, flattening the Treasury curve. The flattening continued Tuesday as yields declined, briefly pushing 30-year yields below the five-year for the first time since March.

The trend has temporary support from Wednesday’s month-end bond index rebalancing, which may create demand for the long-maturity Treasuries created during the month in quarterly auctions. 

Later this week, Friday’s release of US labor market data for May has the potential to alter expectations for Fed policy. Job creation exceeded economists’ median estimate in April and each of the previous 12 months. However Fed officials in their public comments have been divided on how to balance an anti-inflationary stance with the possibility that the central bank’s 10 rate increases totaling 5 percentage points in the past 14 months warrant a pause in June.

Eoin Treacy's view -

The deal announced over the weekend relies on capping spending and growing defense spending below the rate of inflation. The headline impact will be to grow the national debt less quickly. That is supporting Treasury prices today. 



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May 25 2023

Commentary by Eoin Treacy

South Africa Rate Hike Fails to Stop Rand Slumping to Record Low

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

“The health of the local economy is now the primary concern,” said Brendan McKenna, an emerging-markets strategist at Wells Fargo Securities in New York. “It’s difficult to make a really compelling case to deploy capital toward South Africa and the rand at the moment. The rand has been an EM currency that has underperformed for most of this year, and given the commentary from the SARB today, that underperformance is likely to continue.”

Bloomberg’s forecast model based on prices of options to buy and sell the rand shows a 53% chance of the currency breaching 20 per dollar within the next week. That compares with a probability of just 6.8% before Thursday’s rate decision.

All of the monetary policy committee’s five members voted for the half-point increase, the first such unanimous decision since September 2021. There have been a cumulative 475 basis points of interest-rate hikes since November 2021, the most aggressive tightening cycle in at least two decades.

“The rand should strengthen after an interest rate hike, but given the poor reaction in the currency, the market seems to think that this is a potential policy mistake,” said Michelle Wohlberg, a fixed-income analyst at Rand Merchant Bank in Johannesburg. “The yield curve has steepened aggressively post the rate hike as fiscal fears start playing in investors’ minds on the back of poor growth prospects.”

Eoin Treacy's view -

When the former CEO of Eskom writes a book called Truth to Power and refers to the company as South Africa’s largest organised crime network, it is not exactly good for the country’s international reputation. The cholera outbreak north of Pretoria, which has killed 17 people so far, is an additional sign that South Africa’s water infrastructure is also in need to remedial care. 



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May 24 2023

Commentary by Eoin Treacy

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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May 19 2023

Commentary by Eoin Treacy

'In a lot of the world, the clock has hit midnight': China is calling in loans to dozens of countries from Pakistan to Kenya

This fascinating article by Bernard Condon for The Associated Press may be of interest. Here is a section:  

As Parks dug into the details of the loans, he found something alarming: Clauses mandating that borrowing countries deposit U.S. dollars or other foreign currency in secret escrow accounts that Beijing could raid if those countries stopped paying interest on their loans.

In effect, China had jumped to the front of the line to get paid without other lenders knowing.

In Uganda, Parks revealed a loan to expand the main airport included an escrow account that could hold more than $15 million. A legislative probe blasted the finance minister for agreeing to such terms, with the lead investigator saying he should be prosecuted and jailed.

Parks is not sure how many such accounts have been set up, but governments insisting on any kind of collateral, much less collateral in the form of hard cash, is rare in sovereign lending. And their very existence has rattled non-Chinese banks, bond investors and other lenders and made them unwilling to accept less than they’re owed.

“The other creditors are saying, ‘We’re not going to offer anything if China is, in effect, at the head of the repayment line,’” Parks said. “It leads to paralysis. Everyone is sizing each other up and saying, ‘Am I going to be a chump here?’”

Loans as ‘currency exchanges’
Meanwhile, Beijing has taken on a new kind of hidden lending that has added to the confusion and distrust. Parks and others found that China’s central bank has effectively been lending tens of billions of dollars through what appear as ordinary foreign currency exchanges.

Foreign currency exchanges, called swaps, allow countries to essentially borrow more widely used currencies like the U.S. dollar to plug temporary shortages in foreign reserves. They are intended for liquidity purposes, not to build things, and last for only a few months.

But China’s swaps mimic loans by lasting years and charging higher-than-normal interest rates. And importantly, they don’t show up on the books as loans that would add to a country’s debt total.

Mongolia has taken out $1.8 billion annually in such swaps for years, an amount equivalent to 14% of its annual economic output. Pakistan has taken out nearly $3.6 billion annually for years and Laos $300 million.

The swaps can help stave off default by replenishing currency reserves, but they pile more loans on top of old ones and can make a collapse much worse, akin to what happened in the runup to 2009 financial crisis when U.S. banks kept offering ever-bigger mortgages to homeowners who couldn’t afford the first one.

Some poor countries struggling to repay China now find themselves stuck in a kind of loan limbo: China won’t budge in taking losses, and the IMF won’t offer low-interest loans if the money is just going to pay interest on Chinese debt.

For Chad and Ethiopia, it’s been more than a year since IMF rescue packages were approved in so-called staff-level agreements, but nearly all the money has been withheld as negotiations among its creditors drag on.

Eoin Treacy's view -

The G-7 meeting starts today in Japan and the BRICS Summit will be in August in South Africa. On one side we have the major developed countries getting together to talk about cooperation and how to counter Russia and China. On the other, are the world’s major population centres, where growth will be concentrated over the coming decades. They are suspicious of G7 motives and not least since the confiscation of Russia’s sovereign reserves and are also seeking cooperation but with one another. A major PR exercise is now underway to win hearts and minds in the emerging markets as geopolitical battles lines are drawn. 



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May 19 2023

Commentary by Eoin Treacy

Wildfires Rage On in Western Canada, Shutting More Energy Output

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

Companies including Chevron Corp., Paramount Resources Ltd. and Crescent Point Energy Corp. also have announced shutdowns, and consultant Rystad Energy estimates that the equivalent of about 240,000 barrels of daily production — and perhaps more than 300,000 barrels — has been shut due to the fires. 

So far, the blazes have mostly struck the gas-producing region of western Alberta. But ConocoPhillips said on Wednesday that it evacuated and then returned non-essential workers to the Surmont oil-sands site because of a wildfire nearby. Surmont produced about 143,000 barrels a day in March. 

Conditions are expected to worsen heading into the weekend, raising the possibility of even more blazes, Christie Tucker, a spokeswoman for Alberta Wildfire, said during a media briefing Wednesday. 

“It will get hotter and drier as we head to the weekend, and as we’ve seen, that can lead to more active wildfire behavior,” she said.
 

Eoin Treacy's view -

The breaking of California’s drought has overshadowed the very dry conditions in much of the centre of the North American continent. This is very early in the season for wildfires to be such a problem in Alberta, and hard winter wheat is withering in states like Kansas. 



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May 17 2023

Commentary by Eoin Treacy

Biden 'Confident' on Reaching Debt Deal as GOP Bashes Japan Trip

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

President Joe Biden expressed confidence that negotiators would reach an agreement to avoid a catastrophic default, even as House Speaker Kevin McCarthy criticized his decision to travel to Japan for an international summit.

“I’m confident that we’ll get the agreement on the budget and that America will not default,” Biden said Wednesday at the White House, shortly before departing to Hiroshima, Japan for a Group of Seven leaders summit.

On Capitol Hill, McCarthy and other Republican lawmakers criticized Biden for his decision to travel, with the House speaker labeling the president “a big obstacle” to an agreement.

“Mr. President, stop hiding, stop traveling,” McCarthy said.

On Tuesday, Biden and congressional leaders agreed to a new narrower round of staff-level talks with hopes of reaching a bipartisan deal to avoid an unprecedented US default. The US president also announced he was canceling planned stops in Australia and Papua New Guinea, and would return to Washington by the beginning of next week for continued negotiations.

Eoin Treacy's view -

The decision to attend the G7 meeting is a clear signal there are more important issues at stake than the inward facing decision about how spending and taxing priorities are apportioned. Holding the sovereign debt market to ransom is not the most productive use of anyone’s time but at least it ensures there is a discussion about the trajectory and sustainability of the national debt and obligations. 



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May 17 2023

Commentary by Eoin Treacy

Automakers Speeding Platinum Substitution Push Market to Deficit

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

Automakers are accelerating the substitution of platinum for pricier palladium in catalytic converters,
putting the market for the metal on track for a deficit for the first time in two years, according to Johnson Matthey Plc.

Demand from automakers will exceed 3 million ounces for the first time since 2018 as platinum is increasingly preferred over palladium, which will continue to see its usage decline, the firm wrote in a report on Monday. Both precious metals are used to cut emissions from car exhausts.

The car industry’s switch has taken years, but is finally having a sizeable impact on the fundamentals of platinum group metals. While palladium has traded at a premium to platinum since 2017, the gap has narrowed to near the smallest in more than four years.

“Just as substitution benefits platinum, it disadvantages palladium,” said Rupen Raithatha, market research director at Johnson Matthey. “These are all incremental trends.”

Investors are increasingly eyeing risks to platinum supplies from South Africa, the world’s top miner, as power blackouts threaten to cripple its output. So far, the country’s miners have limited the impact by idling processing plants, allowing mining to continue, though more severe outages could hit overall production, according to Johnson Matthey.

The firm sees platinum in a small deficit of 128,000 ounces in 2023, following two years of large surpluses. That compares to the record shortfall forecast by the World Platinum Investment Council.
 

Eoin Treacy's view -

Platinum took a leg lower as the diesel cheating scandal broke. That destroyed a major demand driver for the metal. In a normal environment, the massive disparity between palladium and platinum would have encouraged automakers to retool years ago. The reason that did not happen is they are devoting all their energy to building electric vehicle production capacity and do not envisage using as many catalytic converters in future.  



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May 16 2023

Commentary by Eoin Treacy

Brazil's New Fiscal Proposal Becomes Stricter in Congress

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

Brazilian lawmakers introduced changes to President Luiz Inacio Lula da Silva’s proposed spending rules to include automatic penalties in case the administration is unable to meet fiscal goals set in the bill.

The government would be forced to reduce spending in case revenue comes in below its estimates, including delaying some payments, freezing the salary of public workers and halting the hiring of new ones, according to the text of the bill released on Tuesday by lawmaker Claudio Cajado, the bill’s rapporteur.

“Party leaders’ reaction to the new text is very positive,” Cajado told reporters, adding that the plan is to take the bill to a floor vote on May 24. “We made room for different opinions and I hope there will be no more changes to the bill.”

The new fiscal framework proposed by Finance Minister Fernando Haddad includes small but growing primary budget surpluses, which don’t take into account interest payments, in order to stabilize public debt. It’s part of government efforts to assuage investors worried about Brazil’s finances under Lula and to help the central bank lower interest rates, considered by the president as the main impediment to growth.

Eoin Treacy's view -

Brazil was among the first to aggressively raise rates to ensure a positive real rate would counter inflationary pressures by sucking liquidity out of the economy.  Today that positive real rate stands at 9.57%. 



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May 16 2023

Commentary by Eoin Treacy

The Green Energy Transition Has a Chilean Copper Problem

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

Codelco’s production is down by about a fifth from only six years ago. After a double-digit-percentage drop in 2022, it’s expected to fall as much as 7% this year, to 1.35 million metric tons.

Ore quality is deteriorating around the world as existing deposits are depleted and new ones are more difficult and costly to develop. “There’s no easy mining left—not in Chile nor the rest of the world,” said Sougarret at a shareholders meeting on May 2.

Because Codelco is the world’s biggest copper supplier, its production wobbles have greater impact on a market where warehouse inventories are near their lowest levels in 18 years. The company’s travails also have tremendous impact on Chile’s economy: Copper accounts for more than half of the country’s exports and a significant share of the government’s income. President Gabriel Boric’s administration is budgeting a 40% drop in tax revenue from Codelco in 2023 at a time when it’s trying to boost social spending.

Eoin Treacy's view -

When the world is having difficulty sustaining production of a key commodity, it is reasonable to expect prices to rise. That’s generally the best way to attract the risk capital required to bring new supply online. It will not have escaped the notice of traders that copper prices are falling. That suggests one should be more concerned with demand than supply. 



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May 11 2023

Commentary by Eoin Treacy

Dollar on Pace for Best Day in Nearly Two Months

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

The US dollar is on pace for its biggest rise in nearly two months as concerns about a slowing US economy, hawkish policy messaging, a US debt-ceiling standoff and the solvency of regional banks supported havens. The pound fell after the Bank of England lifted its policy rate 25 basis points and indicated more hikes may be required to slow inflation.

Eoin Treacy's view -

The dollar firmed today as more of risk-off move than any other factor. When investors seek the haven of cash they end up holding dollars. Bond yields also compressed as some of that cash was redeployed in the expectation that during a recession, inflationary pressures are likely to go into reverse. 



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May 10 2023

Commentary by Eoin Treacy

Australia Pledges $1.4 Billion in Bid to Be Hydrogen Superpower

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

As countries compete for capital, investors and developers have said aggressive subsidies like the US Inflation Reduction Act — which provides $374 billion in funding for clean energy — will be needed to attract the vast investment required.

The new measures are a “great first step,” Fortescue Metals Group Ltd. said in a statement on Wednesday. The Australian iron ore miner has ambitions to become one of the world’s biggest green hydrogen producers and plans to reach final investment decisions on five projects around the world this year.  

Eoin Treacy's view -

The announcement of significant investment in the green hydrogen sector comes hot on the heels of opening the Northern Territory to natural gas development. Regardless of how the global energy sector evolves Australia looks likely to be significant beneficiary. That also applies to coal exports for both steel and electricity generation. 



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May 08 2023

Commentary by Eoin Treacy

Platinum investors are finally taking note of South Africa's power problems

This note from Heraeus may be of interest to subscribers. Here is a section: 

Platinum ETFs saw heavy buying at the end of April from South Africa based funds. Year-to-date regional inflows into platinum funds in South Africa (+333 koz) are the standout when compared to the US (-107 koz), the UK (-18 koz) and Switzerland (-17 koz). Net flows have been positive every month this year so far, as South African investors are more acutely aware of the electricity supply issues being faced by PGM producers. Total global holdings stand at 3.3 moz, up from 3.0 moz at the beginning of the year, although that was down 1 moz from the peak level of holdings in July 2021.

These investors bought into the recent price rally and hope for more. The platinum price had risen more than 20% since late February before the recent correction. Supply issues in South Africa (~75% of mined supply) are well documented. The regularity and severity of load-shedding in 2022 was unparalleled, with the situation unlikely to improve significantly during 2023. Load-shedding resulted in the build-up of above-ground stocks of unrefined PGMs last year and could lead to an estimated loss of ~250 koz of platinum production this year as the Southern Hemisphere winter begins to bite. Available first-quarter results of major South African PGM miners all cite load-shedding as impacting refined output to some degree.

Eoin Treacy's view -

Platinum prices went vertical during the last South African power cuts. That acceleration also marked the peak of the decade-long bull market as the global economy headed into the financial crisis in 2008.

At the time there was a lot of talk about platinum miners investing in their own generating capacity. The subsequent crash meant very few completed that work. The big decline in platinum prices following the diesel cheating scandal drove several platinum miners into bankruptcy. The recent issues with Eskom have revitalized talk of building solar and wind farms so operations can be independent of the utility. 



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May 06 2023

Commentary by Eoin Treacy

Copper Mine Flashes Warning of 'Huge Crisis' for World Supply

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

Take not just Chile, with its revisions to fiscal policies for miners, but Peru, a country long considered crucial to the next wave of copper production, where the mining sector has been battered during lengthy social unrest. Rio in late March agreed to sell a controlling stake in its Peruvian mine La Granja to First Quantum.

“What the market never predicted was how difficult South America would become,” said Radclyffe. “The uncertainty out of both Chile and now ongoing in Peru, that’s just added an extra level of complexity that the market never expected, and that hasn’t really been resolved.”

Eoin Treacy's view -

The classic basis for a big bull market in commodities is supply inelasticity meets rising demand.

The promise of a big bull market in copper is heavy on the supply inelasticity argument. I think everyone understands, there is limited supply and sufficient increases to meet the expected demand from renewables is not feasible. 



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May 06 2023

Commentary by Eoin Treacy

Bolivian Bonds Jump After Senate Approves Bill to Monetize Gold

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

The country has burned most of its international reserves and recently faced difficulties to pay for fuel imports. The central bank stopped publishing reserves data in early February, when they stood at about $3.5 billion, out of which $2.6 billion was gold, suggesting only the precious metal is left.

While the Arce administration says the ability to operate with its gold in markets will halt the “low liquidity” Bolivia is going through, opposition lawmakers criticized the bill by saying it’s not a structural solution to the current economic crisis.

Senator Silvia Salame called it a “patch” to allow Arce’s administration to stabilize the country’s situation until the 2025 presidential elections.

Finance Minister Marcelo Montenegro said the gold reserves will be replenished by buying the commodity from local producers
in bolivianos.

Eoin Treacy's view -

Bolivia is not a big holder of gold so that is unlikely to be behind today’s weakness. Instead the prospect of continued rises in the Fed Funds Rate, in response to a stronger than expected jobs report, takes that mantle. 



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May 02 2023

Commentary by Eoin Treacy

US Vacancies Fall, Layoffs Jump in Sign of Softer Job Market

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

Vacancies at US employers fell in March by more than forecast and layoffs jumped, indicating softening demand for workers.

The number of available positions decreased for a third-straight month to 9.59 million from nearly 10 million a month earlier, the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, showed Tuesday. That was the lowest in nearly two years and fell short of the median estimate in a Bloomberg survey of economists.

The data point to a gradual moderation in labor demand, which should eventually bring the job market into better balance and alleviate upward pressure on wages. While some companies — notably in technology and finance — have cut employees, the labor market as a whole remains resilient and has been a stalwart between the US and recession.

Eoin Treacy's view -

We are a year into the hiking cycle, so it is reasonable to see some evidence of economic slowdown around now. The stress in the banking sector is mostly focused on the convexity of bond portfolios. Loan loss provisions have not been factored in yet but that is only going to make the situation worse. JPMorgan has a big balance sheet, but it can’t buy every bank. 



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April 26 2023

Commentary by Eoin Treacy

Email of the day on combustion risk from EVs

Will they be a conflagration risk?

Eoin Treacy's view -

Thank you for this question, which was in reference to the announcement CATL is prototyping a battery capable of powering airplanes. The fire risk from lithium batteries comes from the liquid catalyst. Since solid state batteries do not have a liquid electrolyte they are inherently safer. The new CATL battery is not exactly a solid state battery so it is impossible to know at this stage what the fire risk is. 



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April 26 2023

Commentary by Eoin Treacy

Email of the day on why uranium is not doing better.

Dear Eoin, Why do you think the Uranium Miners ETF you have been holding has been disappointing of late? Is it all about "risk-off" and withdrawal of liquidity from the market? What makes you continue to hold? What would make you sell? Thanks! Kind regards, 

Eoin Treacy's view -

Thank you for this question. I don’t see how the promise of electrifying the economy is possible without a nuclear renaissance. The fact the sector is not performing better suggests the critical mass of support for the industry is not yet mature enough. Significant resources are being ploughed into the small modular reactor sector but the lead times are long and there is not enough urgency to ignite investor interest in the short term. That’s why I believe it is underperforming at present. 



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April 26 2023

Commentary by Eoin Treacy

Email of the day on the timing of a gold bull market

Dear Eoin-Hope you are doing well. You often mention in your daily videos that you expect a recession within the next 18 months and that you also expect gold to move considerably higher in a not too distant future. If I am not mistaken in the previous recessions gold went down considerably. I know timing is always very difficult if not impossible, but do you expect gold to break upwards before the recession or after the recession. As always thanks very much for your wonderful service. Best rgds

Eoin Treacy's view -

Thank you for this important question. Gold began its bull market in 2000/01 when the Nasdaq was topping but it collapsed in 2008 during the credit crisis as contagion selling forced investors to sell anything they had a profit in. That suggests gold need not collapse during a recession but it will depend on how tight credit conditions become and how heavily positioned investors are in precious metals. 



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April 25 2023

Commentary by Eoin Treacy

The Big Plan to Help Developing Nations Go Green Is Foundering

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

Climate finance is likely to be a focus of December’s COP28 meeting in the United Arab Emirates, with the oil-exporting host saying it will address ways to fund the energy transition in poorer countries that simultaneously need to expand access to electricity. That adds pressure on industrialized nations and oil producers to step up. 

While Vietnam’s $15.5 billion and Indonesia’s $20 billion planned JETP agreements are at an earlier stage, they’re also much bigger and potentially more complex. A smaller deal envisaged with Senegal is complicated by its plan to start producing gas.

“We could have done an amazing, amazing model right here in South Africa,” said Tasneem Essop, executive director of Climate Action Network International, which represents over 1,900 climate-focused organizations in more than 130 countries. But “we got embroiled in the politics of it all.”

Eoin Treacy's view -

Coal might be dirty, but it is cheap, reliable, many countries have domestic supplies, plants can rapidly be constructed and last for decades. That’s hard to compete with. The unspoken drawback of forcing developing countries to abandon coal is higher electricity usage is a major contributor to higher standards of living.



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April 20 2023

Commentary by Eoin Treacy

'The World Changed 12 months ago'

Thanks to a subscriber for this summary of an interview with Zoltan Pozar. Here is a section: 

Rearming, Reshoring, Energy transition.
Taken in combination examples of these would be:
• Building factories for batteries, Chips, subsidizing energy transitions,
• Military expansion in Japan, Europe etc, inventory mgt increases. Onshoring of factories etc
• All of these amounts are government money. It will be matched by company money as well

This will cause Two Outcomes
1. Commodity prices will remain high from constrained supply and increased expenditures
2. We are at the beginning of a domestic infrastructure investment renaissance

Notable: ‘The investment portion will be quite powerful, perhaps to the point of us not even having a recession’
The 3 Gov’t themes will push counter the recessionary forces that undoubtedly accompany rate hike regimes. Consumption will get crushed. But investment will grow.

All these things are being done with a sense of urgency as (economic) national security and sovereignty is a big factor in each.. we need to do it yesterday

Eoin Treacy's view -

The above paragraphs argue against the old commodity adage “the cure for high prices is high prices”. I think there is another way of thinking about it that. Nothing has changed to alter the underlying relationship of the commodity markets but perhaps prices are not yet high enough to cure themselves. 



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April 19 2023

Commentary by Eoin Treacy

Perseus Maintains 2H Gold Production Forecast

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

Perseus reaffirmed its gold production forecast for the second half-year.

SECOND HALF FORECAST
Still sees gold production 230,000 to 260,000 oz
Still sees all-in sustaining costs/oz $1,000 to $1,200

YEAR FORECAST|
Still sees gold production 498,370 to 528,370 oz
Still sees all-in sustaining costs/oz $1,000 to $1,100

THIRD QUARTER RESULTS
Gold production 130,275 oz, -0.5% q/q
All-in sustaining costs/oz $971, -1.2% q/q
Gold sales volume 135,111 oz, -33% q/q

COMMENTARY AND CONTEXT
Perseus’s strong operating performance is forecast to continue in the June quarter with both gold production and cost guidance for 1H and FY expected to be achieved strong quarterly cashflows further strengthened Perseus’s financial position with available cash and bullion of $471 million, zero debt, net cash and bullion balance increased by $66 million at quarter end
Development activities continued at Meyas Sand Gold Project with confirmatory and sterilisation drilling, Front-End Engineering and Design and site preparation, ahead of a possible FID during 2H 2023
Organic growth activities including Mineral Resource drill outs and feasibility studies for MSGP and Yaouré’s CMA Underground Project progressed on schedule; Results due in Sept. qtr

Eoin Treacy's view -

The team at Perseus are betting Sudan’s welcome for foreign investment will persist despite the threat of internal conflict. That was driven by the desire to acquire a promising asset at a discounted price. It’s a challenge every miner faces. New supplies of key resources are most often now found in politically unstable parts of the world. 



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April 18 2023

Commentary by Eoin Treacy

EU Hydrogen Quotas Raise Global Demand For Green Molecules

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

European Union (EU) lawmakers have agreed on the world’s first binding quotas for using renewable hydrogen (H2) and derived fuels. The March 30, 2023 rules will create significant demand for renewable H2, mandating existing industrial hydrogen users replace at least 42% of their demand with renewable H2. They also mandate at least 1% of transport energy to be H2-based.

Member states should ensure 42% of existing industrial H2 demand is renewable by 2030, rising to 60% by 2035. The industry quota targets companies such as fertilizer and methanol producers, but excludes refineries, which are covered under the transport mandate. Member states will be legally required to adopt this agreement as national law and the European Court of Justice will determine penalties for states that fail to comply.

In transport, fuel suppliers need to replace 5.5% of final energy demand with H2 or advanced biofuels, with a minimum target of 1% for H2-based fuels by 2030. BNEF expects the hydrogen share to be closer to the minimum goal as meeting the combined target using H2 alone would require extensive use of the molecule in road transport. Advanced biofuels had already reached a 2.1% share in transport by 2021.

Eoin Treacy's view -

The EU remains committed to the zero carbon emissions quest and is pioneering the development of markets in alternative energy. High carbon emission prices are one half of the strategy and subsidies for wind, solar, biomass and hydrogen are the other half. 



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April 18 2023

Commentary by Eoin Treacy

Rains Seen Hurting Start of Coffee Harvest

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

Heavy rains are expected in both arabica and robusta producing areas this week, Climatempo meteorologist Nadiara Pereira says in a Tuesday report.

Increased rainfall and lower temperatures over robusta areas in Espirito Santo and southern Bahia may delay the final maturation phase of crops.

Heavy rains are expected for arabica areas in Sao Paulo and Triangulo Mineiro through Wednesday

Temperatures will fall in arabica region of southern Minas Gerais by the end of the week, though the risk of frost is low.

Rains could knock fruits off trees and in extreme cases cause them to ferment on the ground, HedgePoint analyst Natália Gandolphi says in report.

That would reduce uniformity of the beans and decrease quality of the crop for both varieties.

Eoin Treacy's view -

Brazil’s weather has been more volatile than usual over the last few years. With an El Nino on the brink of being confirmed there is a strong likelihood that drought is likely to be a more pressing fear later this year than excess moisture. 



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April 13 2023

Commentary by Eoin Treacy

Gold Climbs Toward a Record as Producer Prices Drop Unexpectedly

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

“While the strong labour market trends and sticky core services inflation suggest a 25bp hike at the May FOMC, markets are increasingly looking toward the end of the hiking cycle, with cut timing also top of mind,” said Ryan McKay, a commodity strategist at TD Securities. 

Eoin Treacy's view -

Core CPI ex-Shelter peaked in September and continues to trend lower; albeit at a slower pace than it advanced. That suggests there is still some way to go in putting the inflation genie back in the lamp. It might seem presumptuous at present but deflationary pressures will eventually prevail because of the long and variable lags from rising rates, negative money supply and quantitative tightening.
That’s one of the reasons gold is pushing out to new highs. The potential is growth will moderate faster than inflation and that will force the Fed to ease up. It suggests a higher inflation rate will be tolerated for longer because the alternative would be both deep deflation and high unemployment. 



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April 11 2023

Commentary by Eoin Treacy

Pioneer Natural Resources stock jumps after WSJ report of merger talks with Exxon Mobil

This article from MarketWatch may be of interest. Here it is in full:

Shares of Pioneer Natural Resources Co. powered up 6.4% toward an eight-week high, to pace the S&P 500's premarket gainers, after the Wall Street Journal reported that the fracking company has held preliminary talks with Exxon Mobil Corp. over a possible acquisition. Exxon's stock fell 0.9% while futures for the S&P 500 shed 0.5%. ahead of Monday's open. Citing people familiar with the matter, the WSJ report published Friday said the discussions have been informal, but with Exxon flush with cash after recording record profits in 2022, the oil giant has been exploring options. Pioneer Natural's stock has lost 8.9% year to date through Thursday, while Exxon shares have tacked on 4.3% and the S&P 500 has gained 6.9%.

Eoin Treacy's view -

The pace of M&A activity is heating up in the resources sector. Exxon Mobil’s proposed merger with Pioneer suggests the shale oil and gas sector is maturing. The days of the wildcat land grab are over. The resources are well understood and the unique attributes of unconventional supply allow production to be dialled up and down as needed. That is an attractive add on for a global major. 



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April 06 2023

Commentary by Eoin Treacy

India May Not Allow More Sugar Exports This Year: Food Secretary

This note from Bloomberg may be of interest. Here it is in full 

India may not approve additional sugar exports in the year ending September, Food Secretary Sanjeev Chopra said at a briefing Thursday.

Country’s sugar production is likely to be 200,000 to 400,000 tons lower than target this year

NOTE: India has already permitted 6m tons of exports this year, with potential for another 1m tons if production meets govt estimate

That looks unlikely now; an industry group said Wednesday that India’s October-March sugar output fell 3.3% y/y

Chopra said impact of unseasonable rains on wheat harvest will be marginal

Govt will likely meet its target of procuring 34.15m tons of wheat from the new crop

Eoin Treacy's view -

India curtailing exports is bumping up against rising demand from China as consumer activity picks up and eating out becomes ubiquitous once more. That’s putting upward pressure on the price. Brazil’s harvest is now underway but it will need to be a bumper crop to mitigate the steep backwardation right across the futures curve. 



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April 04 2023

Commentary by Eoin Treacy

Treasuries Reach Day's Highs After JOLTS Job Openings Slumps

This article from Bloomberg may be of interest. 

Treasury 10-year note futures spike to fresh session highs after February JOLTS job openings declined more than estimated with January revised lower. At the same time February factory orders missed estimates for headline and ex-transport readings. 

US 10-year yields flip to richer on the day into the move as 10-year futures top at 115-28, with around 60k 10-year note contracts changing hands over 3-minute period

Belly- and front-end-led gains steepen 2s10s, 5s30s spreads onto session wides, higher by 7bp and 4bp on the day

Fed-dated OIS for May meeting drops to around 15bp of additional hikes priced, giving up around 5bp of hike premium in the aftermath of the data

Eoin Treacy's view -

Job openings are down two million in the last 15 months. It is arguable how much predicative power the jobs openings have primarily because it is a relatively new data series and there are questions about how the number reflects conditions on the ground. However, there is no dispute a top is in place and the number is trending lower. It stands to reason that job openings should be a lead indicator for decisions on firing workers since it should be a lead indicator. Afterall most firms stop hiring before they fire workers. 



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April 03 2023

Commentary by Eoin Treacy

Biden Has Limited Options to Respond to OPEC+'s Oil Cut

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

4: Export Curbs
Other levers the Biden administration has at its disposal include limiting the export of gasoline and diesel. The White House considered that option last year as a potential means to tame pump prices, which reached an all-time high in June, but it never pulled the trigger. Analysts said moving ahead with the curbs could backfire and actually lead to higher prices in some parts of the US.

“If we go into the summer with gasoline at $4 a gallon, I would think they would also revive consideration of product export restrictions,” said Bob McNally, president of consultant Rapidan Energy Group and a former White House official. “If this leads to an overtightening of the oil markets — as they say in the Navy, stand by for heavy rolls.”

Requiring oil companies to store more fuel in inside the US — mandatory stockpile requirements that were considered last year in response to previously low fuel inventories — is an option that could return to the table as well if gasoline prices remain high, McNally said.

Eoin Treacy's view -

OPEC+ needs high energy prices to come close to balancing their budgets. The last thing they want is the profound volatility of the last few years where oil prices have swung from lows near -$40 to highs near $130. The fact the USA is energy independent and no longer a big buyer from OPEC+ means it is a competitor in supply and therefore unable to dictate terms to the group. 



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April 03 2023

Commentary by Eoin Treacy

April 03 2023

Commentary by Eoin Treacy

Glencore Will Likely Sweeten $23 Billion Teck Bid, Analysts Say

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

Glencore faces a tight deadline to sweeten its proposal. Teck’s plan to separate its coal business and wind down the dual-class share structure will go to a shareholder vote on April 26. Glencore Chief Executive Officer Gary Nagle told investors in a Monday conference call that its proposal can’t be implemented if Teck’s shareholders approve that plan.

Eoin Treacy's view -

Teck Resources’ plan is to spin off its coal assets from its copper production. That would allow it to meet many of its carbon mitigation goals in one fell swoop. The reason Glencore wants to buy the company is Teck has some of the best potential for copper production growth among the mid-sized miners. Additionally, Glencore is much more comfortable than most with holding coal assets. 



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March 31 2023

Commentary by Eoin Treacy

Brazil Takes Steps to Transact in Yuan as China Ties Grow

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

The announcement came during a Brazil-China business forum in Beijing on Wednesday in which government officials and company executives from both sides discussed trade and investment opportunities. Much of Brazil’s agricultural and mineral products are shipped to the Asian nation.

Brazilian President Luiz Inacio Lula da Silva was due to be in China for an official state visit this week, but was forced to postpone after he was hospitalized with pneumonia.  

China and Brazil also agreed to settle trade in their own currencies, without the need of an intermediary currency like the US dollar, according to a statement from the Brazilian Trade and Investment Promotion Agency. The expectation is to reduce the costs of commercial transactions with the direct exchange between Brazilian reais and yuan.

Tatiana Rosito, Brazil’s Secretary of International Affairs at the Finance Ministry, says the goal is to boost liquidity of the Chinese currency, giving options to investors and traders.

“It’s not a game changer in relation to the impact on short-term trade, but it has the potential to expand transactions and familiarize agents” with transactions in yuan, she said in a telephone interview.

Eoin Treacy's view -

The entire global financial sector is built on trust. It is logical for countries trading with one another to accept their respective currencies in exchange for goods and services. The reason it is not commonplace is because currencies are volatile and bilateral relationships have no fallback if one of the party’s proves unreliable. 



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March 29 2023

Commentary by Eoin Treacy

White Sugar Rises for Third Day on Lackluster Thai, India Crops

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

Buyers are facing difficulties building up stockpiles as crops in several regions have been poorer than expected. Low fertilizer application in Thailand, excessive rains in India, and dryness in Europe, Mexico and parts of China led to several downward revisions to supply estimates.

In Thailand, the world’s fourth biggest grower, all but 5 of 57 millers already stopped crushing due to a lower-than-expected harvest, the Thai Sugar Millers Corp. said. Egypt and Algeria recently announced measures to restrict sugar outflows from the countries.

Crop issues removed 4 million metric tons from world trade flows in the first quarter of this year, StoneX analyst Ricardo Nogueira wrote in a report. Such volumes would be crucial to help ease current tightness in global supplies, especially since it will take time before a large output from Brazil can reach destinations. 

However, Brazilian supplies may not bring much relief to the refined sugar market, said Michael McDougall, managing director at Paragon Global Markets. The country is the world’s top supplier of raw sweetener, but its production of refined is small.

Eoin Treacy's view -

The global growing environment was impacted last year. That’s having an effect on agricultural product prices this year. However, the renewed enthusiasm for biofuels, continued strength of crude oil and Dollar weakness are probably more important factors in the recent strength in the soft commodity sectors. 



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March 28 2023

Commentary by Eoin Treacy

Sweden Wrestles With an Economic Crisis Built at Home

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

Sweden has long fallen short on its constitutional pledge to provide an affordable place to live for all of its 10.4 million people, but until recently that was masked by the growing economy which had helped disguise flaws in the system. 

The shortage of affordable accommodation is hitting recruitment. The Stockholm Chamber of Commerce reported last year that three out of four heads of human resources said the housing situation was making it harder for their firms to hire new staff. 

Rents are negotiated annually by landlords and the tenants association. Advocates say the system helps create a rental market in Stockholm where teachers, police officers, street cleaners and other public sector workers can afford to live alongside bankers, software developers and government officials. Yet supply hasn’t kept up with demand for decades. Average waiting times for a rent-controlled apartment is now 9.2 years, but can stretch up to 20 years in some parts of the capital.

Eoin Treacy's view -

Socialism’s only hope of functioning is to ensure the cost of living never rises. That means creating a social contract where the only means of generating personal wealth is through ingenuity and productivity. It’s a high bar and apparently unachievable for long. 



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March 23 2023

Commentary by Eoin Treacy

Why the French Are Angry About a Plan to Retire at 64

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

Hardly. The world’s population of people aged 60 years and older is expected to double by 2050, according to the World Health Organization, while fertility rates are in long-term decline. The financial strain is challenging old-age support systems and leaving many countries facing tough choices about raising the age of retirement, cutting benefits or lifting taxes. Pension shortfalls will be the equivalent of about 23% of world output by 2050, the Group of 30 consultancy estimated. One key measure is the old-age dependency ratio — the number of older people compared to the population that is working age. In Europe and North America, that ratio will be about 50 per 100 by 2050, according to UN forecasts, a rise from 30 per 100 in 2019. In short, we’re on a trajectory toward a smaller share of people paying taxes and a higher proportion drawing pensions. By 2035, the basic US system known as Social Security will no longer be able to cover payments, forcing a 20% reduction in benefits, according to its trustees. 

Eoin Treacy's view -

Very few people are keen on the idea of working more than they have to. That has been one of the primary selling points of union negotiators for decades. You might not like your job, but we’ll make sure you are looked after in your (lengthy) retirement. With union workers negotiating favourable terms, government pensions have also become more generous. 



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March 20 2023

Commentary by Eoin Treacy

Email of the day on who takes the hit

I would be grateful if Mr Treacy could provide comment on which casualty will government and central banks choose

The way I see the situation now is:

Printing money to save banks = increasing inflation + sinking small people
Raising interest rates = reducing inflation + sinking banks + sinking small people with adjustable/variable mortgages
EQUALS
government and central banks caught in vicious circle of their own making

Which casualty will in Mr Treacy's opinion governments + central banks choose going forward?

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. The big question is about the permanence of inflationary pressures.

In your first scenario, the return of excessive money printing takes place before inflationary pressures are under control. That would greatly increase the scope for a wage price spiral and would result in significantly higher interest rates than are currently in place. The net result would be a complete repricing of asset prices and financial risk which equates to market crashes in stocks, bonds and property. That sinks everyone not just small people. In fact, the lease affected would be those with fewer assets.



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March 08 2023

Commentary by Eoin Treacy

Brazil May Speed Up Rate Cut as Credit Worsens: Ex-BCB Director

This article from Bloomberg may be of interest. Here it is in full: 

Brazil’s worsening credit outlook amid troubles facing local retailer Americanas SA raises the risk of a recession that could lead its central bank to change its balance of risks at the upcoming interest rate decision on March 21 and 22, Tony Volpon, a former director at the bank, said in an interview.

“At the very least, the central bank committee should change the balance of risks at the next meeting, which would be a signal to start cutting its rate in May”

NOTE: BCB said in the statement of Feb. 1 meeting, which maintained the Selic rate at 13.75%, that the risks to its inflationary scenarios remain in both directions, upside and downside

According to Volpon, high interest rates and worsening of credit in the midst of the Americanas case may reduce investment and increase the risk of a drop in economic growth

“If the BCB does nothing, it is almost certain that there will be a recession”

Volpon had written earlier on Twitter that “almost every recession needs a ‘snap’ and the Americanas case and the collapse of the credit market already set up an exogenous shock that, left unanswered, should lead to a recession”

Basic scenario is interest rate cuts starting in May, but BCB could cut it later this month if credit data show a more serious deterioration, says the former director

According to him, part of the market could react badly to an eventual Selic cut, which would lead to a greater rate curve steepening, but this would not prevent the positive effect of monetary relief on the economy

Possible negative investor reaction to an early interest rate cut could also be mitigated with announcement of the new fiscal framework, says Volpon

Eoin Treacy's view -

The Selic overnight rate is currently sitting at 13.65% and CPI is at 5.77%. The aggressive pace of hikes in 2021, a year ahead of developed markets, successfully capped inflationary pressures and the central bank has held rates at elevated levels for long enough to convince consumers they are serious about fixing the problem. 



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March 08 2023

Commentary by Eoin Treacy

Wheat Swings as Traders Weigh Ukraine Talks and Supply Outlook

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

Wheat futures in Chicago fluctuated just below $7 a bushel as traders assess progress in negotiations to renew the Ukrainian grain export deal through the Black Sea, along with global supply prospects. 

The food staple traded at $6.9675 a bushel, about half the level a year ago when the price hit a record on a supply crunch after the Russian invasion of Ukraine. UN Secretary-General Antonio Guterres is set to meet with Ukrainian President Volodymyr Zelenskiy on Wednesday in Kyiv to discuss the continuation of the Black Sea agreement.

 A wave of Russian wheat cargoes has pushed down global prices in recent weeks to around the lowest level since September 2021. Still, the US winter wheat crop has been suffering from dry weather and shipments from Australia, currently the world’s second-biggest exporter, may tumble 20% in the next financial year as the climate turns drier after three wet years.

Eoin Treacy's view -

The argument I was making a year ago was the only uncertainty was about Ukraine’s wheat crop. Russia’s was uninhibited because it has ample domestic supply of fertiliser. That suggested the panic about global food insecurity was unlikely to be systemic. As the war in Ukraine is concentrated in the eastern region, the rest of the country will have an interest in exporting this year either by rail or ship. 



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March 07 2023

Commentary by Eoin Treacy

Perth Mint sold diluted gold to China, got caught, and tried to cover it up

This article for ABC News May be of interest to subscribers. Here is a section: 

The historic Perth Mint is facing a potential $9 billion recall of gold bars after selling diluted or "doped" bullion to China and then covering it up, according to a leaked internal report.

Four Corners has uncovered documents charting the WA government-owned mint's decision to begin "doping" its gold in 2018, and then how it withheld evidence from its largest client in an effort to protect its reputation.

While the gold remained above broader industry standards, the report estimated up to 100 tonnes of gold sent to Shanghai Gold Exchange (SGE) potentially did not comply with Shanghai's strict purity standards for silver content.

One Perth Mint insider, who asked not to be named as they could face five years' jail if their identity is revealed, says it is a "scandal of the highest level".

"I don't know if I've ever seen one this big," they say.

The mint is the largest processor of newly mined gold in the world, one of Perth's top tourist attractions and well known for producing commemorative coins to mark everything from royal weddings to a new James Bond film.

Last year alone it sold $20.3 billion in gold. It is the only mint in the world that has a government guarantee.

Eoin Treacy's view -

I’m currently reading The Dawn of Everything: a New History of Humanity. It’s heavy going. They go through many proof points in an attempt to justify their view. The overarching theme is we are people and have always been people. Over the millennia nothing has changed in terms of human nature.

I was thinking about that this morning as I contemplated the Perth mint’s fraud. History is replete with examples of governments who have attempted to cover over holes in the budget by debasing the currency. This is not quite the same because the mint does not produce coinage. The difference is academic for Chinese buyers who prize purity.  



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March 07 2023

Commentary by Eoin Treacy

Email of the day on carbon emission trading

you are showing charts and talking a lot about carbon emission certificates in the EU. (MO2 generic future on Bloomberg). is there any tradeable or investable instrument out there? tkx a lot!

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. Carbon emissions are a new asset class with strong political backing. The prices series is increasingly being used as a benchmark to support investment in fossil fuel alternatives. As long as that remains the case, governments will restrict supply when prices fall to ensure a viable market. 



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February 21 2023

Commentary by Eoin Treacy

Biodiesel and Renewable Diesel: It's All About the Policy

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

Biomass-based diesel (BBD) production in the form of renewable diesel is undergoing a major boom.  What is not well understood is that the boom is entirely policy driven.  This is most directly evident in the fact that the price of BBD (as represented by FAME biodiesel) is about twice as expensive as petroleum diesel. The implication is that little or no BBD would be produced and consumed in the U.S. without substantial policy incentives. A further implication is that the renewable diesel boom cannot be understood without understanding the policies driving the boom.  In this article, we use a simple model of the BBD market to illustrate the impact of a variety of policy scenarios. When considered in isolation, the market impact of the policies considered are fairly straightforward.

The analysis becomes much more complicated when multiple policies are in effect at the same time.  In particular, the impact of a given policy may be heavily dependent on which other policies are in place at the same time.  In the U.S., all four of the following policies are presently in place and interact to determine the price and quantity of BBD: i) blenders tax credit; ii) RFS mandates; iii) carbon credits in California; and iv) import duties (tariffs).  The interactions between these policies can produce surprising and poorly understood economic outcomes.

Eoin Treacy's view -

There was a great deal of enthusiasm for biodiesel in the run-up to the 2012 peak in corn and soybean prices. At that point the upward pressure using food crops to produce fuel was having on consumers became evident and the sector contracted. At that point food commodity prices collapsed because demand growth from the fuel business evaporated.  



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February 15 2023

Commentary by Eoin Treacy

Britain's Easing Inflation Puts End of BOE Rate Hikes Into Sight

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

The concern is that inflation doesn’t tick down as quickly as the BOE anticipates. Prices increased 11.1% in October, the most in 41 years. That eased in each of the past three months, but the latest inflation reading at 10.1% remains five times the BOE’s target rate.

The BOE will be heartened by news that inflation in the services sector eased in January. It’s one of the key indicators being watched by policymakers, who see it as gauge of domestically generated inflation that is hard to shift once it takes hold.

The other red flag is wage growth, which is now running at the fastest pace on record outside of the pandemic as labor shortages hand workers unprecedented bargaining power. 

The BOE fears inflation could become entrenched as companies keep raising prices to cover their salary costs. There were some signs of hope in the latest data, however, with figures for December alone showing a slowdown in private-sector pay increases.

Eoin Treacy's view -

The bond market is signaling it is a little early to declare victory over inflation. Gilts yields continues to steady from the region of the 200-day MA and a sustained move below 3% would be required to question potential for continued upside. 



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February 10 2023

Commentary by Eoin Treacy

Dash for $10 Trillion of Metals for Energy Transition Starts Now

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

Getting to net zero could require almost $10 trillion of metals between now and 2050, according to BNEF, with annual demand peaking at close to $450 billion in the mid-2030s. While steel and aluminum are expected to see the most demand growth in terms of absolute volume, copper is set to be the most valuable opportunity, with an estimated $3.4 trillion of the red metal needed to avert climate disaster.

In total, a whopping 5.2 billion metric tons of metals will be necessary to underpin a net-zero transition, with nearly four times as much metal due to be consumed in 2050 versus today.

 

Eoin Treacy's view -

I continue to be amazed at how the word trillion is bandied about when it comes to spending plans for renewable energy. In 2020 total global copper consumption was 23.6 million tonnes and is probably around 25 million this year. 



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February 06 2023

Commentary by Eoin Treacy

Newmont offers to buy Australia's biggest miner amid gold merger spree

This article from the Financial Post may be of interest. Here is a section: 

Yamana’s outgoing executive chair Peter Marrone told The Financial Post last month that he expects a wave of gold mergers as executives and investors seek to maintain margins amid higher production costs and declining grades of the metal.

Resource industries are on the front lines of the climate challenge, whether it be coping directly with extreme weather, or indirectly through rising costs associated with adjustment and policies such as carbon taxes. Gold miners face an additional layer of difficultly because their deposits are yielding less ore that’s dense with gold. Lower grade mines can still be profitable, but only if extraction costs are lowered.

Aside from the sale of Yamana, which has properties and mines in Canada, Brazil, Chile and Argentina, there have been at least eight notable combinations since 2018, when Barrick Gold Corp. and Randgold Resources Ltd. announced an $18-billion, zero-premium, all-share merger.

Eoin Treacy's view -

Finding new large-scale mining projects is a fraught with difficulty. That leaves little option for major miners than to pay up for competitors. Newcrest has tried to focus on tier-one assets, led by the Cadia mine in New South Wales. The low cost of production at that mine has funded international expansion. No doubt, Newmont views the security of production as a sound investment. 



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February 03 2023

Commentary by Eoin Treacy

Dollar Soars After Jobs Surprise Reignites Higher Rates Bets

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

A broad gauge of dollar strength jumped after the jobless rate in the US hit a 53-year low as traders amped up bets on a higher policy rate.

The Bloomberg Dollar Spot Index extended gains for its biggest two-day climb in four months after data highlighted the resilience of the labor market and another report showed resurgence in consumer demand, suggesting even more tightening may be in store from the Federal Reserve. 

The greenback gained as much as 1.2%, climbing against all of its peers in the Group of 10, with the Japanese yen, the Australian dollar and New Zealand dollar falling the most. 

“The headline number for nonfarms was shocking, and the US dollar is clearly reacting to that,” said Bipan Rai, a currency strategist at Canadian Imperial Bank of Commerce. “We still have plenty of data to comb through before the picture is complete.”

Eoin Treacy's view -

The simple logic is you cannot have a recession without unemployment rising. That suggests the Federal Reserve is under no pressure to cut rates and may even continue to raise them. That lent considerable support to the Dollar Index and it is working on a large upside weekly key reversal which marks a lot of at least near-term significance. 



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February 01 2023

Commentary by Eoin Treacy

China's CATL Is Said to Pick Banks for $5 Billion Swiss GDR Sale

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

CATL accounts for the largest share of the global electric-vehicle battery market, according to data from Seoul-based SNE Research. It sold a total of 165.7 gigawatt-hours of batteries in the January-November 2022 period, almost three times as much as second-placed BYD Co., a Chinese automaker that also manufactures batteries.

CATL’s market share was about 35% in the first 10 months of last year. The Fujian-based company supplies carmakers including Volkswagen AG, Geely Automobile Holdings Ltd., Nissan Motor Co. and Tesla Inc., which delivered fewer EVs than expected last quarter, despite offering some price cuts. 

In 2017, CATL raised about $822 million in an initial public offering in Shenzhen. The company raised another 45 billion yuan ($6.7 billion) in a private share placement last year. China Securities was the lead sponsor, while CICC, Goldman Sachs and UBS were among the co-lead underwriters.

Shares of CATL have fallen about 18% in the past year, valuing the company at about $172 billion.

Eoin Treacy's view -

The opportunity to buy CATL shares will be welcomed by the global investment community since not everyone has the opportunity to trade in domestic Chinese stocks. The challenge is CATL has appreciated significantly since its IPO so in buying today one is betting both the company retains its dominance as a battery manufacturer and market growth approaches optimistic forecasts. 



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January 31 2023

Commentary by Eoin Treacy

GM to help Lithium Americas develop Nevada's Thacker Pass mine

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

GM would supplant China's Ganfeng Lithium(002460.SZ) to become Lithium Americas' largest shareholder. GM has also agreed to buy all the lithium from Thacker Pass when it opens in 2026 - roughly 40,000 tonnes per year.

Under the agreement, GM will buy $650 million of shares in Lithium Americas in two equal parts, with the first tranche coming only if Lithium Americas prevails in an ongoing court case. A U.S. judge earlier this month said she would rule "in the next couple of months" in the case, which centers on whether former U.S. President Donald Trump erred when he approved the mine just before leaving office in 2021.

Eoin Treacy's view -

The automotive industry appears to be getting back to its roots. Fifty years ago it was common for bid industrials to control mines, processing, fabrication and manufacturing in a vertically integrated business model. The 1970s ushered in offshoring and just in time manufacturing and inventory was suddenly considering a balance sheet liability. In the aftermath of the pandemic and now war in Ukraine, the merits of controlling the supply chain are being viewed with fresh perspective. 



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January 30 2023

Commentary by Eoin Treacy

Zero-emission Steel Won't Happen Without Trade-offs, Scientists Say

This article from the Washington Post may be of interest to subscribers. Here is a section:

The steel industry is working on solutions. According to the Leadership Group for Industry Transition, at least 73 green steel projects are in progress. But the researchers say the technology just isn't there yet.

"These technologies still face serious technical, economic, and social challenges, and have yet to be implemented at scale," said Takuma Watari, a researcher at the National Institute for Environmental Studies in Japan and the paper's first author, in a news release. It's still unclear whether enough electricity will be available in the future to power these innovations, he said.

Better processes for recycling steel scraps into high-quality materials are needed, the researchers write. They call for partnerships between the steel industry and users in a variety of sectors. But the current system "is incompatible with a zero-emission future," they write.

Eoin Treacy's view -

Electric arc furnaces rely on scrap steel and the major steel producers in developed countries have been busy securing scrap supplies over the last decade. If global steel production is to grow, then relying on scrap to provide carbon content is not going to be sufficient. That means either production new steel is going to have to become much more carbon efficient or the global sector will need to contract significantly to meet carbon emissions targets.



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January 26 2023

Commentary by Eoin Treacy

Australia's 4Q CPI Gives More Reason to End Hikes in Feb

This note from Bloomberg may be of interest. Here it is in full:

Australia's surprisingly strong 4Q inflation isn't likely to phase the Reserve Bank of Australia. The headline outcome exceeded consensus estimates, but undershot the central bank's forecasts - and isn't a threat to our view that a February rate hike is likely to be the last of this cycle.

The economy’s inflationary pulse largely reflects temporary shocks, centered on utilities and airfares in 4Q. A number of other categories showed continued signs that pressures are set to subside in 2023. The central bank’s expectation for a lift in wage growth - necessary for inflation to be sustained in the target band - looks increasingly vulnerable given emerging signs of a softening labor market. Click on the Text tab for the full report.

Eoin Treacy's view -

The Australian Dollar has broken the two-year sequence of lower rally highs against the US Dollar. This is the 7th time since 1985 that the Australian Dollar has rebounded from the $0.60 area. The only time it has sustained move below that level was a brief period between 2001 and 2002. I’ll never forget that time because I felt well off from my success in door to door selling in Melbourne and only got £1 for every A$2.60 when I got to London in the spring of 2000. 



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January 24 2023

Commentary by Eoin Treacy

The Future of Uncertainty

Thanks to a subscriber for this transcript of 3rd Atal Bihari Vajpayee Memorial Lecture delivered by Ambassador Bilahari Kausikan of Singapore in New Delhi yesterday. Here is a section: 

First, no country can avoid engaging with both the US and China. Dealing with both simultaneously is a necessary condition for dealing effectively with either. Without the US there can be no balance to China anywhere; without engagement with China, the US may well take us for granted. The latter possibility may be less in the case of a big country like India, but it is not non-existent.

Second, I know of no country that is without concerns about some aspect or another of both American and Chinese behaviour. The concerns are not the same, nor are they held with equal intensity, and they are not always articulated – indeed, they are often publicly denied -- but they exist even in the closest of American allies and in states deeply dependent on China.

Eoin Treacy's view -

This perspective gels very well with the reality on the ground I observed in Saudi Arabia on my last two visits. The simple reality is China is the country’s biggest customer and the USA the country’s greatest geopolitical ally. There is no way to play favourites the greatest risk for any country is to be taken for granted because that greatly enhances the scope for one’s interests to be trampled. 



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January 14 2023

Commentary by Eoin Treacy

Futures Minerals Forum Update Part 2

Eoin Treacy's view -

I posted the first part of this update on Wednesday and saved the second part of today. The number one theme in emerging markets is governance. That’s where Saudi Arabia is clearly attempting to make an impression.

In speaking with the junior minister for investment, the decision to give opportunities to young people is very intentional. They know the only way to achieve the progress they need is through harnessing the productive capacity and thirst for invention of the young.

It’s incredibly refreshing to meet so many tenacious young people with ambitious dreams for the future. The fact they have a route to achieve their goals is even better.



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January 12 2023

Commentary by Eoin Treacy

Saudi Arabia Says $3 Billion Mining Funds Are Moving Target

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

Saudi Arabia’s 11.95 billion riyals ($3.2 billion) of funding for a joint venture that will invest in mining assets internationally is “going to be a moving target,” Mining Minister Bandar Alkhorayef said in an interview with Bloomberg TV.

“We are establishing a governance between this JV with the ministry to make sure that this JV allows the country to get the right minerals needed for our industrial strategy and our needs in general,” he said

In 2022, Saudi Arabia saw as much as $32 billion of investments in the mineral sector, a 50% growth in revenues from 2021, the minister said in a separate interview

Saudi Arabia had previously estimated its mineral wealth at $1.3 trillion, but that’s now considered conservative because discoveries have been better than expected, he said

Eoin Treacy's view -

Maaden is now one of the largest industrial metal miners in the world and is only beginning to invest beyond Saudi Arabia’s borders. That represents a significant source of new competition for world-class mining opportunities and suggests bidding wars will be more common.



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January 10 2023

Commentary by Eoin Treacy

Who is the Mystery Gold Buyer?

Thanks to a subscriber for this report from TD Ameritrade. Here is a section:

The rally in gold prices over the past two months has defied analyst expectations for continued weakness, including TD Securities'. Yet, we see little evidence that the rise in gold prices is associated with a changing macro narrative. Given the bearish macro backdrop, speculative interest in gold has remained exceptionally lackluster as the world barrels towards a recession, especially after accounting for recent shifts in CTA positioning. Still, gold prices have continued to firm, retracing more than 50% of their significant drawdown from 2022 highs. • This begs the question: who in the world is this mystery buyer driving prices higher? Armed with a flows-based approach, we present strong evidence that behemoth Chinese and official sector purchases may have single-handedly catalyzed a $150/oz mispricing in gold markets. What is less clear is what has driven these massive purchases. • We investigate whether a sanctions-evasion war chest associated a potential invasion of Taiwan, China's reserve currency ambitions, massive pent-up demand associated with the Chinese reopening, or Chinese New Year demand could be consistent with this extreme buying activity. Chinese demand appears unrelenting for the time being, but barring a grandiose geopolitical regime change, we find that it would likely subside towards normal levels in coming months. This would leave gold prices vulnerable to a steep consolidation lower, given gold's lack of alternative buyers and its current mispricing relative to its recent historical relationship with real rates. We turn to our tracking of positioning for the top ten gold traders in China to scour for nascent signs of peaking Chinese demand, which could present a tactical signal for a noteworthy repricing lower.

Eoin Treacy's view -

Since China is the world’s largest gold producer it begs the question why they would be buying on the international market in size. There is the potential that they wish to lend credence to the Renminbi as a reserve asset in order to sway Middle Eastern governments to accept it in payment for oil.



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January 09 2023

Commentary by Eoin Treacy

Brazil Asset Selloff on Protests Likely Short-Lived, Citi Says

This note by Maria Elena Vizcaino for Bloomberg may be of interest. Here it is in full:

Any pullback in Brazilian asset prices should revert quickly as the protests should be short-lived and not have major direct implications, Citigroup strategists led by Dirk Willer wrote in a note Monday. 

The Brazilian real was the worst performer among 23 emerging market peers tracked by Bloomberg, weakening 1.2%

The protests have been publicly criticized by far-right leaders, including former President Jair Bolsonaro, and they lack support from leaders in the executive, legislative and judiciary branches

Eoin Treacy's view -

David long ago observed “governance is everything”. That is as true to today as in the past, but there is no getting around the fact that standards are deteriorating. Peaceful hand-off of power, following a free and fair election, is the basic starting point for liberal democracies.



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January 04 2023

Commentary by Eoin Treacy

Mining Stocks Rally as Gold Advances to Highest Level Since June

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

Kinross Gold and Pan American Silver are among the gold and silver miners getting the biggest boost Tuesday, as gold rose to the highest in six months.

Gold rose 1% to trade over $1,840 an ounce as the precious metal continues to gain momentum
The Bloomberg Americas Mining Index gains as much as 3.2% led by Kinross’s 7.5% rise and Pan American’s 7.4% climb, Newmont climbs 3.7% and is one of the top performer in the S&P 500 Index

Other miners rallying include: EQX CN +11%, ARIS CN +10%, SVM CN +4.3%, BTO CN +3.3%, ABX CN +3.8%, FR CN +2.8%, LUN CN +3.9%, YRI CN +3.1%

Eoin Treacy's view -

The gold price rallied in tandem with bonds yesterday, despite the relative strength of the Dollar. That suggests at least a temporary reorientation of investor focus towards the view gold is a perpetual zero-coupon bond. The implication is inflation has peaked and could easily surprise on the downside and the lagged effect of central bank tightening becomes clear in Q2/Q3.



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December 20 2022

Commentary by Eoin Treacy

Bank of Japan Decision Will Affect the World

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

The BOJ has been the last holdout on negative rates, so these tentative signs that it might be buckling will heighten expectations we may be in for more unsettling volatility in 2023. Markets really don't like uncertainty, and even a suggestion that Japan might be forced into letting bond yields soar higher is enough to get risk managers heading for the exit. Fixed income isn’t quite the haven some commentators had convinced themselves it might be in the new year.

BOJ Governor Haruhiko Kuroda was at pains to downplay any implications for official rates, but this sudden move after implacable denials speaks louder. The BOJ did increase its QE bond buying ammunition to 9 trillion yen ($68 billion) per month from 7.3 trillion yen — all to defend its new line in the sand, the 0.5% 10-year yield. But this is merely a symbolic delaying tactic. Kuroda steps down in April, so Tuesday’s decision increases the expectation that his replacement will usher in further monetary tightening. This is no longer an impenetrable negative interest rate fortress. It might make foreign speculators meditate on the perils of shorting both Japanese government bonds and the yen simultaneously.

Eoin Treacy's view -

Bull markets thrive on liquidity. The Bank of Japan’s efforts to depress the 10-year yield and devalue the Yen were a significant source of liquidity that is now dissipating. There has been scant evidence that the Yen carry trade has done anything to support markets over the last six months but the removal of support is certainly being felt.



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December 19 2022

Commentary by Eoin Treacy

National Bank of Canada Neutral On i-80 Gold's Assays From Hilltop Corridor Discovery

This article from MT Newswires may be of interest. Here it is in full

National Bank of Canada said Monday that it ascribed a neutral bias on i-80 Gold Corp. (IAU.TO)'s Hilltop corridor discovery at the Ruby Hill property that showed elevated zinc mineralization.

Drill highlights include 12.3% zinc over 39.6 meters, adding to the high-grade polymetallic discovery in the Hilltop zone announced in November.

The bank said the results were limited to a single hole although it reinforces Ruby Hill's optionality as well as potential host to oxide and sulfide gold as well as skarn base metal mineralization, all within proximity of the underground infrastructure planned in 2023.

"Results add a high-grade datapoint to the broader Hilltop area, while expanding the region of prospectivity, still open in all directions," the bank said.

National Bank gave i-80 an outperform rating with a $4.25 price target. Price: 3.58, Change: -0.18, Percent Change: -4.79

Eoin Treacy's view -

I-80, named for the highway the mine sits near, has been reporting impressive drill results for over two years. The promise of a major new resource with easy access to transportation links, and in close proximity to established mines, suggests the aim of the management team is to be acquired.



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December 14 2022

Commentary by Eoin Treacy

China's Covid Pivot Set to Worsen the Global Energy Crunch

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

China’s pivot away from Covid Zero is poised to boost natural gas demand in the world’s biggest importer, potentially curbing supply to Europe and other Asian nations.

China National Offshore Oil Corp. is now looking to secure more shipments of the super-chilled fuel for next year. The return to the market of one of the nation’s largest liquefied natural gas buyers follows a period of subdued demand, due to virus curbs suppressing economic activity, and may herald a rebound in imports. 

Beijing’s move to reopen its economy and live with Covid-19 has seen most internal restrictions being dismantled over the last few weeks. Provided that’s not rolled back as cases surge, that will increase the challenge for Europe next year as it prepares for the winter of 2023/24 with little or no natural gas from Russia. 

Chinese gas imports are likely to be 7% higher in 2023 than this year, according to Wang Zhen, president of Cnooc’s Energy Economics Institute.

The forecast belies still-weak industrial demand. Many factories will send workers home earlier-than-usual for the Lunar New Year holidays, while local production and Russian pipeline flows are rising.

There are already signs China will need to increase LNG purchases to prepare for next year, however. Inventories at northern ports are depleting faster than normal amid cold weather and have dropped to the mid-to-low level, according to ENN Energy’s research group, while domestic LNG prices are trending higher.

Eoin Treacy's view -

The Chinese economy is going to experience significant issues as COVID cases ramp higher. The sheer volume of ill people will mean lower productivity over the first quarter. However, peak infections will likely be reached within 10 weeks. After that, there is clear scope for the fiscal measures already introduced to support the property market will become evident.



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December 13 2022

Commentary by Eoin Treacy

Stocks Pare CPI-Fueled Rally With Fed Set to Hike

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

“While the war against inflation is turning, we are a long way off declaring victory and the Fed will keep its hawkish stance for a while longer, even if it does potentially force a recession,” said Richard Carter, head of fixed interest research at Quilter Cheviot.

The CPI-fueled stock rally fails to recognize that corporate earnings are just starting to see the impact of tight monetary policy, James Athey, investment director at Abrdn.

“As the full effects of the Fed’s aggressive actions this year play out next year, it seems inevitable that we will see a significant repricing lower in EPS forecasts and thus the broad market,” Athey said.

Eoin Treacy's view -

The stock market has been pricing in the likelihood Inflation has peaked since October. Now is the time to start thinking about the knock-on effects of inflation peaking. Economic activity will slow as the race to overtake inflation with purchase subsides and as savings are eroded. Corporate profits will inevitably slow in response and unemployment will likely rise from Q2 onwards.



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