Thursday, July 16, 2015

LME Launches New Round of Warehousing Rules Proposals

Do I hear anyone say manipulation? Aivars Lode

By Ese Erheriene


The London Metal Exchange on Wednesday launched another round of proposals to improve its warehousing operations, which have been criticized for long delays in shipping out metal, particularly aluminum.
The LME’s consultation, which will close on Aug. 17, aims to increase the speed at which metal is moved into and out of warehouses, and would impose a cap on the rent charged for metal in warehouses that is waiting to be moved out, according to an LME statement.
“The proposals we are putting forward today are necessary to ensure that remaining queues and related issues are addressed in accordance with our regulatory obligations and original aims,” said Garry Jones, the LME’s chief executive.
It is the latest move by the LME, owned by Hong Kong Exchanges & Clearing Ltd., to try to resolve the delays in shipping aluminum out of some of its key warehouses. In some cases, companies have had to wait for up to two years to get their hands on aluminum, causing financial costs and operational inconvenience.
Those delays have put the LME under considerable pressure. Late last year, the body was excoriated by a U.S. Senate commission, which concluded that warehouse delays “have likely added billions of dollars in costs to a wide range of aluminum users, from beer makers to car manufacturers to defense companies that make warships for the Navy.”
The Wall Street Journal reported earlier this year that the U.S. Commodity Futures Trading Commission has so far held out giving the LME a license to operate its electronic trading platform in the U.S. as a result of the bottlenecks. In the U.K., the Financial Conduct Authority has said it is monitoring the warehouse situation.
The LME refused to say whether the latest reforms were drawn up to help smooth the path for CFTC approval.
“The CFTC have a number of foreign exchanges that they’re approving…and we’re in the queue with the rest of them,” said Mr. Jones at a press conference.
The LME has changed the rules several times this year already, primarily targeting those warehouses with delays of more than 50 days. In February, the LME said that for every two tons of metal received by those warehouses, one ton would have to be shipped out. In April, that was tightened to one ton out for every ton taken in. Then, in June, the LME said it would launch a new range of aluminum contracts to allow users to protect themselves against rising regional charges that occur in addition to the cost of the metal.
But those modifications were criticized by some customers, who complained they weren’t having much impact.
Colin Hamilton, a metals analyst at Macquarie, said that as a result of the moves, the premiums paid by companies to obtain physical metal would decline, as there would be more metal available on the market.
Waiting times at three of the five worst-offending warehouses have been eliminated; queues at the last two in Detroit and in Vlissingen, the Netherlands, have been harder to tackle.
Now, the LME wants to target all of its warehouses, raising the minimum amount of metal they ship out every day to clear backlogs faster and prevent future buildups. Warehouses with more than 150,000 tons of metal would face a sliding scale of minimum shipments, of between 2,000 tons and 4,000 tons a day, depending on the volume of metal stored in the warehouse. The measure would be introduced in December, the LME said.
At the same time, the exchange wants to stop its registered warehouses charging rent on metal that has been waiting to leave for more than 50 days. This change would be introduced in May 2016, the LME said.
Under these new rules, the LME believes queues in Vlissingen and Detroit would disappear by the end of March and April next year, respectively.
According to the LME, the rule changes have been staggered because of their complexity. The modifications announced Wednesday address the final two parts of a package of reforms that the exchange presented in 2013, though LME officials said more changes could be considered, depending on the impact of the latest proposals.

Wednesday, July 15, 2015

High-Tech Solar Projects Fail to Deliver

So is this an efficient use of capital to deliver alternative energy? Aivars Lode

$2.2 billion California project generates 40% of expected electricity

The Ivanpah solar-thermal plant in California uses thousands of mirrors to reflect sunlight and generate steam. 

By Cassandra Sweet 

Some costly high-tech solar power projects aren’t living up to promises their backers made about how much electricity they could generate.
Solar-thermal technology, which uses mirrors to capture the sun’s rays, was once heralded as the advance that would overtake old fashioned solar panel farms. But a series of missteps and technical difficulties threatens to make newfangled solar-thermal technology obsolete.

The $2.2 billion Ivanpah solar power project in California’s Mojave Desert is supposed to be generating more than a million megawatt-hours of electricity each year. But 15 months after starting up, the plant is producing just 40% of that, according to data from the U.S. Energy Department.

The sprawling facility uses “power towers”—huge pillars surrounded by more than 170,000 mirrors, each bigger than a king-size bed—to capture the sun’s rays and create steam. That steam is used to generate electricity. Built by BrightSource Energy Inc. and operated by NRG Energy Inc., Ivanpah has been advertised as more reliable than a traditional solar panel farm, in part, because it more closely resembles conventional power plants that burn coal or natural gas. NRG co-owns the plant with Google Inc. and other investors. 

Turns out, there is a lot more to go wrong with the new technology. Replacing broken equipment and learning better ways to operate the complex assortment of machinery has stalled Ivanpah’s ability to reach full potential, said Randy Hickok, a senior vice president at NRG. New solar-thermal technology isn’t as simple as traditional solar panel installations. Since older solar photovoltaic panels have been around for decades, they improve in efficiency and price every year, he said.

“There’s a lot more on-the-job learning with Ivanpah,” Mr. Hickok said, adding that engineers have had to fix leaky tubes connected to water boilers and contend with a vibrating steam turbine that threatened nearby equipment.

One big miscalculation was that the power plant requires far more steam to run smoothly and efficiently than originally thought, according to a document filed with the California Energy Commission. Instead of ramping up the plant each day before sunrise by burning one hour’s worth of natural gas to generate steam, Ivanpah needs more than four times that much help from fossil fuels to get the plant humming every morning. Another unexpected problem: not enough sun. Weather predictions for the area underestimated the amount of cloud cover that has blanketed Ivanpah since it went into service in 2013.

Ivanpah isn’t the only new solar-thermal project struggling to energize the grid. A large mirror-powered plant built in Arizona almost two years ago by Abengoa SA of Spain has also had its share of hiccups. Designed to deliver a million megawatt hours of power annually, the plant is putting out roughly half that, federal data show.

NRG and Abengoa say their plants will reach power targets once the kinks are worked out.
In contrast, incremental improvements to traditional solar panels have allowed SunPower Corp. to get more electricity than it originally thought it could from its 1,500-acre solar farm. California Valley Solar Ranch was designed to produce 600,000 megawatt-hours a year in 2013 when it started operating, but today it can generate up to 4% more.

“It’s years of learning from experience,” said Tom Werner, chief executive of SunPower, adding that his employees have been building large-scale solar farms for more than a decade.

Solar-thermal developers including Abengoa and BrightSource continue to build new plants in South Africa, Chile and China. But Lucas Davis, an economics professor at the University of California, Berkeley, says it is unlikely more U.S. projects will gain traction as utilities opt for cheaper solar farms that use panels.

“I don’t expect a lot of solar thermal to get built. It’s just too expensive,” he said.

American solar farms generate nearly 16 million megawatt-hours of electricity each year. That satisfies less than 1% of U.S. electricity demand, but six times the amount of power that solar-thermal plants currently produce. And the vast arrays of solar panels that blanket the ground cost roughly half as much to build as new mirror-powered plants, according to the U.S. Energy Department.

Ivanpah’s computer-controlled mirrors are each about 7 feet high and 10 feet wide. The reflected light is used to heat water in boilers and make steam, which in turn drives turbines to create electricity. 

Electricity prices from new solar farms average around 5 cents a kilowatt-hour, according to GTM Research, which tracks renewable energy markets. That compares with between 12 and 25 cents a kilowatt-hour for electricity generated by the Ivanpah power plant, state and federal data show.

It is unclear how much power would cost from a brand new solar-thermal plant, but it would be more than 5 cents a kilowatt-hour, said Parthiv Kurup, an analyst at the National Renewable Energy Lab in Golden, Colo.

The cost of solar panels has plunged in recent years amid a world-wide glut of equipment as China, Taiwan and other countries rapidly developed solar manufacturing centers. A few years ago solar-thermal technology was heralded as a better way to deliver carbon-free renewable energy; some utilities even predicted the technology would replace traditional solar farms.

Even if solar-thermal developers could offer the same power prices as their solar-panel rivals do, solar-thermal plants face environmental hurdles in the U.S.

The Ivanpah plant was delayed several months and had millions of dollars in cost overruns because of wildlife protections for the endangered Desert Tortoise. Once built, U.S. government biologists found the plant’s superheated mirrors were killing birds. In April, biologists working for the state estimated that 3,500 birds died at Ivanpah in the span of a year, many of them burned alive while flying through a part of the solar installment where air temperatures can reach 1,000 degrees Fahrenheit.

Bird carnage combined with opposition by Native American tribes to industrial projects on undeveloped land has made California regulators wary of approving more. Last September, Abengoa and BrightSource abandoned their quest to build a solar-thermal project near Joshua Tree National Park when the state regulator told them the plant’s footprint would have to be cut in half.

In March the Board of Supervisors of Inyo County, a sparsely populated part of California that is home to Death Valley National Park, voted to ban solar-thermal power plants altogether. “Ivanpah had a significant effect on the decision making,” said Joshua Hart, the county’s planning director.

Tuesday, July 14, 2015

EU Competition Watchdog Investigates Amazon Over Electronic-Books Business

As we have discussed before, cheat the taxes and they will find you. Aivars Lode

By Tom Fairless


BRUSSELS—European Union regulators have opened a formal investigation into Amazon.com Inc.’s electronic-books business, the latest in a series of probes targeting U.S.-based technology giants that could affect how they operate in Europe.
The European Commission, the bloc’s top antitrust regulator, said Thursday that it was investigating whether Amazon uses its market power to force illegal terms on to publishers that harm purchasers of e-books. The regulator is concerned that parts of Amazon’s contracts with publishers “seem to shield Amazon from competition from other e-book distributors,” it said in a statement.
U.S. tech companies are facing a wave of scrutiny in Europe, their biggest overseas market, as regulators crack down on alleged violations ranging from unfair competition to inadequate data protection. 
Amazon is embroiled in several of those probes, which could force the companies involved to make significant changes to their business practices.
The EU opened separate investigations in recent weeks into how large Web companies like Amazon and Google Inc. operate in Europe, and whether e-commerce companies are raising barriers to competition across the region. Amazon’s tax affairs in Luxembourg are also being scrutinized as part of a widening EU investigation into whether multinational companies received an illegal advantage from alleged sweetheart tax deals.
At issue in the investigation announced Thursday are clauses in Amazon’s contracts with publishers that the EU believes may limit competition between vendors of e-books, and reduce choice for consumers. The clauses, known as most-favored nation, or MFN, are common in industries like cable television in the U.S., but they may run afoul of antitrust rules in Europe if they reduce price competition, antitrust lawyers say.
Amazon said it is confident that its agreements with publishers “are legal and in the best interests of readers,” and pledged to cooperate fully with the investigation.
The company is currently the dominant distributor of e-books in Europe. In the U.K., for instance, Amazon accounted for 78% of e-book sales at Hachette Livre, according to an investor presentation last year from Hachette’s owner, Lagardère SCA.
Multiple book publishers have been lobbying the commission to investigate Amazon, one publishing executive said, but it is unclear whether any company had made a formal complaint. “They are the biggest customer for most of us, so you don’t want to upset them,” the executive said. 
The probe will initially focus on e-books in English and German, the largest markets for such products in the region, the EU said. There is no deadline for such investigations, which can last years and are often broadened beyond their initial area of focus.

Margrethe Vestager, the EU’s antitrust chief, said she wants to ensure “that Amazon’s arrangements with publishers aren’t harmful to consumers, by preventing other e-book distributors from innovating and competing effectively with Amazon.”
“Our investigation will show if such concerns are justified,” Ms. Vestager said in a statement.
Regulators on both sides of the Atlantic have targeted the e-books business before. The EU opened formal proceedings in 2011 to investigate whether Apple Inc. and five publishers had illegally colluded to fix the price of e-books before Apple’s first iPad launch in 2010. The case was settled after all the companies involved agreed to alter their contracts. 
The U.S. Justice Department settled a similar case with publishers in December 2012, though Apple has appealed the judgment.

Monday, July 13, 2015

Belgium to Block ‘Vulture’ Funds From Profiting on Government Debt

Watch this end up in US courts. Aivars Lode

By Natalia Drozdiak


BRUSSELS—A Belgian parliamentary committee agreed to a proposal that would cap what so-called “vulture investors” recoup in Belgium on sovereign bonds if a country defaults, a lawmaker said Tuesday, as the draft enters into the homestretch before it likely becomes law.
The law would affect funds that have snapped up government debt at rock-bottom prices from countries teetering on the brink of default and subsequently seeking repayment for the full value of the bonds. The motion was unanimously agreed on by the finance committee, which is comprised of representatives of Belgium’s major political parties.
The lawmakers want to prevent the funds from seizing assets in Belgium belonging to the indebted nation.
“This presents a clear signal that [Belgian lawmakers think] finance shouldn’t be used as an instrument that destabilizes countries in default,” said Ahmed Laaouej, a Socialist party member and lead author of the proposal.
The finance committee’s backing of the proposal comes just weeks after U.S.-based NML Capital Ltd, a hedge fund embroiled for more than a decade in a dispute with Argentina over debt repayment, demanded Belgian banks freeze about €52,000 ($58,658) in Argentine accounts, according to a Bloomberg news report in May. The fund, a subsidiary of Elliott Management Corp., has refused Argentina’s restructuring offers since the government’s 2011 default and is suing the country for full payment. Elliott Management couldn’t immediately be reached for comment.
The Belgian law would apply either if the indebted country is insolvent, if the creditor has a history of chronic use of judicial proceedings to get back their claims, or if the creditor has declined to participate in the debtor state’s restructuring.
“That you couldn’t make a profit on your bonds seems a bit overkill—unless you want to kill the market…and with that, also kill off the virtues that some vulture investors offer,” said John Pottow, a University of Michigan law professor specializing in bankruptcy and commercial law.
While they sometimes engage in rapacious tactics to win back claims, vulture hedge funds are also important because they provide an outlet for other investors desperate to sell their bonds, Mr. Pottow said.
NML Capital also called on authorities in Ghana to detain an Argentine naval training ship in 2012 in a bid to pressure Argentina’s government to repay claims worth about $2.5 billion from defaulted sovereign bonds Elliott owns.
The Belgian proposal follows a similar move in the U.K., where the government passed a debt relief act in 2010, which blocks creditors from taking to British courts to extract steep repayments on debt from poor countries.
In several weeks, the draft will go to vote before all members of Belgium’s chamber of representatives, who typically votes in favor of the committee. If passed, the country’s King Philippe would then sign it into law.

Sunday, July 12, 2015

States Confront Wide Budget Gaps Even After Years of Recovery

I am reminded of Winston Churchill’s following quote when it come to the next topic. I am certain the American’s will do the right thing. Eventually once they have exhausted every other alternative. Back in 2008 we pointed out what happened to Government post the Aussie crisis in the 90’s. The government pulled it's spending in and cities amalgamated in order to balance the budget and not hike tax’s etc. Aivars Lode

By Julie Bosman


CHICAGO — In Illinois, fights over the state budget and its $3 billion shortfall have hit such an impasse that Gov. Bruce Rauner, a Republican, issued a dire warning last week that a “major, major restructuring of the government” was around the corner.
In Kansas, centrist Republicans have joined Democrats in attributing the state’s $400 million budget gap to deep tax cuts passed in 2012 and 2013 at the urging of Gov. Sam Brownback, a conservative Republican.
And in Louisiana, lawmakers in the Republican-controlled State Legislature are in a standoff with their party colleague Gov. Bobby Jindal as they struggle with a $1.6 billion shortfall.
Though the national economy is in its sixth year of recovery from the recession, many states are still facing major funding gaps that have locked legislatures in protracted battles with governors. In some states, lawmakers have gone into overtime with unresolved budgets, special sessions and threats of widespread government layoffs. Only 25 states have passed budgets, according to the National Association of State Budget Officers, which tracks legislative activity.


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While some states led by Democrats are having budget problems, too, there are far more states where Republicans control both the legislature and the governor’s office: 23, compared with seven states controlled by Democrats. Some of the bitterest budget fights this year pit conservative Republicans against centrist Republicans over how to cut spending or raise taxes.
Fallout from the budget battles, though unlikely to be felt soon, could well be significant. Taxes on income or commodities like cigarettes may go up in several states. School programs and class sizes could be affected if education funds are reduced. And some states may have to resort to layoffs or furloughs, potentially leading to slowdowns in government services.
Many of the legislatures that are struggling with budgets can point to external forces, including slow economic recoveries and rising health care costs, for their woes. “This is very different from past recovery periods, where you had fairly robust revenue growth at the state level,” said Scott D. Pattison, executive director of the National Association of State Budget Officers. “We’re not seeing enough revenue growth to solve some of the problems that we’re seeing.”
But many others have their own policy decisions to blame, budget experts say. Longtime bipartisan neglect of pension obligations has caught up with lawmakers in Illinois, New Jersey and Pennsylvania, and deep tax cuts in Republican-dominated states like Kansas, Louisiana and Wisconsin have contributed to budget shortfalls as economic growth has fallen short of projections.
“A lot of governors have cut their taxes with the hopes that that would bring increased economic activity and they could postpone painful decisions about spending reductions,” said Tracy Gordon, a senior fellow at the Urban-Brookings Tax Policy Center in Washington. “But those increases in economic activity haven’t come to pass.”
that their states have been held back by slow economic growth on the national level, and that keeping taxes low is the best way to add jobs and revive the economy in the long run.
Gov. Scott Walker of Wisconsin made the case for tax cuts during a speech in Michigan last month. “We can charge you higher rates, and a few of you might be able to afford to pay it,” he said. “Or we can lower the rates, broaden the base. More people are part of the economy, we see revenues go up even while rates go down, and the economy gets better for everyone.”
Louisiana’s fiscal troubles can be traced to the economic boom that followed Hurricane Katrina in 2005, when rebuilding efforts, insurance payouts and federal money pushed cash into the state budget. Many lawmakers expected the heady times and increased revenue to last, and they made the bold decision to cut income taxes by roughly $700 million annually for the highest brackets — a decision some are now second-guessing.
“We chose to give away more tax credits, incentives and rebates over the past seven years than there were revenues coming in to sustain state government,” said Representative Jim Fannin, a Republican and the chairman of the Legislature’s budget-drafting Appropriations Committee.
But while Republicans in the Legislature are prepared to raise some taxes, Mr. Jindal has insisted that there be no net increase in taxes and has threatened to veto any spending plan that includes one. After juggling proposals ranging from increasing cigarette taxes to reducing tax incentives for solar power, lawmakers have yet to devise a plan that meets the governor’s demands.
Shannon Bates Dirmann, Mr. Jindal’s spokeswoman, said his veto threat was real. “He wants families to keep more of their hard-earned money rather than sending it to state government coffers, because it helps cultivate a strong economy,” she said.
Democrats control the General Assembly in Illinois and held the governorship until January, after Mr. Rauner, a businessman, was elected in November. He is facing one of the worst fiscal crises in the state’s history, in large part because of pension costs that accumulated under previous governors from both parties.
Mr. Rauner warned last week that to close the budget gap, he might reduce services for the elderly and working poor and abandon ambitious plans for highway infrastructure. As the legislative session came to a close on May 31 with an unresolved deficit, Mr. Rauner told reporters that the conflict could stretch on all summer.
In Kansas, lawmakers elected on anti-tax platforms are now debating competing proposals to increase sales taxes, and business and individual income taxes, to address a $400 million shortfall.
Operating under the assumption that Kansans prefer “consumption taxes over income taxes and want no increase of burden on property taxes,” Mr. Brownback has proposed increasing sales and cigarette taxes and restoring taxes on some income for small businesses. But he wants to continue to phase in his income tax reductions. Critics argue that his plan places the burden for deficit reduction on low-income Kansans, who are most affected by sales tax increases.
Some of Mr. Brownback’s staunchest allies have also disagreed with parts of his plan, and lawmakers have held marathon debate sessions that have pushed their legislative session past the 100-day mark for just the sixth time in state history. State agencies were bracing for a government shutdown until Saturday night, when the Legislature passed a bill that averted furloughs for 24,000 state employees. 
In Alabama, lawmakers are expected to return to Montgomery, the capital, this summer for a special session amid a budget stalemate that has pitted competing plans from the Republican governor, Robert Bentley, and the Republican-dominated Legislature to resolve what the governor says is a long-term $702 million shortfall.
A revenue-raising proposal to legalize casino gambling failed, as did one that would have shifted millions from the education budget to the state’s General Fund. Lawmakers approved a budget Thursday that would impose cuts totaling about $200 million, including to the budget of the state agency that manages Medicaid, but Mr. Bentley vetoed it.
Mr. Bentley has called that plan “unworkable” and “irresponsible” because of the severity of the cuts, proposing instead that the state raise several taxes. “It really is going to hurt the people of this state,” he said last month. But while the House signaled that it was prepared to raise some taxes, the Senate has made its opposition clear.
In Wisconsin, Mr. Walker signed into law last year a $541 million tax cut that benefited both families and businesses. But expectations of a surplus dissipated amid slow job growth, and now the state faces a budget shortfall of more than $280 million.
Mr. Walker has proposed closing the gap by decreasing funding to public schools, the state’s university system, public workers’ health benefits and state parks. Despite resistance from some legislators, particularly Democrats, the Republican-controlled State Legislature is expected to approve his plan by the end of the month.
In Alaska, lawmakers are trying to fill a budget deficit caused by a combination of lower oil prices and reduced oil shipments from the big North Slope fields. Alaska depends on oil revenue for about 90 percent of its budget, and it is facing a deficit that could reach $4 billion in a budget of only about $5 billion — with years of deficits projected after that as well.
The Republican-controlled State Legislature is now facing a critical question: how much to dip into savings to fill the gap. In fat years, the state built up more than $10 billion in rainy day funds, but budget officials say tapping it all would threaten Alaska’s long-term financial stability.
A number of states are enjoying surpluses. But even some of them are locked in battles over how to spend the money.
In Minnesota, the Republican-controlled House and Gov. Mark Dayton, a Democrat, are preparing to convene for a special session, having been unable to agree on a budget despite a surplus of more than $1 billion. After Mr. Dayton warned that he would start laying off state workers on July 1, the two sides seemed to come closer to an agreement.

Saturday, July 11, 2015

Commodities Skid on China’s Stock Rout

Whoops. Aivars Lode

By Tatyana Shumsky

Commodities suffered their worst rout in seven months as a steep selloff in China’s stock market magnified investor fears about weaker demand from one of the world’s largest consumers of raw materials.
The S&P GSCI, an index that tracks a diversified basket of commodities, fell 4.9% to 412.51 Monday. This was its steepest drop since November and its lowest level since April. The losses come amid a swift downdraft in Chinese stocks, which have lost more than one-quarter of their value since touching a record high in June and gave up 72% of all their gains made this year.
Commodity traders fear that China’s tumbling stocks reflect broader economic weakness. Chinese shares vaulted 60% to a record high on June 12 as Beijing unleashed a flood of cheap money in its effort to prop up indebted businesses. The government’s efforts to restructure China’s economy toward domestic consumption, and away from export-led growth, have taken a toll on economic expansion. China’s annual economic growth has slowed to 7% in the first quarter, from nearly 9% at the start of 2012, as manufacturing activity contracted and property prices fell.
Oil prices posted their steepest drop in three months. U.S. benchmark light sweet crude oil for August delivery settled down 7.7% to $52.53 a barrel on the New York Mercantile Exchange, its biggest daily drop since Feb 4 and its lowest level since April 13. The losses in oil come as inventories in the U.S. surprised higher last week and as a potential deal over Iran’s nuclear program threatens to unleash additional energy supplies on the global market, traders and analysts said.
Copper prices slumped by the most since January, with September-delivery futures closing down 3.5% at $2.5380 a pound on the Comex division of the Nymex.
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Soybeans fell 1.1% to $10.33¾ a bushel, a one-week low, on the Chicago Board of Trade. Cotton prices fell 0.7% to 66.95 cents a pound, a six-session low, on the ICE Futures U.S. exchange.
“We’re getting greater signs of stress in China and typically when you see that, you see weaker economic activity” and commodity demand, said Michael Strauss, chief investment strategist with Commonfund Asset Management Co., which manages $25 billion.
Mr. Strauss has held a smaller exposure to commodities than recommended by diversified asset indexes, and said the recent downdraft in Chinese stocks reinforced his conviction that there is more trouble ahead for commodity prices, commodity producers and economies of resource-producing countries.
The drop in Chinese stocks comes amid heightened concerns about corporate profit growth and after share prices skyrocketed in response to government measures to cut borrowing costs. Many investors worry that China’s stock market is in a bubble fueled by cheap money, and that as the bubble deflates and share prices fall, the losses will trigger bankruptcies in China’s financial sector that will further sap growth.
“There will be repercussions [for commodities] given how many millions of people opened accounts and started buying stocks,” said Edward Meir, senior commodities strategist with brokerage INTL FCStone. “When your stocks account is getting crushed, you’re not going to go out and buy that washing machine…it’s all related,” he said.
Investors rushed out of commodity markets in response, cutting back holdings of energy, metals and grains.
Nicholas Robin, who helps manage $600 million invested in commodities at Columbia Threadneedle Asset Management in London, said his fund has held less copper than suggested by commodity indexes on the belief that demand would continue to disappoint.
“Metal demand is already not so good [because] the property market in China hasn’t been doing well,” Mr. Robin said, adding that recent gyrations in Chinese stocks suggest the economy there is likely to remain weak, reducing the country’s copper purchases further.
Commodity markets have been under stress for weeks as investors worried that lackluster global growth would translate into weaker appetite for resources such as crude oil and copper. Supplies of many raw materials are projected to run ahead of global demand this year, putting pressure on prices.
China’s efforts to stabilize its stock market are coming against a backdrop of a debt crisis in Greece, which is dulling the impact of the measures, said Bart Melek, senior commodities strategist with TD Securities in Toronto. Some investors are worried that credit problems in Greece will affect Europe’s economic performance, slowing the region’s growth and demand for raw materials, he said. Another concern is that demand for Chinese exports will fall further as Europe’s economy slows, he said.
“Greece, from a demand perspective, doesn’t matter, but it is impacting sentiment and risk appetite…it’s creating uncertainty and loss of risk appetite,” Mr. Melek said.
To be sure, some investors say the current pullback in commodities makes this a good time to buy resources on the cheap, and that prices should recover as global growth picks up next year.
“The demand picture will improve next year and we see further stability in China,” said Paul Christopher, global market strategist, Wells Fargo Investment institute, with $1.7 trillion in assets under management. Mr. Christopher has been telling clients to slowly add commodities back to their portfolios, after holding less of the asset class than prescribed by diversified asset indexes in recent years.
But other investors say it’s too early to return to commodity markets.
“We’re not there yet, given the challenges in Europe and the challenges that are resurfacing again in China,” said Commonfund’s Mr. Strauss.

Dollar Edges Higher on Solid Employment Data Ahead of Jobs Report

Amazing how the dollar was finished only a few years ago. Aivars Lode

By James Ramage
The dollar firmed against the euro and the yen on Thursday, as better-than-expected data on U.S. claims for unemployment insurance fueled investor expectations for a robust May jobs report on Friday.
The dollar also gained as traders took profit from the euro’s recent rally that had been supported by a drop in German government bond prices.
The currency market also weighed comments by the International Monetary Fund recommending that the Federal Reserve delay its expected increase in short-term interest rates into 2016, until there are clearer signals of wage and price inflation in the U.S.
The dollar climbed 0.3% against the common European currency, with one euro buying $1.1242 in late-afternoon trade, on track to end a sharp two-day decline. The dollar lost 3.1% over the two previous sessions, as an improving picture of the eurozone economy and outlook for inflation led to a substantial selloff in German government bonds that extended to U.S. Treasurys and prompted a reversal in bets against the euro.
The dollar rose 0.1% against the yen to Y124.36, climbing for a second consecutive session and nearing its highest level against the Japanese currency since December 2002. The Wall Street Journal Dollar Index, which gauges the value of the dollar against a basket of 16 widely traded currencies, increased 0.3% to 86.78.
“The U.S. jobless data gave the dollar a little bit of a boost,” said Sireen Harajli, foreign exchange strategist at Mizuho Bank. “But we’re also seeing the market reacting a little after headlines from the IMF comments…It’s not anything concrete behind these moves. Nonfarm payrolls tomorrow should give the market something more definitive in the dollar’s move.”
The dollar’s recent gyrations reflect investors’ uncertainty over the extent of the U.S. economic recovery and the timing of the Fed’s first increase in interest rates in nine years. Many asset managers piled into the dollar and U.S. assets with the conviction that the Fed would raise borrowing costs in 2015, which drove the dollar to multiyear highs against the euro and the yen. Meanwhile, central banks in the eurozone and Japan have been easing policy to lift their economies and avert deflation.
But some soft U.S. data have shaken investors’ faith in America’s recovery and pushed back their expectations for higher interest rates. On Thursday, the IMF said in its annual review of the U.S. economy that the strong dollar and poor weather had sapped momentum for job creation and expansion. These negative shocks moved the fund to downgrade its growth expectations to 2.5% for the year, compared with an estimate for a 3.1% expansion in April.
The IMF’s call for the Fed to refrain from raising interest rates until the first half of 2016 resonated with some investors. IMF Managing Director Christine Lagarde sent a warning sign that this dollar rally may be reaching its expiration date, said Jonathan Lewis, chief investment officer at Samson Capital Advisors. “Many dollar bulls have bought the dollar on the view that the Fed is going to tighten soon; Lagarde is telling the Fed that tightening would be a mistake and that the dollar is overvalued,” Mr. Lewis said. “If the Fed listens to Largarde, an important argument for a strong dollar disappears.”
But starting to raise interest rates in 2015 would be appropriate, said Ugo Lancioni, currency fund manager at Neuberger Berman. “Rates have been way too low for too long,” Mr. Lancioni said. “We need to see domestic wages picking up, inflation picking up, stable growth; those need to be in place. But monetary policy in the U.S. is still very loose, and an adjustment would be justified by the improving fundamentals we’ve seen over the last few years.”
On Friday morning, the Labor Department will release its jobs numbers for May. Economists forecast the U.S. last month to have created 225,000, the unemployment rate to steady at 5.4% and for hourly wages to rise 0.2%.
The dollar picked up after initial claims for unemployment benefits declined 8,000 to a seasonally adjusted 276,000 in the week ended May 30, below economists’ expectations for 279,000 claims. “People might see the dollar at attractive levels now [and enter into long bets] ahead of the payrolls numbers, in case it’s a strong report,” said Vassili Serebriakov, currency strategist at BNP Paribas.