Commentary

E.U. and U.S. flags

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As poll workers continue to count the final votes in the U.S. presidential election, it looks like we have a Biden victory — not by the landslide he and many of his supporters had hoped for, but a victory nevertheless.

There will be ongoing legal arguments, demands for recounts, and claims of fraud. However, the U.S. voting system is one of the most robust in the world: fraud is, in reality, not an issue.

Furthermore, the legal challenges are not intended to change the outcome. They are more about setting the scene for the post-Trump landscape, for what the then-ex-president does next. Even a Trump-stuffed Supreme Court knows it answers to the constitution first and the president second.

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Market implications of the presidential election

So, now we have a better idea of the political outcome, does that change our election day review of the implications for markets?

Yes and no.

Most of us in business would take comfort from the fact a more constrained government is one that is less able to do anything radical. Markets generally don’t like radical, at least from politicians.

The prospect of a Democrat presidency and a Republican-controlled senate could be a positive for equities. Such an arrangement reduces the possibility that regulation and corporation tax can be increased.

Market sentiment turned a little cautious overnight. For example, new environmental laws are likely to be more limited, helping those sectors that had been sold down in the run-up to the election.

But others have declined that might have benefited from the proposed stimulus program. A split executive and house likely reduces the size and scope of any future fiscal stimulus package in the U.S.

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gold, silver, copper, oil prices

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Goldman Sachs came out with a bullish report to investors last week predicting a surge in the price of commodities over the 2021-2025 period, Reuters reported.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Goldman Sachs is bullish on commodities in 2021 — why?

The basis for Goldman Sachs’ bullish view comes down to three price drivers. The extent to which investors weight those outcomes will determine the pace of price rises and markets’ supply-demand expectations by anything from 3-30 months.

There has been stock market pullback this week in the face of rising anxiety over the spread of the COVID-19 pandemic. However, Goldman see this as a temporary setback that will likely wane as the year draws to a close.

The first driver, BusinessInsider noted, is investors pivoting from older polluting areas of the economy towards tech. The huge outperformance of technology stocks over traditional businesses this year illustrates that trend.

This is and will continue to build up cumulative under-investment in what BusinessInsider terms the “old economy” sectors. As a result, businesses in those sector will have too much debt, too much capacity and high emissions.

A focus on rectifying these issues will lead to structural under-investment in new facilities and degradation in the new supply pipeline going forward.

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The widely, if not universally, held belief that globalization is a win-win panacea for growth has never looked shakier.

While President Donald Trump has led the charge on calling out the failings of unfettered engagement with China and all that entails in terms of loss of manufacturing capability and sharing of hard-won technology, he is by no means alone.

The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021 — including expected average prices, support and resistance levels.

Globalization and China

There is a growing groundswell of opinion that the long-held liberal beliefs that engagement would change China’s behavior have proved flawed.

China today is arguably more centrist, more actively and belligerently nationalistic and worryingly less influenced by world opinion than it has been for decades.

And yet it has, from an economic point of view, proved remarkably successful so far.

China’s economy has bounced back faster than those in the West. Furthermore, its economy has recovered faster than even its close Asian neighbors. That is because, in part, the party’s control meant it could enforce harsh — compared to in the U.S. or Europe — lockdown measures in the face of the pandemic. That enforcement extends to continued adherence to social distancing and hygiene standards since.

It is unlikely that a change of president in January, were that to happen following the November election, would have a meaningful impact on U.S.-China relations. A Biden presidency may try to foster a more collaborative international approach. However, the direction would likely be similar.

Europe, too, is following a less bellicose but similar path.

Europe’s investments in China and reliance on China as a trading partner are greater than that of the U.S., for whom China trade still represents a modest percentage of GDP.

Yet, even in Europe, there is increasing talk of decoupling supply chains and restrictions of technology transfers to China. Furthermore, these is talk of restricting Chinese technology companies’ access to the European market.

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green energy

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Most of the focus on the upcoming presidential election has been around the handling of the coronavirus pandemic, choice of running mates and candidates’ reactions to protests centered around the BLM movement.

Not surprisingly, such issues attract the headlines and, of course, matter for society at large.

Policy has not taken center stage to the extent it has in previous campaigns. However, we should be aware that some policy ideas coming out of the Biden camp could have profound implications in the years ahead (if the polls are proved right and he enters the White House in January 2021).

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Net-zero emissions by 2035?

In a far-reaching policy initiative, the presidential hopeful would set the U.S. on the path of cutting net carbon emissions from the country’s electricity production to zero by 2035, according to the Financial Times.

Achieving that goal would mean all power comes from either one of two sources. On the one hand, power would come from clean energy sources such as nuclear, hydro, solar or wind. Aside from that, any carbon emitted by fossil fuels sources, such as coal or natural gas, is captured and stored (e.g., carbon sequestration).

As the post observes, that would be no mean feat in just 15 years.

Last year, 61% of U.S. electricity came from either coal or natural gas. Nuclear and renewables accounted for 37%.

Implications, changes Biden’s plan would bring

Such a policy would require a number of fundamental changes with far-reaching implications for industry and consumers.

Net-zero would require, on the one hand, a massive ramp-up in renewable capacity. While economically viable in terms of power costs, that is already facing opposition from groups opposing huge wind or solar farms.

On the other hand, to counter variability it would create huge opportunities for power storage, such as power banks and pump storage schemes. It would also require a dramatic upgrading of the U.S.’s aging power distribution network to handle distribution and fluctuating supply.

But most controversially it would require — for the moment, at least — the subsidy of carbon capture and sequestration technology. Despite numerous, largely government-sponsored trials around the world, it still remains stubbornly uneconomic at current carbon prices.

Even worse, most carbon dioxide so captured is used to recharge depleted oil wells for enhanced recovery. That application will decline as quickly as renewables rise to take its place in generating power for electrification of the automotive sector.

Cost, cost, cost

While we are not passing judgment on the desirability of such an ambitious target, we should not lose sight of the cost.

California has driven the green narrative in the U.S. in recent years.

The state has the most aggressive decarburization goals. California has also seen a dramatic increase in the cost of electricity. Electricity costs are rising five times faster in California than in the rest of the U.S.

Despite being an early adopter in the vanguard of renewables, California’s experience has been more costly than wider adoption across the country would prove in the future. The goal requires newer technology and a countrywide upgrading of transmission infrastructure. Realistically, it also requires zero-carbon assumes carbon capture and sequestration.

Unless there is a technological game-changer to reduce the cost and find a market for the 1.6 billion tons of carbon dioxide produced it’s hard to see how these costs won’t be passed on to consumers.

Undoubtedly, there will be tremendous opportunities for firms. With the development of new technologies that such ambitious targets will create, there will be winners and losers.

Let’s hope the former outweighs the latter.

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This has been a volatile year for global markets, with already slowing economic growth compounded by the destructive impact of the coronavirus pandemic.

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MetalMiner had the opportunity today to interview respected geopolitical intelligence firm Stratfor, acquired earlier this year by RANE (Risk Assistance Network + Exchange) and quiz Rodger Baker, Stratfor’s senior VP of strategic analysis, on forthcoming sanctions against China.

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While small beer compared to the U.S.’s trade war with China, the growing dispute between Washington and Brussels over subsidies by aircraft makers is likely to develop into an escalating series of tit-for-tat measures this year.

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Many view tiny Hong Kong as something of an anathema — a hangover from the days of the British empire, part of China but not part of China, often missing the point that that is exactly its strength (or has been).

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France, heartbeat of the European social ideal, is facing an existential crisis caused by the impact of the lockdown of its economy.

Nowhere is that more evident than in the Grand Est region of northeastern France, termed the heart of the country’s auto industry, according to the Financial Times.

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The fear, so far largely unfounded, at the start of the pandemic outbreak is that it would be bad for developed economies with well-funded health care systems but disastrous for developing economies with immature or underfunded health care systems.

The reality has been much more mixed.

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