|Offer Price (US Cents/Kg)|
|Tone Market: Rangebound|
|Latex In Bulk||Sellers||440.00|
Marzo 5 - marzo 7 Tire Technology Expo 2019 - Hannover, Alemania
Marzo 18 - marzo 19 World Rubber Summit 2019 - Singapore Expo, Singapur
Julio 24 - julio 26 Latin & Caribbean Tyre Expo 2019 - Centro de Convenciones Amador en Panamá.
Septiembre 10 – septiembre 12 IRC2019 - International Rubber Conference – Londres, Reino Unido
Octubre 7 – octubre 10 International Elastomer Conference 2019 – Cleveland, Ohio
Noviembre 11 – noviembre 15 XV Jornadas Latinoamericanas de Tecnología del Caucho – Querétaro, México
• A black week.
• 10 percent on another $300 billions’ worth of China goods looks to have wrecked most markets and the planned ‘early September’ trade meeting in Washington.
• China’s Foreign Ministry: “Beijing will take counter measures if the US goes ahead with the threatened tariffs.” No Blackmail, no intimidation accepted.
• US payrolls up by 164,000 against 165,000 expected.
• Tsunami warning in Indonesia after 6.8 quake between West Java and South Sumatra.
• Paper rubber: Shanghai day-night September -$31, January -$36; Tokyo RSS3 Jan -$31; SICOM RSS3 +$1 to -$18, TSR20 -$1 to -$10. Tocom’s chart look broken.
• Equities: Asia-Pacific 2:11 down; Europe 0:15 down; Wall Street 0:3 down.
If we had to describe this last week, it would have to be as a black one. Because of all the red that’s been written.
Surveying the resultant debris from the White House’s overnight ‘Bombing by Tweet,’ feel more like a war correspondent than a rubber-notes writer this Friday afternoon. The world’s rubber farmers and their families must surely be dismayed by Washington’s commercial ‘gunboat diplomacy’. Without doubt, most ‘things trade’ have to change, and some sort of balance ultimately arrived at, but there are surely better ways of achieving it than with a bulldozer. Work the fingers to the bone somewhere up the Musi River and then see the effort destroyed by a “10 percent” tweet from 16,000 km away?
Tongue in cheek, “Terima kasih!” Elsewhere in the rubber growing world they might be saying “ขอบคุณ, Cảm ơn bạn, Merci, 感谢!” You’ll note that none of those is a four-letter word. Although…
After the latest US trade delegation had been put on their ‘plane in Shanghai mid-week at the early end of a very brief visit, White House adviser Peter Navarro described its subject talks as “constructive”, this meaning, hereabouts anyway, as ‘having or intended to have a useful or beneficial purpose.’ The word seems to have an altogether different meaning elsewhere as Washington announced on Thursday afternoon - apparently ignoring Treasury Secretary Mnuchin’s proposal to give China advance warning - a 10 percent tariff on another $300 billion worth of Chinese goods starting 1st September, the White House supposedly of the opinion that President Xi “isn’t moving fast enough to resolve the trade war and adding that it “might raise tariffs on Chinese goods beyond 25 percent if trade negotiations with Beijing remain stalled.” Next trade meeting in Washington early September? Really? Cynics, meantime, and there are quite a few of them, actually see this move as little to do with China and all to do with White House displeasure that the Fed’s first rate cut in more than a decade had not followed ‘orders.’ In effect, naughty Mr. Powell will be forced to drop rates, at a faster pace than he thinks necessary, because the economy will start to crumble around him and the central bank. If the cynics’ theory is true, then ‘to cut rates, first raise tariffs’ is more ‘Out of Context’ than ‘Out of the Box’ thinking. To quote an observer: “We now discover that the Fed is left haplessly in the role played by the European Central Bank during the sovereign debt crisis earlier this decade, or the Bank of England in the Brexit imbroglio, in that it has no choice but to offer insurance in the case that politicians do something really stupid that severely damages the economy.” The Fed may now be forced to cut interest rates again soon “to protect the U.S. economy from trade-policy risks.” Chairman Powell had indicated that the rate cut was a "mid-cycle adjustment" and “not a start to a full-blown rate-cutting cycle,” but is appears that the markets aren't really convinced, already fulling pricing in a September cut, another 25 basis pointer priced in by December. A fund manager: "In the grand scheme of things, it will become clearer and clearer that the Federal Reserve has started an easing cycle and will have no choice but to cut rates further." What about getting back to the tried and tested horses for courses way of doing things? “You deal with the borders, leave the economy to us.”
And China? A spokeswoman from the Foreign Ministry indicated that “Beijing will take counter measures if the US goes ahead with the threatened tariffs”, making it clear that it’s up to the US how the situation pans out from here. A bit like the UK being told by the EU that there’s no renegotiation of the agreement, so stop the constant buzzing. The spokeswoman went on to say that while China didn’t want a trade war with the U.S., it was “not afraid of fighting one,” intimating that it would accept neither blackmail nor intimidation. At some point, China’s stoicism will reach its limits. And when it does, we’ll see retaliation. Its support options must be limited. Apart from blatantly printing its way out of its current predicament, there’s always the currency market. And that would roil things.
The effects of the trade war are making themselves felt everywhere. By way of example, and long considered as rubber’s industrial ‘running partner’, copper fell to around its lowest levels for the year as new tariffs are expected to slow factory activity further around the world. As China accounts for about half of the metal’s global demand, copper’s going to give a good clue as to where its economy is going. Falling interest rates aside, the metal’s price indicates that there’s worse to come economically.
Meantime, according to the Labor Department, U.S. employers took on workers at “a healthy pace” over July, their wages also lifting, suggesting that the labor market remains solid as payrolls rose by 164,000, or about as expected (actually 165,000.) The unemployment rate, near a 50-year low, held at 3.7%, average hourly earnings up 3.2 percent from a year earlier, that actually better than forecast. But while July’s numbers pleased, the three-month average increase in them of 140,000 was the slowest in nearly two years, effectively confirming forecasts that the trend’s pointing to a gradual slowing in job gains as the labor market tightens. Could also be that the economy’s losing steam.
Not-so-united in the Kingdom, where the opposition winner of a Welsh by-election reduced the government’s working majority to one. Jane Dodds said the voters had chosen "hope over fear". The new PM will need to keep the life-support equipment handy as he can’t afford any further reduction in his Brexit majority aspirations over the next ninety days.
We mentioned yesterday that a couple of tire makers had struggled in the last-reported quarter, so it’s a pleasure to report something positive from the rubber world as General Motors Co. delivered a “better-than-expected net profit” Thursday as “high-margin pickup trucks, SUVs and crossovers helped overcome slowing sales in the United States and China.” GM stands by its full-year earnings forecast. And not all tire makers are struggling as one of the Mediterranean’s favorites marked time, its Q2 results “broadly in line with expectations”, consensus intact, a strong second-half implied. Bravo!
The rubber market was somewhat disarrayed earlier in the day after the overnight tariffs blow but, at least physically, survived the worst, not losing too much value against Thursday’s levels, as illustrated by the prices paid by those Tire Majors preferring not sit things out paying premiums over SICOM settlement of between $33 and $45/ton. Indonesian sellers prefer to wait, few willing to meet the latest bid levels, most preferring to reflect cost in their offers. Meantime, after a 6.8 magnitude quake between Java’s Banten province and Sumatra’s Lampung, at a depth of 37 miles and 141 miles off Teluk Betung, the Indonesian geophysics agency issued a 3-meter tsunami warning urging residents in the affected areas to evacuate to higher ground. Vietnam hasn’t adjusted its floor prices in the last two weeks as the paper markets have tumbled, so its shippers also lie low while in Thailand, with raw material prices outpacing all other origins on the decline (but they were far too high in the first place, proving once again that paper ‘profits’ are worthless is not cashed in), raw material market sellers were rather quiet as the local price came down “too fast, too soon,” the RAOT still buying up RSS availability in all the local markets. Weather-wise, nothing too threatening, the upper region’s improved after good rainfall over the last couple days although the upper south did report some rain Friday, while the deep south enjoyed a fine day.
The paper markets look to have escaped from the worst of earlier excesses as end-of-day settlements calmed most. After the overnight tariffs hammer-blow, an already troubled Shanghai market, unsure of its future identity, closed $32 down on its September contract and $37 down on January (which should overtake September on both open position and trading volume sometime next week), the late session unfortunately not giving much of a guide to sentiment for next week as both positions closed either side of just one dollar better. Doubtless, they weren’t helped by the Shanghai deliverable stock situation. After what looked like a mild drawdown last week that held out the promise of a more concentrated take-away over the coming months to rid itself of the burden, it was back to its worst habits this week, adding over 7,500 tons of fresh delivery to the pile. As long as it keeps filling the hole, it won’t find a way out of it. Already through its downside support level yesterday, Tocom’s RSS3 contract headed for the next but was, thankfully, encouraged into a U-turn that won back some ground, benchmark January finally closing at $31 instead of $52 down even if its chart looks to be in need of strong medicine. Noticeable here was a continuation of the backwardation’s erosion, the six-month run now down to $209 dollars as one of the first two positions actually shed another $117 today. Tocom RSS 3’s new upside resistance is at 173.3, 180.3 and 187.2, its downside support at 164.7, 151.0 and 144.5 yen. At one point, SICOM was $15-30 lower than in its final reckoning as RSS3 lost $18 to gaining $1, the TSR20 contract enjoying a really busy day (still suspect led by further liquidations as sentiment is not repaired), its turnover just short of 74,000 tons as it lost between $1 and $10, the spot grade differential narrowing to $189/ton, its 12-month contango at $72. It’s interesting here that the bulk of Wednesday’s spot expiry’s open position was actually tendered, and just as interesting that there wasn’t a kilo of SIR in the tender, almost equally shared by STR and SMR. There must be a disposal message in there somewhere. Or a tire maker preference that’s slowly marginalizing all but Indonesian produce. Which leads to other thoughts, but we’ll leave those for another day.
Tocom’s Chart, courtesy of our KL office (please see below), a little late this week but at least right up to date, shows its RSS3 contract starting the new month sharply lower, its Jan 2020 benchmark consecutively hammered down to fresh Y-T-D lows and below the 168.1 level. Technical selling below January 19’s lows intensifies the downward momentum. A bearish resumption scenario is more likely now, where a break below Friday’s low at 166.9 area should signal the next leg lower, probably towards 150 levels. Looking at the technical picture, the market has faced sharp negative pressures and returns to the bearish track again. In the short term, and according to the daily chart, the risk is also pointing steadily towards the downside, the coming week’s forecast suggesting that the market has entered a bear phase. Prices are situated well below the Simple Moving Average. In addition, downside momentum has intensified and the MACD is also creating a bearish crossover. The stochastic provides a negative signal that supports the suggested decline, with its continuation conditions holding below 13. This downtrend could well continue for some time as the market’s fundamental outlook continues to deteriorate. The break below 173.3 support sets the stage for a move back towards challenging the key 151.0 psychological mark with some intermediate support near the 164.8 region. Follow-through selling might now make the market vulnerable to a slide further towards retesting the 144.5 level, or the yearly lows set in Nov-2018. On the flipside, the 173.3 support breakpoint now seems to be acting as immediate resistance which, if cleared, might help a market recovery towards the 180.3 level, that followed by the 187.2 level if broken.
Following Thursday night’s new tariffs collapse, an oil analyst: “We’re obviously coming back pretty substantially, at least in the early going, because I think people realize that the market was overdone with the selloff yesterday,” continuing, “Also, there are some questions as to whether the Trump tariffs are really going to go into effect and if they’re really going to have a negative impact on demand as much as people think.” And there’s the problem: there’s so much dross coming from all directions that nobody is able to make a decent analysis of where the truth lies. One could equally ask whether OPEC has had any real effect on crude values, whether the effect of US inventory drawdowns ever survives the next day. What does seem to be fact is that US production is growing. Already the world’s No.1 producer, it looks to be heading for another record this year. Going into the weekend, WTI crude was trading at the happier end of a $54.15 to $56.05/bbl day’s range, Brent trading at a premium of $6.45/bbl.
Gold enjoyed renewed energy on Friday after its late boost on Thursday’s tariffs surprise, helped by nothing special on the US jobs front and a weaker dollar. A regular analyst sees gold being supported by a “big push by global major central banks to lower interest rates in light of deteriorating macro conditions,” continuing that, “The one thing restraining gold a little was the strength in the dollar, but with the dollar weaker today, it seems to have opened up some running room for gold on the upside.” A Dutch ban’s analyst thought: ”(It’s) a bit of a psychological move. Prices have been around these levels ($1,440-$1,450) a few times now, and it has difficulty to push higher, which makes investors a bit more nervous,” a senior strategist weighing in with “The trend in gold is up, supported by expectations the Fed could opt for another cut in September.” A technical analyst earlier saw spot gold possibly “retesting resistance at $1,449 per ounce, a break above which could lead to a rise into the $1,461-$1,474 range.” Well, bullion retested and sailed past that resistance level with ease and actually tried the next level, registering a “hello” at the bottom end of it. The metal might get more support than it bargained for a few weeks back as trade conditions deteriorate, so why not conserve a little energy for next week? Last seen, bullion was trading at the top end of today’s wide $1442.50 to $1461.90/oz range.
It's likely that equity markets will want to erase the last day of this week from their memories. Down 2:11, Asia Pacific exchanges took the latest and surprise tariffs blow on the chin, the Nikkei off 2.11 percent, the Hang Seng 2.35 percent, these being out front, but the rest fared little better, the mainland China exchanges in Shanghai and Shenzhen down 1.41 and 1.48 percent as confidence sagged after so much hope earlier in the week. European bourses had a real ‘stinker’ of a day, all down no exceptions, the three main ones by between 2.34 and 3.57 percent, basic resources and auto stocks down 4.6% and 3.4% respectively, tech stocks off 3.6%. Seems they were a little too blasé, believing and overconfident instead of checking what the real issues are and the stubborn resistance from both sides over giving in on any of them. On Wall Street, the Dow’s Friday morning low was at 334 points down. As we close here, early afternoon, it’s trading at 250 down while the Nasdaq is off 1.75 percent and the S&P 500 1.15 percent. A global market researcher had this to say: Wall Street is “being squeezed by a double whammy. On the one hand, Wednesday’s Fed outlook was less dovish than hoped, while the (White House’s) latest consumer-focused China tariffs significantly dented the already soft global growth outlook.” As if that’s going to change in a hurry? but investment in knee braces might not be a bad idea.
Disclaimer: This report is strictly for information only. INPOL is not liable for any inaccuracies, errors or omission in the report. This report is intended for general circulation and does not constitute an offer or solicitation to buy or sell any investment or commodity product(s). It does not take into account the specific objectives, financial situation or particular needs of any person. Investors should seek advice from a financial or commodity adviser before investing in any investment products or adopting any investment strategies.