David Fuller and Eoin Treacy's Comment of the Day
Category - Precious Metals / Commodities

    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.

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    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.

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    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.

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    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.

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    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.

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    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.

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    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.

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    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.”

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    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.

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    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.”

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