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Growing Geopolitical Risk Can’t Stop Market Growth

Globe

Monday, July 9, 2018

Geopolitical uncertainty amid busy week. This will be a busy week with a series of geopolitical events that could loom over global markets. British Prime Minister Theresa May found herself in a major political crisis on Monday as a handful of cabinet members resigned over the government’s Brexit plan, including Foreign Secretary Boris Johnson. President Trump could upset the NATO meeting this week as he issues demands for more spending from the U.S.’ NATO allies. Meanwhile, North Korean officials accused the U.S. of “gangster like” demands for denuclearization, a sign that the vague Singapore agreement between the U.S. and North Korea is running into trouble. Despite all the uncertainty, stocks opened in positive territory on Monday.

Chart Of The Week

(Click to enlarge)

- The U.S.-China trade war has pushed the price of soybeans down to a 10-year low. China slapped a 25 percent tariff on U.S. soybeans as part of a retaliatory package for the $34 billion of U.S. tariffs on Chinese goods that went into effect on Friday.

- China is cancelling shipments of soy from the U.S. and stepping up purchases from Brazil, another top soybean producer.

- “The price gap between soybeans from Brazil and those from the US, including freight costs, reached a five-year high equivalent to $70 per ton due to the trade conflict,” Commerzbank wrote in a note.

Markets

Airlines down on higher fuel costs. The NYSE Arca Airline Index is down 13 percent so far this year, at a time when the S&P 500 has gained a little more than 3 percent. The airline industry has been hit with a 55-percent increase in fuel costs compared to 2017. In an effort to deal with soaring fuel prices, the airline industry is expected to lay out cost cutting measures when they report quarterly earnings this month. Analysts expect a series of capacity reductions and fare hikes. Related: A Strange New Twist In The Satoshi Nakamoto Saga

Trump wants legislation to get him out of WTO. According to Axios, President Trump has personally ordered legislation drawn up that would grant him the authority to abandon WTO rules, which would give him the personal power to essentially order tariffs at will. Most political analysts say the bill would never pass a vote in Congress, so it has almost no chance of becoming law. But it is an indication that President Trump wants to chart a more aggressive course on the trade front.

More signs of trade slowdown. Business surveys published last week show that the growth rate of global exports has slowed drastically this year, dealing losses to the stock markets in South Korea and Japan. Many economists argue that the trade slowdown will have much more influence on the health of the global economy than the U.S.-China trade war. “There is a huge correlation between the performance of Asian exports and Asian earnings. You can extend that analysis from global trade to global earnings,” Tai Hui, chief markets strategist for Asia at J.P. Morgan Asset Management, told the WSJ.

Commodities

Ship-scrapping is big business. Low rates for freight are leading to an acceleration in ship-scrapping this year. The recovery in commodity markets are making the hulls of tankers more valuable, boosting the economics of scrapping old tankers. “We expect $1 billion worth of [very large crude carriers, or VLCCs] to be recycled this year,” Anil Sharma, CEO of GMS, the biggest cash buyer of ships headed for scrap, told the WSJ. “It’s one of our best years overall.”

Base metals rally after last week’s losses. “Supported by firm Asian stock markets, copper has gained by over 2% to a good $6,400 per ton this morning. Aluminium has increased in price to $2,100 while nickel has regained the $14,000 mark,” Commerzbank wrote in a note on Monday morning. The gains come after base metals suffered heavy losses last week.

Platinum prices rebound after deep selloff. Last week, platinum prices fell to their lowest level in nearly a decade as trade tensions escalate. Last Monday, platinum lost more than 5 percent, the strongest one-day selloff in almost seven years. Platinum is a precious metal used in car manufacturing, and the threat of auto tariffs has sent shockwaves through platinum markets. About 40 percent of platinum demand is related to its use in catalytic converters that reduce emissions in diesel car engines. Prices regained a bit of lost ground in recent trading days, but are still sharply down from last year’s levels.          

Energy        

Trump admin rejects exemption for imported steel for oil and gas. Borusan Mannesmann Pipe US sought an exemption for imported steel tubing and casing from Turkey for its facility in Baytown, Texas, but the Trump administration rejected the request. The equipment manufactured at the facility is used by the oil and gas industry. There has been speculation that the Trump administration would be flexible with the oil and gas industry when considering exemptions on tariffs, so the rejection is a negative sign that Washington could be taking a hard line. The Commerce Department said it saw “no overriding national security concerns” to justify an exemption.

Syncrude outage could last until the fall. The outage at Syncrude Canada’s oil sands upgrader, which took about 350,000 bpd offline and led to a spike in oil prices, could last longer than expected. Initial reports suggested the facility would be out of commission through July, but analysts at Haywood Securities estimate the disruption could last until late September or early October.

Related: The Dow Is Delirious

Libya’s oil output will continue to decline. The head of Libya’s National Oil Corp. said that the country’s production would decline with each passing day as long as several key oil export terminals remain offline. “Today, production is 527,000 barrels a day, tomorrow it will be lower, and after tomorrow it will be even lower and everyday it will keep falling,” Mustafa Sanalla, chairman of the Tripoli-based National Oil Corp., said in a video statement posted on the company’s Facebook page.

Cryptocurrencies

Stiglitz: Bitcoin could be worth just $100 in 10 years. The Nobel Prize-winning economist and former chief economist of the World Bank Joseph Stiglitz said that cryptocurrencies could be “regulated into oblivion” because of anti-money laundering efforts. “People in power will move to regulate anonymous transactions. That you can be sure of,” Stiglitz said. “Bitcoin could easily be worth just $100 in 10 years.”

Bitcoin prices stabilize. After dipping below $6,000 at the end of June, Bitcoin prices have rallied and plateaued below key resistance levels. Several technical resistance points could keep the cryptocurrency trading between a relatively narrow range of $6,750 to $6,910.

Switzerland-based blockchain startup seeks to streamline mining supply chains. Open Mineral, a Swiss startup, is aiming to use a blockchain platform to streamline and cleanup the supply chains in the global mining industry. The company was founded by former employees of mining giant Glencore, and it hopes to bring in mining companies, traders and logistics with the goal of eliminating the complex and opaque use of paper contracts.

By Josh Owens for Safehaven.com

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