Here’s something that doesn’t happen every day.
The price of propane in Edmonton, Canada — home of Tar Sands production — is trading at a negative price. Read more
Some highlights from the FT Commodities Summit, which is taking place in Lausanne, Switzerland this Tuesday and Wednesday.
Oil production is becoming more of a manufacturing activity Read more
The FT’s Martin Wolf led a stellar panel on the global economy and the outlook for commodities featuring China expert Michael Pettis, BP’s group chief economist, Spencer Dale (formerly chief economist at the Bank of England), and Goldman’s chairman of global natural resources Brett Olsher.
As one might expect there was a difference of opinion on the panel about China’s future growth path. Goldman’s Olsher said he was confident that China would be able to maintain 6.5 per cent to 7 per cent growth in the near term, whereas Pettis suggested that even 3-4 per cent should be considered a successful adjustment. Read more
FT Alphaville is in Lausanne, Switzerland, for this year’s Commodities Summit. The conference is taking place at the Beau Rivage — a hotel so good that John Oliver has even expressed a desire to have intimate relations with it — and the opening keynote from Ning Gaoning, chairman of China National Cereals, Oils and Foodstuffs Corporation (COFCO) is about to begin.
Here are some scene setter pics: Read more
Ever wonder what the collapse of a commodity means for the hegemonic order that controls access to it?
Look no further than the sugar trade of the 1800s.
A new paper by Christian Dippel, Avner Greif, Daniel Trefler entitled The rents from trade and coercive institutions: removing the sugar coating examines the effect of the sugar price collapse on wages and incarceration rates in colonies established for sugar cane cultivation. Read more
As Paul Krugman always likes to recount, strange things happen at the zero bound. Macroeconomics gets weird. Liquidity traps prevail. And a whole slew of paradoxes come into being.
And that’s largely because below the zero bound things get even stranger still.
What you think should happen, doesn’t, and what you think definitely won’t happen, does. Furthermore, negative interest rates don’t just kill off the traditional point of banking, they encourage bad incentives and dubious market practices for all purveyors of capital. Read more
A few weeks ago, Michael Masters, of the eponymous US investment firm, made the point to FT Alphaville that bad things can happen whenever investors mistake the fruits of production for the means of production, and apply long-standing “long only” strategies (more suited to equity index markets) to assets like commodities.
Earlier this month, Nomura put out a note that observed much the same point.
Specifically, they argued that commodities should be treated like currencies and valued with macro-trading tools that incorporate the concepts of carry, value and momentum. Read more
One for the FT Alphaville historical log.
The CME announced on Wednesday that it would be closing most open outcry futures trading pits in Chicago and New York as of July. Only options on futures contracts and S&P 500 futures pits are to remain open.
That makes it a sad day for anyone who was inspired to become a futures operator because of, you know, that film.
It also contrasts with the LME’s decision to bring their open-outcry ring trading practices (along with their red benches) with them to their new corporate location in Finsbury Square.
Most importantly, however, it marks the end of a visual indicator for how the market is really trading, or any insight into “mood”. Once all contracts transact in the digital ether, all panics will be resigned to pixelated flash crash form visible only on screens or broker terminals. Gone forever will be the distressed pit trader photos. Read more
We’re all about unexpected consequences of “liquidity illusion-syndrome” these days, so it was exciting to discover a liquidity-focused assertion from Citi’s Edward Morse and team on Monday about the recent oil price decline, one that ties together a few ideas about how commodity markets relate to bank intermediation.
As a reminder, we have postulated that much of the decline is less related to sudden spot imbalances as it is to the curve’s “definancialisation”. The connection Citi has now made is between the commodity sell-off and regulatory burdens placed on banks’ commodity operations.
It adds to a discussion developed in an April paper by David Bicchetti and Nicolas Maystre, which questioned whether the recent correlation reversal in commodities was indeed connected to the closure of banks’ commodity departments. Read more