JPMorgan Warns Military Escalation In Ukraine "May Lead To A Lehman-Style Shock"

The sudden military escalation in Ukraine in recent days has, according to JPMorgan's Alex Kantarovich, reduced the earlier hopes that the high level meeting in Minsk on 26 August would help to defuse the conflict. As Kantarovich warns, the markets are now bracing for the US/EU responses. In the worst case scenario, now appearing more likely, severe pressure on stocks may extend. As he concludes, "we believe that with the significant deterioration in the Ukrainian situation, markets may treat this as a Lehman-style shock."

Via JPMorgan Cazenove,

Lehman moment. We believe that with the significant deterioration in the Ukrainian situation, markets may treat this as a Lehman-style shock. We note there are substantial fundamental differences between the current situation and the 2008/09 crisis; the oil price is now holding up relatively well and the economic contraction may not be that deep. On the other hand, for traded stocks, the challenges and risks to investability presented by sanctions could be practically open-ended. We demonstrate that revisiting the post-Lehman lows would imply downside of 50% from an index perspective, and ~40% from the forward P/E perspective (Fig. 1 and 2).

Poor visibility. With several false dawns since the start of the conflict, the markets may no longer assume a quick and easy resolution of the conflict and ‘worse before better’ seems a likely sequence to us; we thus recommend reducing exposure to Russia and differentiating carefully among the sectors and names.

Exposure and defenses. We see Financials as particularly badly exposed - both from the sanctions perspective and from the macro perspective. We also highlight the acute pressure on economically sensitive consumers, exposed to the escalating trade wars. We again stress that the best defensive trade comprises exporters with no unwanted political affiliations as these also benefit fundamentally from the weaker ruble. The sell-off on 28 August provides a good illustration of the phenomenon (Fig. 3 and 4).

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So Buy US Stocks... because nothing says 'global growth' like a contagious collapse in a major nations markets...

A Map Of The Military Flashpoints In Ukraine

http://mediarnbo.org/

Palladium price sets fresh 13-year high

Platinum futures listed on Nymex were once again trending lower at $1,423.70 an ounce on Friday, but September palladium contracts jumped more than 1% to a high of $909.20 an ounce as an escalation of the conflict in Ukraine saw supply fears resurface.

Palladium futures trading on New York's Nymex are now at the highest since February 2001 as news of Russian troops entering the east of the country raises concerns that the West will be forced to tighten sanctions against the number one supplier of the precious metal.

The US and EU have already imposed restrictions on Russian imports of oil technology and have placed curbs on its defence and banking sectors, but so far supply of platinum and palladium have been mostly unaffected.

PGMs are mainly used to clean emissions in automobiles and Europe's car industry is the number one customer of PGMs. Not everyone believes the tensions would affect the fundamentals of the industry.

"In a nutshell, Russia needs the money, the EU needs the metal; it all boils down to politics, but the base case is business as usual," GFMS analyst Johann Wiebe told the Reuters Global Gold Forum on Friday.

South Africa, where a devastating strike kept mined metal off markets for months, and Russia combined account for close to 80% of global supply of palladium and 70% of platinum output.

Russia needs the money, the EU needs the metal

Russia has been stockpiling palladium since Soviet times, but those inventories are now believed to have been largely depleted.

South Africa is the top supplier of platinum but with production slowly returning to pre-strike levels and without the Russian risk premium platinum prices have come under pressure.

While palladium is up 26% this year, platinum has only managed gains of 3.5% in 2014. After a brief period above $1,500 in early July, platinum has also declined 6%.

Expected demand has not materialized either. From expectations of a 6% jump in sales this year, the continent's carmakers only managed to shift around 3% more vehicles in the first half as Europe's largest economies look in danger of sliding back into recession.

A slowing economy in China, the world's largest vehicle market where catalyst use skews towards palladium, is also clouding the outlook.

MCX-Natural gas is showing sign of a reversal

The natural gas futures traded on the Multi Commodity Exchange has risen by about 4 per cent in the past week. The price action over the last one month is suggesting the formation of a double bottom reversal pattern. The key resistance level to watch now will be ₹247 per mmBtu.

A strong break and close above this level will confirm a reversal. The outlook will then turn bullish for the target of ₹257. In such a scenario traders can go long at ₹249 with a stop-loss at ₹246 for the target of ₹255.

On the other hand, inability to breach ₹247 can reverse the contract lower for the targets of ₹240 and ₹235. The outlook will turn bearish if the contract records a strong close below ₹229. The ensuing target on such a break will be ₹220.

MCX-Crude oil: The MCX-crude oil futures contract is stuck in a narrow range of ₹5,650 and ₹5,755 a barrel in the past week. The immediate outlook is not clear. A breakout on either side of this range will decide the next leg of move for the contract. A strong break above ₹5,755 can take the contract higher to ₹5,900 – the 21-day moving average.

On the other hand, decline below ₹5,650 can drag the contract lower to ₹5,500. Traders can stay out of the market for now and wait for a break out to get clear trade signals.

Nickel price rally to continue into 2015: Goldman Sachs

The latest research report published by Goldman Sachs-the American multinational investment banking firm predicts the price rally in Nickel to continue into 2015. The surplus in the global refined nickel market has narrowed in 2014, when compared with the previous year.

The report states that the rise in LME Nickel inventories is the result of shift in stocks from Australian stockpile and Chinese bonded warehouses. The move from Australian stockpiles was witnessed since early-2013. However, the inspections at Chinese Qingdao port have resulted in movement of stockpiles to LME warehouses since Q2 this year.

The shifting of stocks accounted for over 75% of the total rise in LME stocks. The research indicates that almost 50,000 mt out of the LME stock rise of 66,000 mt in 2014 is due to stock shifts. Since beginning of 2013, the LME stockpiles have increased by 180,000 mt. Out of which, nearly 80,000 mt is due to the shift of stocks from Australia and China.

The ban ore Nickel ore exports by Indonesian administration have led to a strong rally in Nickel prices during the year. The prices have surged nearly 35% year-to-date. The ongoing Indonesian ban may deplete the high grade ore stocks in Chinese warehouses. This will act as the major trigger for the next leg of up move in Nickel prices. The turnaround is expected to happen towards end-2014 of early Q1 2015.

The prices have currently stabilized in the range of $18,000 to $19,000 per mt. The investment banking firm predicts the Nickel prices to rise to $22,000 per mt in 2015.

Scotiabank foresees dramatic rise in Zinc and Nickel prices

As per the latest analyst report from Scotiabank, the cyclical recovery in base metal sector is likely to result in dramatic rise in zinc and nickel prices over the next two years.

The prices of both these metals has witnessed steady rise during this year, the report noted. The zinc prices have already appreciated by nearly 17% YTD. During past month alone, the prices rose by nearly 11%. Meantime, nickel prices have rallied nearly 37% so far this year. The prices have moved to $8.64 per pound from $6.31 per pound at the start of the year.

The Scotiabank report states that both zinc and nickel are positioned well for a drastic rise, as they are already in or near to supply deficit situation. The world demand and supply balance for refined zinc will turn into deficit in 2014. World Nickel market is also most likely to shift into deficit in 2015.

Zinc prices need to elevate itself to at least $1.13 to trigger new mine development. But only higher prices of the metal could ensure ample supplies to meet the demand. The report states that the metal prices are likely to hit $1.60 towards the end of this decade.

For nickel, the report predicts the price at $10.75 in 2015. The prices are likely to rise further to $12 in the next year. The Indonesian ban on ore exports will keep the supplies tight. As a result, the prices are unlikely to drop in the next two years. The situation may see a change during late-2016 when new Indonesian facilities are expected to come online, Scotiabank noted.

Rusal to keep production volumes low despite high aluminum prices

 Russian-UC Rusal- the world’s largest aluminum company has announced to keep its production below capacities during the rest of the year, despite rising aluminum prices. The company plans to restrict its cumulative aluminum output to 1.8 million mt during July-December period this year. The mills will run at less than 80% of their capacities, Rusal announced.

The company expects aluminum prices to remain positive in the second half of the year. The premiums are also likely to improve. However, Rusal notes that world aluminum producers are seen unwilling to boost production due to several cost factors including power tariff hikes, labour issues and raw material costs. The company plans to persist with the cost-effective production controls. It had implemented a series of production cuts at high cost smelters during the first half of 2014.

The company announced that it will stay away from restarting idled capacities or expanding current facilities. The launch of Boguchansky smelter too is delayed, the company stated.

According to data, primary aluminum ingot, billet, slab and foundry alloys production by Rusal during H1 2014 had totaled 1.7 million mt, down almost 11% when compared with the corresponding six-month period in 2013. The company estimates the full year production for 2014 to reach 3.5 million mt, down nearly 9% when compared with the annual production of 3.5 million mt in 2013.