Open: London Session | Forex, Metals, Oil, Agriculture December 17, 2020



The authors highlight four “channels of dollar transmission” to explain the negative correlation between the dollar’s strength and the growth of the global economy. Finally, dollar trade invoicing is more widespread in emerging market economies than in advanced economies (right-hand panel). In any case, a dollar depreciation against a wide basket of currencies in 2021 would likely be welcome by emerging economies. A devaluation of the dollar tends, of course, to negatively affect competitiveness in relation to dollarized economies on the part of those who have their currencies appreciated.
“As the world gets more optimistic about the outlook for growth in 2021, the dollar has softened,” said Michael McCarthy, chief strategist at broker CMC Markets in Sydney. The relationship isn t strong, but in recent years declines in the TGA have overlapped with a weak dollar, while rises have coincided with a strong currency. The fourth channel of dollar transmission is via foreign trade.
The dollar index jerked higher after the Fed’s announcement, but then sank back towards the day’s low of 90.126, a level not seen since April 2018. After reaching a peak against other currencies in March this year, the dollar fell by almost 15% until the beginning of December. I would still favor Centennial’s bonds from a risk/reward perspective, with its unsecured bonds priced at around 70 cents on the dollar and yielding around 14% to maturity.


This translates to a 5.7% compound annual production growth rate for Gold Fields, one of the highest growth rates among million-ounce producers. (Source: Gruyere Mine, Gold Road Resources & Gold Fields JV) While the recent correction in Gold Fields has been quite violent, the fundamental picture remains intact. In terms of FY2019 costs, Harmony Gold, Galiano Gold, and Resolute Mining had average all-in sustaining costs of $1,112/oz in FY2019, more than 20% above the industry average.
This is although the company is one of the only million-ounce gold producers with strong organic growth, with Salares Norte set to be a game-changer for the company. Based on conservative estimates, Salares Norte should pour first gold by Q2 2023 and produce over 300,000 ounces of gold that year. Given the more than 40% off-sale, which has pushed Gold Fields to below 7.5x FY2021 annual EPS estimates, I see the stock as a steal at current levels. In summary, while Gold Fields certainly loses points for having 45% of its production coming from South Africa and Ghana, the company is an industry leader.
Despite just a 14% correction in the gold (GLD) price, Gold Fields is down more than 40% from its highs, significantly underperforming its benchmark. In summary, the Gold Fields we see today will look like a completely different company if this project can be integrated without a hitch. (Source: Company Presentation) Gold Fields is one of the top-performing million-ounce producers in 2020, with a 36% return, lapping an incredible 88% return last.


After all, this means low oil demand… First, according to the same EIA data, in November global oil supply rose 1.5 mb/d to 92.7 mb/d. Source: goodfone The United States Oil Fund (USO) is the commodity fund which is tied to the price of WTI crude oil. Centennial’s share price is fairly optimistic at the moment, pricing in $50 WTI oil and several years of production growth already. less Brent crude oil futures, a proxy for global energy consumption and growth, rose 0.7% to $51.45 a barrel, the highest level since early March.
It is essentially pricing in several years of mid-single digits production growth and $50 WTI oil already. Apparently, the current oil price is already expensive enough for shale production in the United States to begin to intensify. So, in my opinion, in the near future it is reasonable to expect continued growth in oil production in the United States. At that production and a share price of $1.70, Centennial would be trading at a 3.4x EBITDAX multiple with roughly $50 WTI oil.
Source: TradingView From the very beginning, I want to clarify that I do not expect a bearish oil market next year.
Libya continues to rapidly increase its oil production.

United States

Other things equal, yields on longer bonds will come down by more, and the yield curve will flatten.The Fed might well want to control the yield curve next year. That could mean the debt limit would remain suspended, giving Yellen the freedom to spend money on fiscal expansion, rather than draw down her account at the Fed. At the same time, the Fed was busily buying back bonds of generally longer maturities as part of its QE efforts. He pointed out that the Fed is still buying $40 billion per month of mortgage-backed securities when the housing market is doing really well.
The money in this account doesn t increase either the Fed s balance sheet, or any of the M numbers measuring the monetary base. The Fed said it will maintain its huge bond-buying program until “substantial” progress is seen in employment and inflation. Fed SupportFederal Reserve Chairman Jerome Powell struck a note of optimism in his press conference following the central bank’s latest decision.
Harrison also discussed the implications of the Fed’s projection that a return to healthy inflation isn’t expected until 2023. “A nothingburger.” That’s how Ed Harrison summed up the few crumbs of information served up at today’s Fed meeting during Real Vision’s Daily Briefing. Especially with Janet Yellen in charge of the Treasury, the chances look good that the Fed will have some coordinated help from fiscal policymakers.


In the U.K., the government is sticking to its plans to temporarily ease restrictions over the festive period, though Prime Minister Boris Johnson urged “extreme caution” as families meet. John Ainger and Stephanie BodoniWhat s HappeningFinal Straight | Brexit talks are becoming increasingly dominated by discussions over fishing rights. Across the Atlantic, the European Union’s chief executive said a deal with the UK was nearer, although success wasn’t guaranteed.
German Chancellor Angela Merkel hinted that a hard shutdown will remain in force longer than planned, and Denmark is heading into its own lockdown.