Thursday, July 7, 2022

Morning Note: This'll Sound Familiar

We tackled copper a bit in yesterday's video commentary. Bottom line, while the correction the metal's seen of late certainly makes sense, we maintain our long-term bullish view.

Just read BCA Research's latest on commodities. They agree:

"...political and economic evolution will require increased investment in base metals production and exploration, along with similar commitments to oil and gas. Low and volatile prices will not support this, as they disincentivize investment, and set markets up for continued shortage and scarcity going forward. In the metals markets, years of underinvestment by major mining companies will keep copper supplies and inventories tight going forward (Chart 4). This will hinder and delay the global renewable-energy transition, which cannot be realized without higher base-metals supplies."

And, coincidentally, economist Peter Boockvar went there in his not this morning. This will sound very familiar to regular readers/viewers:

"China is reverting back to its old hand of infrastructure spending on word that they will allow local governments sell more bonds to raise money for this fiscal stimulus. Bloomberg is reporting it could be as much as 1.5T yuan or about $220b and would be also partly a pull forward to 2022 of what would have been issued in 2023. In response copper is rallying by almost 4% and iron ore is higher by 3%. We know that the best stimulus the Chinese can do is easing covid restrictions."

This week's release of the ISM Services Sector Survey results certainly didn't spell perfection, but despite all the hoopla of late (much of it justified, btw), it didn't spell recession either.

Here's from the report:

"...all 18 industries reported growth. The composite index indicated growth for the 25th consecutive month after a two-month contraction in April and May 2020. Growth continues — albeit slower — for the services sector, which has expanded for all but two of the last 149 months. The slight slowdown in services sector growth was due to a decline in new orders and employment. The Employment Index (47.4 percent) contracted, and the Backlog of Orders Index grew 8.5 percentage points, to 60.5 percent. Logistical challenges, a restricted labor pool, material shortages, inflation, the coronavirus pandemic and the war in Ukraine continue to negatively impact the services sector.”

And here's its featured respondents' comments:

“Supply chain and supplier reliability continues to improve for most of our key food and packaging needs. Equipment still (experiencing) typical long delays. Staffing employment challenges have resurfaced, and costs have dramatically increased on core needs, led by soybean oil products. Rise in diesel fuel affecting almost everything.” [Accommodation & Food Services]
“(Interest) rate increases have slowed sales but have not helped with supply challenges yet.” [Construction]
“While activity dropped 2 percent from the previous month, activity volume was 47 percent higher compared to May 2021.” [Educational Services]
“It seems like everyone is jumping on the bandwagon (of) raising prices under the guise of inflation, cost of energy and shortages. Costs on even software renewals have gone up between 5 and 10 percent. This is getting out of control, and we need to be diligent in researching the cause of rising prices on every transaction.” [Public Administration]
“The shutdowns in China due to the zero-COVID policy have adversely impacted our supply chain.” [Health Care & Social Assistance]
“Demand has softened across consumer product lines, channels and brands over the last year, to levels below those forecast earlier this year. Adjusting all outlooks down for the rest of year. The (Shanghai) omicron slowdown had an impact, but activity is slowly coming back.” [Information]
“Energy services sector demand and activity remains strong.” [Mining]
“Consumers are shifting purchases away from our discretionary products to essentials. Inflation is definitely taking a bite from our sales, and mall traffic is far below the norm, potentially due to inflation, a need for more disposable income on essentials and less willingness to drive to malls. E-commerce sales will be going up again.” [Retail Trade]
“Despite higher inflation and energy costs, demand and business activity continue to be at record highs, with little sign of a slowdown.” [Utilities]
“Business continues to stay steady amid rising interest rates, a lack of labor, inflation, transportation problems and high gas/diesel prices. Outlook is measured due to economic headwinds.” [Wholesale Trade]

Asian equities rallied overnight, with 13 of the 16 markets we track closing higher.

Europe's catching a nice bid so far this morning, with 17 of the 19 bourses we follow trading higher as I type.

US stocks are rallying this morning as well: Dow up 249 points (0.81%), SP500 up 1.08%, SP500 Equal Weight up 1.17%, Nasdaq 100 up 1.35%, Nasdaq Comp up 1.49%, Russell 2000 up 2.11%.

The VIX sits at 26.16, down 2.13%.

Oil futures are up 5.14%, gold's up 0.43%, silver's up 1.53%, copper futures are up 4.77% and the ag complex (DBA) is up 2.29%.

The 10-year treasury is down (yield up) and the dollar is down 0.13%.

Among our 38 core positions (excluding options hedges, cash and short-term bond ETF), 36 -- led by MP Materials, energy stocks, uranium miners, base metals miners and solar stocks -- are in the green so far this morning. The 2 losers (just barely) are treasury bonds and AT&T.

"Risk and time are opposite sides of the same coin, for if there were no tomorrow there would be no risk. Time transforms risk, and the nature of risk is shaped by the time horizon: the future is the playing field."
--Bernstein, Peter L.. Against the Gods  

Have a great day!


  1. Nice quote: "for if there were no tomorrow there would be no risk". This brings me to the thought that LIFE is a journey. The people we meet and the experiences we have shape who we are. Each day is a different day. We should value now and save the worry for tomorrow. In the same token, if we manage the risk today, tomorrow result does not matter.