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Developed economies

  • The Canadian economy posted a net gain of some 54,000 jobs in July. This pushed the unemployment rate down to 5.8% vs 6% in June. However, the bulk of the job growth came from public sector employment gains with 49,600 new jobs added, dwarfing the 5,200 private sector positions added. And part time employment drove July’s growth with an increase of 82,000 part time jobs offsetting a 28,000 decrease in full time positions.
  • In Japan, economic growth rebounded in Q2 posting an annualized growth rate of 1.9% after contracting by an annualized rate of 0.6% in Q1. The Q2 growth mainly came from increases in private sector consumption – i.e. Japanese consumers are splurging more. Japan’s trade dispute with the United States has led Japanese economic leadership to focus on other markets.
  • Within the seemingly perpetual turmoil from the Brexit negotiations the British Pound (GBP) has sunk to a 13-month low against USD as the chance of a no-deal Brexit increases. British and European law makers are on summer holidays so there is scant news for currency markets to go on. A bearish sentimental picture is building up for the currency with some suggesting a further 10% fall by year’s end.

Emerging economies

  • Turkey’s economic crisis has started to impact on other emerging market economies and Europe. A diplomatic row with United States coupled with long running concerns regarding the Turkish government’s economic policies has led to a run on the Turkish Lira (TRY). TRY ended Monday trading around 6.9 to the US Dollar (USD) after touching 7.24 in intraday trading (a record low). The currency had been trading 4.8 to USD at the end of July and 5.0 on Friday. The immediate cause for the run on TRY was due to the US imposing tariffs on the country, but long running political and economic instability created the environment that made TRY more susceptible to sudden sell-offs.
  • Meanwhile, the other major emerging markets were hit by the sell off. The South African Rand touched 15.4 to USD in intraday trading after trading around 13.5 towards the end of July (though it’s since come down to 14.5). The Brazilian Real is trading at 3.9 to USD after ending July at 3.74. The Russian Rouble is trading at 67.8 to USD after ending July at 62 (and after breaching 69 in today’s trading). Whilst the Indian Rupee is trading above 70 to USD after holding around 68.5 for much of July. Lastly the MSCI Emerging Market index fell 1% today with the MSCI Turkey index down 10%. After recovering in 2016 and 2017, emerging market economies have been plagued by debt concerns keeping investors wary, whilst rising US Federal Reserve interest rates have made investment in those economies riskier.
  • Turkey’s woes also led to a smaller sell-off for the Euro (EUR) which hit a 13-month low against the US dollar at $1.1365 USD to EUR. European Banks are heavily exposed to the Turkish economy and the Turkish economy is a major European trading partner. Though Turkey’s tour operators and hoteliers should be ecstatic about today’s drop in TRY.  

Agricultural

  • The European heatwave in July has led to an early grape harvest this year in Germany and France. Vintner’s are harvesting their vines three to four weeks early and yields should be considerably higher than last year. Furthermore, the heatwave should produce a better-quality vintage due to higher sugar content leading to higher alcohol content.
  • The U.K. saw a high-quality strawberry crop this year as a cold spring meant berries took longer to ripen and thus were larger and sweeter than normal. However, warm weather boosted consumption and a shortage of picking labour has meant the market did not see the typical May to June supply glut. Continuing labour shortages will likely mean supply tightness will endure into the autumn.
  • As expected the European cereal crop was badly damaged by the heatwave. EU wheat exports are down 43% for this harvest vs last year. Since July 1 some 1.3m tonnes of soft wheat has been exported vs 2.3m tonnes for the same timeframe in 2017. Paris Milling Wheat September delivery is trading at €205/tonne and the market is in backwardation.

Energy 

  • The prospect of Turkey’s currency and economic crisis triggering a general downturn in emerging economies led to a sell-off in the crude oil markets. Both Brent and WTI are down over $1 on the day essentially erasing all of Friday’s gains. Meanwhile OPEC released a new forecast for 2019 oil demand today predicting a drop-in demand in 2019. The organization stated that the world would need 32.05m barrels per day from its 15 members in 2019. WTI and Brent for August delivery are trading at $65.94/bbl and $71.4/bbl respectively.
  • Strikes on Total’s North Sea drilling platforms have pushed the price of near term UK Gas above 60p/therm for the first time since late May. A 12-hour strike has impacted three rigs. This is the fourth 12 or 24-hour strike in recent weeks to affect North Sea production. Output will be reduced by around 11 MCM/day out of the typical 120 MCM/day of U.K. indigenous gas output. Winter-18 delivery U.K. NBP gas is trading at 67.45p/therm on ICE.
  • German forward power prices reached all-time highs on the back of stronger Carbon prices, higher coal prices and more expensive gas. Calendar 2019 German Baseload reached €45.7/MWh. December delivery European Carbon Credits are just shy of €18/tonne.

Metals

  • Chinese copper scrap imports are scrambling to either divert or resell previously bought US copper scrap cargoes. A new Chinese 25% tariff on US copper scrap will come into force on 25-August. Aluminium scrap imports were hit by 25% tariffs in April. China is a major consumer of developed economy scrap metals and the latest trade war is severely disrupting the scrap trade. Last year the United States sold $6bn of scrap commodities to China. Front month Shanghai copper is trading at ¥49,670/tonne. The tariffs and other recently implemented non-tariff barriers on scrap and recycled material imports into China will undoubtedly reduced supply in China, but the Chinese economy may in-fact now have sufficient internal scrap production to reduce the impact of lower external supply.
  • Last week the United States doubled steel tariffs on Turkey to 50%, while imposing 20% tariffs on aluminium products. This is related to a diplomatic dispute between the two countries over an American pastor detained in Turkey. The United States, Israel and Italy are Turkey’s largest markets for steel products with 13% of the country’s steel exports heading to the United States as of 2016.
  • Workers at Alcoa’s three alumina refineries and two bauxite mine’s in Western Australia have gone on strike indefinitely over new contract negotiations. The refineries represent around 8% of world alumina production and primarily feed into Chinese aluminium smelters. SMM is quoting Australian bauxite at ¥47.37/tonne.
  • Also last week UC Rusal announced it would start shutting down one of its smaller Russian smelters due to US sanctions. The Nadvoitsky Smelter located near Finland was focused on feeding into the US market with a nameplate capacity of 12,000/tpy. LME 3-Month aluminium closed last week at $2,105/tonne.
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