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Tech Giants Could Send Helium Prices Soaring as War For Supply Grows

It’s a global issue that could soon disrupt every industry from technology to medicine and much more.
With the global supply of one commodity at its lowest level in years… while demand is spiking to all-time highs…
It could send prices for this…

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It's a global issue that could soon disrupt every industry from technology to medicine and much more.

With the global supply of one commodity at its lowest level in years... while demand is spiking to all-time highs...

It could send prices for this much-needed resource higher yet.

Already, prices had been steadily climbing in recent years.


Source: Bureau of Land Management, USGS

But one small company, Avanti Energy (TSX: AVN.V; US OTC: ARGYF), has seen its share price increase more than 2.5x over just the last few months.

Those recent gains are greater than many of those companies filling the headlines today.

Now, an event set to take place in September 2021 has the potential to send helium prices to the next level.

That's when the global supply of this rare gas could nosedive by as much as 10%.

And that's why some of the biggest media outlets in the world are finally starting to take notice.

Forbes is saying, "Helium is soaring on red-hot demand, shrinking supply."

CNBC points out, "The worldwide helium shortage affects everything from MRIs to rockets."

And the Wall Street Journal is saying, "The gas is crucial in high-tech and medical device manufacturing [...] operations."

With top media outlets now turning their attention to this supply squeeze, it’s clear that the world is facing a potential shortage.

You see, helium is about far more than party balloons.

Big Tech companies like Amazon, Alphabet, Facebook, and many others all rely heavily on this valuable gas.

Because it has the lowest boiling point of any element, it can bring temperatures to lower levels than even liquid nitrogen.

That's incredibly important when you're keeping electronics from overheating.

1) This is crucial for Big Tech’s data centers, as they run around the clock, crunching more data than ever.

2) It's essential for creating computer chips we rely on in every computer and smartphone we own.

3) And the health sector requires them to cool the magnets inside MRI machines.

Helium even plays a critical role in space exploration, quantum computing, and nuclear power.

In today's high-tech era, it's needed nearly everywhere you look.

That's why it's such a concern that supply levels are reducing to the lowest level we've seen in years.

Those in the medical field even went as far as to ask balloon retailers to give up 10% of the helium supply recently to help address the shortage.

If helium levels run out altogether, the effects could be very expensive.

Imagine the impact on fiber optic cables for high speed internet. On cell phones or computers. On MRIs. And even on airbags for our cars.

That’s why this precious gas is now much more valuable than natural gas, at prices of $14.6/Mcf versus just $2.80/Mcf.

And that's great news for little-known helium exploration companies like Avanti (TSX: AVN.V; US OTC: ARGYF).

The junior mining company has already seen shares soar over 2.5x in just three months.


Source: Beacon Securities Limited

But with the looming deadline of the September 2021 event, Avanti Energy (TSX: AVN.V; US OTC: ARGYF) seems to be on the right track.

World-Class Team Jumping On A Massive Opportunity

Avanti recently acquired the license for 6,000+ acres of land in Alberta, Canada that the experienced team says is highly prospective for helium.


Source: Beacon Securities Limited

Around the world, most of the largest supplies of helium have had one thing in common.

They were discovered in areas where there's been drilling for natural gas.

That’s a major reason why Avanti has targeted the site where the government of Alberta previously explored for oil and gas wells.

So we think it already fits the criteria from that angle.

But it's also positioned in an area where there's been multiple drill system tests with analyzed natural gas.

And it's got the potential to be high-grade gas as well.

When it comes to commercially viable grades of helium, experts consider anything from 0.3% to 1% helium to be high-grade.

But on the Alberta property, historical drilling is reported to have showed up to 2.18% helium in some locations.

We think this could have tremendous implications for supply if the hoped for discovery in Alberta pans out as Avanti’s team is expecting.

For prospective helium plays like these though, even when there's great potential, many fall apart just due to poor leadership or lack of experience, in addition to other reasons.

That's why it's essential to only back projects led by teams that have already proven they can deliver the goods.

And that's exactly what we think Avanti Energy (TSX: AVN.V; US OTC: ARGYF) has on their side.

Team of Experts with a Proven Track Record

Their world-class management team was responsible for identifying and developing one of the largest oil and gas discoveries in all of North America.

That's where they helped discover natural gas in the Montney, which has been producing almost 300,000 boe/d over the past 15 years.

And now, Genga Nadaraju, Dr. Jim Wood, and Ali Esmail have keyed in on the Alberta property because of the incredible potential they've seen there.

They've probably already developed a plan for identifying the structural traps and high points for drilling.

But many are eagerly waiting to see how these world-class experts will do it.

They've already revealed that they're pursuing an 80-20% targeted model approach.

The 20% will follow standard industry conventional strategies.

But the remaining 80%, which could be the key to helping unlock the opportunities at the Alberta property, is being kept strictly confidential.

It’s expected that they’ll plan to follow their own models, just as they did at the Montney.

And they’re hoping they’ll see similar results with another world-class discovery in their new property, this time of a different kind of gas.

Expanding Quickly Throughout North America

With such a highly-respected team behind this project, it's beginning to draw attention within the industry.

That's especially true after Avanti moved to grow their land package across the border into the United States earlier in April.

They’ve entered into an LOI to add another 12,000 acres of land in Montana to this already impressive land package in Alberta.

And they're supposedly eyeing another roughly 55,000 acres around the midwestern United States with potentially very large helium reserves.

Altogether, they're said to have identified around 20 additional proprietary targets around Alberta, Saskatchewan, and Montana.

And over the coming months, they've made clear that they are planning to aggressively start acquiring more land to build a long-term pipeline of opportunities and projects.

That's massive news as the supply squeeze for helium has a lot of different industries seeking what Avanti is looking to be able to supply.

And once the Helium Stewardship Act expires in September 2021, that's only expected by some experts to push helium prices higher.

That's when the United States Bureau of Land Management (BLM) will auction off all remaining helium reserves in their possession, which could do away with the price ceiling keeping the lid on the market today.

Avanti Energy (TSX: AVN.V; US OTC: ARGYF) is in a good position to cash in if they achieve the discoveries they’re aiming for as they assemble a growing property portfolio that's highly prospective for helium.

Now, with the success of this tech boom riding on companies like Avanti discovering and producing more helium in the coming months, the potential upside looks good to us.

So how does Big Tech use helium, anyway?

It’s used primarily for cooling in fiber optic manufacturing and semiconductor manufacturing. That means that companies with massive data centers like Google, Facebook and Microsoft are distinctly dependent on this rare gas.

Other energy plays to keep an eye on:

As demand for energy continues to explode in a post-pandemic China, CNOOC Limited (NYSE:CEO, TSX:CNU) will likely be one of the biggest winners in this boom. It’s the country’s most significant producer of offshore crude oil and natural gas and may well be one of the most controversial oil stocks for investors on the market. A label that has nothing to do with its operations, however.

Just last month, U.S. regulators announced their intention to de-list Chinese companies from the New York Stock Exchange, going back on their announcement just a few days later. The sustained negative press surrounding Chinese companies, however, has put CNOOC in an uncomfortable position for investors. While many analysts see the company as significantly undervalued, it is still struggling to gain traction in U.S. markets.

Teck Resources Limited (NYSE:TECK, TSX:TECK.B) is one of the world’s largest and most diverse resource and mineral companies. And it isn’t going to miss out on the global energy transition, either. While its primary mining and mineral development plays focus on steelmaking coal, copper and zinc, Teck also has a major stake in renewable projects with massive potential.

Explaining why investment in the new-energy industry, Teck states, “Flow batteries – such as the zinc-air battery developed by ZincNyx, with its flexible and low-cost scaling, long-term storage properties and the ability to separate the energy storage function from the power generation source – could provide a more efficient alternative for large-scale energy storage.” 

Like the rest of the market, Teck struggled in 2020. Its share price fell to just $7 in March of last year due to the market chaos sparked by the COVID-19 pandemic. Despite this downturn, however, the company was able to rebound significantly, rising by nearly 180% to its current prices. But with more projects on the horizon, and global demand for copper and zinc on the rise, Teck is poised to climb even higher.

Turquoise Hill Resources Ltd. (NYSE:TRQ, TSX:TRQ) is major player in Canada’s resource and mineral industry, and its bound to gain some major traction in the world’s push towards greener energy. Like Teck Resources, Turquoise Hill is a major producer of coal and zinc, two resources with distinctly different futures. While the end of coal is looming, zinc is a mineral that will likely grow exponentially in the future of energy for years and years to come.

But that’s not all Turqoise Hill has going for it in the energy transition. It’s also a major producer of Uranium. Uranium is a key material in the production of nuclear energy, which many analysts are suggesting could be a major component in the global transition to cleaner energy. While the mineral has not seen significant price action in recent years, there are a number of new projects set to come online across the globe in the medium-term, which could be a boon to Turquoise Hill.

Magna International (NYSE:MGA, TSX:MG) is a little-known stock with huge potential. And it is a great way to get in on the booming battery market without betting big on one of the new hot stocks tearing up among the millennials right now. The 63-year-old Canadian manufacturing giant provides mobility technology for automakers of all types. From GM and Ford to luxury brands like BMW and Tesla, Magna is a master at striking deals. And it’s clear to see why. The company has the experience and reputation that automakers are looking for.

Magna saw the battery boom before most. In fact, more than ten years ago, it was already making major moves in this emerging market, investing over half a billion dollars in battery production while the market was still gaining traction. Back then, electric vehicles as we know them had barely hit the scene, with Tesla launching its very first car just two years before.

Magna’s big bet on batteries has paid off in a big way. Since its initial investment the company has seen its valuation soar by tens of billions of dollars, and it has quietly solidified itself as one of the leaders in this emerging market. 

Similar to Magna, Celestica (NYSE:CLS, TSX:CLS ), is a company that saw this trend before it took Wall Street by storm. As a manufacturer of key technology in this industry, it has gained a lot of ground, especially in recent years. Celestica’s wide range of products includes but is not limited to communications solutions, enterprise and cloud services, aerospace and defense products, renewable energy and healthcare tech.

Celestica’s future is tied hand-in-hand with the green energy boom that’s sweeping the world at the moment. It helps build smart and efficient products that integrate the latest in power generation, conversion and management technology to deliver smarter, more efficient grid and off-grid applications for the world’s leading energy equipment manufacturers and developers.

Celestica fell victim to the massive selloff sparked by the global COVID-19 pandemic, seeing its share price fall into the $2 range in March 2020. Since then, however, the stock price has soared by nearly 400% to its current price. This could be just the beginning for Celestica, however. As the pressure continues to grow to go green, Celestica may emerge as a major benefactor in this new energy race.  

By. Arakan Okada

**IMPORTANT! BY READING OUR CONTENT YOU EXPLICITLY AGREE TO THE FOLLOWING. PLEASE READ CAREFULLY**

Forward-Looking Statements

This publication contains forward-looking information which is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ from those projected in the forward-looking statements. Forward looking statements in this publication include that prices for helium will significantly increase due to global demand and use in a wide array of industries and that helium will retain its value in future due to the demand increases and overall shortage of supply; that Avanti can pursue exploration of the recently acquired licenses of property in Alberta; that Avanti’s licenses in respect of the Alberta property can achieve drilling and mining success for helium; that Avanti will be able acquire the rights to helium on 12,000 acres of prospective land in Montana pursuant to its recently announced letter of intent; that the Avanti team will be able to develop and implement helium exploration models, including their own proprietary models, that may result in successful exploration and development efforts; that historical geological information and estimations will prove to be accurate or at least very indicative of helium; that high helium content targets exist in the Alberta and Montana projects; and that Avanti will be able to carry out its business plans, including timing for drilling and exploration. These forward-looking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. Risks that could change or prevent these statements from coming to fruition include that demand for helium is not as great as expected; that alternative commodities or compounds are used in applications which currently use helium, thus reducing the need for helium in the future; that the Company may not fulfill the requirements under its Alberta licenses for various reasons or otherwise cannot pursue exploration on the project as planned or at all; that the Company may not be able to acquire the helium rights to the Montana lands as contemplated in the letter of intent or at all; that the Avanti team may be unable to develop any helium exploration models, including proprietary models, which allow successful exploration efforts on any of the Company’s current or future projects; that Avanti may not be able to finance its intended drilling programs to explore for helium or may otherwise not raise sufficient funds to carry out its business plans; that geological interpretations and technological results based on current data may change with more detailed information, analysis or testing; and that despite promise, there may be no commercially viable helium or other resources on any of Avanti’s properties. The forward-looking information contained herein is given as of the date hereof and we assume no responsibility to update or revise such information to reflect new events or circumstances, except as required by law.

DISCLAIMERS

This communication is for entertainment purposes only. Never invest purely based on our communication. Oilprice.com and its owners and affiliates (“Oilprice.com”) have not been compensated by Avanti but may in the future be compensated to conduct investor awareness advertising and marketing for TSXV:AVN. The information in this report and on our website has not been independently verified and is not guaranteed to be correct.

SHARE OWNERSHIP. The owner of Oilprice.com owns shares of Avanti and therefore has an additional incentive to see the featured company’s stock perform well. Oilprice is therefore conflicted and is not purporting to present an independent report. The owner of Oilprice.com will not notify the market when it decides to buy more or sell shares of this issuer in the market. The owner of Oilprice.com will be buying and selling shares of this issuer for its own profit. This is why we stress that you conduct extensive due diligence as well as seek the advice of your financial advisor or a registered broker-dealer before investing in any securities. 

NOT AN INVESTMENT ADVISOR. Oilprice.com is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation, nor are any of its writers or owners.

ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

RISK OF INVESTING. Investing is inherently risky. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell securities. No representation is being made that any stock acquisition will or is likely to achieve profits.

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Twitter partners with AP and Reuters to address misinformation on its platform

Twitter announced today it’s partnering with news organizations The Associated Press (AP) and Reuters to expand its efforts focused on highlighting reliable news and information on its platform. Through the new agreements, Twitter’s Curation team…

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Twitter announced today it’s partnering with news organizations The Associated Press (AP) and Reuters to expand its efforts focused on highlighting reliable news and information on its platform. Through the new agreements, Twitter’s Curation team will be able to leverage the expertise of the partnered organizations to add more context to the news and trends that circulate across Twitter, as well as aid with the company’s use of public service announcements during high-visibility events, misinformation labels and more.

Currently, the Curation team works to add additional information to content that includes Top Trends and other news on Twitter’s Explore tab. The team is also involved with how certain search results are ranked, to ensure that content from high-quality searches appear at the top of search results when certain keywords or hashtags are searched for on Twitter.

The team may also be involved with the prompts that appear in the Explore tab on the Home Timeline related to major events, like public health emergencies (such as the pandemic) or other events, like elections. And they may help with the misinformation labels that appear on tweets that are allowed to remain visible on Twitter, but are labeled with informative context from authoritative sources. These include tweets that violate Twitter’s rules around manipulated media, election integrity, or COVID-19.

However, the team operates separately from Twitter’s Trust and Safety team, which determines when tweets violate Twitter’s guidelines and punitive action, like removal or bans, must be taken, Twitter confirmed that neither the AP nor Reuters will be involved in those sorts of enforcement decisions.

Image Credits: Twitter

By working more directly with AP and Reuters, who also partner with Facebook on fact checks, Twitter says it will be able to increase the speed and scale to which it’s able to add this additional information to tweets and elsewhere on its platform. In particular, that means in times where news is breaking and when facts are in dispute as a story emerges, Twitter’s own team will be able to quickly turn to these more trusted sources to improve how contextual information is added to the conversations taking place on Twitter.

This could also be useful in stopping misinformation from going viral, instead of waiting until after the fact to correct misleading tweets.

Twitter’s new crowdsourced fact-checking system Birdwatch will also leverage feedback from AP and Reuters to help determine the quality of information shared by Birdwatch participants.

The work will see the Curation team working with the news organizations not just to add context to stories and conversations, but also to help identify which stories need context added, Twitter told us. This added context could appear in many different places on Twitter, including on tweets, search, in Explore, and in curated selections, called Twitter Moments.

Twitter has often struggled with handling misinformation on its platform due its real-time nature and use by high-profile figures, who attempt to manipulate the truth for their own ends. To date, it has experimented with many features to slow or stop the spread of misinformation from disabling one-click retweets, to adding fact checks, to banning accounts, and more. Birdwatch is the latest effort to add context to tweets, but the system is a decentralized attempt at handling misinformation — not one that relies on trusted partners.

“AP has a long history of working closely with Twitter, along with other platforms, to expand the reach of factual journalism,” noted Tom Januszewski, vice president of Global Business Development at AP, in a statement about the new agreement. “This work is core to our mission. We are particularly excited about leveraging AP’s scale and speed to add context to online conversations, which can benefit from easy access to the facts,” he said.

“Trust, accuracy and impartiality are at the heart of what Reuters does every day, providing billions of people with the information they need to make smart decisions,” added Hazel Baker, the head of UGC Newsgathering at Reuters. “Those values also drive our commitment to stopping the spread of misinformation. We’re excited to partner with Twitter to leverage our deep global and local expertise to serve the public conversation with reliable information,” Baker said.

Initially, the collaborations will focus on English-language content on Twitter, but the company says it expects the work to grow over time to support more languages and timezones. We’re told that, during this initial phase, Twitter will evaluate new opportunities to onboard collaborators that can support additional languages.

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Mandatory COVID-19 vaccines on university campuses: An obvious solution or a problem?

Mandating vaccines risks turning a highly effective public health intervention into a contentious battleground — but it also may save lives.

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People line up outside the University of Toronto Mississauga campus for a COVID-19 vaccination clinic in Mississauga, Ont., in May. THE CANADIAN PRESS/Tijana Martin

In the United States, more than 600 institutions of higher education are requiring students to be vaccinated to return to campus this fall.

In Canada, Seneca College in Ontario is making vaccination mandatory for anyone attending campus. The University of Ottawa and others will require students living on campus to be vaccinated.

The University of Toronto has announced that in addition to requiring vaccination for students living in residence, it will “require students, faculty, staff and librarians who participate in activities that carry a higher risk of COVID-19 transmission to be vaccinated — and require all community members to self-declare their vaccination status” on an online platform. The university will use “anonymous, aggregate data on vaccination status, by campus,” to inform health and safety measures.

As September approaches, more post-secondary institutions will announce how they are managing COVID-19-related decisions.

We are two researchers with an interest in social and structural determinants of health who have been discussing and writing about the pandemic for the last 16 months.

We are involved in research about increasing COVID-19 knowledge and protective behaviours, and reducing pandemic stress among diverse LGBTQ+ and racialized people, and how harm-reduction programs for people who use drugs, and other addiction services and HIV prevention have changed in response to COVID-19.

While one of us is more supportive of mandatory vaccination on campuses — given voluminous evidence for COVID-19 vaccine safety and effectiveness — we are both nevertheless concerned about mandatory vaccination.

Avoid ‘battleground’ scenario

Our shared experience in social work, public health and ethics, including sexual health and HIV research, leads us to believe that mandating vaccination can risk turning a highly effective and routine public health intervention into a contentious battleground.

What otherwise might be an everyday health behaviour becomes increasingly loaded with stereotypes and assumptions about political motivations that can divide communities and marginalize individuals and their lived experiences.

Our research has shown us that reasons for engaging in practices often not condoned by health researchers and public health officials — such as sharing drug-using equipment — are often complex. And they often make sense in the context of people’s daily realities.

In the case of people living with HIV and people who use drugs, they often have sophisticated understandings and complex interactions with the health-care system. These communities often have innovative ideas about how to better meet the needs of their peers.

Mandatory in public sectors?

The great success of COVID-19 vaccines has led to calls to make them mandatory for health-care workers, for elementary and high-school staff, and in other public sectors.

We have personally followed public health requirements and have been vaccinated. We also recognize that vaccines have been the most impactful public health intervention of the last century. Vaccines save millions of lives every year.

But we also understand that while everyone who lacks antibodies to new coronavirus strains is at risk, the risks of infection, morbidity and mortality are influenced by broader socio-political and economic systems. In this way, COVID-19, like many other infectious diseases that concern public health experts, is rooted in inequity.

Social contexts, inequities

The COVID-19 pandemic has exacerbated pre-existing inequalities among racialized (“visible minority”) communities because of systemic racism in the health-care system, workplaces and living conditions.

Communities that experience the brunt of systemic racism and ongoing colonization, including in the health-care system, may be understandably reluctant or hesitant to get vaccinated. Black and Indigenous communities are navigating especially painful histories with harmful state-sponsored medical interventions.


Read more: Contrary to sensational reporting, Indigenous people aren't scared of a COVID-19 vaccine


Engaging these communities about vaccination requires cultural humility and respect.

Some people have medical reasons to not get vaccinated, such as allergies. Others may have religious reasons.

Then there are those considered “anti-vaxxers,” who reject vaccinations despite the evidence for their safety and efficacy.

In Canada, 70 per cent of the population has received at least one vaccine dose. Fifty-six per cent are fully vaccinated.

Students sit on the ground wearing face masks.
Students at Western University wait for a COVID-19 test on campus in London, Ont., in September 2020. THE CANADIAN PRESS/Geoff Robins

Risk of infection on campus

We share concerns about the risk of infection on campus and the importance of students getting vaccinated.

We also see rates of vaccination among young people ages 19 to 29 (69 per cent at least one dose, and 46 per cent fully vaccinated) in a positive light, considering they only became eligible recently, and with challenges in vaccine availability across Canada. Assuming single doses translate into fully vaccinated, we are left with questions about the remaining 31 per cent.

We consider two possible stances: mandatory vaccination and vaccine promotion.

Mandatory vaccination

In scenario one, post-secondary institutions view the nearly one-third unvaccinated as a threat — to the health and safety of themselves, other students, faculty and staff on campuses.

Putting aside the small subset unable to be vaccinated for medical or religious reasons, we are left with young persons who may be vaccine-hesitant. Or possibly anti-vaccination.

With the rapidly spreading Delta variant, the unvaccinated are at considerable risk for infection, and transmission to others. Clusters of infection increase risks of further mutations. Mandatory vaccinations might be necessary in this case. But is anything owed to the unvaccinated?

As many people return to workplaces, they want flexibility. Many universities adopted online learning platforms. If the unvaccinated are not permitted to attend in-person classes, they should be offered online alternatives.

Concerns that this will breach students’ privacy and open them up to shaming from instructors and classmates need to be addressed. Shaming people for health choices often backfires, sometimes intensifying their beliefs. We imagine online options being extended to all students during this transition period.

Vaccine promotion

Scenario two, vaccine promotion, considers the role our respective universities have played during the pandemic.

Both the University of Toronto and the University of Windsor host vaccine clinics and offer expert advice.

The University of Windsor (UW) does not require students to be vaccinated to return to campus at this time. It is partnering with UW Students’ Alliance and WE-Spark Health Institute to promote vaccination through peer-engagement and accessible information.

University of Windsor ‘Take a Jab’ campaign.

The approach means vaccination is made readily available, including on-campus clinics, and students are given time to make the decision about vaccination.

Incentive-based approaches are another option; they may lead some students “on the fence” to be vaccinated, but are unlikely to sway the truly hesitant.

Scenario two creates options for diverse students from across Canada, with different levels of vaccine access, to return to campus. This approach may be in keeping with the role of universities as bastions of critical debate. As COVID-19 continues to evolve, it will require ongoing vigilance.

Moving forward

In considering a highly consequential policy, we both support dialogue and community engagement, for which our research in Canada and globally has afforded ample evidence. An important way forward is for higher education leaders to consult with students, faculty and staff.

Universities have a short window to be proactive about the fall and winter semesters. They need to consider what a gentler return home for students might look like this time compared to 2020.

Significantly, they should also be considering how they can meaningfully support students, faculty and staff to return and recover from this exceptionally challenging period — one that is not yet over.

Peter A. Newman receives funding from the Canadian Instututes of Health Research, the Social Sciences and Humanities Research Council, the International Development Research Centre, and the Canada Foundation for Innovation.

Adrian Guta receives funding from the Canadian Institutes of Health Research, the Social Sciences and Humanities Research Council, and the University of Windsor Humanities Research Group.

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August Monthly

Fear that the spread of the Delta mutation of the covid would disrupt the global economy spurred the unwinding of risk-on positions. Interest rates fell, and the traditional funding currencies:  the US dollar, Swiss franc, and Japanese yen, strengthened..

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Fear that the spread of the Delta mutation of the covid would disrupt the global economy spurred the unwinding of risk-on positions. Interest rates fell, and the traditional funding currencies:  the US dollar, Swiss franc, and Japanese yen, strengthened most in July. While major US indices set new record highs, as did Europe's Dow Jones Stoxx 600, the MSCI Emerging Markets Equity Index fell 7%.

The preliminary July PMI reports were below expectations in the US, UK, and France.  Japan's composite PMI has been contracting since February 2020.  There has been some re-introduction of social restrictions in parts of Europe.  The UK's "Freedom Day" (July 19), when mask requirements and social restrictions were supposed to be dropped, turned into a caricature as the Prime Minister and Health Minister were in self-quarantine due to exposure, and the number of cases reached the highest level in 5-6 months. 

Given the large number of people in the world that remain unvaccinated, the challenge is that the virus will continue to mutate.  Moreover, even in high-income countries, where vaccines are readily available, and stockpiles exist,  a  substantial minority refuse to be inoculated. This is encouraging the use of more forceful incentives that deny the non-vaccinated access to some social activity in parts of the US and Europe.  In the US, the vaccines have been approved for emergency use only, and broader approval by the FDA could help ease some of the vaccine hesitancy.  Yet, rushing the process would be self-defeating.  An announcement still seems to be at least a couple of months away.  

In some countries, the surge in the virus even where not leading to hospitalizations and fatalities, maybe tempering activity and postponing more "normalization" like returning to offices.   The increase in the contagion has also prompted several companies to postpone plans to have employees return to offices. In other countries, like Australia, the virus and social restrictions are having a more dramatic economic impact.  Its preliminary July PMI crashed to 45.2 from 56.7, the lowest since last May.  Although many countries in East Asia seemed to do well with the initial wave, they have been hard hit by the new mutations.  For some, the recovery already had appeared to be in advanced stages.  

Floods in China, India, Germany, and Belgium add to the economic angst.    A freeze in Brazil sent coffee prices percolating higher.  Wildfires in Canada stopped the downside correction in lumber prices.  While rebuilding is stimulative, in the first instance, the natural disasters could be inflationary as transportation and distribution networks are impacted. 

The market reacted by pushing down nominal and real interest rates.  In late July, the US 10-year inflation-protected note yield (real rate) fell to a record low near minus 1.13%  Ten-year benchmark yields in the US, Europe, Australia, and China were at 4-5 month lows.  Expectations for rate hikes by high-income countries eased, and Beijing surprised investors by cutting reserve requirements by 50 bp (freed up ~$150 bln of liquidity).   

Still, other central banks, like Russia who hiked rates by 100 bp in late July, are pushing forward.  In Latin America, Brazil, Mexico, and Chile are likely candidates for rate hikes in August.  The market anticipates additional rates hikes from the Czech Republic and Hungary.  On the other hand, Turkey's central bank meets under much political pressure to cut rates.  Inflation is not cooperating, and it reached 17.5% in June,  a new two-year high.  Yet, the Turkish lira downside momentum eased, and this alone, in the face of a stronger dollar, meant it was the best performing emerging market currency last month, up about 3.0%.  Its 12% loss year-to-date still makes it the second-worst performing emerging market currency so far this year, behind the Argentine peso's nearly 13% decline.  

The Federal Reserve does not meet in August, but the Jackson Hole symposium (August 26-28) may offer a window into official thinking about the pace and composition of its bond purchases.  Under that scenario, a more formal statement would be provided at the end of the September FOMC meeting (September 21-22). Chair Powell has pledged to give ample notice about its plans to taper.  This means that the initial timing of the beginning of the tapering may be vague by necessity.  Many expect the Fed to begin reducing its bond purchases either later this year or early next year.  

The debt ceiling debate may add another wrinkle.  The debt ceiling waiver expired at the end of July.  There are several different ways that Treasury can buy time.  There are many moving parts, and it is hard to know exactly when Secretary Yellen would run out of maneuvers, but she probably has around two months.  In the past, the uncertainty was reflected in some T-bill sales.  Recall it was the debate over the debt ceiling (the government has already made the commitments or spent the funds and now has to pay for them) that prompted S&P to remove its AAA rating for the US in 2011. 

Meanwhile, Beijing is waging an internal battle to retain control in the technology and payments space.  It has also stepped up its antitrust actions and moved to make it more difficult for internet companies to have IPOs abroad. At the same time, the US threatens to de-list foreign (Chinese) companies if they refuse to allow US regulators to review their financial audits.  This is more than quitting before getting fired, though at the end of July the US announced that concerns over risk disclosures have prompt it to freeze applications for Chinese IPOs and the sale of other securities.  Its efforts to turn the private schools into non-for-profits are driven by Beijing's domestic considerations, but foreign investors--hedge funds, a couple US state pension funds, and provincial pensions in Canada appear to have been collateral damage.  Even the Monetary Authority of Singapore had exposure.

The jump in Chinese yields and the drop in equities that pushed the CSI 300 (an index of large companies listed on the Shanghai and Shenzhen exchanges) 21% below the February peak prompted some remedial measures by officials.  They succeeded in steadying the bonds and stock markets, and the yuan recovered from three-month lows as July wound down. However, both the disruption and the salve, the selling of industrial metals, coal, and oil from its strategic reserves, demonstrate the activist state that gives foreign investors reservations about increasing allocations to China.  To draw foreign capital, officials may be tempted to engineer or facility a strong recovery in shares and the yuan.  

Beijing is also meeting resistance from abroad.  Its aggressiveness in the region, including the aerial harassment of Taiwan and rejection of the Arbitration Tribunal at the Hague regarding the United Nations Convention on the Law of the Sea (that pushed back against Chinese claims in the South and East China Seas). Over the past few weeks, the situation has escalated. The UK announced it will station two naval vessels in the area.  Japan has promised to defend Taiwan should it be attacked by China.  The US has not been that unequivocal.   The EU has been emboldened.  Latvia became the first EU member to open a representative office of "Taiwan" instead of Taipei.  

Many wargame scenarios are premised on China attacking Taiwan, but this does not seem to be the most likely scenario. Top US military officials have testified before Congress that Beijing wants to have the ability to invade and hold Taiwan within six years based on comments from President Xi to the People's Liberation Army.  Yet, if China senses that the status of Taiwan is truly changing, it could move against the Pratas Island, which is off the east coast of China and the south tip of Taiwan.  It is closer to Hong Kong than Taiwan.  It is an uninhabited atoll with a garrison.  Taking this island would send a signal about its determination, with the costs and risks of invading Taiwan. It is true to the ancient Chinese idiom about killing a chicken scares the monkeys.  

Bannockburn's World Currency Index, a GDP-weighted basket of the top dozen economies, rose fractionally after falling 1% in June.  The two largest components after the dollar are the euro and yuan.  The former slipped by was virtually flat near $1.1860 and the latter softened by less than 0.1 %.  The yen, with about a 7.3% weighting in the basket, was the strongest, gaining about 1.25% against the US dollar.  Sterling was almost eked a 0.5% gain.  The Indian rupee slipped 0.1%, while Brazil's real was the weakest currency in the index, falling by about 4.6% in July.   

The BWCI rose by 6.5% in the last nine months of 2020 after falling by 3.2% in Q1 20 as the pandemic struck and structural dollar shorts and safe-haven flows favored the dollar.  It fell by 1.5% in Q1 21 as if correcting the previous advance.  It rose by 1.1% in Q1.  More so than bilateral exchange rates, the BWCI gives the impression that broadly speaking the dollar's losses from last year are being consolidated more than reversed. 

Dollar:  The greenback's two-month uptrend stalled in the second half of July, sending the momentum traders and late longs to the sidelines. The dollar's pullback had already begun before the FOMC meeting at which the Fed lent support to priors about a tapering announcement in the coming months.  The next opportunity is in late August. The weaker dollar tone that we expect to carry into August could create the conditions that make a short-covering bounce ahead of the Jackson Hole symposium more likely.  Some assistance,  like the moratorium on evictions, ended on July 31, and others, like the federal emergency unemployment compensation (where states continue to participate), are finishing in early September. Meanwhile, the Biden administration appears to see some of its infrastructure initiative approved in a bipartisan way and the other part through a reconciliation mechanism that it can do if there is unanimous support from the Senate Democrats.  Inflation remains elevated, and Treasury Secretary Yellen and Federal Reserve Chair Powell warned it may remain so for several more months but still expect the pressure to subside.  The price components of the PMI have eased in the last two reports. There appears to have been some normalization in used car inventories that also reduce the pressure emanating from the one item alone that has accounted for about a third of the monthly increase of late.  

Euro:   The leg lower that began in late May from around $1.2265 extended more than we had expected and did not find support until it approached $1.1750 in the second half of July.  A trough appears to have been forged, and the euro finished near the month's highs.  Technical indicators favor a further recovery in August.  Overcoming the band of resistance in the $1.1950-$1.2000 shift the focus back to the highs.  The low for longer stance by the ECB may be bullish for European stocks and bonds.  The Dow Jones Stoxx 600 reached new record highs in late July.   Bond prices are near their highest levels since February-March.  The IMF raised its 2021 growth forecast for the euro area to 4.6%from the 4.3% projection in April and 4.3% next year from 3.8%.  The economy seemed to be accelerating in Q3, but the contagion and new social restrictions may slow the momentum.  Inflation is elevated about the ECB's new symmetrical 2% inflation target, but it pre-emptively indicated it would resist the temptation of prematurely tightening financial conditions.  The debate at the ECB does not seem about near-term policy as much as the commitment and thresholds for future action.  

 

(July 30,  indicative closing prices, previous in parentheses)

 

Spot: $1.1870 ($1.1860)

Median Bloomberg One-month Forecast $1.1885 ($1.1950) 

One-month forward  $1.1880 ($1.1865)    One-month implied vol  5.3%  (5.6%)    

 

 

Japanese Yen: The correlation of the exchange rate with the 10-year US yield is at its highest level in a little more than a year (~0.65, 60-day rolling correlation at the level of differences).  The correlation of equities (S&P 500) and the exchange rate is in the unusual situation of being inverse since early this year.  In early July, it was the most inverse (~-0.34) in nine years but recovered to finish the month almost flat. The yen rose by about 1.4% in July, offsetting the June decline of the same magnitude. Its 5.7% loss year-to-date is the most among the major currencies and the second weakest in the region after the Thai Baht's nearly 9% loss. The JPY110.60-JPY110.70 represents a near-term cap. The JPY109.00 area should offer support, and a break would target JPY108.25-JPY108.50.   The extension of social restrictions in the face of rising covid cases is delaying the anticipated second-half recovery.  The preliminary composite PMI fell to a six-month low in July of 47.7.  

 

Spot: JPY109.85 (JPY111.10)      

Median Bloomberg One-month Forecast JPY109.85 (JPY110.70)     

One-month forward JPY109.80 (JPY111.05)    One-month implied vol  5.4% (5.4%)  

 

 

British Pound:  Sterling reversed lower after recording a three-year high on June 1 near $1.4250 and did not look back.  It dipped briefly below $1.38 for the first time since mid-April on the back of the hawkish Fed on June 16 to finish July at new highs for the month and above the downtrend line off the early June highs.   A convincing move back above $1.40 would confirm a low is in place and a resumption of the bull move, for which we target $1.4350-$1.4375 in Q4.  The postponement of the economy-wide re-opening until the middle of July, and a central bank looking past the uptick in CPI above the 2% medium-term target, weighed on sentiment.  The central bank will update its economic forecasts in August, and both growth and inflation projections likely will be raised. The furlough program ends in September, and it may take a few months for a clear picture of the labor market to emerge.  Nevertheless, the market has begun pricing in a rate hike for H1 22.  

  

Spot: $1.3905 ($1.3830)   

Median Bloomberg One-month Forecast $1.3930 ($1.3930) 

One-month forward $1.3910 ($1.3835)   One-month implied vol 6.6% (6.5%)

  

 

Canadian Dollar:  The Canadian dollar reached its best level in six years in early June (~$0.8333 or CAD1.20) but has trended lower amid profit-taking and the broad gains in the US dollar.  The usual drivers of the exchange rate:  risk appetites, commodities, and rate differentials were not helpful guides recently.  Canada has become among the most vaccinated countries, and the central bank was sufficiently confident in the economic outlook to continue to slow its bond purchases at the July meeting despite losing full-time positions each month in Q2. Speculators in the futures market have slashed the net long position from nearly 50k contracts (each CAD100k) to less than 13k contracts in late July.  The downside correction in the Canadian dollar appears to have largely run its course, and we anticipate a better August after the heavier performance in July.  Our initial target is around CAD1.2250-CAD1.2300.  

 

Spot: CAD1.2475 (CAD 1.2400) 

Median Bloomberg One-month Forecast  CAD1.2435 (CAD1.2325)

One-month forward CAD1.2480 (CAD1.2405)    One-month implied vol  6.8%  (6.5%) 

 

 

Australian Dollar:  Since peaking in late February slightly above $0.8000, the Australian dollar has trended lower and by in late July briefly dipped below $0.7300, posting a nearly 9% loss over the past five months. The 50-day moving average ~$0.7570) fell below the 200-day moving average (~$0.7600) for the first time since June 2020, illustrating the downtrend after the strong recovery from the low near $0.5500 when the pandemic first stuck.  The combination of a low vaccination rate and the highly contagious Delta variant forced new extended lockdowns for Sydney and social restrictions that have sapped the economy's strength.  It will likely slow the central bank's exit from the extraordinary emergency measures.  Indeed, the Reserve Bank of Australia is likely to boost its weekly bond-buying from A$5 bln to at least A$6 bln.  A convincing break of $0.7300 could open the door for a return toward $0.7000, but we suspect the five-month downtrend is over and anticipate a recovery toward $0.7550 over the next several weeks.  

 

Spot:  $0.7345 ($0.7495)       

Median Bloomberg One-Month Forecast $0.7425 ($0.7610)     

One-month forward  $0.7350 ($0.7500)     One-month implied vol 8.9  (8.5%)   

 

 

Mexican Peso:  The dollar chopped higher against the peso in July and reached a high near MXN20.25 on July 21. It trended lower and, in late July, fell below the seven-week trendline support near MXN19.90.  After finishing June less than 0.1% weaker, the greenback lost about 0.4% against the peso in July, which was the fifth consecutive month without a gain.  The other notable LATAM currencies were the weakest three emerging market currencies (Chilean peso ~-4.1%, Colombian peso ~-4%, and the Brazilian real ~-3.8%).  If the upper end of the dollar's range has held,  a break of MXN19.80 may warn a test on the lower end of the range (~MXN19.50-MXN19.60).  The 5.75% year-over-year CPI for the first half of July and the highest core inflation for early July in more than 20-years keep expectations for another rate hike intact when Banxico meets on August 12.  The market has another hike priced in for the September 30 meeting as well.  The dispute with the US over measuring domestic content for auto production under USMCA could undermine Mexico's role in the continental division of labor, but instead, producers in Mexico may choose to pay the WTO auto tariff standard of 2.5%.  The IMF's latest economic forecasts revised the projection for Mexican growth this year to 6.3% from the April projection of 5%.  

 

Spot: MXN19.87 (MXN19.95)  

Median Bloomberg One-Month Forecast  MXN19.94 (MXN19.97)  

One-month forward  MXN19.95 (MXN20.02)     One-month implied vol 10.5% (10.7%)

  

 

Chinese Yuan: The dollar spent most of July within the trading range that had emerged in late June found roughly between CNY6.45 and CNY6.4950. The range was maintained even after the PBOC unexpectedly cut reserve requirements by 50 bp (announced July 9). However, Beijing's more aggressive enforcement of antitrust, discouragement IPOs abroad, making private education non-for-profit without foreign investment triggered sales of Chinese shares. It helped lift the dollar in late July to around CNY6.5150, its highest level in three months and just shy of the 200-day moving average.  The pursuit of domestic policy objectives appears to be putting at risk strategic goals.  A drying up of capital inflows from spooked foreign investors may have slow efforts to liberalize capital outflows that could eventually lead to making the yuan convertible.  At the same time, China's actions give a timely example of what holds the yuan back from a significant role in the world economy and why a technology solution (e.g., digital yuan) will not suffice.  As the dollar briefly traded above the upper end of its recent range in July, the risk is that it slips through the lower-end range, which could spur a move toward CNY6.40.  

 

Spot: CNY6.4615 (CNY6.4570)

Median Bloomberg One-month Forecast  CNY6.4555 (CNY6.4360) 

One-month forward CNY6.4780 (CNY6.4815)    One-month implied vol  4.0% (4.7%)

 

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