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Futures Slide Ahead Of ECB, Sentiment Hit By Latest China Crackdown

Futures Slide Ahead Of ECB, Sentiment Hit By Latest China Crackdown

US index futures fell along with European stocks amid jitters that the…

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This article was originally published by Zero Hedge
Futures Slide Ahead Of ECB, Sentiment Hit By Latest China Crackdown

US index futures fell along with European stocks amid jitters that the ECB could taper its asset purchases today as well as growing concerns over the slowing economic recovery while China's ongoing regulatory crackdown on the tech sector weighed on sentiment. Nasdaq 100 and S&P 500 futures were each down 0.2%, but off worst levels, hinting at further losses after the underlying indexes dropped on Wednesday. Europe’s equity benchmark headed for a five-week low, while 10Y Treasury yields dropped along with the dollar. The dollar dropped, the euro snapped three days of losses and European bond yields steadied ahead of a European Central Bank policy announcement in which investors will be looking for information about bond buying plans for the fourth quarter. Treasuries advanced.

Heavyweight technology stocks including Apple, Microsoft, Alphabet, Netflix and Amazon.com Inc all fell about 0.3% each in premarket trading.  In U.S. premarket trading, China’s tech stocks slid after Beijing officials told firms including Tencent and NetEase to end their focus on profit in gaming. The selloff extended to the U.S. premarket hours when NetEase and Alibaba tumbled, underscoring the market’s continued vulnerability to policy risks. NetEase (NTES) slips 6.4% and Bilibili (BILI) falls 6.9%, while the likes of Alibaba (BABA), Pinduoduo (PDD) and Baidu (BIDU) also dropped as did Roblox, Activision Blizzard, Electronic Art and Take-Two, all down between 0.3% and 1.6%. Digital Realty, which manages technology-related properties, declined 3.6% after entering into forward sale agreements with banks for 6.25 million shares at $160.50 each.

Lululemon surged 14% as analysts increased their price targets on the stock after the athletic clothing retailer boosted its outlook for the year and reported 2Q sales that outpaced expectations. The company continues to benefit from the trend toward casual and athleisure fashion, according to Jefferies. Peer Nike (NKE) rises 1.6%. Here are some other notable movers this morning:

  • Cardiff Oncology (CRDF) soars 16% after the company said Wednesday that data from a colorectal cancer drug trial showed “robust objective response rate and progression free survival.”
  • GameStop (GME) declines 6.8% after reporting a second-quarter loss that was wider than Wall Street projections. It also held a very brief earnings call in which it said it wouldn’t provide guidance. Its peer among the day trader crowd, AMC Entertainment (AMC) also slips 2.7%.
  • Humanigen (HGEN) shares tumble 53% after the U.S. FDA declined its request for emergency use authorization of lenzilumab to treat newly-hospitalized Covid-19 patients.

Investors are reassessing valuations in U.S. stock markets and are fretting over the implications of a slowing recovery. The (now fading) spread of the delta virus variant has taken its toll on the U.S. economy as well as global supply chains, depressing growth while boosting inflation (as does the Fed's $120BN in monthly liquidity injections), while China’s regulatory crackdown on the technology sector worsens the macro outlook.

The fear of delta “is driving the downside risks to the U.S. economy, but also more broadly the global economy as that delta strain spreads around the world,” Kim Mundy, a currency strategist and international economist at the Commonwealth Bank of Australia, said on Bloomberg Television.

On Wednesday, the Fed's Beige Book survey showed U.S. economic activity decelerated in the past two months as consumers pulled back on spending due to safety concerns. However, shortages meant inflationary trends remained stubborn, according to the findings. Further evidence of global price pressures came from China, where factory-gate inflation surged to a 13 year high.

European equities were under pressure for a third day as investors await the European Central Bank’s update on the timing of a possible reduction in stimulus. Euro Stoxx 50 dropped as much as 1% before halving losses. FTSE 100 and IBEX underperform, remaining off ~1% as European peers stage a modest bounce. Oil & gas, travel and mining stocks are the worst performers.  Miners were among the declining sectors as iron ore futures slipped on demand concerns. EasyJet shares fell as much as 14% after the low-cost airline announced it will raise GBP1.2b via a share sale and was said to have rejected a takeover offer from Wizz Air. The Stoxx 600 Health Care index sank to a session low following a report that the White House will release a plan to cut prescription-drug prices. Sub-group falls as much as 1.2%, touching the lowest intraday level since Aug. 6; heavyweight constituents Roche, Novartis, AstraZeneca, Sanofi and Norvo Nordisk all lower. Here are some of the biggest European movers today:

  • Assa Abloy shares rise as much as 7.3% after analysts gave the thumbs-up to the Swedish lockmaker’s plan to buy Spectrum Brands’ hardware & home improvement unit for $4.3 billion.
  • Hays gains as much as 4.1% as Barclays upgrades the employment- services company to overweight, citing a strong market rebound.
  • Beiersdorf climbs as much as 2.6% as Goldman Sachs upgrades to buy, saying the stock offers robust growth at an attractive valuation.
  • Genus tumbles as much as 11% after the breeding firm warned on its 2022 sales outlook amid a slump in the price of pork in China.
  • Prosus falls as much as 6.6% as China gaming concerns hit Tencent

Earlier in the session, Asia stocks closed lower for a second day, weighed down by declines in Chinese and Korean tech firms on concerns about how government regulations will affect earnings. The MSCI Asia Pacific Index slid as much as 1.2%, the most since Aug. 20, in a broad selloff led by benchmarks in Hong Kong and Australia. Tencent was the biggest drag on the regional gauge, as Chinese regulators took aim at gaming firms for focusing solely on profit. Kakao and Naver extended losses sparked by warnings from lawmakers about abuse of market dominance. Investors’ tech-sector worries widened after authorities in South Korea seemed to echo China’s months-long crackdown, with the Financial Services Commission in Seoul saying it would sternly respond if fintech firms show no efforts to correct practices that could violate local rules. Thursday’s decline in regional stocks followed hawkish comments made by some Federal Reserve officials overnight, with traders also focusing on the European Central Bank meeting later.

“The negative lead from Wall Street is being taken as an excuse for a bit of profit-taking in Asia after the strong rally in late August,” said Ilya Spivak, head of Greater Asia at DailyFX. Australia’s S&P/ASX 200 had its worst day since mid-May as iron ore miners slumped amid lower prices for the steel-making ingredient. The broad Asia selloff also saw Japan stocks snap their eight-day winning run.

In Fx, the dollar slipped after a three-day gain, the JPY and GBP topped the G-10 leaderboard, while EUR holds within Wednesday’s range ahead of today’s ECB meeting. The Bloomberg Dollar Spot Index inched lower and the greenback fell against most of its Group-of-10 peers even as many currencies traded in tight ranges; the Treasury curve bull- flattened modestly. The yen was the top performer among G-10 peers amid haven demand. The euro came off yesterday’s one-week low while Bunds and Italian bonds were little changed before the ECB’s meeting; the pound advanced to a day-high in the European session. 

In rates, Treasuries held small gains from intermediate sector to long-end of the curve with S&P 500 following declines in FTSE 100 and Euro Stoxx 50. Yields richer by ~1bp across long-end of the curve, flattening 2s10s, 5s30s spreads slightly; 10-year yields around 1.33%, outperforming gilts by almost 3bp. Curve and outright concession have faded ahead of 30-year bond reopening during U.S. afternoon, focal point of U.S. session after ECB policy decision at 7:45am ET.  The weekly US auction cycle concludes with $24b 30-year bond sale at 1pm ET; 3- and 10-year auctions drew strong demand. WI 30-year yield at 1.947% is below auction stops since February and ~9bp richer than last month’s, which tailed the WI by 1bp. Peripheral spreads tighten a touch. Gilts bear flatten with the short end cheaper by ~2bps

In commodities, crude futures were little changed, maintaining Asia’s narrow range. WTI drifts just above $69, Brent near $72.60. Spot gold puts in a ~$5 move to the upside to trade near $1,794/oz. Base metals are well bid with LME nickel and tin outperforming. LME copper reverses Wednesday’s drop, adding 1.4%. Bitcoin fluctuated between gains and losses, trading around $46,000.

Looking at the day ahead now, and the main highlight will be the ECB meeting and President Lagarde’s subsequent press conference. Other central bank speakers include the Fed’s Daly, Evans, Bowman, Williams, Kaplan, Kashkari and Rosengren, and Bank of Canada Governor Macklem. In addition, data releases include the weekly initial jobless claims from the US.

Market Snapshot

  • S&P 500 futures down 0.3% to 4,500.75
  • MXAP down 1.0% to 204.62
  • MXAPJ down 1.3% to 662.15
  • Nikkei down 0.6% to 30,008.19
  • Topix down 0.7% to 2,064.93
  • Hang Seng Index down 2.3% to 25,716.00
  • Shanghai Composite up 0.5% to 3,693.13
  • Sensex little changed at 58,202.28
  • Australia S&P/ASX 200 down 1.9% to 7,369.53
  • Kospi down 1.5% to 3,114.70
  • STOXX Europe 600 down 0.5% to 465.53
  • German 10Y yield down 0.07 bps to -0.331%
  • Euro up 0.1% to $1.1829
  • Brent Futures down 0.1% to $72.51/bbl
  • Gold spot up 0.3% to $1,793.85
  • U.S. Dollar Index little changed at 92.59

Top Overnight News from Bloomberg

 

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stock markets were mostly negative as the downbeat mood rolled over from the US and Europe amid lingering global growth concerns, recent Fed taper rhetoric and China's ongoing regulatory crackdown. ASX 200 (-1.9%) declined beneath the 7,500 level and was heavily pressured by the losses in mining names, with sentiment also clouded by the rampant COVID-19 infection rates and despite the announcement by NSW Premier Berejiklian of the recovery road map whereby restrictions will be relaxed when 70% of adults are fully vaccinated but with some parts of regional New South Wales are to end lockdowns on Saturday. Nikkei 225 (-0.6%) was subdued amid currency headwinds and with Japan confirming plans to seek an extension of the state of emergency for Tokyo and other areas through to at least month-end although other reports suggested November was being considered for the easing virus restrictions. Hang Seng (-2.3%) and Shanghai Comp. (+0.5%) traded mixed with notable losses in tech names including Tencent after the government and cyberspace regulator summoned gaming companies to instruct them to implement measures against gaming and entertainment, as well as warned of severe punishment for those not implementing regulations. China also reiterated it is to crackdown on illegal behaviour in the ride-hailing industry and banned private tutors from offering courses through online platforms, while debt concerns surrounding Evergrande and mixed inflation data that showed softer than expected consumer prices but firmer factory gate prices to suggest an uneven recovery, further added to the cautious mood. Finally, 10yr JGBs were steady with only minimal gains despite the mostly negative risk tone across the region and amid mixed results at the 5yr JGB auction in which a higher b/c was counterbalanced by lower accepted prices.

Top Asian News

  • Kim Oversees First Military Parade Since Biden Became President
  • Alibaba Sex Crime Suspect’s Release Shows China #MeToo Woes
  • Corn Hits Seven-Month Low as Traders Count Down to Key Crop Data
  • Solar Startup Born in Garage Is Beating China to Cheaper Panels

Eurozone bourses have rebounded off worst levels on ECB day but remain softer overall (Euro Stoxx 50 -0.5%; Stoxx 600 -0.4%) after experiencing pronounced downside at the cash open. The UK’s FTSE has failed to stage a rebound of a similar degree amid Sterling dynamics, and with mixed messaging out of the BoE regarding the conditions for a rate hike – which at face value could be perceived with a hawkish tilt – FTSE 100 futures tested 7k to the downside. US equity futures, meanwhile, trade softer across the board but in tighter ranges and off earlier lows after early weakness seeped from Europe – with the more cyclically-tailored RTY (-0.5%) narrowly lagging its ES (-0.3%), NQ (-0.3%) and YM (-0.3%) counterparts. There has been little in terms of fresh fundamental drivers behind the rebound in EZ cash/futures and US equity futures. However, the waters were choppy in early trade and in the run-up to the ECB (full preview available in the Newsquawk Research Suite), whilst participants also eye the weekly US jobless claims alongside a plethora of Fed speakers. Sectors in Europe are predominately in the red with clear underperformance experience in the Travel & Leisure sector, with losses led by easyJet (-10.8%), who announced a rights issue at a discount in a bid to raise USD 1.7bln. Furthermore, the airliner also announced that the Board recently received a prelim takeover approach (speculated to be Wizz Air), which was evaluated and then unanimously rejected. The bidder has since confirmed it is no longer considering an offer for the Co. Back to sectors, Oil & Gas and Retail also reside towards the bottom of the bunch, whilst Real Estate, Autos & Parts post the shallowest losses. In terms of individual movers, Morrisons (+0.2%) is cushioned after topping H1 revenue forecasts, whilst sources via UK press suggested a bidding war for the Co. could take the final offer above the highest current bid of GBP 7bln. Elsewhere, RWE (+1.5%) is bolstered amid reports. that activist ENKRAFT bought over 500k shares of the Co. and is calling for the Co. to divest its brown coal assets. Finally, Sanofi (-1.8%) holds onto losses as its phase 3 PEGASUS trial evaluating rilzabrutinib did not meet its primary or key secondary endpoints.

Top European News

  • Young U.K. Staff Have Forgotten How to Do Work Chat
  • 888 Holdings Shares Slip on New Equity to Fund William Hill Deal
  • Morrison Says U.K. Food Industry Faces More Price Pressure
  • Russian Inflation at Five-Year Peak Boosts Chances for Rate Hike

In FX, the Buck is waning after reaching new recovery highs on Wednesday and perhaps overextending its retracement when setting fresh m-t-d and/or multi-week peaks. In index terms, the DXY has slipped back into a narrower 92.762-528 range compared to yesterday’s 92.864-472 extremes, and the yield backdrop is less supportive in wake of another strong 10 year T-note auction, while the latest Fed Beige Book does little to enhance the prospects for tapering at the September FOMC as growth moderated last month, largely due to Delta-related factors. However, the Greenback and markets in general get more jobs data to assess substantial progress via claims, plus a raft of Fed speakers flanking the final leg of refunding in the form of Usd 24 bn long bonds.

  • JPY/GBP/NZD/CHF/AUD - It’s a close call, but the Yen is just outperforming a group of five majors and gleaning a bit more from the softer/flatter US Treasury dynamic allied to still suppressed levels of overall risk appetite. Hence, Usd/Jpy is retesting support and underlying bids sub-110.00, while Sterling is probing 1.3800 and rebounding further from lows under 0.8600 vs the Euro in response to BoE Governor Bailey’s hawkish MPC rate revelations in front of the TSC. Elsewhere, the Kiwi is trying to form a base around 0.7100, but gaining momentum against the Aussie as the Aud/Nzd cross inches nearer 1.0350 compared to 1.0450+ at one stage in the immediate aftermath of the RBA, and Aud/Usd lags Nzd/Usd between 0.7383-47 parameters. Meanwhile, the Franc has clawed back some ground conceded following verbal intervention from SNB’s Zurbruegg, with Usd/Chf back beneath 0.9200 and Eur/Chf towards the bottom of a 1.0870-97 band.
  • EUR/CAD - The Euro is holding above 1.1800 into the ECB and awaiting direction from the GC with all eyes on PEPP developments amidst very diverse opinions regarding the pace of purchases in Q4 and what happens when the emergency QE envelope is sealed at the end of March 2022 - check out the Research Suite for a full preview of the event. Note, options pricing has ticked up again for Eur/Usd, to 47 pips, and expiries are stacked mostly to the topside, bar 1 bn at the 1.1750 strike that may come into play on a very dovish outturn - see 7.27BST post on the Headline Feed for details and other G10 pairings that have hefty option expiry interest rolling off at the NY cut today, including Aud/Usd and Usd/Jpy. Back to Central Bank impulses, the Loonie has regrouped after the BoC and is pivoting 1.2700 ahead of Governor Macklem’s post-policy meeting speech and Canadian jobs data on Friday.
  • SCANDI/EM - The Nok is straddling 10.3000 against the Eur, as disappointing Norwegian monthly mainland GDP growth offsets some traction derived from the firm line in Brent beyond Usd 72/brl, while the Cny and Cnh are taking mixed Chinese inflation largely in stride along with latest Chinese efforts to crack the whip on tech and keep a lid on commodity prices.

In commodities, WTI and Brent front-month futures are choppy and caged in tight ranges, albeit the benchmarks came off best and worst levels in tandem with stocks. WTI October tested USD 69/bbl (vs high USD 69.55/bbl) while Brent November briefly dipped under USD 72.50/bbl (vs high 72.94/bbl). News flow for the complex has remained light as all eyes turn to the ECB and Fed commentary slated for the rest of the week. In terms of fundamentals, crude production in the Gulf of Mexico is slowly coming back online – but still, some 77% from GoM production remains shuttered (vs prev. 79%), according to the BSEE. Aside from that, supply updates have been minimal post-OPEC+, with attention in the East now turning to any developments on the Iranian nuclear deal. On the demand side, the COVID situation in APAC remains a concern, and Japan confirmed the extension of the Tokyo State of Emergency, whilst the latest EIA STEO cut its 2021 world oil demand forecast by 370k BPD to 4.96mln BPD Y/Y increase but raised forecast for 2022 world oil demand growth by 10,000 BPD to 3.63mln BPD Y/Y increase. Note, OPEC+ last week revised its 2022 oil demand growth up to 4.2mln BPD (prev. 3.28mln BPD), according to sources. In terms of data, the delayed Private Inventory report yesterday was largely bearish, but prices were unfazed. As a reminder, the DoEs today will be released at 16:00BST/11:00EDT. Over to metals, spot gold and silver were trading within narrow bands overnight and throughout the first half of the European morning before the softening Dollar provided prices with a mild lift. From a technical standpoint, the yellow metal sees its 21 DMA (1,794,85/oz) and 50 DMA (1,797.85/oz) in proximity. In terms of industrial metals, LME metals are firmer across the board with nickel and copper outpacing, with some tailwinds felt by the receding Buck. Aluminium hit a fresh 13yr peak amid the ongoing supply woes emanating from the coup in Guinea. Conversely, Dalian iron ore futures saw renewed weakness overnight – with traders citing the dampened demand from steel mills after China lowered its steel output target last month.

US Event Calendar

  • 8:30am: Aug. Continuing Claims, est. 2.73m, prior 2.75m
  • 8:30am: Sept. Initial Jobless Claims, est. 335,000, prior 340,000
  • 9:45am: Sept. Langer Consumer Comfort, prior 58.2

DB's Jim Reid concludes the overnight wrap

If anyone has directions handy for DB’s main London building then I’d appreciate them ASAP as this morning I’m venturing back into the office for the first time in 18 months. I’m assuming I’ll find my way as I expect a ticker tape parade and a red carpet. Remembering what floor I work on will be the next challenge. At least now when I ask one of my team for a chat I’m unlikely to get “go away I’m too busy to talk” as I do at home. It will be nice to assert my authority again so apologies to my team today.

A final reminder that our latest monthly survey ends today. All responses gratefully received here. There’s a few themes but I’d be especially interested in your latest WFH thoughts and plans in a month where more people are getting back into the office even if the steady state won’t be here for a few months due to delta. The survey asks how many days you’ll likely to work from home after covid has gone. I get the sense that there’s been a push from many firms to get more people back into offices (post covid) since then so it’ll be interesting to see if this appears in the data. It may not or there may be an upcoming clash between workers and employees.

For those interested in the future of work Marion Laboure in my team put out a piece earlier this week (link here) looking at a part of this. It argues that cities will come roaring back. We will see.

Markets had another risk-off session yesterday as investors cast increasing doubt on the sustainability of current valuations. Upcoming central bank meetings (including today’s ECB decision) have added to these jitters, given the prospect that monetary stimulus might start to be withdrawn.

In light of this, global equities lost ground for a second day running, with investors instead moving into safe havens such as sovereign bonds and the US Dollar. By the close of trade, both the S&P 500 (-0.13%) and Europe’s STOXX 600 (-1.06%) had fallen back, thanks to an underperformance among cyclicals on both sides of the Atlantic. It was the third straight daily loss for the S&P, the longest losing streak since mid-July, but this still only amounts to a -0.50% pullback. Consumer durables (-1.67%) and energy (-1.30%) were among the largest laggards, while in Europe autos (-2.23%) and industrial goods (-1.66%) underperformed. In the US, both the small-cap Russell 2000 (-1.14%) and the FANG+ Index (-1.19%) of megacap tech stocks also saw relatively large declines. The former has remained range bound since recording it’s all-time high back in March, while the latter just closed at record highs on Tuesday after recently breaking out of its own 6-month trading range.

Looking ahead though, today’s main highlight will come from the ECB policy decision at 12:45 London time, where investors will be focused on what the Governing Council will decide about the pace of purchases under the Pandemic Emergency Purchase Programme. Previously, investors were much more focused on when the Fed would begin to taper, but comments from ECB Chief Economist Lane that didn’t rule out a move in September, along with a rise in inflation to +3.0% in August (the highest in almost a decade), have brought the decision today into focus. Our European economists are expecting that they will announce a reduction in the pace today, thinking it’s slightly more likely to happen now than in December, but there is still a risk that it could be stalled until then. They think that they’ll drop the word “significantly” from the guidance on the pace of PEPP purchases, and are also expecting that the ECB will raise their staff inflation forecasts relative to the last round in June.

With all that to look forward to, sovereign bonds in Europe were mostly steady yesterday, with yields moving just slightly lower at the long end of the curve. By the close of trade, yields on 10yr bunds (-0.1bps), OATs (-0.6bps) and BTPs (-0.1bps) had all seen modest declines, though that came in spite of a notable rise in inflation expectations. Indeed, the 5y5y forward inflation swap for the Euro Area was up +0.9bps to 1.75% yesterday, just short of its highest level in over 3 years, which was recorded earlier this week. Meanwhile, the 10yr German breakeven was up +1.2bps to 1.585%, its highest level since 2013. Over in the US, 10yr Treasuries saw a -3.6bps decline in yields to 1.338%, though as in Europe that came in spite of a rise in breakevens (+1.4bps), as 10yr real yields (-4.8bps) moved back below the -1% mark.

One of the key headlines overnight has come from the WSJ as it reported that a split in the Democrat camp is deepening over current Fed Chair Jerome Powell’s reappointment. The report added that progressive Democrats are pushing to replace him even though he has firm support elsewhere in the party. Earlier reports had indicated that we will likely hear from President Biden in the current week on the (re)appointment. We will see if this battle has slowed anything down.

Risk appetite has continued to remain weak overnight in Asia with the Nikkei (-0.82%), Hang Seng (-1.60%), CSI (-0.61%), Shenzhen Comp (-0.45%) and Kospi (-1.42%) all losing ground. Futures on the S&P 500 are also down -0.33% while those on the Stoxx 50 are -0.40%. In terms of overnight data releases, China’s August CPI printed at +0.8% yoy (vs. +1.0% yoy expected) while PPI came in at +9.5% yoy (vs. +9.0% yoy expected). So a decent discrepancy.

One asset class that put in a strong performance yesterday were commodities, with Brent Crude (+1.27%) and WTI (+1.39%) the highlight. We also saw natural gas prices in New York (+7.57%) climb to a 7-year high in light of supply concerns ahead of the winter, and aluminium prices rose (+1.4%) to their highest level since 2008 as political unrest in Guinea continued to coincide with rising global demand.

Elsewhere yesterday, we heard a bit more on the US debt ceiling, which is a potential issue coming up soon on the horizon, as Treasury Secretary Yellen said in a letter to Congress that “the most likely outcome is that cash and extraordinary measures will be exhausted during the month of October.” So not long after government funding also runs out on September 30. This comes as Congress works to get the majority of the Biden Administration’s economic policy passed by the end of the month. Speaker Pelosi has promised a vote on the bipartisan infrastructure package by September 27 and has said repeatedly that she wants to pass the USD 3.5 trillion budget resolution that encapsulates the rest of President Biden’s agenda along with that package. While some moderates have balked at the price tag, Pelosi yesterday seemed open to negotiating, saying “I don’t know what the number will be… we will not go beyond ($3.5 trillion).” Her statement comes amidst Axios reporting yesterday that Democrat holdout Senator Joe Manchin has indicated to the White House and congressional leaders that he has specific policy concerns with President Biden's $3.5 tn spending plan and he'll support as little as $1tn of it. The report went on to add that at most he is open to supporting $1.5tn.

Meanwhile on the German election, a fresh poll from Allensbach yesterday pointed to a somewhat tighter race than other recent polls. That had the centre-left SPD on 27%, just 2 points ahead of Chancellor Merkel’s CDU/CSU bloc on 25%, while the Greens were much further behind on 15.5%. In addition, unlike most other polls recently, it still had the two major parties winning a majority of the votes between them.

On the data side, the main release yesterday was the US job openings for July, which rose by more than expected to a record 10.934m (vs. 10.049m expected), and just goes to illustrate the supply constraints firms are facing as the economy reopens from the pandemic. Job vacancies outnumbered hires by 4.3 million, the most since 2000 – when the data series began. In fact there were around 2 million more openings than people unemployed. This never happens so a remarkable US labour market at the moment and one only constrained by supply. Meanwhile the quits rate, which measures the number of people who voluntarily quit their job, and is often a good gauge of how much relative power workers have over their employees, remained at 2.7% - near the record high.

To the day ahead now, and the main highlight will be the ECB meeting and President Lagarde’s subsequent press conference. Other central bank speakers include the Fed’s Daly, Evans, Bowman, Williams, Kaplan, Kashkari and Rosengren, and Bank of Canada Governor Macklem. In addition, data releases include the weekly initial jobless claims from the US.

Tyler Durden Thu, 09/09/2021 - 07:44

Energy & Critical Metals

TWAICE and pepper partner for full battery transparency in retrofitted commercial vehicles

TWAICE, a provider of predictive analytics software that optimizes the development and operation of lithium-ion batteries, and pepper motion GmbH (formerly…

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TWAICE, a provider of predictive analytics software that optimizes the development and operation of lithium-ion batteries, and pepper motion GmbH (formerly etrofit), a company offering solutions for the electrification (retrofitting) of used and new commercial vehicles such as trucks in distribution transport, buses in local public transport (LPT) and municipal vehicles, are partnering for full battery transparency in retrofitted commercial vehicles.


TWAICE’s analytics software will make the battery performance and lifetime of electrified powertrains transparent and thus more sustainable. This provides pepper customers with battery insights and enables optimal operation.

Retrofitting can be an economical and sustainable alternative to diesel vehicles. pepper retrofits both buses and trucks with all-electric powertrains.

We plan to put around 1,200 buses and trucks on the road with our technology by 2023 alone. The vehicles will be delivered primarily in Europe, North and South America.

—Andreas Hager, Managing Director of pepper motion GmbH

TWAICE will support pepper and commercial fleet operators in both the development and operation of the electric vehicles. The battery analytics software allows the condition of vehicle batteries to be estimated and predicted in the field, long-term battery performance to be analyzed, maintenance to be predicted, warranty commitments to be adjusted, and a realistic residual value to be determined. It can also provide drivers with targeted usage recommendations. In this way, the TWAICE software makes the service life and economic efficiency of the vehicle batteries transparent.

TWAICE is an important strategic technology partner for us. We can use the software not only to analyze the aging process of batteries, but also to derive value-linked different life cycles and usage scenarios that are valuable for our customers and our product development.

—Dr. Ing. Matthias Kerler, Chief Technology Officer of pepper motion GmbH

The analytics data from TWAICE provides pepper with conclusions to further optimize the cycle stability of the batteries used, and to ensure maximum energy-efficient and economical use.

The technology behind the TWAICE predictive analytics software uses artificial intelligence to determine battery condition and predict the aging and performance of lithium-ion batteries.

Analog Devices. Earlier, TWAICE announced a collaboration with Analog Devices, Inc., a global semiconductor company and software solutions provider, with the aim of mastering the challenges of battery life-cycle optimization. The combination of state-of-the-art sensor technology and wireless connectivity from Analog Devices with battery analysis software from TWAICE will benefit customers in the mobility and energy sectors. The alliance will help to significantly reduce warranty risks and recalls, optimize battery life and increase the value of batteries, TWAICE said.

Analog Devices is a global leader in the development, manufacture and marketing of a broad portfolio of high-performance analog mixed-signal and digital signal processing solutions that are used in almost all types of electronic devices. The company is also the market leader in battery management solutions. The collaboration with the Munich software company TWAICE, whose software platform offers end-to-end battery analysis solutions, enables the entire battery life cycle to be optimized.

The aim of the cooperation is to provide a holistic life cycle solution for automobile manufacturers with integrated hardware and software. A complete end-to-end solution with state-of-the-art battery measurements via a wireless battery management system is offered.

Analog Devices’ sensor technology delivers data and data quality that was previously unavailable. TWAICE can deliver the critical battery performance insights for which automotive companies around the world are looking. The integration of sensor and communication solutions from Analog Devices creates an ideal database. The resulting prognoses enable qualified statements about their value and usability at any point in the life cycle of the battery.

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Energy & Critical Metals

Ionic’s Makuutu infill drilling is ticking all the right boxes

Special Report: Ionic Rare Earths’ goal to increase Indicated and Measured resources at its Makuutu project appears to be tracking … Read More
The…

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Ionic Rare Earths’ goal to increase Indicated and Measured resources at its Makuutu project appears to be tracking exactly to plan with drilling starting to return thick, high-grade mineralisation.

Assays of the first tranche of 50 holes drilled as part of its Phase 4 drill program confirmed the intersection of thick, high-grade and near surface intervals of ionic adsorption clay hosted rare earth elements.

These holes were drilled by Ionic Rare Earths (ASX:IXR) to infill the current Makuutu Central Zone East resource area on a 200m spacing to increase confidence from Inferred to the Indicated classification, which is sufficient for mine planning and to support the feasibility study.

While all 50 holes delivered clay and saprolite mineralised intersections above the resource cut-off grade, notable results include:

  • 8.2m at 1,359 parts per million (ppm) total rare earth oxides (TREO) from 3.3m (RRMDD324);
  • 8.4m at 1,258ppm TREO from 2.8m (RRMDD316);
  • 13.4m at 1,232ppm TREO from 4m (RRMDD320);
  • 8.4m at 1,214ppm TREO from 3m (RRMDD294); and
  • 11.2m at 1,160ppm TREO from 2.1m (RRMDD315).

A further two tranches of samples are currently at the Perth laboratory while a fourth tranche will be dispatched from Uganda within days.

Drilling is also continuing with over 325 holes totalling 6,200m completed out of a planned 7,800m program.

Phase 4 Drill Program status plan showing completed and planned drill holes covering the Makuutu Rare Earths Project with the MRE and target areas. Pic: Supplied

“These infill results align well with expectation, given the continuity of the clay previously observed at Makuutu,” managing director Tim Harrison said.

“The thick clay mineralisation in the Makuutu Central Eastern Zone is expected to add substantial grade and tonnage in the Indicated resource classification for the Project as part of the next mineral resource estimate update expect late Q1 2022, and a key input for the feasibility study expected before October 2022.

“The near surface results with such thick zones of elevated TREO grades observed within these infill results are very positive, inferring potential to have a higher-grade mining inventory earlier in the mine plan for the project, and potentially leading to a significant positive impact on the economics of the feasibility study.”

The Makuutu Central Eastern Zone area currently has a resource of 37 million tonnes grading 740ppm TREO.

Makuutu Rare Earths Project

Ionic’s Makuutu project is one of less than a handful of known ionic adsorption clay-hosted rare earths deposits located outside China with scale for economic development.

Such deposits are commonly considered to be some of the cheapest and most readily accessible sources of heavy rare earths

The company currently holds 51% of Makuutu though it will move to 60% on completion of the feasibility study before October 2022. It also has the pre-emptive right to acquire the remaining 40% of the project.

It also plans to complete the downstream scoping study by mid-2022 with preliminary metallurgical testwork already underway to support process modelling that will underpin the process design using conventional solvent extraction.

Makuutu currently has a global mineral resource estimate of 315Mt at 650ppm TREO, with substantial exploration targets located across a 37-kilometre-long mineralisation trend.

 


 

 

This article was developed in collaboration with Ionic Rare Earths, a Stockhead advertiser at the time of publishing.

 

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

The post Ionic’s Makuutu infill drilling is ticking all the right boxes appeared first on Stockhead.

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As Sprott Goes Hunt Brothers On Uranium a Copycat Joins the Squeeze to Force an Explosive Move Higher

As Sprott Goes "Hunt Brothers" On Uranium, A Copycat Joins The Squeeze To Force An Explosive Move Higher

Exactly two weeks ago, we laid out…

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As Sprott Goes "Hunt Brothers" On Uranium, A Copycat Joins The Squeeze To Force An Explosive Move Higher

Exactly two weeks ago, we laid out the investment thesis for what our friends at Adventures in Capitalism dubbed was a "bitcoin-like opportunity in Uranium." In a nutshell, in mid-August, the Sprott Physical Uranium Trust, then roughly $300 million, announced that it would unleash an unprecedented buying spree in physical uranium, a relatively small market, in hopes of forcing a physical shortage and sending the price of urnium higher, leading to more buying of the Trust, more purchases of uranium, even higher prices and so on.

While some voiced concerns that this strategy was similar to what the Hunt Brothers tries to do with silver back in 1980, when the precious metal rose tenfold in months only to crush just as rapidly once the market became "uncornered"  there are several distinct differences between what the Hunts and Sprott are doing (most notably the inability by producers to rapidly flood physical to meet demand, as well as the lack of a sizable paper market to short the move) so far - less than a month later - Sprott's strategy has proven extremely successful, so much so that the Canadian asset manager upsized the size of its Trust from $300MM to $1.3BN... and just this morning got its first copycat, Uranium Royalty Corp (UROY) which this morning announced that it was taking a page out of the Sprott book and would expand its physical uranium holdings to 648,068 pounds.

But before we get there, a quick excerpt from a report this week by Bank of America which has broken down the Sprott strategy and discussed how it will impact the price of uranium going forward, and why it just hiked its price target for Cameco by 45% to $29/share

SPUT/Byron/Dresden add 4% to global demand, PO upped

Uranium (U3O8) purchased by the Sprott Physical Uranium Trust (SPUT) since launching an at-the-market (ATM) equity program on August 17th has added 3% to global demand. This is 52% annualized, or $4bn at flat prices. Prices have risen 42% to $43.75/lb. A supply response is likely but might take time and more SPUT buying is likely, we think. The Illinois House and Senate approved funding to keep the Byron & Dresden nuclear plants from closing. We add both back to our model, increasing annual U3O8 demand by 1.1%. We increase 2021E-2023E U3O8 prices by 18%, 41% and 18% to $36.30, $53.50 and $48.50/b. We raise our price objective (PO) for Cameco (CCO) by 45% to C$36.25/sh ($29/sh), CCO: Neutral as we think outlook is mostly reflected in the shares.

SPUT ATM funding increased to $1.3bn

SPUT has raised roughly $245mn of the $300mn maximum set-out under its ATM program. On Friday, SPUT obtained approval to increase the maximum to $1.3bn. The limiting factor on future SPUT capital raises is market demand for its units, which appears to us to be strong and correlated to SPUT’s ability to continue pushing up uranium prices. Given the relatively small size of the U3O8 spot market (~$2.7bn in 2020, unadjusted for churn), SPUT buying should push spot prices still higher, until supply responds or the price gets high enough to spook investor demand for SPUT units.

So the weakest link in the Sprott strategy is how quickly will incremental supply come on line. The good news for Sprott is that, at least according to BofA, it won't be for some time.

A supply response is likely but not immediately

U3O8 held by junior miners and hedge funds, uncommitted supply from producers and a reversal of carry trades are among potential near-term sources of new market supply. Potentially larger sources are 58Mlbs of idled production capacity and 16.8Mlbs of unutilized capacity in Kazakhstan. However, a large majority of this is unlikely to respond without long-term contracts and would require six or more months to ramp-up.

UxC estimates that hedge funds hold around 11Mlbs of U3O8 that was mostly purchased in 2018 and 2019 when prices averaged just $24.61/lb and $25.84/lb vs. the current spot price of $43.75/lb.

There can be many sources of uncommitted supply with BHP’s Olympic Dam (8-10Mlbs annually) and the Navoi mines in Uzbekistan (9Mlbs annually) the usual candidates. Other less obvious sources also exist. For example, we estimate that in H1’21, China imported nearly 21Mlbs of U3O8 which equates to approximately 82% of the country’s 2021E reactor requirements. In addition, Chinese utilities are estimated to hold as high as or more than 460Mlbs of U3O8 inventory, sufficient to cover expected requirements for the next 11 years. As prices rise we see the possibility for some of the U3O8 produced in Chinese owned mines outside of China to be sold into the spot market. We estimate that in H2’21, Chinese owned mines outside of China will produce roughly 8Mlbs of U3O8. We do not expect Chinese inventories to be sold, however. Those are considered strategic.

Kazakhstan under-utilizing capacity: In Kazakhstan, the world’s largest U3O8 producing nation, there are several uranium mines now producing below capacity. On a 100% basis, these mines have a capacity of around 75.4Mlbs but we forecast them producing 58.6Mlbs in 2021E, leaving 16.8Mlbs of additional production potential trough flexing up utilization. However, similar to Cameco, Kazatomprom has indicated it will not flex up its production until they are signing long-term contracts and the price is fair. The latter condition may now be realized, the former remains to be seen. We think KAP sees $40-$45/lb as fair pricing.

Idled capacity is substantial but a majority is disciplined: According to data compiled by the World Nuclear Association (WNA), there is 54.4Mlbs of idled capacity. Cameco, which controls 58% of this idled capacity, has indicated it must fill its contract book at attractive pricing before it will restart McArthur River and has indicated that very high prices would be necessary to restart Rabbit Lake. The price indicated by Cameco for a McArthur restart is $40/lb or greater. Paladin has suggested a similar approach with its Langer Heinrich mine which accounts for another 11% of this idled capacity. Of the remaining 31% of potentially undisciplined producers only 17% (8.9Mlbs) is profitable at the current spot price on a full cost basis. However, much of this potentially undisciplined production will soon be profitable as prices rise.

But while we wait for supply to rise, one thing is clear: producers - such as Cameco - will benefit when utilities re-enter the market, to wit:

The higher spot price means produced supply is more competitive vs. the carry trade, presenting an opportunity for longer-term contracting. When utilities re-enter the term market, existing producers should benefit. Will utilities enter the term market this week as they have historically? Likely, but volumes are uncertain and coverage is solid.

Of course, much of the production on the cost curve would require far higher prices to be profitable. The chart below shows the estimated 2021 global uranium industry cost curve. Full costs include all mining, processing and site G&A costs as well as sustaining capex. Sunk costs and a rates of return are excluded. The exhibit shows that our long-term U3O8 price forecast of $47/lb is in line with the 90th percentile on the cost curve.

In other words, there is some marginal supply available but the price of uranium will have to rise well above $60 for it to be accessible. Today uranium is trading around $46, up almost 50% since Sprott launched his buying vehicle.

And while utilities are currently well-covered, NPP life extension may change that substantially. As BofA notes, "US utilities have the best contract coverage in 30 years. In the EU coverage is even better. We think utilities thus have bargaining power even with much higher spot prices and see contract prices that are lower (closer to our $47/lb long-term price). Yet, potential nuclear plant life extensions like Byron and Dresden will mean less inventory and contract coverage. We lower our 2021E loss per share (LPS) to $0.45 from $0.22, raise 2022E EPS to $0.25 from $0.08 and raise 2023E EPS to $0.59 from $0.20. Using a net asset value approach, CCO shares imply a $50/lb U3O8 price."

So what does all this mean for the industry? In a nutshell, sharply higher prices: here is BofA.

Given that we think there will be at the minimum a sustained bid in the spot market for U3O8 from SPUT combined with already tightening markets and the addition of Byron and Dresden to our demand forecast, we raise our 2021E to 2023E U3O8 price forecasts by 18%, 41% and 18% to $36.30, $53.50 and $48.50/b. Our long-term price is pushed to 2026E from 2025E and increased to $47/lb supported by an updated production cost curve. Our view is that prices will continue rising but peak in Q1’22 as plans for productive supply responses are revealed. We expect CCO to restart McArthur River in 2023E at a capacity utilization of around 30% and steadily ramp up from there.

 

A key driver of how fast uranium prices normalize will be the response time at the world's largest miner, Cameco, which according to BofA is "the only large, liquid, US listed vehicle for exposure to uranium." As BofA notes, "we are now assuming that CCO restarts it McArthur River mine, the largest uranium mine in the world at annual production of 25Mlbs, in 2023E. However, we see a very gradual restart with capacity utilization of just 30% in 2023E, 50% in 2024E to 2026E and then 100% from 2026E onward."

To be sure, Cameco will be asking itself does it want to produce more and lower both the price of uranium and its stock, or take its time with ramping production. One look at the recent action of the OPEC+ cartel should give an indication as to what it may do.

In other words, we do not expect major downward pressure on either the price of uranium or CCJ for the foreseeable future, something which even retail investors have now grasped making CCJ the most actively discussed name on the WallStreetBets forum a few days ago.

So with all that in mind, we look at what appears to be the first Sprott copycat to emerge in the past month, namely Uranium Royalty, which has surged as much as 18% after announcing that it’s entered into contracts for three additional spot purchases totaling 300,000 pounds of uranium, noting that the average cost of the purchases is $38.17 per pound, a number which is already a substantial discount to today's price.

Following completion of the deliveries, URC CN will hold a physical inventory of 648,068 pounds of uranium at a weighted average cost of $33.10 per pound. More from the press release:

It is within URC's mandate to make periodic purchases of physical uranium to provide attractive commodity price exposure to shareholders, especially in these early stages of a bull market in uranium. The global mega-trend towards de-carbonization is providing a major catalyst for carbon-free, safe, and reliable nuclear energy. The supply and demand fundamentals for uranium continue to improve, with demand for uranium now exceeding pre-Fukushima levels and global mine production (128 million pounds) expected to lag global consumption (191 million pounds) by 63 million pounds in 2021 (UxC data – Q3 2021 report).

This is the 5th year of the production/consumption gap which has had a positive impact on drawing down excess market inventories. The purchasing activities of producers and financial entities, like the Sprott Physical Uranium Trust have accelerated this rebalancing as of late, resulting in a 49% rise in the spot price in the past five weeks.

As Sprott continues to upsize its physical uranium fund to meet growing demand, and as the price of both uranium and producers continues to rise, expect many more tactical and strategic buyers of uranium to emerge as suddenly Uranium is the new silver and everyone is hoping to be the new Hunt Brothers.

Tyler Durden Wed, 09/15/2021 - 11:44

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