Base Metals Mania, China’s Role, and what about gold?
Somebody let Gold know that metals are hot please.
At least silver has gotten the message.
Base metals are on a tear, and while we’ve No doubt it will end badly for the public who will buy the top in China, we wonder if that makes Gold a Buy or not?
China claims its economy has shifted to a period where high quality is sought, moving away from its fast-growth era, Xi said during his opening remarks at the twice-a-decade National Congress of the Communist Party of China in Beijing. China will continue with its plan to deleverage and cut capacity, Xi said.
What does that mean? Cooper is copper. Silver is silver (although we’ve been delivered “heavy” silver, the quality difference is negligible) That is what commodity means; a uniform contract.
So is here some better alumina we don’t know about? Because there sure is a lot of buying in it, Nickel, Copper etc.
To us “better” means Gold and Silver.
But let’s step back and remember: politicians lie. Kyle Bass has a good feel for the Chinese congress rhetoric vs the reality of things.
Last week Kyle Bass, who called the US subprime debacle in 2008 and made billions for his clients is now bearish on the yuan. His reason is focused on President Xi:
Bass, who has called for a 30 percent drop in the Chinese currency, said in an interview earlier this month that he expects the government to relax its grasp on the exchange rate after the National Party Congress. He said he believed once Xi consolidates power, he’ll allow natural economic forces to play out within the banking system.
And this is consistent with how things are unfolding in metals now. Xi jawboned how there would be a pullback in “reckless” commodity buying as they opted instead for “quality”.
President Xi opened China’s twice a decade political congress stating that less would be more in terms of metals and other commodity purchases. He basically said they would be buying quality instead of quantity from here on in. What that means we have no idea, but at the time metals reacted in a muted fashion.
But now that the congress is over, base metals have been on a tear. Our conclusion and that of people like Kyle Bass is that these infrequent Congresses are political show. And when they are over it’s back to doing whatever they really want.
Bass pins the blame for China’s banking policies and capital controls squarely on Xi. :
“Today Xi is celebrated in media reports, but when future historians look back, he will be blamed for recklessly building the Chinese economy on a foundation of sand,” Bass, founder of Hayman Capital Management, said in an email Wednesday. “Xi desperately seeks credibility, but true developed economies do not impose severe capital controls or move short-term rates hundreds of basis points overnight in attempts to manipulate their own currency.”
So the question is, does gold now follow silver when it comes to Chinese influence?
Conclusion: Xi is spending money hand over fiat for dedollarizing purposes, getting out of his own currency before he drops it lower again, or some reason only people like Kyle Bass understand. Just be careful buying Gold because cooper is up. And remember the gold/ silver ratio may be due to selloff as well.
Trump's Fed pick looms, Bank of England hike expected, and a veritable metals mania. Here are some of the things people in markets are talking about.
Commodities Comeback
A marginal retreat in West Texas Intermediate futures belied the positive news for crude on Wednesday: one of the most concrete signs that the effort to rebalance the oil market has borne fruit. The six-month spread for WTI futures is now in backwardation, a move which should deter shale producers from locking in production for 2018 via futures contracts, as these longer-dated contracts are now also lower-priced. Metals remain on a tear, with nickel up more than 9 percent in the past two sessions. Whether these raw materials can maintain such lofty gains in the face of a moderation in Chinese manufacturing growth — historically a leading indicator for the space – is an open question.
The Real Fed Decision
The Federal Reserve upgraded its assessment of U.S. growth in its Wednesday decision and left rates unchanged at 1 to 1.25 percent, keeping the central bank on track for a December hike. Economic activity was described as "solid" for the first time since January 2015 — a meeting at which the two most recent GDP figures policy makers had seen showed growth of 4.6 and 5.2 percent. But the real Fed decision comes on Thursday, when U.S. President Donald Trump will announce his pick to lead the central bank. Trump said Chair Janet Yellen is "excellent," but that doesn't look like enough to get him to reappoint her. The president plans to nominate current Governor Jerome Powell as her replacement, three people familiar with the decision have told Bloomberg News.
Unreliable Boyfriend?
The Bank of England is widely expected to deliver its first rate hike in a decade Thursday despite the overhang of Brexit uncertainty. The pound's plunge has fueled a pick-up in inflation, while the the nation's longer-term growth outlook has dimmed. If Governor Mark Carney doesn't follow through with an increase, it'll affirm his reputation as an "unreliable boyfriend," a moniker bestowed upon him by a U.K. lawmaker. The British Chamber of Commerce has urged the central bank to hold off on a hike for now, joining a chorus of commentators who fear monetary tightening would constitute a policy mistake. At the Bank's last meeting, two monetary policy makers dissented in favor of higher rates.
Tax Rollout Delayed
The Russell 2000 Index slumped on Wednesday as Congressional Republicans delayed the release of their tax overhaul plan, while the S&P 500 Index and Dow Jones Industrial Average moved higher. House Budget Chairman Diane Black said the rollout will come on Thursday. A pair of high-profile tech companies reported earnings after the close of trading. Tesla Inc. was forced to push back production targets for its Model 3 sedan amid record quarterly cash burn, sending shares as much as 5 percent lower in the after-hours session. Facebook Inc., for its part, soared to fresh all-time highs after posting a big top-line beat. More major reports are on the way, with Apple Inc. and Alibaba Group Holding Ltd.’sresults due out on Thursday.
Futures Up
Nikkei 225 and S&P/ASX 200 futures are trading to the upside ahead of the open after both benchmark gauges rose on Wednesday. Over in China, policy makers have managed to quell recent market angst linked to soaring domestic bond yields with a series of injections to boost liquidity. A fairly light day for economic data in the region awaits, with Australia's trade surplus forecast to swell to A$1.2 billion in September while building approval contracts by 1 percent on a monthly basis. We'll also get the weekly update on Japanese international securities transactions.
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