Articles in Category: Macroeconomics

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According to the U.S. Census Bureau and the Department of Housing and Urban Development, privately owned housing starts in July fell 4.0% from the previous month, but rose 0.6% on a year-over-year basis.

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July housing starts reached a seasonally adjusted annual rate of 1.19 million, down from 1.24 million starts the previous month. July 2018 housing starts reached 1.18 million.

Meanwhile, single‐family housing starts came in at a rate of 876,000, marking a 1.3% increase from June’s 865,000. For units in buildings with five units or more, the July rate came in at 303,000.

July housing units authorized by building permits came in at a seasonally adjusted rate of 1.34 million units, up 8.4% from June’s 1.23 million units. The July total marked a 1.5% year-over-year increase from July 2018’s 1.32 million units.

Authorizations for single-family housing in July came in at a rate of 838,000, up 1.8% from June’s 823,000, while authorizations of units in buildings with five units or more came in at a rate of 453,000 in July.

Lastly, July housing completions came in at a seasonally adjusted annual rate of 1.25 million, up 7.2% from June’s 1.67 million and up 6.3% from July 2018’s 1.18 million. Completions for single-family housing reached a rate of 918,000, up 4.3% from June’s 880,000. Completions of units in buildings with five units or more reached a rate of 321,000.

In other news, late last month the National Association of Realtors (NAR) reported pending home sales jumped 2.8% in June, marking the second consecutive month of pending home sales growth.

The NAR’s Pending Homes Sales Index jumped 2.8% to 108.3 in June, up from 105.4 the previous month.

Contract signings in July were up 1.6% on a year-over-year basis, ending a 17-month streak of year-over-year declines, according to the NAR.

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“Homes are selling at a breakneck pace, in less than a month, on average, for existing homes and three months for newly constructed homes,” said Lawrence Yun, the NAR’s chief economist. “Furthermore, homeowners’ equity in real estate has doubled over the past six years to now nearly $16 trillion. But the number of potential buyers exceeds the number of homes available. We need to see sizable growth in inventory, particularly of entry-level homes, to assure wider access to homeownership.”

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This morning in metals news, iron ore prices this week have plunged, the Energy Information Administration (EIA) released its short-term energy outlook and China could weaken its currency further.

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Iron Ore Prices Plunge

After reaching five-year highs earlier this year, aided by supply-side disruptions in Brazil and Australia, the iron ore price has plunged this week.

The iron ore price reached around $120 per ton earlier this year, but has fallen to the $80s this week. According to Bloomberg, iron ore on the Singapore Exchange for September fell as much as 7% to $86.68 per ton, while Dalian Commodity Exchange futures fell as much as 5.1%.

EIA Releases Short-Term Energy Outlook

The EIA released its short-term energy outlook this week, predicting average monthly gasoline prices in the U.S. peaked in May at $2.86 per gallon.

The EIA estimated U.S. crude oil production in July reached 11.7 million b/d, down 0.3 million b/d from June.

Meanwhile, Brent crude spot prices averaged $64 per barrel in July, flat compared with June but down $10 per barrel from July 2019.

China Could Devalue Currency Further

Recently, the U.S. Treasury Department officially designated China a currency manipulator after China devalued its currency to levels not seen since the financial crisis.

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According to The New York Times, China could devalue its currency further. Per the report, on Thursday China’s central bank set the midpoint of the renminbi’s daily trading range above 7 to the U.S. dollar for the first time in over a decade.

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This morning in metals news, the American Iron and Steel Institute (AISI) applauded the U.S. Treasury’s designation of China as a currency manipulator, U.S. companies are hoping the Trump administration does not impose tariffs on copper from the E.U. and Novelis announced its quarterly financial results.

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U.S. Treasury Labels China a Currency Manipulator

On the heels of the devaluation of the yuan to levels not seen since the 2008 financial crisis, the U.S. Treasury officially designated China as a currency manipulator.

“This pattern of actions is also a violation of China’s G20 commitments to refrain from competitive devaluation,” the Treasury said in a statement. “As highlighted in the FX Report, Treasury places significant importance on China adhering to its G-20 commitments to refrain from engaging in competitive devaluation and to not target China’s exchange rate for competitive purposes. Treasury continues to urge China to enhance the transparency of China’s exchange rate and reserve management operations and goals.”

The American Iron and Steel Institute (AISI) applauded the move.

“Today’s action by the Treasury Department is welcome news for the steel industry and American manufacturing,” AISI President and CEO Thomas J. Gibson said in a prepared statement. “China was, and remains, a currency manipulator. The Chinese government’s actions today are just one more instance of its active role in manipulating the value of its currency to promote Chinese exports. We applaud the decisive action today by President Trump and the U.S. government to address the damage, and unfair competitive advantage, that China’s undervalued currency has caused to our nation’s manufacturing sector – especially the steel industry.”

U.S. Companies Concerned About Copper Tariff

As the U.S. has proposed tariffs on a number of items — including copper alloys — from the E.U. as part of the ongoing battle over Airbus subsidies, several U.S. companies have expressed concern.

During a United States Trade Representative (USTR) hearing Monday, many testified to ask the USTR to remove the copper tariffs from the proposed list, Reuters reported.

Novelis Reports 1Q 2020 Earnings

Novelis announced its first-quarter earnings for fiscal year 2020, posting net income of $127 million (down from $137 million for the same quarter in 2018).

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Excluding special items, however, the firm reported net income of $145 million, up from $115 million the previous year.

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The Chinese currency, the Renminbi, has been on a downward trend since the spring, apart from a brief recovery on the back of a resumption in trade talks.

But this week the currency dropped through the psychologically important Rmb 7 to the dollar barrier, hitting 7.1114 — a level not seen in the 11 years since the financial crisis.

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The Renminbi is allowed to trade within a 2% band but has been hitting the lower level more than the upper for weeks as trade tensions have taken their toll.

Last week’s announcement that the U.S. would levy a 10% tariff on a further $300 billion of Chinese goods prompted a sharp sell-off by investors seeking safer havens and raised worries of capital flight.

The People’s Bank of China (PBoC) will come in for criticism in Washington and, no doubt, allegations of currency manipulation.

The reality is protecting a country’s currency against market devaluation can be a hugely expensive exercise.

The PBoC burned through $103 billion in 2016 trying to defend the currency, the Financial Times reports, with little to show for it.

Should we care, you may ask?

Well, yes. Currency movements do impact our own costs and global trade patterns, sometimes in unexpected ways.

For importers of Chinese goods, it could be good news, as it will allow Chinese exporters to lower prices. For U.S. exporters to China, however, it will raise prices in Renminbi of goods made in the U.S., such as Harley-Davidsons or agricultural goods, when they are priced in the local currency.

The ripple effect of the yuan’s devaluation spreads beyond just U.S.-China trade.

The hot money rapidly exiting Chinese assets poured into safe havens like the yen, driving the Japanese currency to 105.99 to the dollar, its strongest level since early 2018. A stronger yen will make goods imported from Japan more expensive to U.S. consumers, or pinch Japanese exporters’ margins and limit their ability to negotiate lower prices.

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Not surprisingly, stock markets took a hammering.

All Asian markets were down on the news, but so, too, were most Asian currencies. The Korean won fell 0.7% to Krw 1,213.30 to the dollar, while the Australian dollar dropped 0.8% to $0.6746, as markets feared the trade war could spread to a currency war.

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This morning in metals news, the copper price fell to a two-year low, the value of the Chinese yuan fell past an important barrier and Rio Tinto offered an update on its Winu project.

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Copper Plunges to Two-Year Low

As trade worries continue to bubble, the copper price fell to a two-year low, Reuters reported.

Recently, President Donald Trump announced the intention to impose a 10% tariff on an additional $300 billion in Chinese goods, effective Sept. 1.

The three-month LME copper price fell to $5,640 per ton, according to the report.

Chinese Yuan Falls to Recession-Era Level

The yuan devalued to levels last seen during the 2008 financial crisis, according to a CNBC report.

The yuan dropped to trade at 7.0304 against the dollar, ticking above the 7 barrier for the first time since 2008, according to the report.

Rio Tinto Updates on Winu Project

Miner Rio Tinto previously announced that it had found copper-gold mineralization at its Winu project in Western Australia.

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More recently, the miner offered updates on the progress of exploration at the site.

“Drilling is ongoing with eight diamond rigs and three RC rigs drilling at Winu and further results will be reported in the first quarter of 2020,” Rio Tinto said. “RC and diamond drilling is continuing, with RC drilling primarily focussed on defining the extent and tenor of the supergene zone and diamond drilling continuing to test the extents of the deposit.”

However, the miner said the project is still at an “early stage” and that further work is required to understand the level of copper-gold mineralization present at the site.

This morning in metals news, the EPA reversed an Obama-era decision regarding an Alaskan mining project, the Federal Reserve issued its first rate cut since the financial crisis and a Chinese billionaire is alleged to have instituted a scheme to avoid $1.8 billion in tariffs on aluminum exported to the U.S.

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EPA Decision Undoes Obama-Era Ruling

The EPA issued a ruling that reversed an Obama-era ruling that had blocked an Alaskan mining project, CNN reported.

According to the report, the Pebble Mine project had previously been blocked because the EPA during the Obama administration determined the project would have adverse effects on the area’s fish habitat.

Fed Issues First Rate Cut Since 2008

As many had expected, the U.S. Federal Reserve on Wednesday announced its first interest rate cut since 2008.

The Fed and Chairman Jerome Powell have come in from criticism by President Donald Trump for previous rate increases, arguing they were hampering the economy’s momentum.

The rate decrease announced Wednesday come in at a quarter of a point, down to 2-2.25%.

“Job gains have been solid, on average, in recent months, and the unemployment rate has remained low,” the Fed said. “Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.”

Chinese Billionaire Accused of Scheme to Avoid $1.8B in Aluminum Tariffs

In a 53-page indictment released by a federal grand jury this week, a Chinese billionaire is accused of misrepresenting aluminum exports to the U.S. as pallets in an effort to avoid $1.8 billion in aluminum tariffs.

“The 53-page indictment alleges that China Zhongwang Holdings Limited, Asia’s largest aluminum extrusion company; Zhongtian Liu, the company’s former president and chairman; and several individual and corporate co-defendants lied to U.S. Customs and Border Protection to avoid paying the United States $1.8 billion in anti-dumping and countervailing duties (AD/CVD) that were imposed in 2011 on certain types of extruded aluminum imported into the United States from China,” the U.S. Attorney’s Office of the Central District of California said in a release.

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According to the documents, the aluminum exports were simple extrusions, rather than pallets. The products, misrepresented as pallets in order to circumvent tariffs, were then sold “to related entities to fraudulently inflate the company’s revenues and deceive investors around the world,” the indictment alleges.

June housing starts in the U.S. fell 0.9% compared with May levels, according to the monthly housing start report by the U.S. Census Bureau and the Department of Housing and Urban Development (HUD).

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June housing starts reached a seasonally adjusted annual rate of 1,253,000, down from the revised May estimate of 1,265,000.

However, June starts increased 6.2% on a year-over-year basis, up from June 2018’s rate of 1,180,000.

Single-family starts hit a rate of 847,000, up 3.5% from the May’s 818,000.

Meanwhile, the rate for units in buildings with five units or more reached 396,000.

Building Permits

Privately owned housing units authorized by building permits reached a seasonally adjusted annual rate of 1,220,000 in June, marking a decrease of 6.1% from May’s 1,299,000. June 2019 building permits also declined 6.6% on a year-over-year basis from June 2018’s rate of 1,306,000.

Permits for single-family homes jumped 0.4% from the previous month, rising to a rate of 813,000.

Permits for units in buildings with five units or more reached 360,000, according to the report.

Housing Completions

Privately owned housing completions reached an annual rate of 1,161,000 for June, according to the Census and HUD report.

The June completions figure marked a 4.8% drop from the May total and a 3.7% drop on a year-over-year basis.

In addition, single-family housing completions, at 870,000 in June, fell 1.8% from the previous month. The June rate for buildings with five units reached 283,000.

Pending Home Sales

According to the National Association of Realtors (NAR), pending home sales increased 1.1% in May over the previous month.

NAR’s Pending Homes Sales Index, which is based on contract signings, jumped 1.1% to 105.4, up from 104.3 in April.

Lawrence Yun, NAR’s chief economist, pointed to lower mortgage rates in explaining the uptick in sales.

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“Rates of 4% and, in some cases even lower, create extremely attractive conditions for consumers,” Yun said in an NAR release. “Buyers, for good reason, are anxious to purchase and lock in at these rates.”

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This morning in metals news, Federal Reserve Chairman Jerome Powell hinted interest rate cuts could be coming later this month during testimony before the House of Representatives, Southern Copper Corp received authorization from the Peruvian government to build a $1.4 billion mine and U.S. steel shipments in May fell 0.8% from the previous month.

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Fed Chairman Testifies Before House

In much-anticipated testimony by Federal Reserve Chairman Jerome Powell, Powell cited trade tensions and the global economic outlook as factors weighing on the U.S. economy, CNN reported.

According to the report, he also hinted at possible interest rate cuts this month. Powell has come in for criticism from President Donald Trump for raising interest rates back in December, arguing the increase has prevented further economic growth.

Powell is scheduled to testify again Thursday before the Senate.

Southern Copper Gets OK on Long-Delayed Mine

Southern Copper received authorization from the Peruvian government to move forward with a planned $1.4 billion mine, Bloomberg reported.

According to the report, construction of the mine has been delayed since 2010.

May Steel Shipments Down

U.S. steel shipments fell 0.8% in May compared with the previous month, according to the American Iron and Steel Institute (AISI).

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May shipments totaled 8.14 million net tons, down 0.8% from the 8.21 million net tons shipped in April but up 1.1% from the 8.06 million net tons shipped in May 2018.

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Before we head into the weekend, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner:

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During his presidency, Donald Trump has taken on friend and foe alike — often with equal vigor — if he believes some degree of unreasonable behavior has been going on to the detriment of the U.S.

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The E.U. has experienced its fair share on that front: tariffs on steel and aluminum (along with much of the rest of the world), threats to the automotive industry (particularly the German car industry) in the form of heightened tariffs and threats to pull out of NATO if Europe doesn’t pay its way.

So far, much of the aforementioned has proved to be bluster. Subsequent negotiations have watered down some of the threats and/or postponed implementation to allow for some form of a negotiated settlement.

But according to a report in The Telegraph, the latest object of the administration’s ire could result in a much more serious breach between the old allies.

That the Euro is undervalued and the dollar relatively overvalued is no secret.

That both are where they are, it has to be said, is also not due to one or two simple actions but to a combination of circumstances — some deliberate and often coming with both intended and unintended consequences.

The dollar, for example, has hit a 17-year high, according to the Federal Reserve’s broad dollar index, The Telegraph reports. Trump’s tax cuts came at the top of the cycle and pushed the budget deficit to 4% of GDP, encouraging the Fed to prematurely raise rates last year.

Meanwhile, the manufacturing trade deficit has ballooned to $900 billion as U.S. manufacturers struggle against a strong dollar and the imposition of import tariffs raising raw material costs. After an initial boost, this is now having a toxic mix of depressing economic growth while holding up the dollar, making an export-led recovery harder.

The Euro has gone in the opposite direction.

Quantitative easing (QE) has depressed the Euro for the last five years. The trade-weighted index fell 14% a year after Mario Draghi, president of the European Central Bank, signaled bond buying was coming in 2014. That has been a powerful stimulus, such that Germany is now running a current account surplus of 8.5% of GDP and Europe as a whole is running a surplus of $300 billion-$400 billion per annum.

Since QE stopped last year and hastened by a slowing China, growth in Europe has slumped; the ECB is desperate to get it going again.

But the ECB will have to be a lot more radical than it was with previous measures.

Yields on 10-year German Bunds are -0.3%, in the paper’s words, and the bond markets are signaling an ice age. Inflation expectations — and, by association, growth — have collapsed, but the ECB will have to get radical if it is going to achieve any impact, which will be seen as currency manipulation in Washington (a position that, for once, lawmakers on both sides can agree on).

The president will have plenty of support for retaliatory action.

The article suggests one measure is playing Europe at its own game. The Economic Policy Institute in Washington proposes buying the bonds of any country engaged in currency manipulation to neutralize the effect by driving up the value of its currency (in this case, the Euro). Used in conjunction with the president’s favorite approach of slapping on tariffs, the most likely target being cars, that type of response would have a deeply damaging impact on the European economy.

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Battle lines are being drawn — all eyes are now on the ECB’s next move.