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Developed economies

Brexit: The leaders of the EU’s 27-member states unanimously rejected the UK’s chequer’s plan for leaving the European Union. The plan involves the UK collecting customs duties on the EU’s behalf to keep the border between Northern Ireland and the Republic of Ireland (part of the EU) open. The EU proposal is for Northern Ireland to remain in the EU’s custom union via a sea border between Northern Ireland and the rest of the UK, which the UK has rejected. The negotiations are now at an impasse. EUR against USD rose throughout the week whilst GBP against USD fell on Friday but has rebounded today. EUR to USD is trading at 1.177 and GBP to USD is trading at 1.313.

China has ended trade talks with the US, has accused the US of bullying, and said they will not resume talks until Trump stops threats. This comes as a raft of new tariffs between the two countries have been imposed. The Chinese-US trade war continues to escalate as $200bn of new tariffs come into effect on Chinese trade with the US and $60bn of new tariffs come into effect on US exports to China. One area targeted by Chinese tariffs is US LNG exports, which is becoming an increasingly import commodity export category for America.

Emerging markets

The Nigerian economy continues to struggle despite higher oil prices. The latest GDP growth figures (Q2 annualized) was 1.5% down from 1.95% in Q1 and 2.11% in Q4 2017. The country has emerged from its 2016 recession with sluggish growth and the 5% to 6% growth rates in the early 2010s seem like a distant memory. At the end of 2017 unemployment sat at 18.8% and the value of Nigeria imports, a reflection of internal economic growth, fell 15% in Q2, 4.3% in Q1 and 9.8% in Q4 2017. Inflation has moderated this year though and is running at 11% in Q3 2018 the lowest its been since early 2016. 

South Africa has entered a technical recession with two quarters of negative economic growth. Q1 GDP growth was -2.6% and Q2 GDP growth was -0.7%.  The country’s unemployment is now once again above 27%. Meanwhile South African business confidence has been continuously negative since Q3 2015 driven partly by political developments in the country and partly by weak commodity prices. At the same time the whole emerging market asset class has been battered this year by fleeing investors. Cyril Ramaphosa has announced a $3.5bn infrastructure stimulus package to boost the economy, and reforms to the country’s telecoms and mining industries.


China’s imports of agricultural commodities dropped in August, the month after the country imposed tariffs on US agricultural commodity imports. China’s corn, barley and sugar imports were down 13.5%, 29.1% and 24.4% respectively, and lower in August vs August 2017. China doesn’t necessarily need to purchase these commodities from the US and in the long term its import needs will likely be fed by other major agricultural producing nations, but in the short them existing trading networks are difficult to adjust. Chinese buyers need time to develop connections with non-US exporters. 

Pacific Ethanol, a US ethanol refiner, saw its shares jump 30% after the US Environmental Protection Agency took steps to increase the transparency on how it grants renewable fuel standard waivers to oil refineries. The EPA has launched a new website which discloses exemptions to the rule that forces refineries to produce gasoline that is at a minimum 10% ethanol. The EPA has been increasing it’s the number of waivers it provides over the past two years and this has been hitting Pacific Ethanol’s revenue growth. The market view is that more transparency in these exemptions will lead to less exemptions being granted in the future.

Scientists from the UK and Australia have isolated the wheat gene which provides resistance to the economically damaging stripe rust disease that affects wheat grown in cooler, northern climates. Wheat farmers have traditionally used breeding programmes to develop strains resistant to the disease and isolation of the specific genes that allow for resistance could lead to genetically engineered wheat varieties to protect against the disease.


Total has made a significant natural gas discovery off the Shetland Islands. Preliminary drilling gives an estimate of 1 trillion Tcf. Total holds a 60% stake in Glendronach prospect (where the discovery was made) with SSE and Ineos both holding 20% stakes. In Total’s announcement of the discovery the company said the deposit could be developed ‘at a low cost’ but did not say what price point would make drilling economical. Front month UK Gas is trading at 78.23p/therm at present.

Crude oil futures hit a two year high today as Trafigura predicted $100/bbl prices in 2019 and OPEC pushed back against Donald Trump’s requests that they open the spigots. Brent pushed above $80/bbl, WTI pushed above $72/bbl and Shanghai Crude pushed above ¥520/bbl. Brent is 44% higher YoY and WTI is 38% higher. Donald Trump said last week that on Twitter that OPEC “must get oil prices down” to which the Saudi energy minister responded with “I do not influence prices” and that he did not see any refineries being unable to buy crude. Iran, OPEC’s third largest oil producer, accused Donald Trump of orchestrating the rally in oil prices via Iranian sanctions. The US is planning to target Iran’s oil exporters from the start of November.

German car makers BMW, Daimler and Volkswagen are facing an inquiry from the European Union over allegations they collaborated to restrict diesel emission treatment systems. Meanwhile, Porsche has announced it will stop making diesel cars after the recent emissions scandal hit its parent company VW. This is not difficult for Porsche to do as it focuses on sporty car makes that tend to use petrol engines.


South African platinum miners are not reducing production to match decade low platinum prices. An estimated half of the country’s platinum miners are unprofitable. The estimated platinum surplus this year will be 316,000 ounces, the largest since 2011. The reticence of South African platinum miners to reduce output can be partly explained by difficult labour relations on the mine sites where redundancies could cause unrest. Spot platinum is trading at $828/troy oz and has recovered August lows.

Canadian miner Barrick Gold will buy Randgold Resources for $18.3bn. The new company will be called Barrick and listed in New York and Toronto. It will own five of the world’s ten lowest gold mines. Randgold’s operations are mainly in Mali and Barrick is the largest gold miner globally, with some copper operations. Typically times of weak commodity prices see greater levels of merger’s and acquisitions as cash rich companies buy out ones struggling with low prices. Spot gold prices are trading just below $1,200 troy oz and are just under $700/troy oz below their 2011 peak.

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