The Upside to Record High Gas Prices
If you’ve filled up lately, you’ve felt the pain. Gas prices continued to hit fresh record highs in the U.S. this week, just ahead of the busy summer travel season.
I’m not surprising anyone when I say that higher fuel costs make an impact on every part of the economy, from commuters to families planning their summer road trip to companies shipping goods.
It’s not all doom and gloom, though. Due to stratospheric oil and gas prices, energy stocks have been the one bright spot in an otherwise dour market this year. Through the end of May, the S&P Oil & Gas Exploration & Production Index gained an incredible 60%, compared to the S&P 500, which fell about 13%.
A number of oil companies, including Shell and Exxon Mobil, reported record profits in the first quarter, and by the end of this year, they’re projected to post record annual profits. According to estimates made by Rystad Energy, publicly traded exploration and production companies are on track to generate an unheard-of $834 billion in free cash flow (FCF) in 2022. That would represent an increase of nearly 70% over last year.
No one hopes for high gas prices, and I sincerely doubt anyone hopes they will persist indefinitely. On the other hand, think of this as an opportunity. Many investors may have missed the rally so far this year, but if Rystad’s estimates are accurate, there could be further gains to take advantage of.
Governments’ Green Energy Initiatives Have Helped Boost Fossil Fuel Profits
So how did fuel costs get this high? We could point to pandemic-era disruptions, some of which are ongoing across the globe. Then there’s the Russia-Ukraine war, which has rattled the geopolitics of the energy market.
These are but short-term disruptions. The biggest contributor to higher energy prices now and going forward are governments’ forced attempts to transition from fossil fuels to renewables before the technology is ready to scale up and meet global demand.
That’s the takeaway from a brand new report by the Fraser Institute, a Vancouver-based think tank. In the paper, titled “Can Canada Avoid Europe’s Energy Crisis?”, the group’s analysts, led by Robert Murphy, make the case that Canada—and, by extension, the U.S.—should view Europe’s soaring energy prices as a cautionary tale against extreme climate policies. Such policies have “contributed to Europe’s energy crisis,” the authors write, adding that “Canadian policymakers should reverse course and avoid the [same] mistakes.”
It’s doubtful a reversal will happen with Justin Trudeau at the helm, of course. Despite being an oil superpower, exporting a record $13.6 billion in oil, natural gas, coal and refined petroleum in March, Canada has among the world’s highest gasoline prices. During the week ended May 30, Canadian drivers had to cough up an average of $6.50 per gallon of gas. That’s above the world average and roughly $1.70 more per gallon than what U.S. drivers paid on average during the same week.
And prices will likely only continue to rise over time. Late last week, all G7 countries agreed to stop funding overseas fossil fuel developments starting sometime later this year. According to the reporting by the Guardian, this agreement could shift some $33 billion every year from fossil fuels to renewable energies.
U.S. Still Number One Oil Producer
Meanwhile, the U.S. remains the world’s number one oil superpower, having surpassed Russia in 2018. That’s despite the fact that production hasn’t yet fullyrecoveredto pre-pandemic levels.
Production is strongest in the Permian Basin, located in West Texas and parts of New Mexico. The oilfield is so prolific, in fact, that Rystad believes 2022 output there alone will surpass output from every oil-producing country except for Russia and Saudi Arabia.
As the Houston Chronicle reports, the Permian underwent explosive growth a decade ago thanks to the shale boom and ingenuity of U.S. producers. Since then, the region has been an economic powerhouse.
Rystad now expects production to reach 5.6 million barrels of crude a day this year and as much as 6.5 million barrels a day next year, which would account for close to half of total U.S. output.
This may be part of the reason why Texas has some of the cheapest gas in the country, even at today’s record high of $4.34 per gallon, according to the American Automobile Association (AAA). No wonder so many companies have relocated to the Lone Star State in recent months.
Curious to know the top five oil-producing countries? Watch our video by clicking here!
- The major market indices finished down this week. The Dow Jones Industrial Average lost 0.94%. The S&P 500 Stock Index fell 1.20%, while the Nasdaq Composite fell 0.98%. The Russell 2000 small capitalization index lost 0.26% this week.
- The Hang Seng Composite gained 1.86% this week; while Taiwan was down 9.14% and the KOSPI fell 10.31%.
- The 10-year Treasury bond yield rose 0.21 basis points to 2.95%.
- The best performing airline stock for the week was Norwegian Air, up 6.9%. According to Bank of America, European airline bookings continued to improve in the week, with growth in intra-Europe and international net sales driven by higher ticket volumes. Intra-Europe net sales increased by eight points to -7% vs. 2019 (vs -15% in prior week) and were up by 3% this week. International net sales improved by three points to -8% vs. 2019 (vs -11% in prior week) and grew by 2% this week. This led to a four-point increase in system-wide net sales to -8% vs. 2019, up 3% this week.
- The worst performing airline stock for the week was Scandinavian Airlines, down 12.6%. Less than half of Qantas departures from both Sydney and Melbourne airports were on time during April – significantly lower than all its major rivals. It comes as new figures released on Friday morning reveal the delays across the board were the worst since records began. One of the most eye-catching figures shows how Qantas’ on-time departures at Sydney Airport slipped to just 48%, compared to Jetstar’s 58%, Rex’s 66% and Virgin’s 63%. In Melbourne, Qantas recorded 47% compared to the same for Jetstar, 71% for Rex and 56% for Virgin.
- According to UBS, Asia continues to lead scheduled capacity reductions with 1% cut from May-September (June was cut 3%) while North America again saw 1% reduced from July-September. China domestic drove the bulk of reductions for May-June while the rest of Asia was driver to the July-September reductions.
- In China, domestic demand was -76.7% year-over-year (versus -84.7% YoY in April 2022) and load factor was 62% (up three points vs. April 2022, but down 23 points vs. May 2019).
- JetBlue and Southwest published investor updates ahead of an industry conference. Like United’s update last week, both companies are raising their June quarter revenue and jet fuel forecasts. On the revenue environment, both carriers highlighted that demand strength has continued to accelerate since March, and both expect a strong summer travel season.
- Pricing has steadily improved and is currently 9.1% vs. 2019 as both domestic and international are above 2019 levels. International volumes have accelerated (-11.6% vs. 2019) and are now like domestic volumes (-10.7% vs. 2019). These solid international volumes likely help legacy carriers relative to domestic carriers.
- Ryanair’s CEO commented that bookings look ‘very strong’ for the summer with load factors expected to reach 94-95% in June-August, almost on par with 2019 levels. The company is seeing average fares for the summer rising, with particularly strong bookings to beach destinations including Portugal, Spain, Italy and Greece.
- Qantas has reduced its domestic capacity expectations in response to higher fuel prices; however, the broader international recovery remains on track. Qantas now expects domestic capacity of 103% of pre-Covid levels in July and August (107% previously), while its international capacity expectations for the remainder of 2H22 and 1Q23 remain unchanged.
- Delta Air Lines plans to trim flights through August to improve operational reliability. DAL’s management recently announced plans to decrease their flight schedule this summer. According to the news release, DAL will reduce service by approximately 100 daily departures from July 1 through August 7th, primarily in markets within the U.S. and Latin America. According to management, this change will improve operation reliability as the demand for travel continues to remain strong.
- The group underperformed in May by -3.7% vs. the S&P 500. For the year, the group is up 3.0% and has materially outperformed the S&P 500, which is down 13.3%. However, the key questions are whether airlines can ramp capacity back to leverage fixed costs and what fall demand looks like as corporate becomes a bigger focus.
- Gaining 7.05%, the best performing country in emerging Europe for the week was Turkey, which rebranded itself as Türkiye. The best performing country in Asia this week was Indonesia, gaining 2.2%.
- The Russian ruble was the best performing currency in emerging Europe this week, gaining 4.1%. The Pakistani rupee was the best performing currency in Asia this week, gaining 1.1%.
- The China Manufacturing PMI rose to 49.6 from 47.4, exceeding consensus by 0.6 points. It is a result of the removal of some Covid restrictions in late May. May’s final Manufacturing PMI for the eurozone was reported at 54.6, above the preliminary reading of 54.4. Strong manufacturing activity in Europe points to economic resilience despite supply concerns and rising prices.
- The worst performing country in emerging Europe for the week was Russia, losing 4.5%. The worst performing country in Asia this week was Pakistan, losing 3.6%.
- The Turkish lira was the worst performing currency in emerging Europe this week, losing 1.8%. The Philippines peso was the worst performing currency in Asia this week, losing 1.3%.
- Home sales continue to decline in China. Preliminary data from the China Real Estate Information Corporation showed the country’s 100 biggest real estate developers saw home sales fall 59% in May on a year-over-year basis, largely matching April’s decline.
- The United States is in talks with Saudi Arabia, one of the world’s major oil producers, on a strategic move to fight the high energy cost worldwide. The Organization of Petroleum Exporting Countries (OPEC) agreed to boost oil output by 50% more than was previously planned in order to compensate for Russian production falling more than 1 million barrels per day (mbpd) since the implementation of Western sanctions. Despite global efforts to lower the price of energy, Brent crude oil closed at $121.25 per barrel this week above Friday’s close at $119.43.
- India’s Manufacturing PMI, which measures the purchasing activity level in the manufacturing sector, was reported at 54.6 in May against 54.7 in April. Factory orders continued to rise in India despite high inflation as cost increases were passed on to clients. International orders are the strongest in more than 11 years, pointing to rising economic activities.
- The European Union’s executive branch on Wednesday approved Poland’s pandemic recovery fund, paving the way for the release of billions of euros in grants and loans. The long-delayed decision, which must be approved by EU member states within four weeks, would give Warsaw access to 23.9 billion euros ($25.4 billion) in grants and 11.5 billion euros ($11.7 billion) in loans.
- The eurozone’s latest set of sanctions on Russia will include a ban of Russian oil imports by the sea, which covers more than two-thirds of oil imports from Russia. The EU estimates that around 90% of Russian oil will be banned by the end of the year, forcing Europe to look for new suppliers of energy.
- The United States and Taiwan are working to deepen their trade ties focusing on ending forced labor and “harmful non-market policies and practices.” U.S. Sen. Tammy Duckworth on Tuesday reiterated America’s support for Taiwan on her second visit in a year to the self-governing island claimed by China. This cooperation between Taiwan and the United States may aggravate China as China sees Taiwan as part of the mainland and warred the United States not enter close ties with the country.
- Ukrainian President Volodymyr Zelenskyy says Russian forces are occupying about 20% of Ukrainian territory as the war approached its 100th day on Friday and fighting continues on several fronts. This week United States announced it will provide Ukraine with more advanced rocket system. Russia attacked Ukraine on February 24 and there are no signs of a quick resolution to a conflict in the region.
Energy & Natural Resources
- The best performing commodity for the week was DCE iron ore futures, up 7.61% on expectations that the removal of most lockdown restrictions in Shanghai will boost infrastructure spending. Gulf Coast pipelines feeding LNG export capacity continued to grow last week, as Enbridge (ENB) announced the advancement of construction on the Venice Extension and Gator Express Meter projects. At completion, the two projects will add 1.5 billion cubic feet per day (bcf/d) of capacity via ENB’s TETCO to Venture Global’s Plaquemines facility, with the Gator Express expected to be in service in 2023 and Venice Extension in 2024.
- Brent crude topped $124 a barrel, hitting the highest level since early March. The latest round of European Union (EU) sanctions would forbid buying oil from Russia delivered by sea but includes a temporary exemption for pipelines, European Council President Charles Michel said.
- According to Evercore ISI, demand destruction historically starts when Brent crosses above $100 per barrel. While still early, the group has not seen any change in consumer behavior in the U.S. Consumer balance sheets remain relatively healthy. In addition, after two years in a pandemic-impacted world, people are ready to hit the road this summer and spend money on experiences.
- year. Fertilizer prices that had hit records are now plunging as buyers reel from sticker shock. The June spot price in Tampa, Florida, for the nitrogen fertilizer ammonia settled at $1,000 per metric ton, a drop of 30% from May’s $1,425 per metric ton, according to Green Markets, a Bloomberg company. Demand destruction is part of the decline. Places like Southeast Asia are seeing buyers unwilling to pay the record high prices that were posted in April and May, said Green Markets analyst Alexis Maxwell. It also reflects the declining cost of ammonia production as European natural gas prices fell in the second quarter, she said. Even with the drop, however, prices are still 87% higher than a year ago, and supply chain issues continue to wreak havoc on global markets.
- According to Morgan Stanley, China’s imports of LNG are on track to post their first major decline this year, as high prices and weak manufacturing due to COVID-19 lockdowns crimp demand for the super-chilled fuel. China became the world’s top LNG buyer last year but surrendered the top spot back to Japan in the first four months of 2022 as imports sank 18% from a year earlier, data shows. Even for shipments arriving in July, industrial consumers are not placing orders, a Chinese trader said.
- Iran has seized two Greek oil tankers in one of the world’s busiest shipping lanes in apparent retaliation for the capture of a Russian-flagged tanker loaded with Iranian oil last month. Iranian forces boarded the Prudent Warrior, a Greek-owned vessel, on Friday afternoon, in the Strait of Hormuz using a helicopter and a pair of speedboats in each case, according to the manager of one of the ships. Last month Athens seized the Russian-flagged Pegas oil tanker — subsequently renamed Lana — for carrying sanctioned Iranian crude. U.S. authorities are reported to have this week taken the Iranian crude from the tanker.
- According to J.P. Morgan, over the next 12-18 months, frac margins will need to rise to incentivize the reactivation/upgrade of idle equipment, which could require significant upgrade capital as the low hanging fruit from fleet reactivations has already been picked. The bank expects the market to tighten even further in 2023 as demand continues to grow, but adding useful capacity remains challenging as pumpers demonstrate capital discipline with fleet upgrade and newbuilds, and supply chain challenges delay any new equipment that is ordered.
- Bloomberg reports that the Democratic Republic of Congo could see 10 new mines come into production that are powering the green-energy transition over the next four years. Currently there are about 500 of the nation’s mining permits in advanced development that could lead to new lithium, cobalt, copper, tin, tantalum and tungsten. The Congo’s mineral endowment of high-grade ore bodies is gaining increased attention as metal prices have risen.
- Exempting Russia from the OPEC+ alliance’s oil-production agreements are being discussed by some members of the Organization of Petroleum Exporting Countries, the Wall Street Journal reports. Such a move would have major ramifications for global oil supply. Russia is one of the world’s top three crude producers, along with Saudi Arabia and the U.S., but it’s struggling to maintain output and exports in the face of increasing sanctions. By removing Russia from the monthly supply quota system, it could give other OPEC+ members, particularly the Saudis and United Arab Emirates, scope to pump more to stem surging oil prices that topped $120 a barrel this week. It also comes as U.S. President Joe Biden mulls a visit to Riyadh to try and repair frayed diplomatic relations.
- A record volume of Russian oil is on board tankers, with unprecedented amounts heading to India and China, as other nations restrict imports because of the war in Ukraine. Between 74 million and 79 million barrels from the OPEC+ producer was in transit and floating storage over the past week, more than double the 27 million barrels just before the February invasion of Ukraine, according to Kpler. Asia overtook Europe as the largest buyer for the first time last month, and that gap is set to widen in May, according to the data and analytics company. Some are forecasting oil to rise with China reopening, but obviously they have stocked up on plenty of cheap Russian oil already.
- The European Union on Monday agreed to ban most Russian oil imports by the end of the year. The embargo exempts pipeline oil from Russia as a concession to Hungary. This move is expected to result in 90% reduction in crude imports from Russia to the EU. It is estimated that close to 66% of Russian crude oil exports to Europe are seaborne. Effectively, EU countries are looking to displace 1.5 million barrels per day (MMb/d) of Russian crude by year-end. European refiners will struggle to replace these Russia seaborne barrels.
- Demand for oil and refined products is falling as the economy starts bracing for a recession, said Ed Morse, Citigroup Inc.’s global head of commodity research. The fair value of Brent futures is in the $70 range even though the international benchmark is trading around $120 a barrel, the well-known oil market bear said Tuesday. Analysts continue to revise their demand expectations on signs of an economic slowdown, Morse said. Citi cut its demand estimate for products to 2.2 million barrels a day, down from 3.6 million barrels at the start of the year.
- Exports of higher-end Swiss watches (above 3,000 francs) rose 12% in April on a year-over-year basis driven by strong buying in the Unites States and Western Europe. Precious metal watches are popular among rich as they present a hedge opportunity against inflation.
- DeLorean Motor announced that its new electric car will arrive in 2024. It will be able to hit 60 miles per hour in 2.9 seconds and have a top of 155 miles per hour, according to the company. The effort is let by Joost de Vries, who joined the company in 2021 and worked as vice president of global services for Tesla.
- Melco International, a Chinese casino and gaming company, was the best performing S&P Global Luxury stock for the week, gaining 9.57%. Resorts and casinos will benefit from China reopening its economy.
- China’s consumer confidence index slumped to 86.7 in April from 113.2 in March, hitting the weakest level since the data was first available in 1991. The drop of 26.5 from March to April is also the sharpest on record.
- Gaming revenue in Macau declined 68% year-over-year due to China’s travel restrictions during the recent record Covid-19 outbreak in mainland China, Macau’s biggest source of visitors. Revenue rose 25% from the previous month but was down 87% from pre-pandemic levels in 2019.
- Sleep Number, the mattresses producer and distributor, was the worst-performing S&P Global Luxury Index stock losing 14.74%. Shares declined on expectations of weak Memorial Day sales in the United States.
- Shanghai, the Chinese commercial hub with 26 million residents, ended its two-month citywide lockdown. Shopping centers and restaurants reopened on Wednesday, with 90% of shops resuming operations. Chinese customers are big buyers of luxury goods, and the end of lockdowns will bring customers back to an in-person shopping experience. Year-to-date, the Shanghai Stock Exchange underperformed along with the S&P Global Luxury Index, and equites could rise sharply supported by stronger sales due to Covid restrictions being lifted.
- Bloomberg reported that Burberry Group Plc, Kering and LVMH Moet Hennessy Louis Vuitton SE are among the companies with improving full-year earnings consensus that are trading at a forward price-earnings (PE) ratio of one standard deviation, lower than their five-year averages. Bloomberg Intelligence analyst Deborah Aitken estimates China’s store closures and restrictions are hampering luxury goods sales by about 40% in that nation and 13% globally. Undervalued stocks should outperform during the period economic reopening.
- On Tuesday, Kering concluded the sales of Sowind Group, the owner of Swiss watchmakers Girard-Perregaux and Ulysse Nardin. The strategy will allow the French luxury goods giant to focus on its fashion houses.
- Swiss watch exports in the 500-franc and below bracket are struggling to return to pre-pandemic levels, even with price discounts, Bloomberg reported. Inflation and the war in Ukraine are denting consumer confidence at the low-price end. Eastern Europe is now less than 1% of Europe’s watch imports and this trend may continue.
- The United States placed Russian president Vladimir Putin’s money manager and a Monaco company that provides luxury yachts to Moscow’s elite on its sanctioned list Thursday. The Treasury said it declared four luxury yachts linked to Putin and on which he had taken numerous trips as “blocked property,” meaning they can be sized, Bloomberg reported.
- Global inflation has been surging amid persistent pandemic disruptions and the war in Ukraine, and it may continue to stay elevated, putting pressure on consumer spending. The U.S. will release its consumer price index (CPI) data next week; Bloomberg Economists are expecting May inflation to be at 8.2%. Inflation is also elevated in Europe and Asia.
Blockchain and Digital Currencies
- Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was SoldierNodes, rising 1,413.88%.
- Fidelity Investments’ cryptocurrency-focused subsidiary is planning to hire more than 100 new technology workers as it works to expand its offering beyond Bitcoin, the Wall Street Journal reports. Fidelity Digital Asset Services wants to add engineers and developers with blockchain expertise in its hiring of 110 tech workers for cryptocurrency services outside of Bitcoin.
- Cryptocurrency custody firm Fireblocks hired Varun Paul, the former head of fintech at the Bank of England, as its first director of central bank digital currency and market infrastructure, writes Bloomberg. Paul will lead Firelocks’ efforts to build infrastructure for the integration of central bank digital currencies (CBDC), the firm announced Tuesday and reported by Bloomberg.
- Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was ERC20 down 99.76%.
- Leading U.S. crypto exchange Coinbase is “tremendously overvalued” at current levels, warned short-selling legend Jim Chanos, predicting a collapse in fee income that will send the stock plunging. He told the Crypto Critics Corner podcast that Coinbase still gorges itself on overly favorable retail trading commissions, and his short position is based on an end to the “feasting” it enjoys relative to mature brokers like Charles Schwab, writes Bloomberg.
- Bitcoin has only briefly deviated from the $30,000 level since the collapse of the TerraUSD stablecoin triggered a broad crypto selloff in early May. The token could “form a cyclical low” in the second half of this year, based on previous market cycles, Bloomberg analyst Jamie Douglas said. Cryptocurrencies have been hit as the Federal Reserve and other central banks hike rates to combat stubbornly high inflation and underperforming equities.
- Singapore has begun a project to investigate potential uses of asset tokenization as the city state looks to establish itself as a hub for decentralized finance after several key crypto players left, writes Bloomberg. “Project Guardian,” a collaboration between the Monetary Authority of Singapore and the finance industry, will test the feasibility of applications in asset tokenization and DeFi while working to manage risks to financial stability and integrity.
- Binance Labs, the venture capital arm of the world’s biggest crypto exchange, launched a $500 million fund to invest in digital asset projects, the last capital injection into an industry that’s reeling from plunging prices and the collapse of the TerraUSD stablecoin.
- New York State lawmakers passed a bill that would trigger a two-year moratorium on new permits for certain power plants involved in Bitcoin mining, writes Bloomberg. The measure, which was approved by a vote of 36 to 27 in the state senate early Friday morning, now moves on to Governor Kathy Hochul for consideration.
- The billionaire Winklevoss twins’ Gemini Trust Co. was sued by the U.S. Commodity Futures Trading Commission (CFTC), which claims that the cryptocurrency business misled the regulator about a Bitcoin futures contract. In a lawsuit filed in federal court in Manhattan on Thursday, the CFTC alleged that Cameron and Tyler Winklevoss’s Gemini “made false and misleading statements” in communications with commission staff from July to December 2017 about the operations of the Gemini Exchange and Gemini Bitcoin Auction according to Bloomberg.
- Jump Crypto, a firm involved in the defunct Terra blockchain, said that some large investors exited Terra-related positions as the TerraUSD stablecoin began to lose its peg, while small investors continued buying during the collapse writes Bloomberg.
- Consumers reported losing over $1 billion to fraud involving cryptocurrencies from January 2021 through March 2022, according to a new analysis from the Federal Trade Commission (FTC). The FTC’s latest consumer protection data spotlight finds that most of the losses consumers reported involved bogus cryptocurrency investment opportunities totaling $575 million in losses since January 2021. The scams often falsely promise investors that they can earn huge returns by investing in their cryptocurrency schemes, according to Bloomberg.
This week gold futures closed the week at $1,853.70, down $3.60 per ounce, or 0.19%. Gold stocks, as measured by the NYSE Arca Gold Miners Index, ended the week higher by 0.23%. The S&P/TSX Venture Index came in off 0.56%. The U.S. Trade-Weighted Dollar rose 0.48%.
|May-30||Germany CPI YoY||7.6%||7.9%||7.4%|
|May-31||Eurozone CPI Core YoY||3.6%||3.8%||3.5%|
|May-31||Conf. Board Consumer Confidence||103.6||106.4||108.6|
|May-31||Caixin China PMI Mfg||49.0||48.1||46.0|
|Jun-2||ADP Employment CHange||300k||128k||202k|
|Jun-2||Initial Jobless Claims||210k||200k||211k|
|Jun*-2||Durable Goods Orders||0.4%||0.5%||0.4%|
|Jun-3||Change in Nonfarm Payrolls||318k||390k||436k|
|Jun-9||ECB Main Refinancing Rate||0.000%||—||0.000%|
|Jun-9||Initial Jobless Claims||210k||—||200k|
- The best performing precious metal for the week was platinum, up 7.73% as hedge funds cut their bearish platinum outlook to the lowest in six weeks. The Reserve Bank of India boosted its gold holdings by 65 tons in the year ended March to 760.4 tons, according to the central bank’s annual report. Of the 760.4 tons, about 295.8 tons are held in India as backing for notes issued and the rest is held overseas as assets of the banking department, the Reserve Bank of India (RBI) said in the report
- Gold advanced as investors assessed developments in the Federal Reserve’s path to monetary tightening as inflation and rising volatility weigh on economic prospects. Concerns that central bank rate hikes may induce a recession are keeping investors guessing about the outlook for the economy as rising food and energy costs squeeze consumers, and volatility in the markets has picked up. Bullion had a choppy month in May as traders weighed aggressive monetary tightening and prospects of an economic slowdown. “Fundamentals overall are supportive for gold, but not aggressively so as the markets try to figure out whether we’re in inflation, stagflation or recession,” said Rhona O’Connell, an analyst at StoneX Group. Traders are also probably waiting for the Fed’s assessment of the economy today and Friday’s job numbers, she said.
- The demerger of Leo Lithium from Firefinch concluded on Friday with trading set to begin in Leo Lithium around June 16. Holders of Firefinch received 1 Leo Lithium share for every 1.4 Firefinch shares they held. In addition, an A$100 million raise was taken up by 90% of the Firefinch shareholder. Firefinch retained 20% of the Leo Lithium shares and is working towards producing 100,000 ounces of gold from the Morilla Mine in Mali. Based on the rerating post the spinout of Leo Lithium, their share price relative to their resource statement is significantly undervalued. Leo Lithium is partnered 50:50 with Chinese lithium mining and processing giant Ganfeng with anticipating lithium production by 2024.
- The worst performing precious metal for the week was palladium, down 4.81% on little metal specific stories. A recent Bloomberg report showed that a third Americans earning at least $250,000 annually, are faced with living paycheck to paycheck. This underscores how inflation is taking a bigger bite out of household budgets at the end of the month. The $250,000-plus income bracket represents the top 5% of earners in America. Obviously, they are not suffering the same stresses as the other 95% have experienced but seems to highlight what used to be a good income in America doesn’t cut it anymore.
- With the banning of seaborn Russian oil by Europe, diesel prices spiked 19% to over $40 per barrel premium to crude. Russia is the biggest supplier of diesel to Europe but oil is an international market and we are likely to see knock on affects to world markets, which will impact the large open pit miners more so on cost.
- Appian Capital Advisory LLP has filed a claim at the High Court of England and Wales seeking compensation from Sibanye Stillwater and its subsidiary Sibanye BM Brazil for Sibanye’s failure to close on a $1.2 billion transaction to acquire two mines in Brazil, according to an emailed press release. Appian says Sibanye’s termination of the deal was based on the incorrect assertion that a geotechnical instability at Atlantic Nickel’s Santa Rita mine constituted a material adverse effect Appian is seeking to recover its losses in full.
- In an unexpected announcement (in part because Yamana is hosting two mine tours this week), Gold Fields and Yamana jointly announced that Gold Fields is acquiring Yamana to create a top-4 gold producer (3.4M ounces per annum) headquartered in Johannesburg. In an all-share offer by Gold Fields, the exchange ratio is 0.6 Gold Fields share for each Yamana share, implying a value of $6.7 billion for Yamana, a 31% premium to the last $5.1bn market cap. North American investors did not appreciate the offer as Gold Fields sold off 23% on the day of the announcement as they have largely ignored the South Africa gold miners, which have diminished impact on world supply in recent decades. However, Gold Fields and the other South African gold stocks have proven to have very lucrative prices moves with a strong gold market.
- According to RBC, mergers have been driven by a few fundamental sector themes: first, the reserve replacement challenge – gold producers are having increasing difficulty replacing the reserves they mine each year; second, scale for relevance – generalist investors continue to prefer gold companies with large market capitalizations; third, scale for cost – particularly relevant in the current inflationary environment, larger producers tend to have better buying power and can better maintain costs and margins; fourth, ESG performance – gold companies with mines in more challenging jurisdictions and higher emissions intensity seek to diversify; and fifth, high industry fragmentation – the gold sector is much more fragmented relative to other mining sectors.
- Nano One Materials has entered into a joint development agreement with BASF for evaluating Nano One’s patented M2CAM One-Pot process for BASF’s next generation of cathode active materials. BASF has a family of cathode active materials (CAM) products well suited for the drivetrains of electric vehicles (EVs). Nano One’s technology will allow BASF to have higher functionality during the crystal growing processes to increase performance and lower the costs of production.
- The Democratic Republic of Congo was reported by Bloomberg to be considering establishing a stabilization fund to ensure its booming mining industry isn’t undermined by external events like the war in Ukraine or a future pandemic. Interesting they cite how high fuel costs have eroded government revenue. While many miners have faced higher diesel cost it is not likely the government is funding these fuel purchases for the miners. The idea appears more be a new taxation attempt.
- The U.S. Energy Information Administration (EIA) expects wholesale electricity prices in the western U.S. electricity markets as the Northern California snowpack was at only 26% of normal levels back in April, an indicator that the reservoirs at western power plants will have enough stored water to meet power demand.
- According to RBC, automobile sales are expected to remain challenged in 2022 given supply constraints and the impact of inflation on consumers. With supply from Russia seemingly uninterrupted so far, they expect platinum prices to stay soft through 2022.
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Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (03/31/2022):
Burberry Group PLC
LVMH Moët Hennessy Louis Vuitton SE
Yamana Gold Inc.
Sibanye Stillwater Ltd.
Gold Fields Ltd.
Nano One Materials Corp.
Qantas Airways Ltd.
JetBlue Airways Corp.
Southwest Airlines Co.
United Airlines Holdings Inc.
Ryanair Holdings PLC
Delta Air Lines Inc.
*The above-mentioned indices are not total returns. These returns reflect simple appreciation only and do not reflect dividend reinvestment.
The Dow Jones Industrial Average is a price-weighted average of 30 blue chip stocks that are generally leaders in their industry. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The Nasdaq Composite Index is a capitalization-weighted index of all Nasdaq National Market and SmallCap stocks. The Russell 2000 Index® is a U.S. equity index measuring the performance of the 2,000 smallest companies in the Russell 3000®, a widely recognized small-cap index.
The Hang Seng Composite Index is a market capitalization-weighted index that comprises the top 200 companies listed on Stock Exchange of Hong Kong, based on average market cap for the 12 months. The Taiwan Stock Exchange Index is a capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange. The Korea Stock Price Index is a capitalization-weighted index of all common shares and preferred shares on the Korean Stock Exchanges.
The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar. The S&P/TSX Canadian Gold Capped Sector Index is a modified capitalization-weighted index, whose equity weights are capped 25 percent and index constituents are derived from a subset stock pool of S&P/TSX Composite Index stocks. The NYSE Arca Gold Miners Index is a modified market capitalization weighted index comprised of publicly traded companies involved primarily in the mining for gold and silver. The S&P/TSX Venture Composite Index is a broad market indicator for the Canadian venture capital market. The index is market capitalization weighted and, at its inception, included 531 companies. A quarterly revision process is used to remove companies that comprise less than 0.05% of the weight of the index, and add companies whose weight, when included, will be greater than 0.05% of the index.
The S&P 500 Energy Index is a capitalization-weighted index that tracks the companies in the energy sector as a subset of the S&P 500. The S&P 500 Materials Index is a capitalization-weighted index that tracks the companies in the material sector as a subset of the S&P 500. The S&P 500 Financials Index is a capitalization-weighted index. The index was developed with a base level of 10 for the 1941-43 base period. The S&P 500 Industrials Index is a Materials Index is a capitalization-weighted index that tracks the companies in the industrial sector as a subset of the S&P 500. The S&P 500 Consumer Discretionary Index is a capitalization-weighted index that tracks the companies in the consumer discretionary sector as a subset of the S&P 500. The S&P 500 Information Technology Index is a capitalization-weighted index that tracks the companies in the information technology sector as a subset of the S&P 500. The S&P 500 Consumer Staples Index is a Materials Index is a capitalization-weighted index that tracks the companies in the consumer staples sector as a subset of the S&P 500. The S&P 500 Utilities Index is a capitalization-weighted index that tracks the companies in the utilities sector as a subset of the S&P 500. The S&P 500 Healthcare Index is a capitalization-weighted index that tracks the companies in the healthcare sector as a subset of the S&P 500. The S&P 500 Telecom Index is a Materials Index is a capitalization-weighted index that tracks the companies in the telecom sector as a subset of the S&P 500.
The Consumer Price Index (CPI) is one of the most widely recognized price measures for tracking the price of a market basket of goods and services purchased by individuals. The weights of components are based on consumer spending patterns. The Purchasing Manager’s Index is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment. Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
The Bloomberg Dollar Spot Index (BBDXY) tracks the performance of a basket of leading global currencies versus the. U.S. dollar.
The SSE Composite Index also known as SSE Index is a stock market index of all stocks that are traded at the Shanghai Stock Exchange.
The S&P Global Luxury Index measures the performance of 80 companies engaged in the production, distribution, or provision of luxury goods and services drawn from the S&P Global BMI (the “Index Universe”).
S&P Oil & Gas Exploration & Production Select Industry Index comprises stocks in the S&P Total Market Index that are classified in the GICS oil & gas exploration & production sub-industry.
Standard deviation is the statistical measure of market volatility, measuring how widely prices are dispersed from the average price.
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September 25, 2023Learn More