MiFID II rules to start in 5-months as banks scramble to prepare. The biggest shake-up of the MiFID II regime will force banks to charge for research separately from other services. Bloomberg estimates that US and European fund managers will cut $300m from their research budgets. McKinsey estimates $1.2bn of investment in the area will be cut leading to industry wide job losses of boffins and data crunchers. The biggest impact of this change will be felt on the equities and bond markets but free commodity market analysis from banks in the commodity space will also be affected.
A recent YouGov survey found that Briton’s are less likely to think that they have the upper hand in Brexit negotiations than their continental counterparts. 14% of Briton’s surveyed think Britain has the upper hand, while 58% believe the EU does. Compared to 27% and 24% of French and Germans respectively who think Britain has the upper hand. Only 35% of French surveyed think the EU has the upper hand.
NAFTA nations end first round of talks on a new trade deal. Canada, the US and Mexico have finished the first round of talks on a new North American free trade agreement after the Trump administration put pressure on Mexico and Canada to renegotiate the decades old agreement. The three countries put out a positive joint statement afterwards hoping for a quick deal. The challenging part of the negotiations will come later.
Draghi and Yellen head to Jacksonhole. Mario Draghi head of the European Central Bank and Janet Yellen head of the Federal Reserve will address the conference of central bankers and economists. The key topic will be has the time come for an end to ‘cheap money’ through historically low interest rates. Global inflation remains weak but with low interest rates, low inflation we have created “zombie companies” which have been able to survive low productivity through paying back cheap financing costs.
The US construction industry is using more Russian lumber and less Canadian softwood. Trump era import duties in Canadian softwood imports have led to an increase in US imports of Russian lumber with a 42% surge in 2017 vs 2016. However, Russian imports are still relatively minor compared to imports from Germany, Sweden and Canada. The US has imposed up to 30% duties on Canadian lumber this year as the US claims Canada’s lumber industry is unfairly subsidized. Front month lumber futures are trading at $369/mbf in Chicago.
Speculators are increasing downside bets on cocoa and sugar. According to the latest Commodity Futures Trading Commission data on market participant positions market speculators are increasing their net short positions for coffee and sugar futures. Front month Sugar #11 is at 13.51 c/lb today, near multi-month lows with the forward curve in contango. New York Cocoa is at $1900/tonne and has been in a sideways trading range for several months with a forward curve in backwardation.
Better growing weather forecasts help push down Soy and Corn prices in Chicago. Good rainfall and moderate temperatures across the American soybean belt in recent weeks have improved crop ratings. Reuters expects this to boost this years Soybean crop beyond the record high the USDA is predicting. Meanwhile, Corn futures fell last week as fears over dry weather ease. Prices are now down to a 7-week low. Front month Corn and Soy are trading at $3.5/bushel and $9.35/bushel respectively.
The world’s largest rhino rancher will hold a horn-auction in South Africa. John Hume, who ranches more than 1500 Rhinos in northern South Africa, has won a court order against the South African government to release trading permits for his rhino horn stockpiles. He will auction some 500kg of horn this week. South Africa’s constitutional court lifted the ban on rhino horn trade in April and ordered the South African government to issue permits. South Africa loses roughly 1000 Rhinos to poaching each year and according to Bloomberg rhino horn fetches $95,000/kg in Asia.
China’s Minmetals will invest $1.5bn to upgrade its copper, zinc and lead smelting facilities to reduce their environmental impact by eliminating wastewater discharge. China is grappling with unprecedented scales of industrial pollution as breakneck industrial economic growth left the country littered with heavily polluting basic industries. In recent years the Chinese government has been pushing for a greenfiication of the country by shutting down or forcing up-teching of polluting industries from coal to aluminium. Some of this effort is likely to shift production off-shore to other emerging economies. Shanghai front month prices: Copper RMB51,520/tonne, Zinc RMB26,590/tonne Lead RMB19,630/tonne.
Zinc pushed up to its highest price level in a decade last week. The global zinc market is in deficit with Reuters estimating 412,000 tonnes lower supply than demand this year which will rapidly eat into the estimated 1.5m tonnes of stocks. High Chinese steel production (zinc is used to produce galvanized steel) is combining with weakening supply as existing mines are exhausted and limited new mines are opened to replace them. 3-month Zinc was trading at $3120/tonne in London.
The Trump administration is eyeing an estimated $1trn worth of gold, silver, platinum, iron, uranium, zinc, lithium and copper sitting underground in Afghanistan as a way to recoup the $117bn spent on 16 years of reconstruction efforts. There is very little active mining in the country and no major exploration works due to continued warfare and unrest. Indeed, many of the commercially interesting mineral deposits identified by Soviet geologists sit outside of Afghan government control. Some see developing a major mining industry in the country as a pipedream until the country is stable and secure. Others see major mining as possible with private security forces, but moving minerals to ports (likely in Pakistan) securely would be prohibitively expensive.
For the first time in five years Shell loaded Libyan 600,000 barrels of crude oil from a Libyan port according to Bloomberg. Shell has been historically involved in the Libyan oil business and the country is struggling to return to the oil exporting business after years of political turmoil. Neither the Libyan National Oil Corporation or Shell confirmed or denied Bloomberg’s report. Meanwhile Libya’s Saharan oilfield was shut on Saturday because of a pipeline blockade by protestors. Front month Brent was trading at $52.72/bbl at the end of last week.
French oil giant Total buys Maersk Oil for $7.45bn. Maersk Oil gives Total an additional 1bn barrels in proven and probable reserves. Major oil companies have shied away from large scale buy-outs since oil prices collapsed in 2014 and 2015. Total’s purchase of Maersk oil may signify an end to the cost cutting part of the cycle to a more growth orientated phase.
Norwegian natural gas sales this July were a record high for July. Maintenance work in British natural gas fields plus restocking needs led to increased demand for Norwegian gas. Total gas sales were 10.6bn cubic metres in July vs 8.6bcm in June. July sales were 18% above forecasts.
US natural gas traders have started exporting LNG to Europe. The first shipment of LNG went to the Lithuanian port of Klaipeda. The Lithuanian energy minister exports more deliveries will arrive. Russian producer Gazprom has been the dominant player in the Baltic gas markets and this delivery is a direct threat to their dominance. According to the Lithuanian energy ministry the American LNG is cheaper than Russian sourced gas. Russian natural gas supplies to former Soviet countries has long been a bone of political contention in the region. Whilst the LNG shipment may have been cheaper than Russian gas the availability of American LNG gives Lithuania move leverage in price negotiations with Gazprom.
On-going NAFTA renegotiations may be a make or break event for American natural gas producers. Mexico is America’s largest market for natural gas with exports accelerating since 2010 and reaching a record high this year. A disruption in trade agreements may severely disrupt both America’s natural gas industry and Mexico’s natural gas supplies and this may lead to more favourable terms for energy trade in a new NAFTA agreement.
Finland's long-delayed Olkiluoto 3 nuclear reactor is on track to start production in December 2018 as it nears a comprehensive test phase, the plant's project director said on Thursday. The third reactor at Olkiluoto, an island in Eurajoki on Finland's western coast, is running almost a decade behind its original schedule, while its owner and suppliers are locked in a legal battle related to its rising costs.
A large majority of the cities who own Dutch natural gas and electricity company Eneco will likely decide to sell their stakes, leading to a privatisation of the country's largest independent energy company. The 53 municipalities are due to decide in principle on whether to sell their Eneco stakes by Oct. 31. Depending on the result, shareholders and the company will then begin working out how the sale of Eneco, which is valued at around $3.16bn, will proceed.
Germany's electricity benchmark price for delivery next year traded marginally higher as it continued to be underpinned by firmer coal, an important generation input. The German Cal '18 baseload power contract was 5 cents higher at €33.25/MW, having hit a new 32-month high of €33.85 on Thursday, the highest since December 2014.
Wind power group Siemens Gamesa plans to cut 600 staff at a wind blade factory near Aalborg in northern Denmark. Siemens Gamesa to remain cost competitive amid increasing demands from customers to produce locally and bring down costs. 2100 people work at the factory which has traditionally exported blades globally. In July, the company closed its blade factory in Engesvang.