SP Angel . Morning View . Friday 22 05 20

 SP Angel . Morning View . Friday 22 05 20

China adds USD667bn stimulus but markets weaken in HK clamp down

 

MiFID II exempt information – see disclaimer below

 

SolGold* (SOLG LN) – 26p, Mkt cap £479m - SolGold starts Lidar survey at Cascabel

 

 

Restocking by manufacturers in China depletes LME inventories but weaker consumer demand may dampen Chinese exports

• Shanghai copper stocks fell 15.8% this week followed by an 8.6% fall in aluminium, and 4.1% falls in zinc and tin.
• Nickel stocks fell by just 2.5%, while lead stocks rose 2.6% though many flattened auto batteries will need to be replaced post lockdown.
• BUT, lower demand from Western Consumers will likely to cut into Chinese exports as manufacturers struggle to sell goods.
• We expect China to move to stimulate domestic consumption as agreed with the US so many years ago.
• China sounded aggrieved that it solely bailed out its economy through SARS and other epidemics but China was able to export everything it could into buoyant Western demand.
• Restarting Chinese industry looks like an achievement for China Inc. selling its products may need a little more magic particularly with the US and Europe poised to impose further tariffs.
• Will Chinese exports be deflationary for the west or will ‘Social Distancing’ rules raise unit production costs in the West causing inflation?
• Higher Tariffs, Stimulus QE and recessions are all seen as inflationary even in a recessionary environment.
• Manufacturers are largely back at work, so now the world’s key policymakers will need to stimulate new consumer and business investment demand.
• New infrastructure construction is widely recognised as the easiest way to restore growth but other stimulus will also be required to restore consumer confidence.

 

The University of Oxford and AstraZeneca recruiting more than 10,000  for Covid-19 vaccine (Bloomberg)

• The proposed Covid-19 vaccine is made from a weakened version of a common cold virus that has been genetically altered so it can not grow in humans. More than 1,000 people received the vaccine in April.
• Astra Zeneca is proposing to make some 30m doses available in Britain as early as September. Under its agreement with Astra, the U.S. could begin receiving supplies as early as October.
• We are cautious in our optimism as some scientists believe it may be extremely difficult to develop a reliable vaccine to prevent against the Coronavirus.

 

Global Stimulus

• China - RMB 4.75tn ($667bn) stimulus programme focusing on infrastructure programmes and support to businesses hit by COVID-19.

• $2tn US fiscal package approved by Congress. US may add $0.6t state aid for mortgage markets and travel industries
  • The House passed a $484bn aid package to rescue small small businesses, hospitals ($75bn) and coronavirus testing ($25bn).
  • $2tn US – Trump looking at $2tn infrastructure fund
  • $700bn – US + Fed rate cut to 0-0.25% last night. The $700bn QE to buy Treasuries and mortgage-backed securities.
  • US Fed may soon start buying in up to $750 billion of corporate debt and ETFs
• $543bn EU Crisis Recovery fund backed France and Germany + $963bn (€750bn) ECB scraps limits on sovereign bond purchases. ECB PEPP buying running at around €250bn
• EU Finance Ministers have so far failed to agree on a strategy to mitigate the economic impact of the pandemic.
  • The pandemic emergency purchase programme (PEPP) and asset purchase programme (APP) have been reiterated with a cap of €750bn and €120bn, respectively.
  • The bank is reported to have used €100bn of the PEPP so far.
• $825bn (€756bn) Germany – Bundestag approved €156bn in extra borrowing and ~€600bn in emergency funds
• $909m $344bn of China stimulus + $565bn in special bonds for infrastructure by local authorities
• $996bn (108.2tn yen) – Japan +  BoJ pledge for unlimited quantitative easing
• 400bn (£330bn) UK + $242bn (£200bn) UK QE from BoE & no business rates plus £25,000 cash grants for hospitality sector
• $387bn (€304bn) France, $200bn (€200bn) Spain, $214bn (A$320bn) Australia Australia - RBA ready to buy bonds again.

• US$260bn - India representing 10% of GDP. 

• $78bn (C$107bn) Canada, $32bn Saudi Arabia, US$43.7bn Singapore, $22.6bn India, $19.3bn HK, $13.7bn South Korea, $10bn Switzerland, $8.4bn Italy, $7bn NZ, $3.5bn Ireland, $2bn Taiwan, $0.75bn Indonesia,
• Argentina to default on $10bn of dollar debt issued til the end of the year. Does not affect the $70bn that Argentina is currently in talks to restructure.
• $1,000bn - IMF available + $12bn World Bank, 

Total >US$13.9tn from $13.2

 

Dow Jones Industrials		-0.41%	at	24,474
Nikkei 225		-0.80%	at	20,388
HK Hang Seng		-5.35%	at	22,981
Shanghai Composite		-1.89%	at	2,814

 

Economics

China – The government announced a RMB4.75tn ($667bn) stimulus programme focusing on infrastructure programmes and support to businesses hit by COVID-19.

• The package is less than $1tn some analysts expected but come on top of $564bn offered in Dec/08 post the Lehman collapse; although, as a share of nominal GDP this time round the stimulus is significantly lower as output expanded from $4.6tn (2008) to $13.6tn (2018).
• Funding will be comprised of $527bn in bonds to fund regional development and $140bn in special treasury bonds to help businesses.
• The government will allow the fiscal deficit to grow by RMB 1tn yoy.
• Additionally, authorities dropped their annual GDP growth target for the first time as pandemic related disruptions saw output contracting 6.8%yoy in the first quarter.

 

Hong Kong – The Hang Seng index lost as much as 5.7% this morning after the Chinese government said it will impose a national security law on the city, FT reported.

• The news fuelled fears that may see a new series of protests and further worsening of relations between China and the US.
• The decision may see the US withdrawing from its special economic and trading relationship with Hong Kong.

 

US - Senate passed bill proposing the delisting foreign companies from US stock exchanges if they are not able to certify they are not under the control of a foreign government.

• Some Chinese companies may struggle with this one.
• President Trump and Congress still need to approve the bill and we suspect this may be used as a bargaining chip in Trade War negotiations

 

US Markit Composite PMI climbed this month recovering from an all time low hit in April.

• Composite index came in at 36.4 v 27.0 in April with Manufacturing amounting to 39.8 (36.1 in April) and Services at 36.9 (26.7 in April).
• “Encouragement comes from the survey indicating that the rate of economic collapse seems to have peaked in April. In the absence of a second wave of COVID-19 infections, the decline should moderate further in coming months as measures taken to contain the coronavirus are steadily lifted,” Markit wrote.
• “We anticipate that GDP will decline at an annualised rate of around 37% in the second quarter, and it will take the economy two years to regain the prepandemic peak.”
• Jobless claims continued to run in millions with 2.4m people filing for unemployment benefits taking
• Jobless Claims: 2,438k v 2,687k the previous week and 2,400k expected.

Other preliminary PMI data:

• Eurozone - manufacturing PMI 39.5 in May vs 33.4 in April, services 28.7 vs 13.4, composite 30.5 vs 13.6
• Japan - manufacturing PMI 31.7 in May vs 34.7 in April, services 25.3 vs 21.5, composite 27.4 vs 25.8
• Germany - manufacturing PMI 36.8 in May vs 34.5 in April , services 31.5 vs 16.2, composite 31.4 vs 17.4
• France - manufacturing PMI 40.3 in May vs 31.5 in April, services 29.4 vs 10.2, composite 30.5 vs 11.1
• UK - manufacturing PMI 40.6 in May vs 32.6 in April, services 27.8 vs 13.4, composite 28.9 vs 13.8,
• Australia - manufacturing PMI 42.8 in May vs 44.1 in April, services 25.5 vs 19.5, composite 26.4 vs 21.7,

 

Japan – The BOJ announced its policy to stimulate loans to small and medium-sized companies in an emergency meeting while leaving the rest of the monetary policy unchanged.

• The central bank will offer zero rate loans to banks for a term of up to one year with the maximum amount available to borrow to be determined on the amount of loans banks make to SMEs.
• The measure comes on top of the programme to buy corporate debt and using it as collateral for BOJ funding.

 

Eurozone – Flash PMI numbers released yesterday pointed to easing of the worst slump in economic activity ever recorded as economies started to emerge from lockdowns.

• The eurozone economy remained in a contraction territory, but the rate of decline eased.
• The Eurozone PMI climbed from an all time low of 13.6 in April to 30.5 in May, according to Markit.
• “Second quarter GDP is still likely to fall at an unprecedented rate, down by around 10% compared to the first quarter, but the rise in the PMI adds to expectations that the downturn should continue to moderate as lockdown restrictions are further lifted heading into the summer,” Markit report read.
• “An additional concern is that demand is likely to remain extremely weak for a prolonged period, putting further pressure on companies to make more aggressive job cuts as government job retention schemes expire. We therefore expect GDP to slump by almost 9% in 2020 and for a full recovery to take several years.”

 

UK – The FCA will be extending holidays for mortgage payments for affected by coronavirus by three months.

• Over 1.8m households used the holiday since it was first announced in March with the first applications due to expire in June.
• Retail sales posted the sharpest drop on record in April with most purchases limited to online platforms as people stayed indoors during the lockdown.
• Sales were down 18.1%mom last month, an acceleration on a 5.2%mom drop in March.
• Online sales were up 18%mom.
• “Fuel and clothing sales fell significantly while spending on food also dropped after the surge form the panic buying seen last month,” the ONS said.
• Separately, the GfK consumer confidence measure dropped one point to -34 in May, the lowest reading since 2009, despite the easing of the lockdown.
• “With unemployment claims rising by the highest rate on record and warnings of a severe recession and possible tax hikes, the damage done by the coronavirus pandemic to the UK economic landscape has been laid bare,” GfK said.

 

Mexico – The nation reported the highest single day increase in new cases as the nation launched a gradual opening up of the economy.

• 2,973 new cases were recorded on Thursday with the total tally at 59,567.
• Authorities have been accused of grossly understating the true cases and conducting the lowest level of testing in the OECD, according to FT.

 

India – The central bank cut the benchmark rate by 40bp to 4% in an emergency meeting and extended the moratorium on loan payments by another three months easing liquidity problems faced by businesses.

• Governor Shaktikanta Das said the economic outlook is weak projecting negative GDP growth over the next year.

 

South Africa - central bank cut rates by 0.5% to 3.75%. 

 

UK – BoE says cutting interest rates to 0.1% only had muted impact on the cost of new loans

 

Currencies

US$1.0915/eur vs 1.0970/eur yesterday.  Yen 107.37/$ vs 107.85/$.  SAr 17.738/$ vs 17.989/$.  $1.218/gbp vs $1.220/gbp.  0.652/aud vs 0.656/aud.  CNY 7.129/$ vs 7.102/$.

 

Commodity News

Precious metals:          

Gold US$1,737/oz vs US$1,737/oz yesterday - Gold price face weekly decline on positive growth sentiment 

• Gold fell over 1% yesterday amid a dynamic selloff as investors took profits from recent rallies, and some sought the safety of cash as tensions between the US and China escalated. 
• Yesterday's selloff in precious metals was partially due to a firmer US dollar, which has been a rival safe haven amid rising global tensions (Kitco). 
• Gold futures have traded higher six out of the last seven days as the huge amount of uncertainty in markets has underpinned bullion's safe-haven appeal.
• A slight improvement in the manufacturing activity in Europe and the US was an encouraging indicator to the market that countries are emerging from the economic constraints of the coronavirus. 
• Spot gold was up 0.2% at $1,728/oz earlier this morning, haven fallen 1.4% on Thursday- and is now heading for a 0.7% weekly decline (Reuters). 

   Gold ETFs 99.3moz vs US$99.1moz yesterday

Platinum US$831/oz vs US$846/oz yesterday

Palladium US$2,014/oz vs US$2,081/oz yesterday

Silver US$16.95/oz vs US$17.21/oz yesterday

            

Base metals:   

Copper US$ 5,286/t vs US$5,430/t yesterday – 

Copper prices fall as China fails to set annual growth target 

• The price of copper fell on Friday after the world's top consumer China, did not set an annual growth target for the first time, as the GDP target was omitted from the governments work report. 
• Mounting tensions between the US and China is also weighing on the copper price, as Beijing unveiled plans to impose new national security legislation on Hong Kong, which Trump promised to react strongly to. 
• Three-month copper on the LME fell 1.3% to $5,318/t earlier this morning, whilst the most traded copper contract on the Shanghai Futures Exchange fell 1.5% to 43,520 yuan ($6,112)/t (Reuters). 
• Despite the fall in prices on Friday, copper on both the LME and SHFE is set for a weekly gain as economies have emerged from lockdown, and on stimulus hopes from China. 

European copper inventories have been steadily rising this month 

• Copper stocks in LME registered warehouses in Rotterdam have been steadily rising this month, indicating weak European copper consumption at a time when other areas are kickstarting their economies. 
• Total LME stocks in Rotterdam stand at 84,925 tonnes, with 73,700 tonnes now on-warrant. This is up from 76,400 tonnes at the start of the month, with 62,200 tonnes on-warrant. 
• According to traders in Rotterdam, "the impact of Covid-19 has certainly been felt more strongly since mid-April" and "weak demand in the region has prompted deliveries back to the exchange" (Fastmarkets MB). 
• Key copper producers in Europe Nexans and Aurubis have reported declines in sales as a result of the Covid-19 lockdown, however companies are hopeful of a recovery following the end of lockdown measures, but it will take some time to trickle through.
• Conversely, Shanghai bonded copper stocks have fallen consistently over the last two months, falling 130,000t over the past nine weeks (SMM News). 

Copper production hit by a shortage of sulphuric acid in the DRC (Reuters).

• The DRC partially reopened border crossings with the Zambia earlier this month so supplies should be getting through though long traffic jams of lorries are likely to persist. In the DRC the Coronavirus may be the least of your health issues.

Aluminium US$ 1,507/t vs US$1,514/t yesterday

Nickel US$ 12,130/t vs US$12,750/t yesterday – Nickel prices suddenly slump from two-month highs

• Nickel prices in both London and Shanghai fell suddenly yesterday, attributed to traders exiting with big positions towards the end of trading, triggering a price slump amid insufficient liquidity. 
• Nickel on the LME fell 4% to $12,250/t, whilst SHFE futures were down 4.3% at 100,620 yuan/t (Bloomberg). 

• Nickel prices have held up remarkably well against a backdrop of weakening demand as Western manufacturers start to reopen production.
• Consumer demand for stainless steel products is likely to weaken in the short term as the inevitable recession caused by lower earnings bites.
• Mine production of nickel ores has not been overly reduced by the Coronavirus in Asia with little impact seen so far in Indonesia and the Philippines.

• INSG reports a global refined nickel surplus 14,000t in March vs 15.700t in February) making a Q1 surplus of 45,700t.

Zinc US$ 1,960/t vs US$2,015/t yesterday

Lead US$ 1,632/t vs US$1,697/t yesterday

Tin US$ 15,165/t vs US$15,710/t yesterday - The ITA are forecasting a a 14,000t surplus this year Roskill are forecasting a deficit

 

Energy:            

Oil US$34.4/bbl vs US$36.3/bbl yesterday

Natural Gas US$1.692/mmbtu vs US$1.762/mmbtu yesterday

Uranium US$34.00/lb vs US$33.85/lb yesterday

            

Bulk:    

Iron ore 62% Fe spot (cfr Tianjin) US$95.6/t vs US$93.4/t - Chinese iron ore stockpiles fall 1.7% to 110mt week-on-week

• Iron ore from Brazil fell 6.7% to 21.7mt, and imports from Australia fell 2.7% to 58.8mt compared to a week earlier (Steelhome). 

Chinese steel rebar 25mm US$556.7/t vs US$548.9/t

Thermal coal (1st year forward cif ARA) US$52.0/t vs US$53.0/t

Coking coal swap Australia FOB US$114.0/t vs US$113.0/t

            

Other:  

Cobalt LME 3m US$30,000/t vs US$30,000/t - Cobalt production hit by a shortage of sulphuric acid in the DRC (Reuters), The DRC produces around 90% of global cobalt supply.

NdPr Rare Earth Oxide (China) US$37,660/t vs US$37,947/t

Lithium carbonate 99% (China) US$5,049/t vs US$5,139/t

Ferro Vanadium 80% FOB (China) US$27.0/kg vs US$27.0/kg

Antimony Trioxide 99.5% EU (China) US$4.9/kg vs US$5.0/kg

Tungsten APT European US$210-220/mtu vs US$215-225/mtu 

Graphite flake 94% C, -100 mesh, fob China US$485/t vs US$500/t

Graphite spherical 99.95% C, 15 microns, fob China US$2,350/t vs US$2,425/t

 

Battery News

Renault’s EV sales plummet in April after positive start to 2020

• Renault’s EV sales fell 50% in April, part of a 78% fall in sales experienced by the company. (Inside EVs)
• EVs as a % of total share account for 5.8% globally and 10% in Europe. 2020 sales are up 45% YoY to 23,307 as a result of an impressive start to the year in January and February, pre pandemic.
• Renault Zoe remains one of the most popular EVs in Europe whilst in contrast the Renault City K-ZE launched in China late last year has achieved only 242 sales YTD and 0 in April.

 

The UK’s first Gigafactory is in the works

• British start-ups ATME Power and Britishvolt have signed an MoU outlining plans to cooperate on a plant to produce lithium ion batteries. (Guardian)
• The duo plan to spend £4bn on large scale with capacity of up to 30GWh, a similar size to Tesla’s Nevada facility. (The Engineer)
• It will be the first Gigafactory in the UK if it goes ahead. Brexit uncertainty has been cited as a reason as to why to date EV and battery makers have located facilities in the EU rather than the UK.
• Government backed Advanced Propulsion Centre choreographed the tie up as part of government efforts to secure investment for a UK Gigafactory.
• Britishvolt hopes to raise £1.2bn next year to build the first phase of the facility which will have 10GWh capacity. There will be the option to add an additional 20GWh. (Financial Times)

 

Liberty Global pens deal to provide residential EV charging points in the UK

• Liberty Global has inked a deal with Zouk Capital and the Church of England to build a network of EV charging points around the UK. (Financial Times)
• The JV will roll out thousands of on-street charging points in residential areas.
• The charging points will be connected to the 170,000km of underground duct network of Liberty Global’s Virgin Media business.
• The US company began testing using telecoms infrastructure for charging points last year.
• The project will be backed by the CIIF fund, backed by the taxpayer and private capital, and is expected to raise £400m.
• Zouk announced last month they had raised 80m through a Church of England investment in the project which was matched by the UK government.

 

Company News

SolGold* (SOLG LN) – 26p, Mkt cap £479m - SolGold starts Lidar survey at Cascabel

• SolGold is resuming work on the ground at the Cascabel project in Ecuador in full compliance with COVID-19 regulations
• Lidar, helicopter surveys are used to create detailed and highly accurate digital maps of terrain for planning.
• The maps are used for better mine, plant and other infrastructure development.

*SP Angel act as financial advisor and broker to SolGold

 

Analysts

John Meyer – 0203 470 0490

Simon Beardsmore – 0203 470 0484

Sergey Raevskiy – 0203 470 0474

 

Sales

Richard Parlons – 0203 470 0472

Abigail Wayne – 0203 470 0534

Rob Rees – 0203 470 0535

 

SP Angel                                                            

Prince Frederick House

35-39 Maddox Street London

W1S 2PP

 

*SP Angel are the No1 integrated nomad and broker by number of mining brokerage clients on AIM according to the AIM Advisers Ranking Guide (joint brokerships excluded)

+SP Angel employees may have previously held, or currently hold, shares in the companies mentioned in this note.

 



Sources of commodity prices
Gold, Platinum, Palladium, Silver	BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel	Bloomberg
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt	LME
Oil Brent	ICE
Natural Gas, Uranium, Iron Ore	NYMEX
Thermal Coal	Bloomberg OTC Composite
Coking Coal	SSY
RRE	Steelhome
Lithium Carbonate, Ferro Vanadium, Antimony	Asian Metal
Tungsten	Metal Bulletin

 

DISCLAIMER

This note is a marketing communication and comprises non-independent research. This means it has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination.

This note is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients.

This note is confidential and is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published in whole or in part, for any purpose.

This note has been issued by SP Angel Corporate Finance LLP (‘SPA’) to promote its investment services. Neither the information nor the opinions expressed herein constitutes, or is to be construed as, an offer or invitation or other solicitation or recommendation to buy or sell investments. The information contained herein is based on sources which we believe to be reliable, but we do not represent that it is wholly accurate or complete. All opinions and estimates included in this report are subject to change without notice. It is not investment advice and does not take into account the investment objectives and policies, financial position or portfolio composition of any recipient. SPA is not responsible for any errors or omissions or for the results obtained from the use of such information. Where the subject of the research is a client company of SPA we may have shown a draft of the research (or parts of it) to the company prior to publication to check factual accuracy, soundness of assumptions etc.

Distribution of this note does not imply distribution of future notes covering the same issuers, companies or subject matter.

Where the investment is traded on AIM it should be noted that liquidity may be lower and price movements more volatile.

SPA, its partners, officers and/or employees may own or have positions in any investment(s) mentioned herein or related thereto and may, from time to time add to, or dispose of, any such investment(s).

SPA is registered in England and Wales with company number OC317049.  The registered office address is Prince Frederick House, 35-39 Maddox Street, London W1S 2PP.  SPA is authorised and regulated by the UK Financial Conduct Authority and is a Member of the London Stock Exchange plc.

MiFID II - Based on our analysis we have concluded that this note may be received free of charge by any person subject to the new MiFID II rules on research unbundling pursuant to the exemptions within Article 12(3) of the MiFID II Delegated Directive and FCA COBS Rule 2.3A.19.

A full analysis is available on our website here http://www.spangel.co.uk/legal-and-regulatory-notices.html. If you have any queries, feel free to contact our Compliance Officer, Tim Jenkins (tim.jenkins@spangel.co.uk).

SPA research ratings – Based on a time horizon of 12 months: Buy = Expected return of more than 15%, Hold = Expected return between -15% and +15%, Sell = Expected return of less than 15%