"No warning can save people determined to grow suddently rich" - Lord Overstone

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Trump

Monday, March 19, 2018

U.S. business pleads with Trump to avoid trade war with China. In the next round of the brewing trade war, the Trump administration is considering punitive measures aimed at China, with tariffs expected to hit $30 billion worth of Chinese imports. That plan could be announced this week or next, the WSJ reports. However, the administration’s plans are being met with stiff opposition from the U.S. business community – 45 trade associations representing a broad range of interests voiced opposition to the measures. Imposing tariffs “would trigger a chain reaction of negative consequences for the U.S. economy, provoking retaliation; stifling U.S. agriculture, goods, and services exports; and raising costs for businesses and consumers,” the groups said.

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- The U.S exported more natural gas than it imported in 2017, the first time that has occurred since 1957.

- The switchover has occurred thanks to rapidly growing volume of gas exports via pipeline to Mexico and Canada, as well as the inauguration of a key LNG export terminal on the Gulf Coast in 2016.

- The massive wave of gas production, particularly from the Marcellus Shale, is helping displace imports from Canada, and is also leading to abundant supplies and cheap prices – allowing for more volumes to be shipped overseas.

Markets

U.S.-EU trade rift widens. The U.S. Secretary of Treasury Steven Mnuchin voiced opposition to the EU’s plan to tax tech companies on digital revenues. The EU’s plan is intended to tax the revenues of tech giants, such as Google, Facebook and Apple, even though they are not based in Europe. Meanwhile, the EU is forming plans to retaliate against American steel and aluminum tariffs, publishing a draft list that would slap duties on 200 American products, ranging from whisky to motorcycles. The EU is demanding an exemption from the U.S. tariffs and is trying to convince Washington that China is to blame.

Trump admin releases framework on tariff exemptions. The Trump administration published guidelines for how U.S. companies can apply for an exemption from the steel and aluminum tariffs. Oil and gas pipeline companies are some of the most vocal opponents of the tariffs, arguing that they cannot source enough steel domestically to build complex pipeline projects. The U.S. Commerce Department published an interim final rule on Friday that said that companies can apply for exemption if the product “is not produced in the United States in a sufficient and reasonably available amount,” or is not of “satisfactory quality,” or if an exemption would be in the interest of national security. The official rule appears to open the door for exemptions for the oil and gas industry. Related: Gold: The Religion Of Currency

U.S. stocks, led by Facebook, fall on Monday. U.S. equities dipped on Monday, with Facebook shares plunging 5 percent on the news that data on 50 million users may have been misused. A political group associated with the Trump campaign reportedly misused the data of 50 million Facebook users, leading to a selloff. Meanwhile, investors are eyeing the Federal Reserve’s policy meeting on Tuesday and Wednesday for clues into when the central bank will hike interest rates. Everyone expects the Fed to hike rates by a quarter basis point on Wednesday, but the question is whether or not the bank will hike rates three or four times this year.

Commodities

VW to spend $50 billion on batteries. Reeling from the diesel emissions scandal, Volkswagen AG (OTCMKTS: VLKAY) is stepping up investments in electric vehicles. The automaker said that it has secured $25 billion in battery supplies that it will need to ramp up output of EVs. By 2022, VW says it will have 16 factories churning out EVs, and by 2025 the German automaker will be producing 3 million EVs per year. That will require a lot of batteries, and VW has inked deals with Samsung SDI Co. (KRX: 006400), LG Chem (KRX: 051910) and Contemporary Amperex Technology Ltd. VW said it has plans to increases spending on batteries to $50 billion, which as Bloomberg notes, will far exceed the $17.5 billion Tesla (NASDAQ: TSLA) spent on batteries last year. All of this spending will put a strain on the supplies of key metals such as lithium and cobalt. VW’s CFO told Bloomberg that the entire auto industry will face tight cobalt supplies for years to come.

Battery producers lock up cobalt. As VW and others increase spending on batteries, battery makers are trying to lock up cobalt supplies. Reuters reports that battery manufacturers in Japan and South Korea are scrambling to source cobalt from Australia and Canada as China has made a significant foray into the Democratic Republic of the Congo, where much of the world’s cobalt comes from. “We are starting to see the first signs of an arms race to secure long term cobalt supplies,” Joe Kaderavek, CEO of Australia’s Cobalt Blue (COB.AX), told Reuters. “With over 85 percent of new global cobalt supply over the next decade coming from Africa, in a region where the Chinese have entrenched relationships, the Korean and Japanese cobalt processing industries are very focused upon Australian and Canadian projects.”

Battery breakthroughs. The Wall Street Journal reported on the dramatic efficiencies that could be coming in the battery space, although it may require an overhaul of the composition of battery-making. Some companies are beginning to use more silicon in their batteries. Sila Nanotechnologies says its lithium-silicon batteries could store 20 percent to 40 percent more energy.

Energy

Russia signals ongoing support for OPEC deal. Russia’s energy minister reiterated his country’s support for the OPEC/non-OPEC deal, while also stating that the group will discuss a gradual exit from the compact when its goal is realized. “As soon as the ultimate goal of our deal is achieved -- which is the balancing of the market -- we will start considering gradual withdrawal,” Alexander Novak said in a Bloomberg TV interview. “That might start to happen starting with the third or fourth quarters.” Nevertheless, Russia will cooperate with the limits into 2019 if necessary, he said.

FERC issues blow to pipeline industry. The U.S. Federal Energy Regulatory Commissions ruled last week to disallow certain tax allowances that will undercut the market for master limited partnerships (MLPs), a tax structure that helped a massive oil and gas pipeline buildout in recent years. MLPs allow companies to essentially pay no corporate tax and promise juicier returns to shareholders. The share prices of a variety of pipeline MLPs plunged last week on the FERC ruling. Enbridge Energy Partners (NYSE: EEP) is down more than 20 percent in the past two days and Spectra Energy Partners (NYSE: SEP) has dropped about 9 percent.

Oil and gas industry warns Trump admin on NAFTA. The oil and gas industry is concerned that the Trump administration is looking to roll back investor-state dispute settlement provisions that are contained in NAFTA. Industry representatives argue that these elements provide critical legal certainty that makes it attractive to invest in oil and gas in Mexico and Canada. The Chamber of Commerce, the American Petroleum Institute and other groups are raising the alarm with the Trump administration. The President told them in a meeting last week that he disagrees with their position, although it is unclear how this might play out in the NAFTA negotiations. The rift between the White House and the oil and gas industry comes on top of the administration’s recent tariffs on steel and aluminum imports, which could negatively impact fossil fuel operations of all types. 

Cryptocurrencies

Bitcoin prices plunge, recover. Bitcoin prices took a nosedive on Sunday after reports that Twitter would ban adverts of the cryptocurrency, which would make it the third large tech firm to do so after Facebook and Google. Bitcoin prices fell $1,000 in 24 hours, dropping to $7,300. However, prices have since recovered but remain volatile. A series of reports about cryptocurrency scams has provoked scrutiny from tech giants and regulators alike, sparking selloffs of the popular digital currency.

Related: Super-Cycles: Why Gold Is Set For A Breakout

Bitcoin exhibits worrying trading signs. Technical trading patterns are expressing some worrying signs for Bitcoin. The digital currency’s 50-day moving average is close to its 200-day moving average. Dropping below that level would be a very bearish development and could spark a stronger selloff. Technical traders call the phenomenon a “death cross.” The question is whether such a conventional trading pattern carries any weight in the crypto world. But Paul Day, a technical analyst and head of futures and options at Market Securities Dubai Ltd., told Bloomberg that an analysis of technical trading data suggests Bitcoin could fall 76 percent from the February highs, which would put Bitcoin below $3,000.

Cryptocurrency mining runs into opposition. A small town in northeastern New York just passed a ban on new bitcoin “mining” operations for 18 months. Bitcoin mining farms require a lot of computing power, which means a lot of electricity. That forces mining operations to locate in areas with cheap electricity rates. But Plattsburgh, New York just put a moratorium on new mines as electricity rates have begun to creep up, with speculation that the increase is due to the startup of two cryptocurrency mining operations. Meanwhile, the New York state Public Service Commission said last week that electricity rates could be raised on “high-density load customers” – aimed at cryptocurrency operations – but costs for other customers would remain the same. Those new rates would have hiked the cost for mining operations in Plattsburgh by 60 percent, according to January data. Taken together, the recent developments mark a backlash against mining operations that could proliferate to other locales with a crypto mining presence.

That’s it for this week’s newsletter, sign up on the Safehaven.com homepage to receive this weekly update directly to your inbox.

By David Craggen for Safehaven.com

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