Monday, January 21, 2019
Stocks fall at start of the week. Stocks opened down on Monday on news that China’s GDP rate fell to a multi-decade low last year. British Prime Minister Theresa May has abandoned cross-party talks on Brexit and instead is returning to Europe, hoping for more concessions. U.S.-China trade talks are still stalled on key issues of intellectual property. Meanwhile, the global elite is descending on Davos this week for the World Economic Forum. Timed with that event, Oxfam published a report that found that the 26 richest people in the world now own as much wealth as the poorest half of the world.
Chart Of The Week
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- Palladium prices have soared in recent weeks, recently topping a new record high above $1,400, well-surpassing gold. Palladium is used in auto manufacturing.
- “The biggest driver for palladium’s recent success comes from the ongoing supply deficit, creating a very tight physical market,” said Maxwell Gold, director of investment strategy at Aberdeen Standard Investments, according to Market Watch.
- Palladium production is concentrated in South Africa and prices soared in recent days on fears of a workers’ strike.
Markets
Bank earnings lead to market confidence. Some major Wall Street banks posted some slightly disappointing figures from their trading desks in fourth quarter earnings last week, but a stronger lending outlook due to higher interest rates fueled share price increases. The optimism around bank stocks led to a broader improvement in market sentiment. Only three weeks into 2019, U.S. equities have already regained all the ground they lost last year.
China’s economic growth slowed to 28-year low. China’s GDP grew at the slowest rate in 28 years in 2018, expanding by 6.6 percent, a sign that the trade war and a broader economic slowdown has led to a deceleration in the world’s second-largest economy. Fears about a slowdown in China, in turn, are weighing on global sentiment. China’s government is trying to cobble together some stimulus measures, but has already ruled out a “flood” of stimulus in the same way that it has done in the past. China’s GDP growth rate is expected to slow further to just 6.3 percent this year. Related: How Advertisers Are Forced Into Politics
U.S. government shutdown delays IPOs. The U.S. government shutdown continues, although there are signs that the White House is feeling the pressure. Meanwhile, some companies that had hoped to stage initial public offerings are in a bind because the SEC cannot sign off. The Wall Street Journal reports that a handful of companies are exploring a workaround that would allow them to go public without SEC approval.
Commodities
Gold “a good hedge.” Sam Zell, the founder of Equity Group Investments, played up gold in an interview with Bloomberg TV last week. “For the first time in my life, I bought gold because it is a good hedge,” Zell said. “Supply is shrinking and that is going to have a positive impact on the price.” Zell argues that following the crash in prices in 2011, spending on investment in new supplies has dried up. “The amount of capital being put into new gold mines is almost nonexistent,” Zell said. “All of the money is being used to buy up rivals.”
Buffet could pave way for U.S.-based lithium. Warren Buffet’s Berkshire Hathaway held talks to allow lithium extraction from its geothermal wells in California. The project could produce up to 90,000 tonnes of lithium carbonate per year, worth about $1.5 billion, according to the FT. The lithium could help supply Tesla’s (NASDAQ: TSLA) electric cars. The lithium production could also offer a secure domestic supply of lithium, reducing dependence on lithium supply chains concentrated in Chile and Australia.
Metals down on Chinese data. The report of slowing GDP in China wasn’t all bad. Industrial production was up at the end of 2018, including higher steel and aluminum output. That should be putting upward pressure on the metals market, but investors are worried about growth prospects. “Metals markets appear to be caught between hopes and fears: hopes that the trade dispute between the US and China might be resolved… And fears that global economic growth could decline noticeably as a result of China.” Commerzbank said in a note. “The latter appears to have the upper hand this morning, as most metals are falling moderately as the new week gets underway.”
Energy
Pipeline blast kills at least 85 in Mexico. At least 85 people were killed after an oil pipeline exploded in Hidalgo, Mexico. Pemex said the pipeline explosion occurred as a result of an attempted fuel theft. Mexico’s President Andres Manuel Lopez Obrador vowed to redouble his efforts to stop illegal fuel taps. His earlier decision to shut some pipelines in an effort to curtail theft has resulted in long gas lines and shortages at fuel stations.
IEA: OPEC cuts slowly working. The IEA said in its latest Oil Market Report released last week that the OPEC+ cuts are succeeding in draining the surplus. “However, the journey to a balanced market will take time, and is more likely to be a marathon than a sprint,” the agency warned. U.S. shale will continue to grow while the fate of Iran’s oil exports will be pivotal. Still, the agency suggested that the worst of the downturn is over.
Related: Cash Is Now A $3-Trillion Safe Haven Bet
Oil at two-month high on drilling slowdown. The U.S. rig count fell to an eight-month low last week, buoying the oil market as it appears the shale industry is slowing down. That has helped push prices up to a roughly two-month high. “The price volatility seen over the latter part of last year certainly appears to have made producers hesitant to pick up drilling activity,” said Warren Patterson, senior commodities strategist at ING Bank NV, according to Bloomberg.
Cryptocurrencies
Blockchain technology for cobalt. Ford (NYSE: F), IBM (NYSE: IBM), LG Chem (KOR: 051910) and China’s Huayou Cobalt (SHA: 603799) have agreed on a joint project using blockchain technology to monitor cobalt supplies coming from the Democratic Republic of the Congo. The projected is intended to ensure that cobalt from the DRC does not come from sources using child labor or ones that use revenue to fuel conflict. The project will monitor cobalt that is used for batteries that will eventually be used in Ford vehicles.
Chevron backs oil-trading platform using blockchain. Chevron (NYSE: CVX), Total SA (NYSE: TOT) and Reliance Industries (NSE: RELIANCE) are backing a new digital platform for oil trading using blockchain technology. The project got underway last year, backed by BP (NYSE: BP), Royal Dutch Shell (NYSE: RDS.A) and Equinor (NYSE: EQNR). The platform, called Vakt, is the first blockchain-based platform used for the physical trade of crude oil. With the addition of Chevron, Total and Reliance, Vakt now has five of the world’s top 10 largest oil and gas companies.
Bitcoin overshot in 2017, now overstretched on the downside. Changpeng Zhao, the CEO of Binance, one of the world’s largest cryptocurrency exchanges, said that the price spike in 2017 “overshot.” Similarly, he thinks the market has now gone too far in the other direction. “We’ve been in a bear market for a very long stretch, probably the longest in history for Bitcoin right now […] I think right now my personal view is that we are actually overshooting on the lower side now,” he said at a conference in Singapore.
By Josh Owens for Safehaven.com
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