After we move through the middle of the trading week, here are some things to keep an eye on…
November 23 (King World News) – Peter Boockvar: The 2 yr yield is up another 4 bps today to .635% and has ‘officially’ hiked rates by 50 bps this year as it started at .12%. Of course the Fed hasn’t done it themselves yet via the fed funds rate but the market has spoken. While the 10 yr yield continues to creep higher too, the 2s/10s spread at 100 bps today matches the most narrow since July. With the 5 yr yield now approaching 1.34% vs .35% at year end 2020, the 5s/30s spread is the most narrow since March 2020.
Things To Keep An Eye On
While it should be no surprise that the rise in rates is taking the air out of a lot of previous high flying stocks with some down 30-75% from their highs (such as Paypal, Twitter, Snap, Chewey, Lyft, Palantir, Zoom, Teledoc, CRISPR, Virgin Galatic, Zillow, Clover, and Chegg to name a few), we’ve seen in the past few trading days weakness in credit. HYG, the high yield etf, yesterday closed at the lowest level since March 2021.
The yield on the Barclays CCC high yield to worst is at 7%, the highest since January 2021 while its spread to treasuries is at the most since March 2021.
The Barclays high yield to worst rose to 4.43%, last seen also in March 2021. Things to keep an eye on.
European bonds are down across the board, both in sympathy with the US treasury selloff yesterday but also after some less dovish (I’m not going to say more hawkish yet for the ECB) commentary from ECB members. The head of the Bank of France Francois Villeroy yesterday said “From today’s perspective, we should end PEPP net purchases in March 2022.”
Today, Executive Board member Isabel Schnabel said:
“The risks to inflation are skewed to the upside. It’s plausible to assume that inflation is going to drop below our target of 2% in the medium term. However, there could be structural shifts pointing in the other direction, I don’t think we can truly tell, on the basis of today’s data, what is actually going to happen.”
A Governing Council member Klass Knot said today that he doesn’t think some of the Covid shutdowns “will have an impact on our intention to wind down the pandemic emergency purchase program.” While the PEPP will likely end in March 2022 from the perspective of growing its size, they will still be reinvesting. The euro is up a hair after the recent weakness the past few weeks…
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The November Eurozone manufacturing and services composite index rose to 55.8 from 54.2 and that was better than the estimate of 53 with most of the gain in services. The caveat though is business optimism about the future fell to the lowest since January. Markit hit on all the themes we are fully aware of:
“The manufacturing sector remains hamstrung by supply delays, restricting production growth to one of the lowest rates seen since the 1st lockdowns of 2020. The service sector’s improved performance may meanwhile prove frustratingly short lived if new virus fighting restrictions need to be imposed. The travel and recreation sector has already seen growth deteriorate sharply since the summer.”
With respect to prices, “With supply delays remaining close to record highs and energy prices spiking higher, upward pressure on prices has meanwhile intensified far above anything previously witnessed by the surveys.”
The UK composite index was little changed with manufacturing slightly up but offset by a .5 pt drop in services. Manufacturing continues to deal “with supply shortages and falling exports.” The jobs market improved. On pricing, “A record increase in firms’ costs will meanwhile further stoke fears that inflation will soon breach 5%, with lingering near record supply delays adding to indications that price pressures may show few signs of abating in the near term.” I don’t see how the BoE doesn’t hike rates in December. The UK 2 yr gilt yield is up 4.6 bps after rising by 4.4 bps yesterday.
The Australian manufacturing and services index from Markit rose to 55 from 52.1 with services adding the most as Covid restrictions were further eased. The problem though remains, “supply chain issues featured strongly…as delivery times lengthened, widespread shortages were reported and price increases continued to be seen.” After the US treasury selloff, the Australian 10 yr yield jumped by 7.5 bps to 1.87%, a 3 week high. The Aussie$ though is unchanged as the dollar takes a breather after its recent run.
The Turkish lira is in absolute freefall, down a whopping 11% today vs the US dollar as Erdogan continues to defend his support for lower interest rates in the face of 20% inflation. His economic ignorance will eventually show him the door but that might not happen until the election in 2023 if there is not an early one called.
Also of importance…
Zacatecas Silver Initial Drilling Intersects Multiple High Grade Silver Zones in New Area!
Zacatecas Silver has a huge land position in one of the world’s most important regions for high grade silver. The Fresnillo Belt is reported to have produced more than 6.2 billion ounces of silver – 10% of the entire world’s production. Zacatecas Silver was able to assemble a big 78 square km land package right in the heart of this enviable address and in doing so was able to attract some of the world’s best silver investors as major backers. While still privately held, Zacatecas Silver announced that billionaire silver investor Eric Sprott was a shareholder of this small cap company led by a management team with a serious record of wealth creation in the precious metals space.
Huge Silver Hit Encountered in First Drilling
Today, Zacatecas Silver announced that its very first drill holes in a previously undrilled area of the project encountered multiple intervals of high-grade silver. One of these holes reported today, returned 823 g/t Silver Eq over 2.17m. While the high grade drill results today are impressive, it’s also important to note that according to today’s News Release, there are multiple additional mineralized intervals at the lab now with assay results pending.
Big Results Combined with Tight Share Structure
Zacatecas CEO Bryan Slusarchuk notes, “It’s great to see these high-grade silver assays and we are excited to see more assays imminently from the core in the lab now. While these holes are from a previously undrilled area of the property, we are also concurrently and separately working towards a resource update in the area within which a historic resource was reported. There is a lot going on right now and it’s a testament to our COO, Dr. Wilson and his team, that everything on the ground is being advanced so quickly. We have been a public company for a short period of time but are moving expediently in terms of drilling, exploration and resource confirmation. While Zacatecas has a big project and now some big assays, we have small share structure. We have purpose built the company to give shareholders the potential for real torque and while being well funded, have less than 53 million shares issued. If the technical team keeps delivering on the ground like this, we think the structure lends itself to big potential returns in the capital markets.”
The Right Team to Take Zacatecas Silver Forward
CEO Bryan Slusarchuk is the co-founder and former President of K92 Mining, which has grown from a micro-cap situation to a company approaching a C $2 billion market capitalization. Dr. Wilson, leading the charge technically, was formerly with mining behemoth Ivanhoe and was instrumental in putting this impressive land package together. The right project, people and an emerging silver market make this situation extremely compelling for early investors, especially as the market capitalization today is still small (less than C $60m). Also, management and employees own approximately 35% of Zacatecas Silver in addition to shares owned by other large investors including famous silver investor Eric Sprott. Zacatecas Silver, symbol ZAC in Canada.
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