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Report: Kenorland Minerals — Attracting Barrick Gold as a new partner

 
The share price of Kenorland Minerals (KLD.V) had a nice run-up earlier this year as it spiked to about C$1.40 right before the summer months, but unfortunately,…

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This article was originally published by Caesars Report

The share price of Kenorland Minerals (KLD.V) had a nice run-up earlier this year as it spiked to about C$1.40 right before the summer months, but unfortunately, the share price came back down right away and the shares are currently trading at just C$0.70, for a market capitalization of C$32.5M.

That’s disappointing, as Kenorland continues to advance its projects on all fronts and on all levels as it’s working on its fully-owned exploration projects while Newmont (NEM, NEM.TO) and Sumitomo are spending their dollars on joint venture projects. Kenorland’s extensive land packages in the right mineralized districts tend to attract the attention of Tier-1 operators and in September, Kenorland announced Barrick Gold (GOLD, GOLD.TO) as a new optionor on the South Uchi project. That means a fourth project will now be advanced using the funds of a third party, which will further reduce the cash burn of Kenorland.

Kenorland Minerals North American Project Locations

Barrick Gold signed an option agreement on South Uchi

Kenorland recently announced Barrick Gold entered into an option agreement whereby it can obtain a majority stake in the South Uchi project, located within the Birch-Uchi greenstone belt in Ontario. Not only will Barrick spend cash on the ground, it will also reimburse Kenorland for all its sunk costs related to the project, and all costs related to exercising the underlying option which could be estimated at in excess of C$250,000.

The South Uchi project is located about 100 kilometers to the east-southeast of the Red Lake mining district in Ontario where Evolution Mining (EVN.AX) is now operating the Red Lake Gold mine, Pure Gold Mining (PGM.V) is trying to reach a positive free cash flow status and where Great Bear Resources (GBR.V) has been working on its Dixie discovery which will likely result in a multi-million-ounce maiden resource estimate.

While South Uchi isn’t located in the immediate vicinity of the aforementioned projects, the Kenorland team liked the rocks and while the majority of the gold endowment at Red Lake was found in the northern margin of the Confederation Assemblage, the Dixie Gold discovery by Great Bear was actually made on other zones of the Assemblage and the South Uchi claims cover a portion of this Confederation Assemblage volcanic rocks. And clearly, Barrick Gold agrees the rocks are interesting.

South Uchi Project Location

There isn’t a whole lot of information available on South Uchi as this project was staked by Kenorland less than six months ago, so it’s impressive to see the company has already locked in a Tier-1 partner to jointly explore the project.

Approximately 65,600 hectares were staked in April, while the company also entered into an agreement with a private vendor whereby Kenorland (and now Barrick) is able to acquire an additional 10,000 hectares of land by making total cash payments totaling C$175,000 and issuing C$175,000 worth of stock over a two year period. Now Barrick is optioning the project this structure gets a little bit more complicated but essentially, Barrick will pay Kenorland the C$175,000 whereafter Kenorland will issue C$175,000 in stock to the property vendor (subject to the floor price of C$0.70 per share). Once Kenorland/Barrick has completed the requirements to acquire the additional claims, the vendor will be issued a 2% NSR of which half (1%) could be repurchased for C$1M in cash or shares.

Going back to the Kenorland/Barrick agreement. In order to obtain an initial 70% interest in the project, Barrick Gold will have to spend at least C$6M in exploration expenditures within the first six years of the option period, whereby a minimum of C$3M has to be spent within the first three years of the option period. An interesting additional kicker is that Barrick also has to release a compliant resource calculation at South Uchi containing at least one million ounces of gold, so it’s not unlikely Barrick will have to spend more than C$6M on exploration in order to get to the required one million ounces to effectively establish the initial 70% stake in the project.

Once that 70/30 joint venture has been established, Barrick may elect to work towards completing a feasibility study on the project before the 10th anniversary of the option agreement. Should Kenorland not be interested in retaining a 30% stake in the project (which would happen in the case Barrick establishes a 70% stake but elects not to continue towards the 80%), Kenorland can immediately decide to convert its stake to a 3% NSR on unencumbered claims and a 2% NSR on claims where a royalty is already present.

Should an 80/20% joint venture be formed, Kenorland can let its stake dilute down to 10%, and should it drop further below 10%, KLD will end up with a 2% NSR on the unencumbered claims and a 1% NSR on encumbered claims.

This means there are lots of potential outcomes as to what Kenorland will effectively own at the end of the day, but the most important part is obviously the firm exploration commitment from Barrick in the first few years of the option agreement to rapidly advance the South Uchi project. Even if the project doesn’t meet Barrick’s requirements and Barrick drops out of the joint venture, every dollar spent on the claims by Barrick is a dollar that doesn’t have to be raised by Kenorland.

Other exploration updates

Before announcing the option agreement with Barrick Gold, Kenorland provided an exploration update on all seven exploration projects where exploration programs are currently actively managed, and the summary provided in that press release provides the key elements.

• Frotet Project, Quebec (Joint Venture with Sumitomo Metal Mining): 18,000m diamond drill program
• Healy Project, Alaska (Optioned from Newmont Corporation): 5,000m maiden diamond drill program
• Tanacross Project, Alaska (100% owned): soil geochemistry, UAV magnetic, and IP surveys
• Chicobi Project, Quebec (Optioned to Sumitomo Metal Mining): Geophysics (UAV magnetics, IP, EM)
• Hunter Project, Quebec (100% owned): Property-wide airborne VTEM geophysical survey
• Chebistuan Project (Optioned to Newmont Corporation): Phase 2 soil geochemistry survey
• South Uchi Project, Ontario (100% owned): LIDAR survey and regional till sampling (planned for fall)

Summary of 2021 Summer-Fall Exploration

As you see, Kenorland and its partners will be very active this year and the combination of all exploration programs will see a total of about C$17M spent on the projects. The majority of the funds will obviously be spent on the two drill projects as partner Sumitomo is drilling the high-grade Frotet gold discovery and Kenorland is self-funding the 5,000-meter drill program on the Healy gold project in Alaska, where it’s advancing an earn-in agreement with Newmont. These are the two most advanced projects in the portfolio.

At Frotet, the partners now have completed over 10,000 meters of the planned 18,000-meter drill program which was aiming to step out along the R1 and R2 gold-bearing structures while also doing some infill drilling and following up on additional mineralized zones within the Regnault trend. Meanwhile, field crews have been working on generating additional drill targets which will be part of a regional drill campaign in 2022.

Frotet Project Geochemical Sampling

The Healy drill program should be completed by now as it had reached a 96% completion rate in the first week of September. The 5,000 meters of diamond drilling were designed to systematically drill-test the Bronk, Thor, and Spike target areas. Assay results should be available in the fourth quarter.

Healy Proposed Drilling 2021

Kenorland (and partners) are also doing some early-stage work on the properties that aren’t drill-ready yet.

Frotet Project, Quebec (80/20 Joint Venture with Sumitomo Metal Mining Canada Ltd.): The Company has completed 9,889 meters of diamond drilling from the recently announced program consisting of up to 18,000 meters (see press release date July 14, 2021) allocated for infill and step-out drilling along the R1 and R2 gold-bearing structures as well as follow-up on additional zones of mineralization within the Regnault trend. In addition to drilling at Regnault, till and soil geochemical surveys as well as prospecting campaigns were completed on several regional areas of interest within the Frotet Project. This work has yielded a number of robust geochemical anomalies which warrant follow-up exploration including detailed geophysics in preparation for drill targeting. Drill testing of these regional target areas is tentatively planned for Q1 2022.

Healy Project, Alaska (Optioned from Newmont Corporation): The ongoing drill program at Healy (see press release date June 3, 2021) has been extended to include over 5,000 meters of diamond drilling to systematically test the Bronk, Thor and Spike target areas. The Company has also completed 5 line-kilometers of high-powered induced polarization (IP) and magnetotellurics (MT) which transects the entire Healy gold system. A total of 4,821 meters has been drilled to date and complete assays from the drill program are expected to be announced in Fall 2021.

Tanacross Project, Alaska (100% owned): The Company has completed an extensive soil geochemical and mapping survey covering East Taurus, West Taurus, and South Taurus prospects as well as the Big Creek target. A total of 1870 soil samples have been collected and sent for analysis. Detailed UAV magnetics surveys, consisting of over 600 line-kilometers, was flown over the same target areas. The Company has also completed 5 line-kilometers of high-powered IP and MT over the South Taurus target. Due to delays of the geochemical and geophysical surveys, the previously announced drill program planned at Tanacross has been put on hold until further notice, and the budget was reallocated to complete additional drilling at the Healy Project.

Chicobi Project, Quebec (Optioned to Sumitomo Metal Mining Canada Ltd.): The Company has received all assay and gold grain counts from the Phase 3 sonic drill-for-till geochemical program. A coherent, multi-element (including gold) anomaly, ‘Target B’, was identified from multiple sonic drilling campaigns which began with a property-wide regional survey in 2019. Detailed geophysical surveys are now being planned to refine drill targets within the anomaly. These geophysical surveys, which include drone magnetics, IP, and electromagnetics (EM), are planned for fall 2021. Initial diamond drill testing is tentatively scheduled for Q1 2022.

Chebistuan Project, Quebec (Optioned to Newmont Corporation): The Company has completed the Phase 2 geochemical survey following up on multiple anomalous areas of interest defined from the initial regional program in 2020. A total of 2,121 soil samples were collected for geochemical analysis and 225 till samples collected for gold grain analysis. A follow- up prospecting campaign is tentatively planned for the Fall.

Hunter Project, Quebec (100% owned): The Company has completed a property-wide airborne Versatile Time Domain Electromagnetic (VTEM) geophysical survey covering the 18,177-hectare project aimed to identify potential volcanogenic massive sulphide (VMS) targets for follow-up exploration. A total of 1,104 line-kilometers were flown at a spacing of 200m.

South Uchi Project, Ontario (100% owned): The Company has completed a LIDAR survey and surficial geology map covering the 76,511-hectare project. This data has been used for planning a first pass till geochemistry program scheduled for the Fall.

2021 Exploration Update

Drilling at the Healy Project

And of course, there are some smaller projects that have been vended into third parties, whereby Kenorland Minerals usually ends up with an equity stake and/or a Net Smelter Royalty. The September update from Kenorland also included a brief update on those projects.

Rupert Project (LiFT Power Ltd – Private) Kenorland recently optioned the Rupert Lithium Project, located in Quebec, to LiFT Power in return for a 10% equity interest in the company upon listing and a 2% uncapped NSR. A first-pass regional till sampling program has been completed covering ~1000 km2 of the prospective geologic sub-province boundary that hosts the Whabouchi lithium pegmatite deposit.

Napoleon Project (J2 Metals Inc. – Private) – The Company recently vended the Napoleon Project, located in Alaska to J2 Metals for a significant equity position and 2% uncapped NSR. J2 is currently carrying out a 3,000m rotary air blast (RAB) drill program to test multiple gold-bearing structures.

Fox River Project (Superior Nickel Corp. – Private) – The Company recently vended two mineral exploration licenses covering prospective Ni sulphide targets in the Fox River Belt in Manitoba in return for a significant equity position and 2% uncapped NSR, as well as an exploration commitment to complete 2,000m of diamond drilling to test various Ni-sulphide targets within the belt.

Goldrange and Thibert Projects (Kingfisher Metals Ltd. – TSXV: KFR): The Company holds a 2% uncapped NSR on the Goldrange and Thibert Projects as well as a significant equity position in Kingfisher. A 5,000m maiden diamond drill program is currently underway at Goldrange to test a large-scale gold-in-soil anomaly related to a previously undrilled gold system.

Prospector Royalty Corp. (Private) – The Company owns an approximate 40% stake in Prospector Royalty Corp., a private royalty generation and acquisition company which recently received a C$2 million strategic investment from Gold Royalty Corp. (NYSE: GROY).

Koulou Gold Corp. (Private) – The Company owns a 20% stake in Koulou Gold, a private West Africa-focused gold exploration company.

Other Equity and Royalty Interests

Of the C$17M total 2021 budgets, about C$11M will be funded by third parties, which means Kenorland will be on the hook for about C$6M in exploration expenditures this year but this amount will likely be reduced with the Barrick Gold announcement as the planned LIDAR survey (sunk cost) and regional till sampling program that is planned for this fall will now be (re-)funded by Barrick Gold.

Also, keep in mind Kenorland usually is the operator of all exploration projects and earns an operator fee for doing so. In the early September update, Kenorland estimated it will generate C$2M in management fees and cash payments from option deals and this, in combination with the tax credit for exploration expenditures, means the net cash outflow for Kenorland will be substantially lower than C$6M.

2021 Planned Exploration Activities

Conclusion

Kenorland Minerals is advancing multiple projects at the same time so there should be plenty of news flow going forward. Adding Barrick Gold as a new option partner on the South Uchi gold exploration project lends even more credibility to Kenorland and its approach, as this is the third Big Name optionor working on a property.

Assay results from both Frotet (Québec) and Healy (Alaska) could be expected in the next few weeks, and hopefully, this will attract some attention to the story as the current share price for sure is frustrating.

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Disclosure: The author has a long position in Kenorland Minerals. Kenorland Minerals is a sponsor of the website. Please read our disclaimer.









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Author: CR Team

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Energy & Critical Metals

Neo Lithium Reports US$1.13 Billion After-Tax NPV For Tres Quebradas

Neo Lithium Corp. (TSXV: NLC) shared on Tuesday the results of its feasibility study for the production of lithium carbonate at
The post Neo Lithium Reports…

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Neo Lithium Corp. (TSXV: NLC) shared on Tuesday the results of its feasibility study for the production of lithium carbonate at its Tres Quebradas lithium brine project in Catamarca Province, Argentina. The results highlighted US$1.13 billion after-tax NPV8%.

Compared to the previous pre-feasibility study, the results of the feasibility study show mine life extends to 50 years from 35 years. After-tax IRR is expected to be at 39.5% and the payback period is expected to be after 2.25 years from the start of the production.

The property is estimated to have an annual average production of 20,000 lithium carbonate tonnes. Furthermore, the property is expected to incur cash operating costs of US$2,954 per lithium carbonate tonne.

On capital costs, the property’s initial spending came to US$370.5 million, and sustaining capital spending is expected to be US$143.5 million for the life of mine.

The study also reported measured & indicated resources of 1.75 million tonnes of lithium carbonate at 800 mg/L cut-off and 5.37 million tonnes of lithium carbonate at 400 mg/L cut-off.

Proven and probable reserves for the property are reported to be 0.77 million tonnes of lithium carbonate equivalent for the first 20 years of production and 1.67 million tonnes of lithium carbonate equivalent for the life of mine.

Earlier this month, the mining firm announced that it will be acquired by Chinese mining company Zijin Mining Group Co. in a $960 million all-cash deal.

Neo Lithium last traded at $6.26 on the TSX Venture.


Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

The post Neo Lithium Reports US$1.13 Billion After-Tax NPV For Tres Quebradas appeared first on the deep dive.




Author: ER Velasco

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Energy & Critical Metals

United Lithium Achieves 99.1% Pure Lithium From Spodumene Concentrate

United Lithium (CSE: ULTH) this morning posted further results from testwork being conducted to produce lithium carbonate, also known as
The post United…

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United Lithium (CSE: ULTH) this morning posted further results from testwork being conducted to produce lithium carbonate, also known as Li2CO3. The technical grade of the lithium carbonate, as well as the recovery of Li2O is said to be excellent. The results follow the successful testing of proprietary floatation tech.

The lithium carbonate under the test process was produced from spodumene concentrate, with the testing producing a final product with a purity of 99.1%. Lithium rich pegmatite was sourced for the program from Canada, with spodumene specifically selected due to it being classified as the “most important commercial lithium mineral due to its high Li content and favourable processing characteristics.” The processes of calcination, acid roasting, and water leaching were used to produce the lithium carbonate from the spodumene.

Following the successful tests, the company is now proceeding to test for the product of lithium hydroxide from the spodumene concentrate. Pilot plant testing meanwhile will begin in early 2022, which will test lithium rich feed materials. The results of such testing will then be utilized for an economic assessment for the viability of producing lithium from both spodumene and petalite feed.

“Test work to date has demonstrated that it is possible to modify traditional processes and shortcut lithium carbonate production using innovative out of the box thinking. United Lithium aims to commercialize a sustainable and robust process flow sheet for lithium concentrate production, high grade lithium carbonate and potentially high purity battery grade lithium hydroxide, with the ability to accommodate multiple feed materials with minimal modifications,” said CEO Michael Dehn on the development.

United Lithium last traded at $0.70 on the CSE.


FULL DISCLOSURE: United Lithium is a client of Canacom Group, the parent company of The Deep Dive. The author has been compensated to cover United Lithium on The Deep Dive, with The Deep Dive having full editorial control. Additionally, the author personally holds shares of the company. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security.

The post United Lithium Achieves 99.1% Pure Lithium From Spodumene Concentrate appeared first on the deep dive.


Author: Jay Lutz

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Futures Slip From All Time High Amid Fresh China, Growth, Valuation Concerns

Futures Slip From All Time High Amid Fresh China, Growth, Valuation Concerns

One day after US equity futures hit an all time high, rising…

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Futures Slip From All Time High Amid Fresh China, Growth, Valuation Concerns

One day after US equity futures hit an all time high, rising to a record 4,590, risk sentiment has reversed and overnight index futures fluctuated and stocks in Europe retreated from a near-record on Wednesday after a flare up in U.S.-China tensions, signs of further regulatory crackdowns from Beijing, a decline in commodity prices, renewed concerns about economic growth and a rise in short-dated U.S. Treasury yields doused the equity market rally on Wednesday. At 7:45 a.m. ET, Dow e-minis were up 27 points, or 0.07%, S&P 500 e-minis were down 2.50 points, or -0.06%, and Nasdaq 100 e-minis were down 15.5 points, or 0.09%. Bonds and the dollar gained and bitcoin stumbled.

The overnight losses started earlier in Asia, where tech stocks suffered hefty falls after China’s internet watchdog said it planned stricter registration rules for younger net users, while Chinese tech shares slid on concerns about more scrutiny from Washington after the U.S. banned China Telecom’s American business. U.S. futures also turned negative as the bullish mood over Tuesday’s forecast-beating results from Google owner Alphabet and Microsoft started to wane.

Shares of energy firms including Exxon and Chevron tracked lower oil prices, while major lenders such as Bank of America slipped on a flattening U.S. yield curve. Microsoft Corp rose 2.1% in premarket trading after it forecast a strong end to the calendar year, thanks to its booming cloud business. Twitter gained 1.4% after the social networking site’s quarterly revenue grew 37% and avoided the brunt of Apple Inc’s privacy changes on advertising that hobbled its rivals. Google owner Alphabet also reported record quarterly profit for the third straight quarter on a surge in ad sales. However, its shares were down 0.6% after rising nearly 59% so far this year. Here are some of the biggest movers today:

  • Microsoft (MSFT US) shares gain 2.2% in premarket after first- quarter results that analysts said were very strong across the board, showing scale and justifying the valuation of the software giant.
  • Alphabet (GOOGL US) rises 1.3% after 3Q earnings earned a mostly positive reception from analysts, with at least three raising their price targets on the Google parent.
  • Twitter (TWTR US) adds 2% amid resilient third-quarter sales at the social media company as it weathers Apple’s new limits on consumer data collection.
  • Enphase Energy (ENPH US) gains 13% after its 3Q results and 4Q forecasts beat estimates. Analysts await more clarity on supply chain constraints.
  • Robinhood (HOOD US) slumps 12% as some analysts cut price targets after the retail brokerage reported 3Q revenue that missed estimates and flagged further weakness in 4Q.
  • Visa (V US) falls 2.4% as analysts flag a disappointing outlook from the payments company.
  • Texas Instruments (TXN US) declined 4% after a forecast that may disappoint some investors who are concerned about a potential slowdown in demand for electronic components. Watch peers for a readacross.
  • Angion (ANGN US) plunges 55% after company said a kidney transplant drug failed to meet primary end points in a phase three trial. European partner Vifor (VIFN SW) slips 6%.

“While some prominent earnings misses have clouded the picture, the reality is that on aggregate, the reporting season so far has been very solid,” said Max Kettner, a multi-assets strategist at HCBC Holdings Plc. “Everyone, literally everyone, in the market right now is worried about supply-chain constraints, higher input costs and the like, so headwinds from this side are now very well reflected in near-term earnings expectations.”

Concern over more tension between Beijing and Washington also weighed on markets after the U.S. Federal Communications Commission voted to revoke the authorization for China Telecom’s U.S. subsidiary to operate in the United States after nearly two decades, citing national security.

“We have good U.S. data in earnings which is very reassuring but valuation is very stretched in both the value as well as the growth sector,” said Sebastien Galy, senior macro strategist at Nordea Asset Management. “And people are also getting a bit hesitant and are a bit worried because the amount of money that is going through will slow down with the Fed slowly starting to taper – but that is not necessarily a bad thing.”

MSCI’s global equity benchmark hovered close to Monday’s seven-week high and is on track for the best month in almost a year.

However, European stocks softened, led by a 1.6% drop in mining and resource firms in the Stoxx Europe 600 index as prices of raw materials including aluminum and iron ore fell along with crude oil. Germany’s DAX underperformed after Europe’s biggest economy cut its 2021 growth forecast, citing the lingering effects of the pandemic and a supply squeeze. Bund yields dropped along with those on other European bonds. Bank shares also slipped, with Deutsche Bank down more than 5% despite forecast-beating earnings. Europe’s Stoxx 600 dropped about 0.3%, weighed down the most by miners and energy firms. FTSE 100 and DAX both down similar amounts. Here are some of Wednesday’s major earnings and corporate news from Europe

  • Deutsche Bank AG dropped more than 6% after disappointing earnings, while Banco Santander SA declined despite a bullish outlook.
  • Heineken NV fell after reporting a drop in demand for beer.
  • BASF SE slipped after flagging dwindling returns on its core suite of chemical products as sputtering global supply catches up with demand.
  • GlaxoSmithKline Plc rose after improving its profit outlook.
  • Dutch semiconductor equipment maker ASM International NV advanced after revenue forecasts beat analyst estimates.
  • Puma SE gained after raising full-year profit forecasts.
  • Temenos AG surged as much as 16% after Bloomberg reported EQT AB is exploring an acquisition of the Swiss banking software specialist.

Earlier in the session, the MSCI Asia Pacific Index was down 0.4% in late afternoon trading, paring an earlier drop of 0.7%, with Tencent, Alibaba and Meituan the biggest drags. Asian equities fell as risk-off sentiment fueled by renewed concerns over Evergrande’s debt woes and an escalation in China-U.S. tensions drove losses in Chinese tech giants. Benchmarks in Hong China and China led declines around the region. The Hang Seng Tech Index plunged as much as 3.9%, the most in over five weeks after Washington moved to ban U.S. business by China Telecom, following previous similar measures against Chinese tech firms including Huawei. Meanwhile, Secretary of State Antony Blinken called for a greater role by Taiwan in the United Nations, raising objections from Beijing. Chinese tech stocks have been rattled this year by a crackdown amid President Xi Jinping’s “common prosperity” campaign. There had been signs of a rebound recently, however, as the government signaled it would limit its restrictions. Investor confidence in beaten-down Chinese tech stocks hasn’t been fully restored “so they rush to dump those stocks at any negative news and signs of flow reversal,” said Castor Pang, head of research at Core Pacific-Yamaichi International Hong Kong. “This round of tech rebound has peaked,” he added. Key equity gauges also fell more than 0.5% in Indonesia and South Korea, while Vietnam’s benchmark climbed more than 2%.

Japanese equities fell, though they closed off intraday lows, as electronics makers and telecommunications providers drove losses. Auto and chemical makers provided support for the Topix which closed down 0.2%, paring an earlier drop of as much as 0.7%. The Nikkei 225 closed little changed, with a gain in Fast Retailing offsetting a drop in SoftBank Group. Asian stocks were broadly lower, as the U.S. moved to ban China Telecom and amid renewed concern over Evergrande’s debt woes. Meanwhile, Japan Exchange Group said Tokyo Stock Exchange will extend the trading day by 30 minutes in the second half of the fiscal year ending March 2025. 

In rates, the 10Y yield is down 1.2bp at 1.595%, trailing steeper declines for U.K. and German counterparts, which outperform by ~3bp as money markets trim expectations for BOE and ECB rate hikes. Long-end Treasuries continued to outperform vs front-end ahead of 5- and 7-year auctions Wednesday and Thursday, as well as month-end rebalancing expected to favor bonds over equities. Long-end yields are lower on the day by ~2bp, front-end yields higher by similar amounts, following selloff in Australia front-end bonds after strong 3Q CPI numbers. 5s30s curve breached 82bp for first time in a year. Gilts flatten further ahead of a revised gilt remit that is expected to report a GBP33b reduction. U.K. 10-year yield falls 5bps to 1.06%, the lowest since Oct. 14, outperforming bunds by ~1bp.

In FX, the Japanese yen strengthened ~0.5% against the U.S. dollar, leading G-10 majors and followed by the Swiss franc. All other G-10 peers are red against the dollar, which is up about 0.06%. The fading risk sentiment meanwhile pushed up the safe-haven Japanese yen which rose 0.4% against the U.S. dollar though the greenback in turn held just off a one-week high versus a currency basket.

The euro kept gravitating toward the $1.16 handle as overnight plays in the common currency as well as the loonie took the spotlight before the monetary policy meetings by the Bank of Canada and the ECB. The three-month Euro benchmark funding rate fell to -0.556%, matching the record low set on Jan. 6, as excess liquidity hovers near an all-time high seen earlier this month. The pound slipped and the Gilt curve bull-flattened ahead of the U.K. government’s budget announcement. The U.K. is expected to trim gilt sales to GBP33b, according to a Bloomberg survey of analysts at primary dealers.

Commodity currencies, led by the krone, fell and the Australian dollar erased an Asia-session gain in European hours. The Aussie earlier rallied while Australian 3-year yield surged as much as 24bps to briefly top 1% after core inflation accelerated back inside RBA’s target, and taking its game of chicken with the bond market to new heights. Kiwi trailed most G-10 peers following a record trade deficit. The Offshore Chinese renminbi fell against the U.S. dollar amid heightened U.S.-China tensions.

Currency and bond traders were looking to a slew of central bank meetings over the coming week for guidance. Canada is first up at 1400 GMT on Wednesday while the European Central Bank meets on Thursday, when the Bank of Japan also concludes its two-day meeting.

The Fed has all but confirmed it will soon start to whittle back its asset purchases, though has said that shouldn’t signal that rate hikes are imminent. Nevertheless, Fed funds futures are priced for a lift-off in the second half of next year.

“We updated our Fed call to show a hike in Q4 2022 and four hikes in 2023,” analysts at NatWest said in a note. “The inflation overshoot has been persistent,” they said. “There is (only) so much the Fed can tolerate before reacting … it feels inevitable that that conversation will be brought up more and more as we go into next year.”

Commodities are in the red. Brent crude down about 1.3% back to $85 a barrel, while WTI slips 1.7% to $83. Base metals drop. LME aluminium, copper, and nickel decline the most. Spot gold down $5 to trade around $1,787/oz.  The crypto space tumbled sharply shortly after the European close, pushing Bitcoin below $59,000 and wiping out much of the ETF launch gains. No changes are expected from Tokyo, but traders are expecting the ECB to push back on market inflation forecasts and are looking for hawkish clues from the Bank of Canada as prices put pressure on rates. Policymakers are facing a steady drip of evidence that there is no let-up from pressure on consumer prices. The latest came from Australia, where data showed core inflation hit a six-year high last quarter, raising the possibility of sooner-than-planned rate increases. The Australian dollar jumped after the data but soon pared the gains.

Looking at today’s busy calendar, we will get preliminary September wholesale inventories, durable goods orders and core capital goods orders from the US. In Europe, Germany November GfK consumer confidence, France October consumer confidence and Euro Area September M3 money supply are due. In central banks, monetary policy decisions from the Bank of Canada and Central Bank of Brazil will be released. On the corporate earnings front, companies reporting include Thermo Fisher Scientific, Coca-Cola, McDonald’s, Boeing, General Motors, Santander and Ford. Elsewhere, the UK government announces Autumn Budget and Spending Review.

Market Snapshot

  • S&P 500 futures little changed at 4,569.75
  • STOXX Europe 600 down 0.3% to 474.38
  • MXAP down 0.4% to 199.65
  • MXAPJ down 0.8% to 656.34
  • Nikkei little changed at 29,098.24
  • Topix down 0.2% to 2,013.81
  • Hang Seng Index down 1.6% to 25,628.74
  • Shanghai Composite down 1.0% to 3,562.31
  • Sensex up 0.2% to 61,468.43
  • Australia S&P/ASX 200 little changed at 7,448.71
  • Kospi down 0.8% to 3,025.49
  • German 10Y yield fell 4 bps to -0.157%
  • Euro little changed at $1.1593
  • Brent Futures down 1.1% to $85.46/bbl
  • Gold spot down 0.5% to $1,784.14
  • U.S. Dollar Index little changed at 93.98

Top Overnight News from Bloomberg

  • Chinese authorities told billionaire Hui Ka Yan to use his personal wealth to alleviate China Evergrande Group’s deepening debt crisis, according to people familiar with the matter
  • Germany cut its 2021 growth outlook to 2.6% — compared with a prediction of 3.5% published at the end of April — reflecting a scarcity in some raw materials and rising energy prices, particularly for gas, Economy Minister Peter Altmaier said Wednesday in an interview with ARD television
  • China plans to limit the price miners sell thermal coal for as it seeks to ease a power crunch that’s prompted electricity rationing and even caused a blackout in a major city last month
  • The SNB stressed that in light of the highly valued currency and the degree of economic slack, expansive monetary policy needs to be maintained, according to an account of President Thomas Jordan’s meeting with Swiss govt
  • Sweden’s National Debt Office is reducing its bond borrowing in both kronor and foreign currency because central government finances are recovering faster than expected from the pandemic, according to a statement

A more detailed look at global markets courtesy of Newsquawk

Asian markets adopted a downside bias as sentiment waned following the mild gains on Wall Street, in which the S&P 500 and DJIA eked out record closes after easing off best levels. The US close also saw earnings from behemoths Microsoft, Alphabet and AMD – the former rose 2% after blockbuster metrics, whilst the latter two dipped after-market. Meanwhile, Twitter shares rose almost 4% after hours as the Co. highlighted the lower-than-expected Q3 impact from Apple’s privacy-related iOS changes. On the flipside, Robinhood slumped over 8% after reporting a steep decline in crypto activity. It’s also worth noting that Berkshire Hathaway Class A shares – the world’s most expensive shares – are quoted +51% after-market (+USD 223,614.00/shr); reasoning currently unclear. Overnight, US equity futures resumed trade flat before a mild divergence became evident between the NQ and RTY, whilst European equity futures’ losses were slightly more pronounced. Back to APAC, the ASX 200 (+0.1%) was buoyed by its tech sector amid the post-Microsoft tailwinds from the US, but the sector configuration then turned defensive, whilst Woolworths slumped some 4% after earnings and dragged the Consumer Staples sector with it. The Nikkei 225 (-0.1%) saw losses across most sectors, with Retail, Insurance and Banks towards the bottom. The KOSPI (-0.8%) conformed to the downbeat mood, whilst Hyundai shares were also pressured amid its chip-related commentary. The Hang Seng (-1.6%) and Shanghai Comp (-1.0%) declined despite another substantial CNY 200bln PBoC liquidity injection for a net CNY 100bln. The Hang Seng accelerated losses in the first half-hour of trade with Alibaba, Tencent and Xiaomi among the laggards. Meanwhile. PAX Technology slumped 45% after the FBI raided the Co’s Florida officers amid suspicion PAX’s systems may have been involved in cyberattacks on US and EU organizations. Finally, 10yr JGBs were lower amid spillover selling from T-notes and Bund futures, whilst the Aussie 3yr yield topped 1.00% for the first time since 2019 as the trimmed and weighted Australian CPI metrics moved into the RBA’s target zone.

Top Asian News

  • China Agrees Plan to Cap Key Coal Price to Ease Energy Crisis
  • China Tech Stocks Slump as Tensions With U.S. Spook Investors
  • Top Court Orders Probe Of India’s Alleged Pegasus Use
  • Tokyo Stock Exchange to Extend Trading Day by 30 Minutes

European equities (Stoxx 600 -0.3%) are trading moderately lower in a session which has been heavy on earnings and light on macro developments. The APAC session saw more pronounced losses in Chinese bourses (Shanghai Comp -1%, Hang Seng -1.8%) compared to peers despite ongoing liquidity efforts by the PBoC with Hong Kong stocks hampered by losses in Alibaba, Tencent and Xiaomi. Stateside, performance across US index futures were initially firmer before following European peers lower with more recent downside coinciding with the US Senate Finance Committee Chairman unveiling a tax proposal focused on unrealised gains of assets held by billionaires and impose a 23.8% capital gains rate on tradable assets such as stocks; ES -0.1%. The US close saw earnings from behemoths Microsoft, Alphabet and AMD – the former rose 2% after blockbuster metrics, whilst the latter two dipped after-market. Meanwhile, Twitter shares rose almost 4% after hours as the Co. highlighted the lower-than-expected Q3 impact from Apple’s privacy-related iOS changes. On the flipside, Robinhood slumped over 8% after reporting a steep decline in crypto activity. In the pre-market, upcoming earnings highlights include McDonalds, Boeing, GM, Bristol Myers and FTSE 100-listed GSK. Back to Europe, sectors are mostly lower with Basic Resources and Oil & Gas names at the foot of the leaderboard amid performance in underlying commodity prices. Banking names are also trading on a softer footing following earnings from Deutsche Bank (-5.4%) which saw the Co. report a decline in trading revenues whilst managing to make a profit for the 5th consecutive quarter. Spanish heavyweight Santander (-2.5%) is also acting as a drag on the sector despite reporting a net profit above expectations for Q3 with some desks highlighting softer performance for its US operations. Elsewhere, Sodexo (+5.6%) is the best performer in the Stoxx 600 after strong FY results, whilst Puma (+3.2%) trades on a firmer footing after reporting a beat on Q3 earnings and raising guidance. To the downside, BASF (-1.0%) shares are seen lower despite exceeding expectations for earnings with the Co. cautioning that the impact from higher Nat Gas prices in the first nine months of the year amounted to EUR 600mln costs and a significant increase in costs is expected following the October price hike.

Top European News

  • Deutsche Bank Falls; Results Fail to Provide Fresh Catalyst
  • BASF Points to Chemical Price Surge Easing as Supply Increases
  • SNB’s Jordan Stressed Need for Loose Policy in Govt Meeting
  • U.K.’s Sunak Set to Cut Tax on Domestic Flights: The Independent

In FX, nearly, but not quite for the index in terms of turning full circle on Tuesday and matching the prior week high as it fell just shy at 94.024 vs 94.174 on October 18, while also narrowly missing 94.000 on a ‘closing’ basis with a last price of 93.956. Moreover, month end rebalancing factors are moderately bearish for the Greenback against G10 rivals, and especially vs the Yen that has a relatively large 1.6 standard deviation and appears to be playing out in the headline pair and Jpy crosses on spot October 29. Indeed, Usd/Jpy has recoiled further from yesterday’s peak circa 114.31 to sub-113.60 before taking cues from the BoJ tomorrow and Japanese retail sales in the run up, but decent option expiry interest between 113.55-50 (1.8 bn) may underpin and support the DXY by default within a narrow 94.008-819 band. More immediately for the Buck in particular and peers indirectly, US durable goods, advance trade, wholesale and retail inventories.

  • CHF/AUD – Also firmer vs their US counterpart, as the Franc clambers back above 0.9200 irrespective of a deterioration in Swiss investor sentiment and the growing chance that the SNB could be prompted to respond to a retreat in Eur/Chf from 1.0700+ to 1.0637 or so. Elsewhere, the Aussie has pared some of its post-core inflation inspired gains, but is holding close to 0.7500 and still outpacing its Antipodean neighbour as Aud/Nzd hovers around 1.0500.
  • NZD/CAD/GBP – A downturn in overall risk sentiment and the aforementioned cross headwinds are weighing on the Kiwi that has slipped under 0.7150 vs its US namesake, and it’s a similar tale for Sterling that failed to retain 1.3800+ status or breach 0.8400 against the Euro before the latest reports about France preparing retaliatory measures against the UK over the fishing rights dispute. On top of that, Eur/Gbp tides are turning into month end and the usual RHS flows seen into and around fixings, while the Pound may also be acknowledging a pull-back in Brent prices in advance of the Budget, like the Loonie in respect of WTI ahead of the BoC, with Usd/Cad back above 1.2400 compared to 1.2350 at one stage on Tuesday and a tad lower in the prior session. Note, the break-even via implied volatility indicates a 58 pip move on the policy meeting that comes with a new MPR and press conference from Governor Macklem.
  • EUR – Notwithstanding several gyrations and deviations of late, the Euro seems largely anchored to the 1.1600 mark vs the Dollar and yet more option expiries at the strike (1.5 bn today) may well be a contributing factor as the clock continues to tick down Thursday’s ECB convene that is seen as a dead rubber event in passing ahead of the big one in December – check out the Research Suite for a preview and other global Central Bank confabs scheduled this week.
  • SCANDI/EM – Hardly a surprise to see the Nok recoil alongside crude prices, but the Sek is holding up relatively well in wake of an uptick in Swedish household lending and a big swing in trade balance from deficit to surplus. Conversely, the Try’s stoic revival mission has been derailed to an extent by dip in Turkish economic confidence offsetting a narrower trade shortfall, the Rub and Mxn are also feeling the adverse effects of oil’s retracement, the Zar is tracking Gold’s reversal through 200 and 100 DMAs, and the Cny/Cnh have been ruffled by the latest US-China angst, this time on the telecoms front. Last, but not least, the Brl anticipates a minimum 100 bp SELIC rate hike from the BCB, if not 125 bp as some hawkish forecasts suggest.

In commodities, a softer start to the session for WTI and Brent seemingly stemming from the cautiously downbeat tone portrayed by broader risk and continuing to take impetus from last night’s Private Inventory report. For reference, the benchmarks are currently lower in excess of USD 1/bbl and WTI Dec’21 has been within touching distance of the USD 83.00/bbl figure, though is yet to test the level. Returning to yesterday’s crude report which printed an above consensus build of 2.318M for the headline print while the gasoline and distillate components were unexpectedly bearish, posting modest builds against expected sizeable draws. Looking ahead, the EIA release is expected to post a headline build. Aside from this, crude specific newsflow has been limited ahead of next week’s OPEC+ gathering though Iran remains on the radar given the latest release of constructive commentary on nuclear discussions. Albeit, we are still awaiting details on a return to full Vienna discussions. Moving to metals, spot gold and silver are softer on the session in a continuation of action seen around this time during yesterday’s session; metals pressured in wake of a choppy, but ultimately firmer, dollar. Elsewhere, China has reportedly agreed to set a price cap for thermal coal sales and comes as part of the ongoing crackdown by China on the commodity which spurred Zhengzhou thermal coal futures to hit limit-down overnight.

US Event Calendar

  • 8:30am: Sept. Durable Goods Orders, est. -1.1%, prior 1.8%; 8:30am: Durables Less Transportation, est. 0.4%, prior 0.3%
    • Sept. Cap Goods Orders Nondef Ex Air, est. 0.5%, prior 0.6%
    • Cap Goods Ship Nondef Ex Air, est. 0.5%, prior 0.8%
  • 8:30am: Sept. Retail Inventories MoM, est. 0.2%, prior 0.1%; Wholesale Inventories MoM, est. 1.0%, prior 1.2%
  • 8:30am: Sept. Advance Goods Trade Balance, est. -$88.3b, prior -$87.6b, revised -$88.2b

DB’s Jim Reid concludes the overnight wrap

It’s day 42 out of 42 on crutches without any weight bearing on my left leg. Over that period I’ve been hopping, crawling, sliding, and using the crutches as a pole vault amongst other various forms of self transportation. So sadly today is the last day I get waited on. When I wake up tomorrow I’ll try to walk again and fend for myself.

Equities threw away their crutches a couple of weeks ago and haven’t looked back. US Earnings have helped and while they aren’t as good as the headline beats suggest, due to big unwinding of reserves for loan loss provisions at the banks, they are notably better than some of the stagflationary gloom stories that dominated in the weeks ahead of this season. A reminder that our equity guys did their state of play on earnings a couple of days back here.

Big tech was always going to be the swing factor between a slightly better than normal level of beats and a more aggressive one. Last night Alphabet, Microsoft, and Twitter all reported after hour. Alphabet and Microsoft beat on both sales and earnings, while Twitter’s revenue just missed expectations but traded higher after hours. Of the 41 S&P 500 companies that reported yesterday, 33 beat estimates. For the earnings season to date, 166 S&P companies have reported, with 139 beating earnings estimates.

Prior to this, markets continued to stay in their “new normal” of record or cyclical high equity prices and multi-year breakeven highs. Positive surprises for earnings on both sides of the Atlantic helped yesterday as did strong US consumer confidence numbers.

Starting with the US, along with strong earnings, a number of positive surprises in an array of economic data yesterday did just enough to push the S&P 500 (+0.18%) and the DJIA (+0.04%) to new record highs, while the Nasdaq (+0.06%) fell short of beating its record set on September 30th. The FAANG Index lagged on the day, dropping -0.33%, but managed new all-time highs intraday. On the other side of the Atlantic, European equities notched solid gains as well, with most major European markets finishing well in the green territory, lifting the STOXX 600 by +0.75% – a fraction below its record high. All index sectors but energy (-0.29%) finished higher on the back of strong earnings early in the session, particularly from UBS and Novartis.

Taking a closer look at the aforementioned economic data, October US consumer confidence came in at 113.8 versus 108.0 expected, while the Richmond Fed Manufacturing index rose to 12, beating expectations of 5. In housing, new home sales for September (800k) surpassed estimates (756k) by a decent margin, whereas the August FHFA House Price Index came in at +1.0% versus +1.5% expected. There were further signs of a tight US jobs market as the labour market differential in the Conference Board index improved to 45.0, the best reading since 2000.

Similar to Monday, breakevens climbed as real yields fell in the US and Germany. Nominal 10-year Treasuries were -2.3bps lower, while breakevens increased +2.6bps to 2.69%, still just a hair beneath all-time highs for the series. 10-year bunds declined -0.3bps while the breakeven widened +3.0bps. Breakevens took a breather in the UK, narrowing -8.6bps, whilst 10-year gilts were -3.0 bps lower.

In Asia, most major indices are down this morning. The Nikkei 225 (-0.61%), KOSPI (-0.92%), Hang Seng (-1.58%) and Shanghai Composite (-0.92%) are all trading lower. Sentiment soured after the real estate saga continued with Chinese authorities asking companies to get ready to repay offshore bonds, while also urging Evergrande’s founder to employ his own wealth to aid the struggling developer. Additionally, in geopolitics, the US Federal Communications Commission banned China Telecom (Americas) Corp. from operating in the US on the back of national security concerns.

Data releases from Asia continued to support the inflationary narrative amid rising commodity prices as we saw a +16.3% YoY growth in China’s industrial profits in September, up from +10.1% a month earlier. Meanwhile, Australia’s trimmed mean CPI (+2.1%) came in above expectations (+1.8%), sending the 3y yield higher by +14.5bps. The S&P 500 mini futures (0.00%) is broadly unchanged with the 10y Treasury at 1.622 (+1.4bps).

In commodities, oil futures were mostly mixed yesterday, but both WTI (+1.06%) and Brent (+0.48%) managed to rise by the European close, as Saudi Aramco said earlier in the session that oil output capacity is declining rapidly across the world. On the other hand, European weather forecasts that pointed at lower temperatures starting next week did little to propel natural gas prices, which declined both in the region (-0.33%) and in the US (-0.27%).

Briefly taking a look at the virus news, The FDA’s vaccines advisory committee voted 17-0 to back jabs for kids ages 5-11. The dose for the younger cohort amounts to one third of the current one given to those over the age of 12, which means that it could be more quickly distributed if the demand is there. The agency will give its final ruling soon, which is expected to follow the panel’s recommendation, and then the shots could be distributed within weeks to schools, pediatricians, and pharmacies. Elsewhere, Singapore will allow fully vaccinated travelers from Australia and Switzerland to enter without quarantine from November 8.

In terms of upcoming data releases today, we will get preliminary September wholesale inventories, durable goods orders and core capital goods orders from the US. In Europe, Germany November GfK consumer confidence, France October consumer confidence and Euro Area September M3 money supply are due. In central banks, monetary policy decisions from the Bank of Canada and Central Bank of Brazil will be released. On the corporate earnings front, companies reporting include Thermo Fisher Scientific, Coca-Cola, McDonald’s, Boeing, General Motors, Santander and Ford. Elsewhere, the UK government announces Autumn Budget and Spending Review.

Tyler Durden
Wed, 10/27/2021 – 07:53





Author: Tyler Durden

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