Monday, November 19, 2018
Stocks down. U.S. stocks opened lower as tech and energy companies weighed down the markets. Major tech companies Apple, Facebook and Nvidia shed 2 percent in early trading. Meanwhile, corporate debt is showing some strain, with spreads hitting nearly two-year highs. In addition, the trade spat between the U.S. and China shows no signs of slowing down, with both sides digging in at a major economic summit in Asia this weekend.
Chart of the Week
(Click to enlarge)
- Copper prices crashed over the summer because of fears that the U.S.-China trade war would drag down the commodity complex.
- Over the last few months, copper prices have held up. In fact, copper has even weathered the recent meltdown in oil prices.
- Some of the support likely came from speculative positioning.
- However, copper may not be able to maintain its price levels if the global economy hits the skids and speculators sour.
U.S.-China battle at Asian summit. The U.S.-China trade fight dominated the agenda at the Asia Pacific Economic Cooperation summit in Papua New Guinea this weekend. China’s Xi Jingping and U.S. Vice President Mike Pence were at odds at the summit, leaving the 21 nations unable to agree on even a bland joint statement for the first time in three decades. The standoff indicates that neither the U.S. nor China are willing to offer concessions at this point. The markets will closely watch the G20 summit in Buenos Aires later this month, where Trump and Xi Jingping are expected to meet.
U.S. housing market in trouble. New single-family home sales were down 22 percent in September relative to the recent high in November 2017, a sign that the housing market is hitting a rough patch. Because of housing’s large role in the U.S. economy, both as a driver of growth and as a barometer of economic health, the poor sales figures raise some concerns. U.S. household income has not kept up with soaring home values in many urban areas, which suggests prices could be reaching a limit. Related: Gold Miners Face More Bearish Pressure
UK government under Brexit pressure. UK Prime Minister Theresa May is facing a perilous week due to the Brexit negotiations after last week’s defections from her government. May will visit Brussels this week for negotiations, but she is squeezed between hardline supporters of a clean break from the EU on her right flank, and those that want to keep closer ties with Europe. Her government is looking increasingly shaky.
Developing countries increasing demands on mining giants. Many developing nations are increasing demands on mining giants in a bid to capture more of the wealth from their nations, according to the Wall Street Journal. Rio Tinto (NYSE: RIO) and Freeport McMoRan (NYSE: FCX) came under pressure by Indonesia to sell off a copper mine; Tanzania issued a steep tax bill to a subsidiary of Barrick Gold Corp. (NYSE: ABX); and First Quantum Minerals (TSE: FM) saw billions in duties from Zambia, the WSJ reports. These are examples of a growing trend of more stringent demands from host countries in the developing world.
Copper and oil diverge. Copper prices for November delivery were up 5.3 percent in the first half of this month while Brent crude fell more than 11 percent. The divergence is notable, the WSJ argues, because investors tend to trade both commodities in the same basket. However, copper also suffered a steep slide earlier this year due to the U.S.-China trade war, so some of the losses have already been factored in. “Copper has already priced in an awful lot and demand is not necessarily bad,” said Michael Widmer, a commodities strategist at Bank of America Merrill Lynch.
Scrutiny on commodity traders. A report from Global Witness alleges that Glencore (LON: GLEN), Trafigura and Vitol, the three largest oil traders in the world, have ties to the sweeping corruption scandal in Brazil due to their links with key players acting as middlemen. Separately, Public Eye, says that Vitol has some sketchy business ties to the ruling regime in Kazakhstan. “The case of Vitol in Kazakhstan highlights the need of specific regulation of the commodity trading sector,” said Public Eye. “Banks have to do it. Traders should too.”
Iraq and Kurdistan restart Kirkuk oil. After a year-long hiatus, the oil from the Kirkuk fields is flowing again. The seizure of the fields by the Iraqi army from Kurdistan led to their sidelining. But a recent agreement between the two sides has allowed for the oil to come back online. The U.S. took a particular interest in pushing Baghdad and Erbil to reach a tentative deal, as higher output would help offset losses from Iran. The Kirkuk oil fields could allow 50,000 to 100,000 bpd to come back online immediately.
OPEC compliance rate of 119 percent in October. OPEC’s compliance rate with the production cuts dipped to 119 percent in October, according to Bloomberg, the lowest so far this year. In other words, OPEC was producing more, led by a huge jump in supply from Saudi Arabia. Russia and Kazakhstan also exceeded their targets last month. The OPEC+ coalition is a little over two weeks away from the December meeting in Vienna, a summit that could yield a supply cut.
Related: Chinese Gold Demand On The Rise
Japan and South Korea to buy oil from Iran again. After receiving sanctions waivers from the Trump administration, Japan and South Korea may begin importing oil from Iran again beginning in January, according to Reuters. Both countries had zeroed out their imports from Iran, but now have some room to buy once again. “They are seeking to get the best price and are in talks with Iran,” a South Korean source with direct knowledge of the matter told Reuters.
Bitcoin crashes. Last week, Bitcoin plunged, falling from around $6,200 down to $5,500 in a single day. At the start of Monday, Bitcoin was trading at $5,278. Bitcoin’s market capitalization fell below the $100 billion mark on Thursday, a level not seen since October 2017. As of Monday, the market cap stood at $91 billion. The broader crypto market suffered a selloff last week.
The false promise of blockchain. Blockchain technology has exploded onto the scene as an exciting technology. However, a former blockchain evangelist says that the hype has vastly exceeded the promise. On Bloomberg’s podcast, Odd Lots, they discuss the problems with blockchain technologies.
Switzerland gives greenlight to cryptocurrency ETP. Switzerland’s main stock exchange will allow the world’s first exchange traded product tracking multiple cryptocurrencies. The Amun Crypto ETP will begin trading this week on the Six exchange in Zurich and will track an index of the five leading cryptocurrencies. Nearly half of the assets will be invested in Bitcoin. “The Amun ETP will give institutional investors that are restricted to investing only in securities or do not want to set up custody for digital assets exposure to cryptocurrencies. It will also provide access for retail investors that currently have no access to crypto exchanges due to local regulatory impediments,” said Hany Rashwan, co-founder and chief executive of Amun.
By Tom Kool for Safehaven.com
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