Daily Market Outlook, March 28, 2022 Overnight Headlines Ukraine Willing To Be Neutral, Says Russia Wants To Split Nation Kyiv: In-Person Talks To Resume In Turkey Between 28th, 30th Putin Stokes Nuclear Fears With Atomic Weapons Warnings Shanghai Imposes Staggered Lockdowns To Keep Coronavirus At Bay China Industrial Profit Up But Mired In Single-Digit Growth Fed’s Best Hope Increasingly Looks Like A ‘Semi-Hard’ Landing Biden To Propose New Minimum Tax On Wealthiest Americans ECB's President Lagarde: Does Not See Risk Of Stagflation Hot UK Inflation Spurs Biggest Bets On Rate Cuts In 15 Years Yen Tumbles As BoJ Intervenes To Keep Bond Yields Pinned Down JGB 10Y Yield Hits 0.25%, Upper Limit Of BoJ's Yield Curve Control Policy Treasury 5-To-30 Year Yield Curve Inverts First Time Since 2006 Oil Slumps As Shanghai Lockdown Raises Fears Over Drop In Demand Nuclear Deal With Iran Is Not Imminent Or Inevitable, US Official Warns US Companies Buy Back Shares In Record, $319B Auth’d This Year China Stocks Slide As Shanghai Lockdown Deepens Growth ConcernsThe Week Ahead In a busy week for key global economic data, the U.S. jobs report for March, due on Friday, could impact growing expectations of a large Federal Reserve rate hike at the next policy meeting. The market is currently pricing in a 68% chance of a 50-basis-point hike in May. The Reuters poll forecast is for a 475,000 rise in non-farm payrolls, unemployment to ease to 3.7% from 3.8% and average hourly earnings to rise 0.4% month-on-month. Other U.S. data includes ADP jobs, final Q4 GDP, ISM manufacturing PMI, consumer confidence, home prices, and the Fed's favoured inflation gauge, the core PCE price index. The main data event for Europe will be flash euro zone March CPI; the poll forecast is for a 6.5% year-on-year rise after 5.9% in February. Other EZ data includes consumer confidence, industrial sentiment, unemployment and German retail sales. UK data includes Q4 GDP and current account. Japan's calendar is packed, with industrial production, employment, retail sales, final manufacturing PMI and the closely watched Tankan survey. Housing starts and construction orders are also due. China will release official manufacturing and non-manufacturing PMI for March along with the Caixin manufacturing PMI. Australia will be releasing retail sales and building approvals. New Zealand has no top-tier data scheduled, while Canada has January GDP.The Day Ahead Equities are trading mostly lower across the Asia Pacific as concerns around the impact of high inflation and tightening monetary policy weigh on sentiment. Across China, stocks have also dipped in response to news that Shanghai will enter a staggered eight-day lockdown period, with half of the city going into lockdown over the next four days, followed by the other half for the latter four days. Ahead of the resumption of negotiation talks between Ukraine and Russia later this week, the US White House has continued its efforts of tempering comments made by the US President, insisting that the US wasn’t seeking a regime change in Russia. The war in Ukraine continues to cast a shadow over the global economy, particularly with the impact of rising prices – particularly for energy items – raising concerns over the outlook for consumer spending across major economies. Last week’s UK inflation print showed the annual CPI moved up to 6.2% in February, with further increases expected as the impact of higher energy prices feed through. At last week’s Spring Statement, the UK Chancellor Rishi Sunak sought to offset some of the rise in the cost-of-living squeeze by announcing a number of measures. However, even with these accounted for, the Office for Budget Responsibility (OBR) said that real incomes this year were still likely to drop at their sharpest pace since the 1950s. Later today, Mr Sunak will be questioned by the Treasury Committee over his Spring Statement, with the focus likely to be on whether he could have done more. The OBR’s latest Economic and Fiscal Outlook also predicted that cumulative borrowing over the forecast horizon would be lower compared with previous projections from last October. That suggests that the Chancellor has banked a large part of the fiscal improvement in the public finances from the current fiscal year (2021/22) and points to some ‘headroom’ for further giveaways in the future. Elsewhere, the Bank of England Governor, Andrew Bailey, is due to speak at an event in Brussels hosted by the European think tank, Bruegel. With interest rate markets expecting a sharper increase in Bank Rate this year relative to economists’ expectations, any clarity on the policy outlook could see some narrowing in this gap. On the data front, today’s focus is limited to the US trade balance for February and the Dallas Fed manufacturing survey for March.CFTC Data This week’s snapshot of FX positioning and sentiment among speculative investors revealed a further improvement in broader bullish sentiment, building on the rebound that emerged in last week’s data. The aggregate USD longs rose by USD4.6bn in the week to USD13.5bn, the highest since early January. The biggest week over week change in positioning was reflected in net CAD positioning where speculators slashed the net CAD long that the market it had been nursing over the past few weeks by USD1.8bn, even as the CAD was in the midst of one of its best rallies in a number of years. Gross CAD longs were cut sharply again in the past week while gross shorts edged fractionally higher. The CAD long liquidation was the largest, single-currency shift in positioning in this week’s CFTC data. Investors took a generally dim view of commodity currencies; net AUD shorts advanced nearly USD600mn this week and while net NZD longs were cut USD72mn, overall positioning in the Kiwi remains very light. Net MXN shorts were lifted USD191mn. Equally, however, haven currencies were also under pressure; net CHF shorts were boosted by USD434mn while net JPY shorts rose USD1.5bn to total USD8.1bn sizable but just the biggest bear bet on the JPY since mid-January. Bearish bets on the GBP rose USD718mn to just over USD3bn, as gross shorting activity increased. Investors were, however, more constructive on the EUR last week,a view that has probably been tested by this week’s price action and boosted net longs by just over USD700mn to USD3.3bnG10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls ) EUR/USD: 1.1000 (584M) USD/JPY: 120.50 (295M), 120.70 (354M) GBP/USD: 1.3300 (220M), 1.3425 (210M) USD/CAD: 1.2545-55 (1.0BLN), 1.2650 (336M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.12 Bullish above EUR/USD opened 1.0985 after closing Friday -0.15% at 1.0981 After a quiet start, USD started moving higher due to USD/JPY demand EUR/USD steadily sold off and broke below support at 1.0960/65 to 1.0951 Heading into the afternoon it is settling around 1.0955 The next level of support is the 61.8 of 1.0806/1.1137 move at 1.0932 Resistance I at 1.1011 where the 10 & 21-day MAs converge Sentient is bearish due to diverging central bank expectationsGBPUSD Bias: Bearish below 1.3350 Bullish above. 0.2%, as continued yen weakness on yield spreads led USD north UST yields climbed 2yr +6bp to 2.345%, oil fell - Brent -2.3% Cable traded in a 1.3146-1.3179 range with solid interest all day in Asia Broad based market volatility likely to continue into quarter end Charts; momentum studies - 5, 10 & 21 daily moving averages conflict 21 day Bollinger bands contract - mixed signals favour range trading 1.3000 March and 2022 low, 1.3322 50% of Feb-Mar fall range parameters Last week's 1.3120 low and Asia's 1.3179 high initial support and resistanceUSDJPY Bias: Bullish above 116 Bearish below Afternoon Asia trade sees USD/JPY tad higher to 123.26 EBS USD/JPY low early Asia 122.00, option barriers at 122.50, 123.00 taken out Specs now eyeing presumed option barriers at 123.50 Market still very overbought but the risk to remain up to at least 125? "Kuroda ceiling" in 125-area, highs seen between May-August 2015 Bidding interest likely on dips now towards 122.50 if not 123.00 Japanese importers still have plenty of buying to do going forward Firm US yields supportive, Tsy 10s to new 2.557% high, now @2.513%AUDUSD Bias: Bullish above .7100 Bearish below AUD/USD opened 0.7505 after closing unchanged at 0.7514 on Friday After trading at 0.7500 the AUD/USD slowly tracked higher Once again it was AUD/JPY buying that underpinned AUD/USD AUD/JPY was up over 0.70% in Asia after rising over 3% last week AUD/USD traded to 0.7524 before settling around 0.7520 Resistance is at the Oct 29 high at 0.7555 Support is Friday's 0.7495 low and former resistance at 0.7440 AUD/USD trending higher with 5, 10 & 21-day MAs in a bullish alignment Only a break below 10-day MA at 0.7418 would suggest top is forming
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Monday, March 28, 2022
Sunday, March 27, 2022
The stockmarket needs more unlikely deals like AMC's mining punt
It was a plot twist to rival any on its thousands of screens. The cinema chain AMC, which owns the Odeon brand in the UK, last week announced that it was spending $28m on a major stake in Hycroft Mining, a precious metals explorer that may be sitting on big potential reserves of gold and silver in Nevada. It was one of the oddest corporate acquisitions in many years, and to say the market didn’t exactly cheer the move would be an understatement. The deal is “embarrassingly stupid”, according to one analyst. “Taking valuable cash and investing it into a high-risk business outside of its core competency,” argued Eric Handler, media and entertainment analyst at MKM Partners. “I don’t get it.”
Adam Aron, AMC’s chief executive, justified it as “a bold diversification move”, which is putting it mildly. Whether Hycroft actually manages to find any gold under the ground remains to be seen, but heck, if it strikes a rich stream maybe AMC could even reduce the price of the popcorn at its cinemas – the only thing in the world that costs more per ounce.
Big success from left-field bets
Of course, it’s just possible that AMC is on to something. Over the years, companies have occasionally done very well by taking completely left-field bets on very different industries. The largely forgotten Racal dabbled in mobile telecoms in the late 1980s, creating the business that eventually turned into Vodafone. Getty Oil bought the sports network ESPN in 1979 and it went on to become one of the largest sports broadcasters in the world, while the oil company has long since disappeared. Granada, originally a cinema chain and part of the ITV network, expanded into motorway service stations in the 1960s creating the company that is today Moto. These diversifications may have seemed completely batty at the time they were announced, and yet they ended up making a lot of money for shareholders. Maybe today’s companies, under pressure from investors, are thinking too narrowly.
Fund managers hate conglomerates of any sort and prefer to invest in companies that are very focused on a specific industry. And in fairness, they have a point. After all, if a shareholder in the AMC cinema chain also happens to feel like taking a punt on a gold miner, then they can do so any time they want to. They don’t need the boss of AMC doing it for them.
That said, there may also be advantages. Yes, a group of managers who have managed to run a cinema chain aren’t necessarily well-placed to make a success of a gold mine. But an established, major company may well be able to professionalise the management of a much smaller one. Experienced executives may be able to spot opportunities in the market that have eluded other investors. And they may have networks, or skills, that can be transferred from one industry to another.
Five wild ideas for the FTSE 100
If you think about it, there are lots of left-field acquisitions some of the leading members of the FTSE 100 could make if they were brave enough. Tobacco firm BAT could buy an oil exploration business. It couldn’t be any more unpopular than it already is, and anyone who wants to invest in destroying the world could do so with the click of a single button. Sky could forget about competing with Netflix for a week or two and buy a pub chain. It would be serving many of the same customers, and could make sure they all show the football all the time. Tesco could buy a broadcasting company, and perhaps slip in some quiet product placement to help boost its sales.
Maybe GlaxoSmithKline could buy a theme park or two. It could hardly be any worse than the performance of its drugs business over the last decade, and it might even be able to sell a few more sedatives to stressed parents. Heck, perhaps Unilever could buy a church or set up its own. At least investors would no longer be able to complain that it was preaching too much, or spending too much time on do-goodery instead of making money.
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Saturday, March 26, 2022
Should we levy a windfall tax on Big Oil's big profits?
EU leaders met this week to discuss measures to tackle the energy crisis and soaring prices of gas and oil, including a proposal from the European Commission of a bloc-wide windfall tax on energy companies’ soaring profits. In recent months four EU countries – Spain, Italy, Romania and Bulgaria – have already introduced their own windfall taxes.
In the US, Democrats have introduced legislation that would dramatically increase taxes on the “war-fuelled profits” of the largest oil companies (those producing or importing at least 300,000 barrels of oil per day). If the legislation is passed (which is far from certain), the oil majors would pay a per-barrel tax equal to half the difference between the current price of a barrel and the average price from the years 2015 to 2019.
The funds would be used to provide quarterly energy rebates to poorer and middle-income households. Here, Labour has called for a windfall tax, but the chancellor, Rishi Sunak, is firmly against.
What’s the case in favour of a windfall tax?
Windfall taxes have a “bad name for good reasons”, says Chris Giles in the FT. For businesses to flourish, a country needs a predictable tax regime. However, the oil-price spike driven by Russia’s invasion of Ukraine is one of those rare occasions when a one-off windfall tax on North Sea oil and gas extraction would be both “efficient and fair”.
Under the current tax regime governing North Sea oil and gas – set in 2016 in an era of persistently low energy prices – profits are taxed at 40%. In practice though, as the National Audit Office has pointed out, the government often gives more to oil and gas companies in tax relief (on things like decommissioning North Sea oil platforms) than it gets in taxes. BP, for example, got overall refunds every year from 2015-2020 – the same BP whose boss Bernard Looney recently hailed the market conditions that had made his firm into “literally a cash machine”.
Given the exceptional times, the Conservatives should go beyond Labour’s demand for a ten point rise, says Giles, and return to the 62% level imposed by George Osborne when prices were last this high, back in 2011.
What’s the argument against?
The core argument against windfall taxes on energy firms – that they deter future investment and compound uncertainty – has lost a bit of potency given that the world is trying to phase out the burning of fossil fuels and capital investment has already slumped, says The Economist. But they are still wrong-headed for lots of reasons.
The energy industry buys and sells power using long-term contracts, making the link between current prices and tomorrow’s profits “fuzzy” and taxing them complex. Meanwhile, prices can fall as quickly as they rise – as in 2015, 2016 and 2020, for example, when globally listed energy firms posted operating losses. If oil producers are obliged to bear the burden of low prices on their own, but “find chunks of their profits seized when prices rise”, they become unviable.
That’s bad for everyone, because it means the certainty and vast investments needed to fund future innovation – in all forms of energy generation, not just hydrocarbons – disappear. In a nutshell, “hiving off the rewards that are on offer for supplying energy during today’s shortage will only make the next supply crunch – even a predictable one – all the worse”.
So windfall taxes are wrong in principle?
Some interesting voices think not. This week, John Browne, chief executive of BP for 12 years until 2007, argued that a windfall tax was “justifiable” given prolonged high prices – and highlighted that natural resources are typically extracted under conditional licences granted by nation states.
“Most nations want to keep people interested in what they’re doing, so they can’t just say we’ll tax 100% because they’ll stop working,” says Browne. “But it’s always a fine balance between how much do you let the rent owner have and how much do you take for the nation.”
When the price level becomes “outrageous and stays there, I think it’s not unreasonable to expect the nation to take a bigger portion of the rent”, Browne argues. And last week, the former Tory minister David Willetts urged that the policy option of windfall taxes on energy “should not belong to Labour alone”.
What are the politics?
Rishi Sunak remains opposed to such a levy. Instead, North Sea energy companies reportedly believe they have a “tacit agreement” with the government that if they step up investment in oil and gas fields they will be spared a windfall tax.
In the UK, the best known windfall tax in recent fiscal history was New Labour’s 1997 one-off tax (raising £5.2bn, and trailed in their landslide-winning manifesto) on privatised utilities that had been sold too cheaply (they argued) under the Conservatives. The rationale was the state sell-off had underpriced the businesses and left them too loosely regulated, allowing them to rake in undeserved and excessive profits.
What about a Tory precedent?
There’s another, more surprising precedent for a “moralistic” windfall tax, says Jon Yeomans in The Sunday Times. In the depths of recession and high unemployment in 1981, Margaret Thatcher’s first administration imposed a 2.5% levy on bank deposits to raise about £400m from the giant profits banks were making from high interest rates (of up to 15%).
“Naturally, the banks strongly opposed this”, Thatcher wrote later. “But the fact remained that they had made their large profits as a result of our policy of high interest rates, rather than because of increased efficiency or better service.”
It was acceptable in the 1980s. But in the 2020s, a Tory windfall tax is still looking unlikely.
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Friday, March 25, 2022
These precious metals are dirt cheap – buy now
Almost exactly 42 years ago to the day, an attempt to corner the silver market by the three Hunt brothers – Nelson, Lamar, and William – ended in disaster. The trio, the sons of Texas oil billionaire Haroldson Lafayette Hunt Junior, began buying in 1979, with the silver price sitting at just over $6 an ounce. By 18 January 1980, the price of silver had hit a record of just under $50 per ounce, and the Hunt brothers were thought to own around a third of the entire world supply of silver not held by governments. However, the Hunts had borrowed heavily to back their purchases – so when concerned regulators introduced limits on leverage, and the Federal Reserve discouraged banks from making such loans, the silver price began to fall, and the brothers soon faced a huge margin call that they couldn’t fund. By 27 March 1980 – “Silver Thursday” – the silver price had plunged all the way back to $11 per ounce, and the Hunts lost a fortune.
After that, silver took 30 years to regain the $50 level, which it finally achieved in 2011. Another decade on, and the price is still struggling to top $25 per ounce. Indeed, in real (inflation-adjusted) terms, dollar-priced silver isn’t much higher now than it was just after World War I. Yet silver is an extremely useful element whose range of applications just keeps growing. It’s very durable and one of the world’s best conductors of electricity, which means that nearly all computers and mobile phones contain silver, as it’s perfect for coating electrical contacts on printed circuit boards. The metal is also used in making solar cells and in plasma display panels. On/off buttons for TVs, phones, microwaves, children’s toys and keyboards all use silver membrane switches, while silver ink removes the need for wires. Silver coatings are applied to medical devices, bandages and ointments to help fight infections. Silver ions are effective against antibiotic-resistant bacteria, specifically MRSA, and are also added to water-purification systems as a sanitiser. And, of course, silver is also widely used for jewellery.
Silver is cheap compared with gold
Finally, silver is not just of industrial use – it’s also a monetary metal. Like gold, it’s a hedge against inflation, or to be more precise, against negative real interest rates. The more negative these are, the lower the inflation-adjusted “cost of carry” for investors in precious metals. While silver is taking time to respond to surging consumer prices, it may be just a matter of time. Gold, the classic safe haven and main monetary metal, has also been a headline beneficiary of Russia’s invasion of Ukraine. But investors are waking up to silver’s similar qualities. The gold/silver price ratio is currently around 78, which is towards the top of its 40-year range. A return to a ratio of 70 – assuming gold stays unchanged – would lift silver by around 10%.
Overall, the Silver Institute, a trade body, expects demand for silver to reach a record high of 1.112 billion ounces this year, “driven by record silver industrial fabrication (which it predicts will improve by 5%) as silver’s uses expand in both traditional and critical green technologies”. On the other side of the equation, the Silver Institute expects that global silver supply will rise by 7% to 1.092 billion ounces, with mined output expected to grow by the same percentage, leading to a 2022 supply shortfall of 20 million ounces. This would clearly be bullish for prices. That deficit could rise further – Russia provides 5% of the world’s silver supply, according to S&P Global Market Intelligence. The extent of the West’s post-invasion sanctions on Russian commodity exports, such as silver, is still unclear, but there must be a major question mark here. Any supply interruptions would provide a further boost for the silver price.
Platinum looks cheap too
Platinum has also halved in price since its peak of 14 years ago, even though it’s another extremely useful metal. It is the least reactive metal around (it has a very high melting point, and an even higher boiling point), it’s non-toxic, and it’s rare. All the platinum ever produced would only cover your ankles in an Olympic-sized swimming pool. By contrast, the world’s total gold output would fill three such pools, notes the World Platinum Investment Council (WPIC).
Platinum is a key “green” metal. It’s used in the construction of energy-efficient fibreglass, in solar panels and in manufacturing wind turbines. Platinum is also vital in medical devices. Platinum wiring and coils are used in “brain pacemakers” to treat movement disorders; in cochlear implants; in heart pacemakers, of which more than 700,000 are fitted worldwide each year. Platinum alloys have also been widely used in coronary artery disease procedures, such as balloon angioplasty and stenting, while in orthopaedics platinum compound coatings are vital in reducing implant rejection. Platinum compounds such as cisplatin can treat specific cancers, including testicular and ovarian cancers. Then there’s platinum’s use in catalytic converters (internal combustion engines’ exhaust emission controls). In addition, the metal’s catalytic properties are employed in releasing the power of hydrogen in fuel cells, an area of huge potential.
All of that said, however, more platinum is being produced than is currently being used. For 2022, WPIC expects overall demand to rise by 7% year-on-year as the economy continues to recover and the semiconductor shortage that has dented car output eases off. With supply expected to rise by 1%, that would leave a 2022 surplus of 652,000 ounces, around half that of 2021. At first glance, that’s not too bullish for platinum prices. Yet the outlook for the metal may be rather brighter than it appears.
The shortage of new cars is prolonging the lifespan of existing vehicles, which means fewer cars are being scrapped, which in turn means the supply of platinum-containing catalytic converters sent to recyclers has fallen. Meanwhile, the substitution of platinum for palladium (which has soared in price) could end up being greater than estimated, while Chinese imports may also beat expectations.
Furthermore, says WPIC, almost 75% of the world’s mined platinum comes from South Africa. That’s a country with an increasingly unstable political climate. Another 7.5% is from Zimbabwe, which is worse. And more than 10% emanated from Russia last year. As with silver, there must be a major doubt about how much of this Russian output will reach the market. The less that does, the more prices could climb.
Palladium could have further to go
Other platinum group metals have done better, but surging inflation – and Russian military manoeuvres – mean that now could still a good time to buy in. But what are the best bets? Palladium has the lowest melting point of all platinum group metals and is also the least dense. Yet it’s a good oxidation catalyst as well as being conductive, oxidation resistant and ductile, notes the International Platinum Group Metals Association (IPA). “But its most incredible property is the ability to absorb 900 times its own volume of hydrogen at room temperature,” says the IPA. “This makes palladium an efficient and safe hydrogen storage medium and purifier. It is also used in chemical processes that require hydrogen exchange between two reactants, such as that which produces butadiene and cyclohexane, the raw materials for synthetic rubber and nylon.” Palladium plays an important role in catalytic converters and air-purification equipment. Its stability and conductivity make it a more effective and durable form of plating than gold in electronic components.
But from an investment perspective, the stand-out statistic on palladium is that more than 40% of it comes from Russia, according to S&P Global Market Intelligence. Or rather it did in 2020. Again, how this will play out during the Ukraine invasion is hard to predict. But the recent surge in palladium could continue for some time.
The more obscure precious metals
What about the other lesser-known (and much-less traded) platinum group metals? Rhodium is extremely hard and corrosion resistant, and also has excellent catalytic capabilities. Rhodium-platinum gauzes are used in the production of nitric acid. Some vehicle exhaust emission control catalysts contain rhodium. The metal’s high melting point, temperature stability and corrosion resistance make it key to industrial processes, such as glass and glass-fibre production. Rhodium’s hardness makes it an excellent alloying agent to harden platinum.
Iridium is the rarest platinum group metal and is amongst the densest known elements (we’ll get to the densest below). It’s also the most corrosion-resistant known metal. Although brittle, it’s extremely hard (four times harder than platinum) and with its high melting point, temperature stability and corrosion resistance, is employed in high-temperature equipment, such as crucibles that grow crystals for laser technology. Iridium is also used in medical and surgical technologies employed to combat cancer, Parkinson’s disease, heart conditions and even deafness and blindness. Industrial applications include production of chlorine and caustic soda.
Ruthenium is rarely employed alone because it’s extremely difficult to work with in its pure form. It remains hard and brittle even at temperatures as high as 1,500°C. But ruthenium is used with platinum and palladium in imparting hardness in certain jewellery alloys and improving resistance to abrasion in electrical contact surfaces. It is also useful because of its electrical, electrochemical and catalytic properties, its resistance to corrosion and its stability under varying operating conditions. Its main electronics application is in resistors. And it’s used increasingly in computer hard discs to increase data storing density. It features also in catalytic applications in gas-to-liquids technology to generate sulphur-free, high-quality fuels.
Osmium is the densest known metal and the hardest platinum group metal (ten times harder than platinum). It has a higher melting point than other platinum group metals, and so it is used where frictional wear must be avoided and is often alloyed with platinum and iridium. Its conductivity makes it a more effective, durable alternative to gold for plating in electronic products. Like the other platinum group metals it’s a very efficient oxidation catalyst and is used in fuel cells. Forensic science employs osmium for staining fingerprints and DNA (as osmium tetroxide).
In summary: while they’ve already performed better than silver, platinum and even palladium, these other platinum group metals could continue to rise in price as demand for their qualities grows. Throw in surging inflation and the uncertainties created by Russia’s Ukraine invasion, and all the metals mentioned today could have significant long-term upside. The box below gives three stocks to consider buying now.
What to consider before you invest
Before putting money into this sector, prospective investors need to decide on the level of risk with which they are comfortable. The scope for the most upside – as you’d expect – comes from the riskiest stocks, the “junior” explorers. However, if things go awry, which is far from uncommon in this sector, investors can get completely wiped out. Relative to the junior explorers, developers are lower on the risk scale because they’re already planning how to extract their minerals. But even if feasibility studies (including budgets, permit approvals and capital-raising plans for mine construction) have been undertaken, there’s still no guarantee of production. Remember that junior explorers and developers don’t generates cashflow. So an investment in their shares comes down to hoping that positive news flow on drilling and mining offsets the drag from ongoing cash-raising. The latter generally involves issuing fresh equity that dilutes existing shareholders’ interests.
Silver, platinum and platinum group metal stocks are naturally volatile. If you prefer a relatively safe investment, it’s better to stick to established producers that produce actual cashflow. They have the least upward potential, but also have the lowest downside risk. Major miners often produce several metals, which diversifies risk. And if their mining operations keep doing well, you might also be rewarded with growing dividends.
Lastly, don’t forget political risk: southern Africa isn’t the only area for this. Several South American countries can be ambivalent about non-domestically owned miners. The safest approach is – where possible – to invest where there’s unequivocal support for the mining industry.
Three platinum group metal plays to investigate
Wheaton Precious Metals (NYSE: WPM) is one of the largest precious metals streaming companies in the world. It buys all, or part of, the precious metal or cobalt output from high-quality mines for an upfront payment plus an extra sum on delivery of the metal. Wheaton has built up a portfolio of low-cost, long-life assets – it currently has streaming agreements with 24 operating mines and eight development stage projects.
Last year WPM generated 49% of its revenues from silver and 5% from palladium. The key point for WPM’s shareholders is that apart from that first-upfront cash payment, Wheaton typically doesn’t incur capital expenditure or exploration expenses, unlike its suppliers. So the company benefits from rising silver prices and achieves high profit margins without taking the risks to which physical miners are exposed.
These attributes are, of course, factored into WPM’s share price. The market capitalisation is $21.8bn and the stock stands on a prospective price/earnings (p/e) ratio of 35, according to analyst estimates compiled by MarketWatch. But WPM’s valuation isn’t earnings-driven – it’s powered by precious metals prices, in particular the price of silver. And their upside scope makes this a potentially very profitable stock to own.
Hecla Mining (NYSE: HL) is the largest primary US silver producer and the oldest NYSE-listed precious metals miner in North America. It operates two mines in the US and one in Canada, as well as several exploration properties and pre-development projects in world-class silver and gold mining districts throughout North America. As well as silver, Hecla also produces gold, lead and zinc.
In other words, Hecla ticks all the boxes on both political stability and, with a market cap of $3.76bn, on its status within the mining industry. Long-term debt is just over $500m compared with equity of $1.8bn. While Hecla’s shares trade on an even higher p/e than Wheaton, again the firm’s shares are mainly driven by silver prices.
Sibanye-Stillwater (NYSE: SBSW) is a multinational mining and metals processor with a wide portfolio of extraction and processing operations across five continents, although most of its mines are in South Africa. The company is one of the world’s largest producers of platinum, palladium, and rhodium (it’s also a top gold miner), while other PGMs, such as iridium and ruthenium, feature on its product list. The market cap is $13.7bn, total equity is $5.1bn and there’s long-term debt of $1.27bn. Probably the easiest way to invest in Sibanye-Stillwater is via the NYSE-quoted American depositary receipt (ADR) that represents four shares in the group. Analyst estimates are for earnings per share of $3.24 in 2022, which compares with a current ADR price of $19, according to MarketWatch, putting the stock on a low p/e of below six.
Furthermore, the company is currently distributing a decent dividend. Although consistent pay-outs from miners are by no means guaranteed – particularly when, like Sibanye, they operate in politically unstable areas such as South Africa – the hefty 7% yield is very appealing in these days of meagre retur
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USDCAD, H4 | Potential Bearish Continuation
Type: Bearish Reversal Key Levels:Resistance: 1.26228 Pivot: 1.25635 Support: 1.24564 Preferred Case: On the H4, with price moving below our Ichimoku cloud, we have a bias that price will drop from pivot of 1.25635 in line with the horizontal pullback resistance to 1st support at 1.24564 in line with the horizontal swing low support and 200% Fibonacci projection . Alternative Scenario: Alternatively, price may break pivot and head for 1st resistance at 1.26228 in line with the horizontal pullback resistance.
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Share tips of the week – 25 March
Three to buy
Fever-Tree Drinks
The Sunday Telegraph
Demand for upmarket mixers from pubs, hotels and restaurants “has been decimated by lockdowns over the past two years”. But strong consumption at home drove a 23% increase in sales for Fever-Tree last year. This was helped by new launches and a shift in marketing spending towards consumers drinking at home. The company will now have to deal with inflation, which has already caused a decline in gross margins of 4.1%.
But it holds nearly 40% of the UK retail mixer market and is the dominant tonic and ginger-beer brand in the US, which provides it with “significant pricing power that should offset higher costs”. 1,843p.
Hilton Food Group
The Sunday Times
Britons eat 2.5 billion beef burgers and 6.1 billion rashers of bacon each year, and Hilton provides a “significant chunk” of that. Recent acquisitions have bolstered and diversified its business, including the UK’s biggest butcher to the hospitality industry, a smoked salmon firm that takes it into the US, and a Dutch vegan-products company. Those deals have pushed up debt, but there’s “plenty of headroom” and they will plump up profits. 1,132p.
M&G
Shares
An ageing population and the need to fund retirement should fuel growth in the savings market. Insurer and asset manager M&G is well-placed to benefit. The group is ahead of its targets for capital generation and cost savings. This has allowed it to launch a £500m share buyback programme that, together with dividends, will mean M&G has returned £1.8bn of capital to shareholders since it was spun out of Prudential in 2019. 225p.
Three to sell
Genel Energy
Investors’ Chronicle
This oil and gas firm has been struggling to get prompt payment for its production from the Kurdistan Regional Government (KRG): it’s owed $111m. A “disagreement” with the KRG has also seen it abandon two development licences. Free cash flow could rise from $86m in 2021 to $250m this year, and the dividend has climbed by a fifth to $0.18 per share, but its continued issues with the KRG make it one to sell. 154p.
Inspecs
The Daily Telegraph
High-priced growth stocks don’t usually do well in the face of rising interest rates. That suggests it’s time to book profits in eyewear specialist Inspecs. There isn’t anything going wrong: sales are up, brand range and distribution reach are increasing due to deals abroad, and opticians will be able to offer a full range of services again now that Covid-19 restrictions are over. But the stock has gained nearly 72% since July 2020, it has “yet to break into the black on a statutory basis”, and the current valuation prices in a lot of growth. Take profits. 335p.
TP ICAP
The Times
Shares of interdealer broker TP ICAP have fallen by over two thirds since it was formed by the merger of Tullett Prebon and ICAP in 2016. It is struggling to produce sustainable earnings due to pressure from Brexit disruption, currency fluctuations and muted trading in the fixed-income and swaps markets. The costs of its five-year plan to “diversify its client base” and move towards digital trading have also hurt profitability. A forward price/earnings ratio of five looks cheap, but unpredictable markets may mean its earnings could easily disappoint later in the year. Avoid. 119.2p.
...and the rest
Investors’ Chronicle
Discount retailer B&M will benefit from the cost of living squeeze. Buy (550p). Promotional products firm 4imprint has seen demand recover to pre-pandemic levels, but must now cope with supply-chain issues. Sell (2,855p). Marine engineer James Fisher had a “disappointing and difficult year”. Sell (414p). The slow recovery of the aerospace and automotive industries and cost increases due to rising oil prices are weighing on engineer Bodycote. Sell (679.5p).
Shares
South Africa-based miner Tharisa has benefited from higher metal prices, and has strong cash generation with a generous dividend. Buy (155.8p). Shares in road safety engineer Hill & Smith dropped after the government put the smart motorways roll-out on hold, but the outlook remains positive. Buy (1,412p). Property and industrial services company Hargreaves Services’s first-half results were better than expected; the second should be even better. Buy (550p).
The Daily Telegraph
Rising interest rates are good for investment platforms, such as AJ Bell, because they earn more interest on customers’ cash deposits. Buy (305.2p).
The Times
Marks & Spencer is dealing with inflation and turning around its clothing business, but both are priced in. Buy (162p). Software-as-a-service (SaaS) firm EMIS can grow market share, expand its range of products and raise margins. Buy (1,328p). Demand for offices in Germany is stronger than in London and landlord CLS has 38% of its assets there. A 43% discount to forecast net asset value is too high (208.5p). Insurer Phoenix will no longer rely on “snapping up open or closed books of business” now it has a bigger pensions and savings arm. That’s good for steady dividend growth. Buy (635p).
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Charlotte Yonge: two ways to protect your money from inflation
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The Yamaha Fizzy – how a 1970s moped became a £10,000 collector’s item
Earlier this month, Yamaha announced plans to sell a new range of e-bikes in Europe later this year, including two new electric mopeds. The Japanese motorbike brand is no newcomer to assisted pedal power. In the 1970s, it released the FS1-E moped, a “sixteener special” – so-named because of a 1971 British law that limited 16-year-old riders to bikes with 50cc engines. In response, manufacturers made mopeds – with both a small engine and pedals – aimed at teenagers.
If you were a teenager, “this was the bike to have”, says John Hogan in SuperBike magazine. “Fifty cc of two stroke freedom, sometimes at 30mph if you were going downhill and had a tailwind.” The “E” signalled that it was for sale in the English market. Around 200,000 British-bound “Fizzys”, as the mopeds were affectionately known, were made. Today, “bikers of a certain age seem more than happy… to part with vast sums of cash” to get their hands on one, says Hogan – perhaps with a view to reliving those wild, carefree years.
Be ready to dig deep
Japanese motorcycles from the 1970s and 80s made up almost a quarter of British-based collections holding at least five vehicles in 2018, according to insurer Hagerty. But collectors have to dig deep. Many Fizzys ended up on the scrapheap and relatively few have survived in a good condition. One Fizzy from 1976, which would have cost around £300 new, sold last October for £10,350 (including fees) in an auction run by Cheshire-based auction house H&H Classics at the National Motorcycle Museum in the West Midlands.
“Ten years ago a Fizzy would have only sold for around £1,500, but they’ve been gaining in popularity for some years now with prices now reaching into the thousands,” says Jeremy Curzon, motorbike specialist at auction house Cheffins, in Cambridge. “However, no one would have guessed that one of these sixteener specials could have made over £10,000!” Cheffins is selling a Fizzy at its April Vintage Sale, with an estimate of £3,000-£4,000.
If you were lucky, you might have progressed from a 50cc Fizzy to a 1978 249cc Kawasaki KH Triple – one of which is also appearing in the sale. “Bikes such as the Fizzy and the Kawasaki KH Triple were so popular in the 1970s, when, as a youth, you could jump straight on without any training and ride them indefinitely on L-plates,” says Curzon. “The Fizzy was probably the most iconic and beloved of them all and to this day holds a very special place in the hearts of those who were teenagers in the mid to late-1970s, myself included.”
A big price for a very small car
Cars are getting bigger and heavier, but for collectors, small can still be beautiful. Take the Peel P50: at 1.3 metres long, one metre wide and 1.3 metres tall, it is the smallest production car ever made. Peel Engineering built 46 of them on the Isle of Man between 1962 and 1965, with 26 thought to remain in existence today. One early example went up for auction last month with online auctioneers Car and Classic. The car is possibly a pre-production model that may be the first P50 made, and is thought to be the same one used in a promotional stunt in May 1963, when it was hoisted up Blackpool Tower and driven around the observation gallery.
The red fibreglass three-wheeler was launched at the 1962 Earls Court Motorcycle Show, in London, because its 49cc DKW single-cylinder engine technically drops the car into the motorcycle category. It was designed as a city run-around, propelling the driver and one bag of shopping to a heady top speed of 38mph. The P50 has just three forward gears. If you want to reverse, you have to get out and pick up its 59kg by the handle on the back. There is a lever on one side of the black vinyl seat to start the engine, and a handbrake on the other side. Add the steering wheel and pedals, plus a red carpet in the footwell for a touch of comfort, and that’s it – the P50 was never fitted with any instruments or dials.
Driving a P50 on the road is “somewhat of an experience… but a totally enjoyable one… [turning] heads wherever it goes”, says the listing. It is “capable” of doing 100 miles to the gallon, if “maxing out” at its full 38mph. This one sold for £111,000 after 99 bids – a “big price for a small car,” but not a record, says This is Money. Another P50 sold for $176,000 (then £122,000) in Florida in 2016.
Auctions
Going…
A marble sculpture that sold for £5,200 in a 2002 garden statuary auction has been revealed as a lost late work by Italian master Antonio Canova, says the Financial Times. The “lucky sellers”, a British couple, bought the sculpture of an “idealised, penitent Mary Magdalene” for the garden. When rumours of a connection to Canova surfaced, they contacted an art adviser and much of the statue’s history was unearthed. The work is the Maddalena Giacente (Recumbent Magdalene), which was commissioned around 1820 by the then-British prime minister, Robert Jenkinson, second Earl of Liverpool. The statue will go on sale through Christie’s in London on 7 July, valued at between £5m and £8m.
Gone…
Mother and Child, a “previously undiscovered” sculpture by British artist Henry Moore, sold for £320,000 last week at auction house Dreweatts in Berkshire, says ITV News. The lead piece from 1939-1940 had sat on a mantlepiece for 40 years before it was traced back to a 1939 sketch by The Henry Moore Foundation. It is particularly rare, because Moore only experimented with lead for a short time during the 1930s. The sculpture had been a gift to Hubert de Cronin Hastings, who was at that time the editor of The Architectural Review. The auction price was ten times its
low pre-sale estimate.
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Five wild holidays for adventurers
The highest luxury hotel in the Middle East
“For those who enjoy adrenaline coursing through their veins on holiday, the Middle East’s highest luxury hotel has just built an extreme activity wall on the canyon below it,” says Lisa Grainger in The Times.
Towering over the deserts of northern Oman, the Anantara Al Jabal Al Akhdar Resort is both a monument of opulent adventure and the cornerstone of an adrenaline-fuelled getaway you won’t soon forget.
The resort offers a range of activities to enjoy. “Daredevils can zip-line 1,000 metres above the canyon floor, climb rocks using steel cables and then cross the Middle East’s highest steel bridge,” while leisurely visitors can enjoy relaxing rose-oil spa treatments, yoga classes on the hotel’s exquisite campus, and star-gazing on lush desert nights.
Rooms range from those with delightful views of the arid landscape to poolside villas, with prices starting from £307 a night. See anantara.com
© Six Senses
Roam like a Bedouin in Israel
“What the Negev never had until now was a really spectacular place to stay. That’s been neatly solved by Six Senses, which opened Six Senses Shaharut here last August”, says Maria Shollenbarger in the Financial Times. “Prepare to be dazzled.”
Lying low in the Negev desert, in Israel’s “deep south”, the Six Senses Shaharut offers guests a unique chance to experience the natural beauty of the landscape once roamed exclusively by Bedouin tribes. “It has just about everything to recommend it: killer food (light, locally sourced, organic everything), a sprawling spa with indoor pool, low-slung villas with white-on-cream-on-meringue interiors and plunge pools giving onto those Holy Land views.”
Sprawling in every direction are the mesmeric expanses of the wadis (valleys), local date farms and kibbutzim that once pioneered ancient agricultural methods, and an open, sunlit blue sky. Rooms start at $750 a night. See sixsenses.com
© Alamy
Adventure in New Zealand
Ultimate Alpine Escape, voted one of the world’s best luxury lodges, is set on the shores of Lake Wakatipu amid the rugged, snow-capped peaks of New Zealand’s Southern Alps. Here, on Blanket Bay, “relaxation and adventure meet luxury accommodation, unparalleled service and five-star facilities”, says Christine Gray in Luxury Travel Magazine.
Whether you’re seeking “adrenalin-pumping action” or respite, the Southern Lakes offer alpine activities in one of the most beautiful places on Earth. From hiking the sublime natural landscape in pristine quiet, river jetting into Mount Aspiring National Park, or flinging yourself off the world’s first commercial bungee jump, Blanket Bay will turbo-charge your time away.
Between each exciting exploit, the hotel’s main lodge serves as a base camp with its gorgeous rooms and suites. Each is designed with sumptuous wooden furnishings and breathtaking views of nearby Lake Wakatipu. From £955. See blanketbay.com
© Alamy
A rustic retreat in Croatia
For a short stay at one of Croatia’s hidden mountain treasures, the stone villa at the Kameni Dvori family farm is the perfect forest getaway, say Nazia Parveen and Rachel Dixon in The Guardian. Sleeping 11 people, it is available for exclusive rental in the summer, although rooms can be rented out until the end of April.
Situated in the cypress groves outside Dubrovnik, this rustic abode has plenty to offer in the way of entertainment. Aside from enjoying the atmosphere, exposed stone walls, wooden beams and ancient fireplaces, there is, following a restoration of the property, a swimming pool outside a former barn, a games area with football, badminton and darts, and a dining terrace equipped with a barbecue. Bike rental is also an option, for those who want “to explore the neighbouring forest to find a lookout point with views of the Adriatic”.
Guests can sample the homeowners’ homemade wines and take a cooking class. Double rooms start from €68 a night. See holiday-village-konavle.com
© Neil Aldridge
A course for would-be wildlife film-makers in Scotland
“Channel your inner Attenborough with a videography workshop in the Eastern Highlands,” says Jacob Lewis on iNews. Wildlife Worldwide’s five-night nature documentary course in the Cairngorms National Park is perfect for those looking to get up close and personal with some of Britain’s wildest landscapes and creatures.
Participants camp in pop-up canvas hides, from where they seek to “catch on camera red squirrels, woodland birds, ospreys and dolphins while covering a range of techniques, including macro, time-lapse and long-lens filming”. It is open to budding nature enthusiasts and videographers of all skill levels, and provides lessons in camera and filming techniques for a wide range of equipment, including specialist camera traps and small drones.
Guests can expect six nights’ stay in a highland lodge and all meals to be provided for £1,695, as well as priceless wildlife photography tutelage from film-maker Neil Aldridge. See wildlifeworldwide.com
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Daily Market Outlook, March 25, 2022
Daily Market Outlook, March 25, 2022 Overnight Headlines China Sees ‘Unprecedented’ Capital Outflow Since War, IIF Says Kiwi Home Owners Face Soaring Mortgage Repayments As Rates Jumps EU Countries, EU Lawmakers Clinch Deal On Rules To Rein In Tech Giants U.K. Consumer Confidence Falls Amid Sense Of Crisis On Inflation Oil Fluctuates as EU Refrains From Fresh Action On Russian Crude U.S. Promises To Deliver 15 BCM More Of LNG To Europe In 2022 Europe’s Large Diesel Stockpiles Could Run Down Fast As Russia Bites Asia Pacific Banks Sell Record Floater Notes In March As Yields Surge Asian Stocks Fall Friday With China Tech Giants, Paring Weekly Gain FAA Warns Boeing May Not Win Certification For 737 MAX By YR End The Day Ahead Asian equity markets are mixed this morning but are set to record a second weekly rise according to an index of Asia-Pacific shares. Front-month Brent crude oil fluctuated overnight and has risen by about 10% over the course of the week to near $120 a barrel. The US and the EU are expected to provide details of an agreement to reduce Europe’s dependency on Russia energy by increasing imports of US liquefied natural gas. The transition, however, will take time. Official UK data released this morning showed a fall in February retail sales (excluding fuel) of 0.7%m/m, weaker than market expectations for a rise of 0.5%. The volume of sales is still up by 4.6% on the year. Overnight, UK GfK consumer confidence fell by 5 points to -31, the lowest since November 2020. The outlook for consumer spending looks particularly uncertain given the impact of higher inflation. The Office for Budget Responsibility predicted the biggest fall in real household disposable incomes in the coming financial year since the ONS data began in the 1950s despite fiscal support announced by the Chancellor in his Spring Statement. Ahead, the latest update for the German IFO business survey will be watched. Anticipate a drop in the headline index to a one-year low of 94.0 in March from 98.6, especially given the country’s close energy links with Russia. The decline is expected to be driven mostly by the expectations component (to 92.0 from 99.2), while a less severe fall is likely for the current assessment index. Yesterday’s flash PMIs showed more moderate declines than forecast for both manufacturing and services, so the risk could be that the IFO index falls by less than forecast. But the data will probably add to evidence that Russia’s invasion of Ukraine will weigh on output but, at the same time, add to inflationary pressures. In the US, the final reading of the University of Michigan consumer sentiment index for March is expected to be confirmed at 59.7, the lowest for over a decade, reflecting inflation concerns. Central bank speakers today include the Fed’s Williams and Barkin. The possibility of a 50bp hike at the Fed’s next meeting in May has not been ruled out.G10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls ) EUR/USD: 1.0925 (453M), 1.1000 (1.69BLN) 1.1100 (574M) USD/JPY: 118.50 (300M), 119.00 (325M) 119.25 (1.03BLN) AUD/USD: 0.7375 (410M). USD/CAD: 1.2400 (330M) 1.2610-15 (517M), 1.2650 (646M), 1.2670 (360M) 1.2700 (594M). NZD/USD: 0.7000 (232M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.12 Bullish above EUR/USD opened unchanged around 1.1000 after holding 1.0960/70 or third day After trading 1.0995 early Asia EUR/USD drifted higher when USD/JPY sold off USD/JPY fell over 0.50% after streaking higher for the past week EUR/USD traded to 1.1035 before settling around 1.1030 A close above the 21-day MA at 1.1028 may prompt more short-covering EUR/USD support building 1.0960/70 where it held past three days A break below 1.0960 needed to maintain downward momentumGBPUSD Bias: Bearish below 1.3350 Bullish above. +0.1%, supported by a softer USD in a 1.3183-1.3210 range, steady flow UK consumer confidence slides as inflation, war worries grow UK car production suffers weakest February since 2009 Data supports the Bank of England's cautious rate hike stance Charts; momentum studies - 5, 10 & 21 daily moving averages conflict 21 day Bollinger bands contract - mixed signals favour range trading 1.3322, 50% of Feb-Mar fall and 1.3000 March and 2022 low range parametersUSDJPY Bias: Bullish above 116 Bearish below USD/JPY and JPY crosses pull back some from fresh highs yesterday Verbal intervention, BoJ FX-speak, pre-weekend position adjustments cited US yields remain firm, sideways, not a factor, Treasury 10s @2.360% Japanese importer good buyers at Gotobi Tokyo fix, on weekend demand USD/JPY to fresh recent high of 122.44 EBS before pull-back to 121.55 Presumed 122.50 option barriers helped cap market, more every 50 ticks up Risk mood less on in Asia, Nikkei -0.2% @28,062, E-Minis +0.1% @4517 Recent moves into peripherals in spotlight, good retail, some investor flowsAUDUSD Bias: Bullish above .7100 Bearish below AUD/USD opened +0.17% at 0.7513 after bouts of AUD/JPY buying supported After trading at 0.7500 early Asia it edged higher when USD broadly eased USD/JPY led the USD lower - falling over 0.50% at one stage AUD/USD traded to 0.7525 before settling around 0.7515 into the afternoon Resistance is at Oct 28 high at 0.7555 with sellers tipped ahead of 0.7550 More resistance is at the 61.8 of the 0.8007/0.6967 move at 0.7609 Support is at former resistance at 0.7440 and the 10-day MA at 0.7386 AUD/USD overbought and may correct if AUD/JPY is forming a top
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Events to Look Out for Next Week
- Event of the Week – Non-Farm Payrolls (USD, GMT 12:30) – An 380k March nonfarm payroll increase is forecasted, after gains of 678k in February, 481k in January, and 588k in December. Payroll growth should slow gradually through 2022 with reduced growth in the economy. We expect the jobless rate to dip to 3.7% from 3.8% in February. Hours-worked are assumed to rise 0.3% after the 0.8% February increase. Average hourly earnings are assumed to rise 0.5%, after a flat figure in February. In the last expansion, we saw a 3.5% peak for y/y wage gains, in both February and July of 2019, before the pandemic-boost to an 8.0% peak in April of 2020, and the ensuing strength in wage gains that has allowed continued robust y/y increases into 2022.
- ISM Manufacturing PMI (USD, GMT 14:00) – The ISM index is expected to fall to 57.8 from 58.6 in February, compared to an 18-year high of 63.7 in March, an 11-year low of 41.6 in April of 2020, and an all-time low of 30.3 in June of 1980.
Click here to access our Economic Calendar
Andria Pichidi
Market Analyst
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
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Thursday, March 24, 2022
Light Crude Oil Futures (CL!), H1 Potential for Bounce!
Type: Bullish BounceKey Levels:Resistance: 119.7Pivot: 113.23Support: 109.09Preferred Case:Prices are on bullish momentum and abiding by an ascending trendline. We see the potential for a further bullish continuation from our Pivot at 113.23 in line graphical overlap towards our 1st resistance at 119.70 in line with 100% Fibonacci Projection. Our bullish bias is further supported by RSI being on bullish momentum.Alternative Scenario:If prices were to dip, they can potentially reach our 1st support at 109.09 in line with 78.6% Fibonacci projection.Fundamentals: With inflation still being an issue in the west and stalemate circumstances in the Russo-Ukraine crisis, we might still expect bullish upside on the commodity.
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Investment Bank Outlook 24-03-2022
Credit AgricoleAsia overnightHigher oil prices on the back of Russia’s demand that “unfriendly countries” pay for its energy exports in RUB dented sentiment in Asia. Further hawkish talk from FOMC officials also bruised sentiment. At the time of writing, most Asian bourses were trading lower, but S&P500 futures were in the green. In G10 FX, the Antipodean currencies were the underperformers, while the JPY, USD and NOK were the outperformers, the latter being supported by higher oil prices.The biggest risk of all In the immediate aftermath of the Russian invasion into Ukraine on 24 February, a gap opened between market measures of risk appetite like (inverse of) our FX risk index and global PMIs – that remained quite buoyant despite the triple threat emanating from geopolitical, stagflation and monetary tightening risks. Since then, the gap has started closing mainly because of the recovery in risk assets we have seen in recent days. The latter seems driven by expectations that the global economy could weather the geopolitical/stagflation storm at a time when the Fed is aggressively tightening policy.Moreover, the rates markets seem to doubt that the Fed will ultimately fail to lift rates into restrictive territory and thus run the US and global economy into the ground as it struggles to contain inflation. Against this backdrop, today, FX investors will focus on global PMIs looking for any evidence that geopolitical risks, soaring energy prices and the tightening global financial conditions have dealt a blow to business confidence. Such risks are quite elevated in the case of the Eurozone PMIs (we also have the German ifo tomorrow), given the vulnerability of the economy to both the Ukraine war and high energy prices. In comparison, we see less pronounced risks to today’s UK and especially the US PMIs. We therefore continue to believe that, despite its recent recovery, the EUR should remain a sell on rallies around current levels. Moreover, to the extent that weaker-than-expected PMI data today further upends the nascent risk rally, the USD could re-emerge as the high-yielding safe-haven king of G10 FX.NOK: can it get an extra lift from a more hawkish Norges Bank? In contrast to the SNB, the Norges Bank is set to deliver its well-telegraphed 25bp rate hike today, which would be its third of the cycle. Besides what looks like a done deal, attention should instead focus on whether the central bank is to raise tightening prospects, as it could be somewhat of a balancing act for new interim Governor Ida Wolden Bache. On the one hand, Norway’s frothier terms of trade and increasing evidence of stronger inflationary pressures across an economy already operating at full capacity back extra tightening. On the other hand, heightened geopolitical risks in Eastern Europe could call for caution.Ultimately, the latter could hold the Norges Bank back from accelerating its rate hike pace from a 25bp rise every quarter just yet, while the eventual removal of an explicitly[1]timed near-term forward guidance would leave the door open to faster tightening. In the meantime, Norway’s stronger macro fundamentals and the Fed’s plan for an aggressive cycle could pave the way for more tightening from the Norges Bank further down the line, which could lift the terminal rate from the 1.75% planned in the December MPR and also supported by Stats Norway in its March forecasts. All in all, with a lot of good news already priced into the NOK as EUR/NOK has just fallen to three-year lows sub-9.60, the NOK may not get an additional near-term fillip, while a more hawkish Norges Bank could still cement longer-term gains.
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Silver Futures (SI1!), H4 Potential for Dip!
Type: Bearish DipKey Levels:Resistance: 25.585Pivot: 25.345Support: 24.860Preferred Case:Prices are consolidating in triangular pattern. We see the potential for a dip from our Pivot at 25.345 in line with 100% Fibonacci Projection towards our 1st support at 24.860 in line with 78.6% Fibonacci retracement. Our bearish bias is support by prices trading under the Ichimoku cloud resistance.Alternative Scenario:If prices were to climb, they can potentially reach our 1st resistance at 25.585 in line with 100% Fibonacci projection.Fundamentals: With inflation still being an issue in the west and stalemate circumstances in the Russo-Ukraine crisis, we might still expect bullish upside on the commodity.
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