All posts by suzieneu

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Brexit has been a gem for FTSE miners

Mike van Dulken, head of research at Accendo Markets, tells Hot Commodity why miners have struck gold from our decision to leave the EU…

FTSE miners are in a funny place right now. On the one hand, their share prices are supported by being among the major beneficiaries of a Brexit-inspired weak pound, getting a helping hand from a favourable translational gain on foreign profits. Which is all of the them, given that their London listings have everything to do with being quoted in the right financial centre and nothing to do with extracting minerals from within Blighty’s shores. On the flip side, a weak pound and a rising probability that the US Federal Reserve delivers another rate rise in December is keeping the US dollar strong, hampering the prices of their main products – commodities such as industrial metals – which would normally be a hindrance.

Except that oil is doing just fine, trading around 12-month highs on hopes that a production freeze/cut to put an end to a global supply glut is in the making. And oil often leads the commodities space, a signal of optimism about global economic growth and demand. Whether said hopes prove correct or not is by-the-by. What’s important is that markets are giving Opec the benefit of the doubt while its members meet for more informal discussions on the sidelines of the World Energy Congress in Istanbul. This is only two weeks since what was deemed a ‘positive meeting’ at the IEA forum in Algiers, where Opec mouthpiece Saudi Arabia importantly softened its stance ahead of the official November Opec meeting in Vienna. Will the world’s most famous cartel actually deliver?

Mining sector share price gains are also in spite of the sector’s strong links to global growth, a topic on which markets remain very uncertain to say the least. As we move into third-quarter earnings season, stateside Aluminium giant Alcoa has already disappointed and the IMF has cut growth forecasts for several developed nations, worried about the rise of populist anti-globalisation rhetoric. However, with miners still very much exposed to emerging markets (doing much of their digging there) and growth forecasts for these regions having increased, this is providing yet another helpful tailwind for rampaging share price recoveries from extremely depressed multi-year lows around the turn of the year.

So it’s a win-win situation for the miners from a currency, oil and geographic standpoint. The sector is proving to be a nice investment, sheltered from the Brexit turmoil along with many of those internationally focused US dollar-sensitive high-yielding defensives that everyone has run to amid the global hunt for yield. The latter has been engineered by years of extreme central bank stimulus deigned to keep borrowing costs low but which has taken many yields to near zero, if not negative. When this does finally unravel further down the line, could the mining sector once again prove a very unlikely and unintentional port in a storm?

Look at the FTSE’s best performers in the year to date. The miners make up the top five, up anywhere between a respectable 19 per cent and a whopping 244 per cent. Can a very favourable market set-up keep these trends alive? Will more hard Brexit talk send the pound lower? Will FOMC minutes and Fed chat send the US dollar even higher and the pound lower, maintaining that handy translational benefit? Could the US dollar pull back, giving commodity prices and emerging markets currencies a welcome boost? Will positive Opec talk keep oil on track for a $55/barrel price not seen for 15-months? Will fiscal stimulus and infrastructure spending, taking over from central banks, increase demand for raw materials?

Is everything just rosy for the FTSE’s miners, whatever the outcome?

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

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No cheers from Algiers: oil price set for more volatility

Mike van Dulken, head of research at Accendo Markets, tells Hot Commodity why Algiers was fruitless and what we can expect next from the oil market…

It seems, as expected, nothing will come from an over-hyped Opec-led oil production freeze meeting in Algiers. Except for providing lots of quotes to fill the airwaves and fuelling oil price volatility, that most would have happily forgone.

I’m not sure how markets developed any optimism whatsoever that an agreement would be made, given the poor track record at meetings so far this year. We now likely have to wait for the official Opec meeting in Vienna at the end of November for something more concrete in terms of concerted efforts to stabilise the global oil market, buoying prices in the face of a global supply glut. However, having everybody (Opec and Russia) in the same room and on the same page is a good start. As is some welcome, even surprise flexibility from the Saudis.

The build-up to today’s finale has been as fun as ever, with plenty of inflammatory and contradictory comment almost making a mockery of the event and the major parties involved. Deals and solutions were allegedly plentiful only to result in little. Iran is the linchpin – stubborn as ever. But rightfully so, in our view, preferring to ramp up production from 3.6m/bpd to its goal of 4m. A distinct lack of urgency on its part to find compromise with struggling Opec peers suggests it is nowhere near as desperate to help stabilise prices. It clearly sees more upside in selling 10 per cent additional production at $46-50/barrel than selling its current output at $50+. How so? After years of sanctions, being able to sell any oil at all is a bonus. And if peers do capitulate and cut production, it will only help Iran in its quest to retake market share. Where’s its incentive to play ball before it gets back to pumping at full pelt? Let the others move first.

This makes sense, with Iran’s public finances far less exposed to the oil industry than Opec mouthpiece Saudi Arabia. The latter was, to nobody’s surprise, the most frustratingly but unproductively vocal this week. It helped the oil price rally with talk of a deal offered to Iran (“if you freeze, we’ll cut”) only for the gains to be swiftly eroded by Iran’s flat refusal. This suggests, even confirms, that the Saudis are in a much more perilous position financially, needing a production freeze/cut deal soon. It’s no surprise, with a skyrocketing budget deficit of $100bn, that it’s mulling a Saudi Aramco IPO and selling government debt to ease the burden of lower oil prices on public spending plans inked when oil was closer to $100/barrel. It is set to meet Russia again next month; prepare for plenty more market-moving rhetoric.

This week’s meeting may not have delivered that much, but will hopefully prove a stepping stone on the way to more stable oil prices. The stream of disagreement between all parties involve, however, remains a wide one to cross. What’s the chance that November’s Opec meeting is yet another damp squib, forcing us to look to 2017 and contemplate déjà vu all over again?

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

Oil price: don’t expect much from Algiers

Mike van Dulken, head of research at Accendo Markets, tells Hot Commodity why the oil majors’ meeting in Algiers is unlikely to bring resolution to the production impasse…

The price of a barrel of brent crude oil sits at the mid-point of a tight $45.5-$50/barrel September range, one which has already closed in from a wider $42-$53 from April through to mid-August. Investors are pausing for thought, price activity narrowing as they await the outcome of an informal Opec-led meeting on the sidelines of the International Energy Forum in Algiers, Algeria on 26-28 September. It is here that we hope to finally hear some real progress regarding an agreement between major oil-producing nations to curb excessive output, stabilise the market and solve the global supply glut. This would likely help the oil price rally quite significantly.

We have been here before though, if you cast your mind back to April in Doha. The risk is we simply end up with yet another unanimous agreement that a freeze is necessary but which nobody is willing to implement, because they don’t trust fellow attendees to honour the promise and/or because they can’t afford to cap production themselves. With oil prices down at $45 versus the $100+ they traded at when times were good, most oil-reliant nations are hurting badly – Opec mouthpiece Saudi Arabia included. The latter has resorted to selling bonds and is prepping for a future IPO of state oil company Saudi Aramco. A painful adjustment is becoming increasingly necessary within the group to rebalance previously oil-funded public finances with much lower oil receipts.

Conflicting comments from oil ministers as the meeting approaches does little to inspire confidence. The Saudis, Iranians and Russians are keeping us entertained. Buy the build-up, sell the meeting has proved the correct strategy so far this year.

While a failed meeting risks sending oil prices lower, a host of drivers are, nonetheless, keeping prices from falling markedly: the buck-denominated commodity is buoyed by expectations of a delay to US Fed rate rises, something we don’t see happening until March next year at the earliest; the energy commodity remains in recovery mode with technicals still showing supportive rising lows around $45 since the very depressed 12/13 year lows (<$28) in January; global growth has not collapsed, even if remains sluggish to say the very least; there is no sign yet of a Chinese hard landing (big oil consumer). Also, monetary stimulus/accommodating policy remains in abundance from all the major central banks; geopolitical instability in the Middle East remains ever-present; and US oil inventories continue to oscillate around breakeven, never straying too far (last week’s aberration drawdown was due to a storm). As with the Fed and its rate rises, I struggle to see how we can get a unanimous agreement to freeze production or respect caveats this month, which means prices are highly likely to correct. But I also expect the build-up to generate much excitement and a price rally beforehand, meaning the ensuing correction merely retraces the up-move and doesn’t do too much damage. After all it’s in every participants' interest to talk up the price, but in nobody’s interest to see it break the 2016 recovery uptrend. Expect lots of chat and media comment for something that will likely amount to nothing more than another round of tea and biscuits and agreeing to disagree by the great and good (and bad) of the oil world. This commentary was produced exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

Soon your car will be cooking your dinner

Can you imagine using your car to power your kitchen appliances? Steve Abbott, business development manager at clean tech company Hyperdrive Innovation, envisages a greener future where consumers will harness energy from electric vehicles to power their homes…

The colder autumn weather will soon see us swapping BBQs outdoors for nights in watching boxsets, and it won’t be long before we’re all cranking up the heating. Naturally, household energy usage will begin to creep up and so will demand on the grid. But with our reliance on energy bound to increase over the next few months, how can we ensure we keep lights on, bills affordable and carbon emissions down?

With climate change continuing to be a pressing issue, the need to become more energy efficient and reduce reliance on fossil fuels has never been more important. You only have to look at the growth in electric vehicles to see a global shift towards creating a greener future. In the UK, the need to develop a smart grid for ensuring a resilient, clean and lower cost energy network is particularly prevalent. Tech companies are seeing the issues around balancing power supply and demand as an opportunity to develop smart energy solutions to build fewer new conventional power plants in the UK.

Thanks to advances in technology, energy storage at a domestic level is one concept that is fast becoming a more widespread possibility. Already we have seen the hype around Tesla’s Powerwall, the battery which allows homeowners to harness energy from renewable sources and make it available for household use. However, given its hefty price tag, alongside switchgear (electrical equipment) and installation costs, a Tesla Powerwall isn’t yet a viable solution for every homeowner.

Smaller British tech companies are working to make energy generation and storage a more affordable possibility for homeowners. In the future, consumers could generate solar and wind energy at home, store it and sell it back to the grid at times of peak demand using lithium-ion batteries. This would not only provide added flexibility for network operators but also create an additional revenue stream for homeowners, therefore reducing payback of renewables systems and providing an incentive for more homeowners to invest in distributed energy generation and storage.

Electric vehicles could take this concept even further. The batteries in EVs could be used to store energy and pump it back into the system at peak times when consumers need power most. They could be charged over night when there is excess capacity available and be ready to discharge power to the grid by the morning. This means that when everyone switches on the oven at dinner time, energy stored in the batteries could smooth out those peaks in demand and allow the network to run more efficiently.

The potential for harnessing energy from renewable sources is very significant. With access to energy storage technology, consumers can not only generate improved returns on their solar and wind installations but help to develop a cleaner, lower cost energy network. With question marks still hanging over investment in new nuclear power, and fossil-fuel fired generation out of favour, consumers adopting the latest energy storage technology could really make a difference as we look towards a greener future.

This commentary was provided exclusively for Hot Commodity by Hyperdrive Innovation.

The Labour and G4S debacle is a stark reminder of both organisations’ troubles

Its leadership has been heavily criticised and its performance has been staggeringly dreadful in recent years. Am I talking about the Labour Party or G4S? It doesn’t matter. The description fits both the opposition party and the security firm.

This week’s latest saga, revolving around the Labour Party’s decision to terminate its contract with G4S over the security firm’s ties with Israel – followed by a last-minute U-turn – is a stark reminder of the troubles within both organisations.

This situation is the latest embarrassing gaffe for Labour, who may need to cancel its conference now – unsurprisingly no other security firms are lining up to take on the contract at such short notice.

Boycotting firms over their links with Israel is a tiresome story. How often do you hear organisations say that they are boycotting firms over their links to countries with a host of civil rights violations, such as China or Brunei? Or that they won’t work with the UK government because of its deals with Saudi Arabia? It’s hypocritical and borderline racist. Which, in my opinion, is a fairly accurate way to sum up the Labour party at the moment.

On to G4S. I’d practically forgotten that G4S is still in the country’s beauty parade of top outsourcing firms, in line to get the most lucrative jobs – both private and public sector. I’d say it’s pretty shocking that after a string of scandals (prisoner tagging, Olympics shambles etc) it was even in the running to keep such a high-profile contract as the Labour one. I think the problem lies with public sector outsourcing; a prolific array of barriers to entry for smaller firms (such as only getting paid every quarter, which is unviable for firms relying on monthly payment) mean that the tender process is uncompetitive and the contracts will go to the same tired old names (Serco anyone?).

I think this has a knock-on effect to private sector work, as the biggest firms, getting ever bigger from the plum public sector contracts, are in a stronger position, while the smaller firms aren’t getting the work they need to thrive and grow. I think government reform would help return the sector to some level of respectability.

US rates: Is Yellen set to spoil the party for commodities?

This week, Mike van Dulken from Accendo Markets looks into his crystal ball ahead of Janet Yellen’s speech on Friday…

All eyes (and ears) will be on her majesty the US Fed chair Janet Yellen this Friday, when she delivers what could be major market-moving speech at the Kansas City Fed Economic policy symposium in Jackson Hole, Wyoming. It is hoped that her talk will include hints (both clear and, of course, cryptic) about the path for US monetary policy. This is because the US Federal Reserve is the only major central bank fortunate enough to be in the position of being able to tighten policy post-crisis. And the reach and influence of the world’s reserve currency (the US Dollar) is far and wide as commodity traders well know.

Fed members have sounded hawkish of late, suggesting a rate hike might indeed be warranted sooner than markets are pricing in, but the US dollar remains well off its summer highs. In fact, it’s not far from its summer lows with a rising trend of support going back four months. We believe this provides Yellen with the breathing space she needs to take a rather hawkish tone, without it resulting in so much US dollar strength that it actually prevents her and her committee from voting for another hike in September.

We still see September as highly unlikely. Even December to us is off the cards when you take into account political event risk on both sides of the Atlantic (Trump stateside; Spain and Italy in Europe). Yes, there are US data points suggesting a US rate hike could be due, but surely not while other central banks are doing the polar opposite. The European Central Bank is widely expected to add to stimulus on 8 September while the Bank of England updates us on 15 Sept and the Bank of Japan could move again towards the end of next month.

Don’t forget that every step the latter group takes to ease policy further, which serves to weaken their own currencies, has the offsetting effect of strengthening the US dollar. A US rate hike, or a strong hint of one being imminent, therefore represents a risk for Yellen. It will potentially send the US dollar much higher than the Fed might be comfortable with, thus becoming a hindrance for exporters. Even if it gives consumers more bang for their buck in terms of imports.

The Fed has been at pains to hammer home a message of a ‘slow and gradual’ pace of future hikes, aiming to keep the US dollar index from returning to flirt with the 100 mark it traded around at the beginning of December and end of January. Would it risk sending it back there? Yellen is still having to tread the fine line between countering market complacency about low rates forever while simultaneously prepping traders for another eventual US hike. Not an easy job.

Economic barometer copper is already back testing July lows. We wonder whether a hawkish tone this Friday could serve to deliver a real dent to the commodity space, with a negative knock-on for the FTSE’s mining contingent. We already see the red-metal and others (aluminium, oil) putting raw material-focused names on the back foot this morning as a result of last night’s US dollar rebound. Could these trends become rather unwelcome friends?

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

The Bank of England’s QE hurdle shows the economy needs more than stimulus

This week, Augustin Eden from Accendo Markets tells Hot Commodity why the Bank of England’s QE troubles show the UK economy needs more than stimulus to boost consumer confidence…

Some awkward moments for the Bank of England over the last couple of days have again hit confidence in the ability of central banks to sort out economies when things turn sour. The UK’s central bank was unable to buy all the gilts (UK government bonds) it wanted when pension funds decided they didn’t want to sell – and why would they? Pension funds are the most risk averse of investors, required to have a virtually guaranteed stream of income to use to pay peoples’ pensions as and when the time comes.

Interest rates on government debt are now being driven towards zero – some shorter dated gilt yields have even dipped negative in the last two days. What will the pension funds do with the cash anyway? They’ll probably try to buy more bonds or even invest in defensive equities, but equities are riskier. Trying to encourage pension funds to take more risk is a dangerous move and, importantly, is something you can’t cloak in the smoke and mirrors of technical jargon. Listen to a central bank press conference and there’s little to be gleaned by those who aren’t versed in economics or market speak, but anyone can work out what it means for pension funds to take more risks – it means their pensions are at risk.

Likewise, everyone can understand what it means when pension funds can’t find the guaranteed income they need. Again, pensions are at risk. A healthy economy does of course depend on business confidence – if there’s plenty of cash in the system and it’s cheap to borrow, then you may as well spend and invest. But business confidence depends on consumer confidence, and I would argue that the latter is more immediate.

This throws up a major issue. If people are worried about their pensions – the one thing they should be able to rely on – then they’re not confident. If quantitative easing and other economic stimulus measures are not increasing consumer confidence then we have a problem. When you look at somewhere like Japan whose government and central bank have been engaged in stimulus activities for years and whose economy is still merely limping along, it could soon be time to start thinking about simply putting money directly into people’s pockets.

This commentary was produced exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

US driving season is failing to rev up the oil price

This week, Mike van Dulken and Augustin Eden of Accendo Markets tell Hot Commodity why the outlook is rather gloomy for the oil price…

Oil’s making the headlines this week – crude stockpiles may be falling but so too are prices. Far from this being a mere case of the market ‘throwing its toys out of the pram’ when the data is not quite as bullish as it would like, it’s rising Gasoline inventories that’ve got people scared. Which brings to our attention the rather important issue of demand. Until recently the buzzword in the oil space has been ‘supply,’ global oversupply to be precise, and not only has this presented a one-sided picture – that big producers are keeping the taps open trying to freeze out smaller competitors with lower prices – it’s failed to account for how much oil is actually being consumed in the form of fuel. It’s left out the consumer!

The crude price rally to June highs came with expectations that Americans would spend the coming months driving around in their big gas guzzling American cars. This phenomenon is so well known it’s been given a name, ‘US Driving Season’, and it should have been viewed with particular gusto this Spring since crude stockpiles have been consistently falling (drawdowns in 10 of the last 11 weeks). The only problem is that gasoline stocks have been rising. Meaning Americans aren’t driving quite so much this Driving Season!

With the rise in US gasoline stocks offsetting the fall in crude – considered the most important market and thus a global bellwether – not much has actually changed and so we’re back to the situation whereby supply is still exceeding demand. This time, however, it’s made worse by a situation of under-demand – the same thing but with a different emphasis. It’s not just supply that’s the problem now. It’s also demand, or a lack thereof.

Demand for oil is of course not confined to those American drivers, it’s arguably driven harder by refiners who, seeing gasoline prices falling and thus their margins squeezed, will surely simply buy less crude oil to refine. The upshot of that is…. rising crude stockpiles. This all as we move out of Driving Season.

With oil market dynamics somewhat like a proverbial bunch-up on the motorway, it looks as if the 2016 oil price rally is now in need of some fresh ideas.

This commentary was provided exclusively for Hot Commodity by Accendo Markets: https://www.accendomarkets.com.

UK woos South Korea’s tech industry in wake of the Brexit vote

In the wake of the Brexit vote, the UK’s relationship status with the rest of Europe remains in the ‘it’s complicated’ category. So it is no surprise that our government is sweetening our relationships in Asia.

Our new chancellor Philip Hammond is in China today promoting British business, while the Treasury has just announced a new “FinTech bridge” with the Republic of Korea (better known as South Korea – the less scary one).

The South Korea deal includes a regulatory co-operation agreement between the two countries, so that FinTech start-ups can easily operate in both. The idea is that it will encourage South Korean investment into UK businesses and vice-versa. The government says it will promote information sharing about new technologies and help scale up FinTech businesses in both countries.

Hammond said: “The newly established FinTech bridge between the UK and the Republic of Korea is an important step for one of this country’s most exciting industries.

“The government is determined to help the UK FinTech sector to innovate and grow and to ensure that Britain remains the location of choice for FinTech start-ups.”

This can only be a good thing for the UK and its hugely significant FinTech industry, which employs around 60,000 people and last year generated £6.6bn in revenue.

While South Korea may be a relative newcomer to FinTech, it is certainly a veteran in the tech/IT space (Samsung, SK Hynix, LG) so is well-placed to provide innovation for our home-grown tech start-ups.

Conversely, there are areas of UK FinTech that could potentially benefit South Korea – such as our peer-to-peer finance industry, which has lent £5bn since 2010.

“Whilst the level of cross-border international lending to date has been limited, a number of countries have looked to the United Kingdom as an example of how an appropriate regulatory regime can be constructed which facilitates innovation and growth in the alternative finance landscape,” said a spokesperson from the Peer to Peer Finance Association, which represents the UK’s fast-growing peer-to-peer finance industry.

“As developments in the FinTech sector gather pace, more partnerships – such as the FinTech bridge with the Republic of Korea – will enable other countries to follow the path which has made the United Kingdom a global exemplar in peer-to-peer finance.”

With the UK’s status as a financial hub at risk if we fail to secure a decent agreement with the EU on passporting, it makes good sense to improve relations further afield and remind the world about what we have to offer.

Many years ago, Qatar hoped to become the financial hub of the Gulf, competing with the likes of Bahrain and Dubai. Dubai won, in part due to its swiftness in developing a friendly regulatory regime. So what did Qatar do? It created a ‘three-pronged plan’ to offer niche areas of finance that would set it apart from the rest of the Gulf: asset management, reinsurance and captive insurance.

Now I’m not comparing the UK to Qatar, for many reasons – one being that we already have a highly developed financial centre – but it would not hurt to turn a potential disaster into a positive opportunity by using our newfound independence to innovate. And FinTech should certainly be a key part of that.