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Weekly investment update – A bond rout in first quarter 2022

Data on inflation in the US and eurozone continues to surprise to the upside, roiling bond markets.  Expectations for US and European monetary policy…



Data on inflation in the US and eurozone continues to surprise to the upside, roiling bond markets.  Expectations for US and European monetary policy in 2022/2023 have repriced to integrate more hawkish policy. The extent to which this will be realised depends on how much inflation rises and growth slows from here.      

Equity markets continue to show considerable resilience despite a marking down of global economic growth forecasts, rising commodity prices and new evidence of the strength of inflationary pressures. After the initial global stock market sell-off, the MSCI All Country World Index has now risen back above its pre-war level, while the VIX volatility index — an indicator of expected market volatility — has dropped back below its long-term average.

No alternative to stocks?

March is on track to be the worst month for US Treasuries since July 2003. In March the Bloomberg US Treasury Aggregate index returned negative 3.5% through 30/03/2022 (negative 5.6% year-to-date).

Short-dated US Treasury notes have withstood the worst of the sell-off as markets price in a significant tightening of monetary policy by the US Federal Reserve to contain inflation.

Market expectations for fed funds have shifted substantially to price more than 200bp of Fed rate hikes by the end of 2022, in addition to the 25bp hike earlier this month. If realised this would take fed funds close to the median Federal Open Markets Committee (FOMC) long run DOT by the end of 2022.

Yields of two-year US Treasury notes this week rose above those of the 10-year US Treasury for the first time since August 2019, inverting a portion of the yield curve. Two-year yields rose as high as 2.45%, the highest level since March 2019. They have since fallen back to 2.31% with the yield of the 10-year US Treasury bond now at 2.35% (see Exhibits 1 and 2 for changes in US and German 2-year and 10-year yields).

Eurozone bond returns also suffer  

Markets are now pricing several rate hikes from the ECB to take policy rates back up to zero by the end of 2022. Data published this week showed German inflation rose to its highest rate for 40 years. A year-on-year rise of 39.5% in energy prices was the main driver behind a higher-than-expected increase in Germany’s harmonised index of consumer prices (HICP) to 7.6% year-on-year. This data came hours after the German government took the first formal step towards rationing gas supplies. The German government is taking precautionary measures should there be a halt in gas deliveries from Russia because of a dispute over payments.

Data for overall eurozone price growth in March is due on 2 April. The omens are not good. High frequency data suggests that the monthly increase in eurozone petrol prices could be the greatest on record and data published yesterday showed annual inflation in Spain rising to 9.8% in March, the highest level since 1985. It is therefore likely that eurozone inflation data will deliver a ninth consecutive monthly rise exceeding consensus expectations and probably set a new record well above 6% on an annual basis, after 5.9% in February.

In response to the inflation news the yield of the benchmark German 10-year bond rose this week to 0.70%, a four-year high. Yields of the 2-year German government bond rose above zero for the first time since 2014 (they began the year at negative 50bp). Returns in March for the Bloomberg Euro Aggregate Treasury index are negative 3.07% through 30/03/22 and negative 5.98% for the year-to-date.  

What happens next?

Our fixed income team have had a longstanding view that inflationary pressures would lead the ECB and the Federal Reserve in particular to hike rates faster and further than priced by the market. The magnitude of the rise in rates this month is such that bond yields have reached levels that are at or close to where we might have anticipated they would end the year. We have therefore taken some profits on our underweight duration positions but remain underweight interest rate risk overall.

The question now is whether we agree with current market pricing, which continues to imply the current spike in inflation and rates will eventually subside, with the previous paradigm of “secular stagnation” reasserting itself. The fed funds futures curve for example, currently implies rate increases will stop below 3% by mid-2023 with policy weakening thereafter.

The answer to this question depends mainly on how economic growth holds up and whether the inflation shock has further to run. In a recent interim economic outlook the OECD estimates that in the wake of the Ukraine conflict, world output will be 1.1% below what it would otherwise have been. The impact on the US is estimated at only 0.9%, but on the eurozone it will be 1.4%. The comparable impact on inflation would be +2.5% for the world, +2% for the eurozone and +1.4% for the US. Increased prices of energy and food will reduce the real incomes of consumers by far more than these gross domestic product losses suggest.

The German IFO Business Climate Index for March saw the largest decline in history, even exceeding the decline from Covid-19. This highlights the risk of a technical recession in Germany, one of the economies in the eurozone most vulnerable to the Russia-Ukraine conflict.

We continue to believe the ECB will remain on a path of policy normalisation. However, the impact of the Russia-Ukraine conflict on eurozone growth, set against the more balanced risks to inflation over the medium-term, increase uncertainty on the timing of ECB rate hikes. Indeed, wage growth in the eurozone remains subdued and recent developments suggest that unions are moderating near-term wage demands in light of the conflict.

In a speech on 30 March, ECB President Christine Lagarde summed up the outlook as follows:

Europe is entering a difficult phase. We will face, in the short term, higher inflation and slower growth. There is considerable uncertainty about how large these effects will be and how long they will last for. The longer the war lasts, the greater the costs are likely to be.”


Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. The views expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns.

Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Writen by Andrew Craig. The post Weekly investment update – A bond rout in first quarter 2022 appeared first on Investors' Corner - The official blog of BNP Paribas Asset Management, the sustainable investor for a changing world.

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How a junior gold company navigates capital markets pressure

Long considered a safe haven asset, the gold market has been under scrutiny in recent years as Goldshore Resources (TSXV:GSHR) can attest.
The post How…



Although gold has long been considered a safe haven asset, the gold market itself has been under scrutiny over the past several years because of access to capital, environmental and climate change pressure and social and geopolitical risks – which Goldshore Resources (TSXV:GSHR) CEO Brett Richards says has been particularly concerning to junior mining companies.  

In an interview with The Market Herald Canada, Richards said a deteriorating capital market environment has materialized over the past 18 to 24 months as a result of global geopolitical events and hostilities, including the war between Russia and Ukraine as well as the geopolitical conflict between China and Taiwan, and now Israel and Palestine. 

“This has made a lot of investors quite apprehensive to put money into play and put money in the market for fear of a larger event that has a catastrophic impact on the capital markets,” Richards told The Market Herald Canada.  

He also explained that inflation and rising interest rates are having an impact on the capital markets. Richards said the retail scene has played such an important part in the capital markets by providing liquidity when institutions have more outflows than inflows. 

“These two factors are compounding the ability for junior mining companies, with non-cash flow producing entities, to seek development capital to continue their progress,” he explained, adding that the only strategy is to find where there are pools of capital, which are mostly in private equity firms, mid-tier and senior producers that have balance sheets that can assist the junior mining sector and advance the development in tough times.  Richards said the next catalyst will come when mid-tier mining companies start to participate in the junior mining space through joint ventures, earn-ins and partnerships, adding that these are the only kinds of capital available to the junior mining sector at the moment. 

How Goldshore Resources is navigating the market 

So where does this position a company like Goldshore Resources? Richards said the company is not unlike hundreds of other companies in the junior gold space that have faced challenges in that its share price has dropped more than 50 per cent since the start of the year, but it is working to put together enough capital to complete its short-term objectives. 

Notably, the company completed a summer field program and is working towards a preliminary economic assessment (PEA) study, which is a study that includes an economic analysis of the potential viability of mineral resources done at an early stage of a project before completing a preliminary feasibility study.  

Richards said the company has adequate cash to get through that period, but that Goldshore Resources is looking at alternative sources of capital so it can continue to advance its work on the ground. 

However, Richards explained he doesn’t foresee advancing its Moss Gold project until sometime in 2024 because of current market constraints.  

“For us, this is all about managing our cash; continuing to look for a strategic partner; and making smart decisions in difficult markets,” he said. “That’s the reality of what everybody is facing.”

Richards said the company also needs to keep the development process going but not at the expense of blowing up the cap structure. 

Goldshore Resources‘ Moss Gold Project 

Located in Northwest Ontario, the Moss Gold Project is 100 per cent owned by Goldshore Resources and has a global inferred resource estimate of 6 million ounces at 1.02 gpt.  

The project is ideally located with year-round exploration in a highly prospective area and has 30 high-priority targets identified in its 2022 program. Notably, the strike length for the Moss-type targets has expanded from 2.5 kilometres to 11 kilometres.   To date, less than 10 per cent of drilling has tested high-priority targets with significant upside potential for cobalt and copper at select targets. 

In September 2023, the company released results from its summer field program, which identified five new gold trends as well as two high-grade copper gold trends.  

Richards told The Market Herald Canada in a previous interview that the company has expanded its trend of known mineralization to more than 35 km up from just 11 km. 

“This system is much larger than we originally identified,” he said. “The trend and the parallel structures along strike are extremely encouraging.” 

Richards explained to The Market Herald Canada that the project is “quite large” and deserves capital to be developed and said the company hopes to be able to find a partner so the project can realize its full potential. 

Notably, an updated mineral resource and maiden resource estimate was completed back in May, growing the inferred resource by 44 per cent. The maiden resource estimate also grew with 24 per cent more contained gold ounces and 32 per cent more tons to 5.42 million ounces of gold at 1.03 grams per ton (g/t) gold within 163.6 million tons open pit and underground. 

In June 2023, Goldshore filed an updated technical report for the project and is advancing towards a preliminary economic assessment. High-grade shears were visible in low-grade altered wall rock, three viable process routes and varying mining scales and rates.   This makes the project a likely optimum project that will be staged hybrid rather than a simple mine-to-mill operation. 

Next catalysts for Goldshore Resources 

With the company’s primary focus now shifted to 2024, Richards told The Market Herald Canada that Goldshore Resources will be balancing dilution with what the company sees as “value-adding activities.”  

He said that although he doesn’t anticipate the company to be drilling during the winter months, Goldshore Resources will look to prepare and look to prioritize what will create the most value for the company into next year.  

“[Goldshore Resources is] actively looking for a partner that can help support this project,” Richards said. “I think we have the right strategy to weather the storm.” 

Moving into next year, the company also anticipates having its PEA ready, depending on the markets.  

Goldshore Resources management team  

Brett Richards, CEO  

Brett Richards has more than 34 years of experience in mining and metals, including mine financing and mine development. He also has experience in senior-level operations and mergers and acquisitions.  

Richards also led Banro Corp. through an operational transition as a private company through to divesting certain assets. He has also served as the former transition CEO of Roxgold (TSX:ROXG), a former senior executive of Katanga Mining (TSX:KAT) and has held former senior executive positions with Kinross Gold (TSX:K) and Co-Steel (TSX:CEI). 

Peter Flindell, vice president of exploration 

Peter Flindell has 35 years of experience in mineral exploration and feasibility studies. Notably, Flindell has led teams to discover, develop and expand several gold and copper mines across Southeast Asia, Central Asia, West Africa, Central Africa, Europe and Central America.  

Flindell also has experience in base metal and iron ore projects and spent 12 years with Newmont Mining, 11 years with Avocet Mining and eight years with Signal Delta. 

Marlis Yassin, CFO

Marlis Yassin has more than 15 years of experience working with companies in various sectors such as mining, technology and industrial products.  

Additionally, Yassin has held senior finance management positions with various public companies, such as at a large industrial products company and at mid-tier mining companies. Yassin has extensive experience at Deloitte, providing reporting, advisory and assurance services to publicly traded companies, mostly in natural resources. 

Yassin holds a bachelor of commerce degree from the University of British Columbia. 

The investment opportunity 

As it currently stands, Goldshore Resources has a share price of $0.10, which is down 84.17 per cent from its initial public offering when it began trading on the TSXV in June 2021.

That being said, however, Richards told The Market Herald Canada that the company has one of the lowest discovery costs in the sector at C$10 per ounce, including acquisition costs, which he said is below the $20-to-$25 average in the sector for finding ounces. 

“There isn’t anyone trading lower (on a per ounce basis) than we are, and I think we have one of the most prospective projects in our sector in Canada,” he said.  

Richards explained that Goldshore Resources has the potential to grow the resource “exponentially,” to 15 million to 20 million ounces with 60,000 or 70,000 metres of drilling. 

“The prize, at the end of the day, is not only [the company’s] starting point, but where we can potentially get to. The Moss Gold deposit will host a mine one day, our role is defining and shaping what the resource looks like that takes us there,” he said. 

When it comes to its goals for 2024, Richards said the company will be “preparing the company” for when the market eventually turns around, adding that investors will get the largest and best return from a company like Goldshore Resources. 

In line with this, he explained that the company’s peers are trading at five or six times of what the company is on a per-ounce basis. 

“When this market turns – and it will – and when the U.S. dollar starts to weaken – and it will – we are going to see a higher gold price environment, and we are going to see activity in our space to invest with companies who can deliver the best return, and that’s Goldshore,” he said. 

Despite challenges in the market, and as Goldshore Resources looks to carefully execute its goals into 2024 and beyond, investors will be keen to watch how this undervalued company will impact the gold sector. 

Join the discussion: Find out what everybody’s saying about this stock on the Goldshore Resources Bullboard, and check out the rest of Stockhouse’s stock forums and message boards.

The material provided in this article is for information only and should not be treated as investment advice. For full disclaimer information, please click here.

The post How a junior gold company navigates capital markets pressure appeared first on The Market Herald Canada.

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End Of Free Money Plunges German Construction Industry Into Crisis

End Of Free Money Plunges German Construction Industry Into Crisis

Authored by Wolf Richter via,

A black swan of sorts no…



End Of Free Money Plunges German Construction Industry Into Crisis

Authored by Wolf Richter via,

A black swan of sorts no one was ready for: Negative interest rates turned positive, and all heck broke loose in the property development sector.

We just got back from vacation in Franconia, Germany, where we wanted to taste the local culinary specialties and different beers, do some hiking, and do a lot of walking around the charming historic towns with their half-timbered buildings, some of them 500-plus years old, sandstone castles, and magnificent cathedrals.

In Germany, consumers, though still spending on experiences, have cut back on spending on some goods, and are no longer able to single-handedly make up for the downturn of some of the export industries that are losing business in China and the widespread crisis of the construction sector.

Unlike in the US, the German economy is not being fired up by gigantic deficit spending by the government. Deficits are relatively muted, by US standards. So Germany is now contemplating another quarter of mildly declining GDP. In Q2, GDP had 0% growth, following Q1 of -0.1%, Q4 2022 of -0.4%, and Q3 2022 of +0.4%.

End of Free Money plunges German construction industry into “crisis.”

The impossible happened in Germany, a black swan of sorts that no one was ready for: Negative interest rates turned positive.

It now actually costs money to borrow money. Which apparently came as a shock in an economy where negative interest rates were perceived to be the new normal. This is topped off by a massive bout of inflation – including construction cost inflation. And all prior assumptions went out the window.

There are innumerable construction projects all over the place –– medium- and high-rise office and multifamily buildings, industrial buildings, large-scale renovation projects of historic buildings, expressway expansion and interchange projects, other road construction, etc. They’re visible from the train, from the car, and on foot.

In Nuremberg – where I spent some time in the Old City, in some of the neighborhoods surrounding the Old City, and in the outlying residential area of Langwasser – there were construction projects everywhere, from fill-in projects in the Old City, to huge complexes of multifamily medium-rise buildings in other areas. This is far more construction than I’d seen during my last visit a dozen years ago and in my prior visits over the decades.

The German government – after opening the floodgates to immigration – has exhorted the construction industry to create 400,000 new apartments a year. That’s the government’s official target to deal with the surging rents that have turned into a housing affordability crisis, and that are further fueling inflation.

Actual construction is falling way short of the government’s target of 400,000 apartments; the current rate is about 300,000 units per year. And this is likely to get worse over the next two years, given the construction crisis.

Rental apartments are hugely important in Germany. Over half the households rent, and rents have become unaffordable.

But home prices – both single-family and condos – are now in steep decline, due to a different dynamic: Much higher mortgage rates, triggered by the ECB’s QT and rate hikes, following the multi-year price spike powered by the ECB’s QE and negative rates. I discussed this phenomenon here: QE Giveth, QT Taketh Away: German Home Prices vs. ECB Balance Sheet.

“Construction industry crisis” was term that kept cropping up in conversation and in the local news media.

The higher interest rates, when negative interest rates had been assumed to be the new normal, surging construction cost inflation, labor cost inflation, lower property prices, and difficulties in getting financing at all have caused widespread, let’s say, complications in the German construction industry. And due to the lower prices, the cost increases cannot be passed on to buyers.

Under these conditions – falling prices, surging construction costs, higher rates, and difficulties in getting financing – property developers are holding large tracts of land that cannot be economically developed, and that can be sold only at much lower prices, if buyers can be found at all. And they’re working on construction projects whose economic assumptions got wiped out by higher interest rates and falling property prices. All of these factors are leading to liquidity and insolvency issues.

Since July, there have been a series of insolvency and bankruptcy filings by major property developers, including:

  • Gerch Group, a Duesseldorf-based property developer with €4 billion in construction projects;

  • Development Partner, a Duesseldorf-based property developer, which specializes in office construction;

  • Euroboden, a Munich-based property developer, with big projects around the country, after emergency property sales had fallen through;

  • Project Immobilien Group, with about 60 big projects around Germany;

  • Centrum Group, which blamed a “toxic triangle” of higher interest rates, cost increases, and stalled investment.

The largest German residential property firm, Vonovia, wrote down its properties by €6.4 billion, blaming the drop in value on surging building costs, higher interest rates, difficulties in getting financing, and the widening gap between buyers’ and sellers’ price expectations, all of which are causing transaction activity to plunge. It warned that new construction developments are “barely viable.” In January, it had announced that it would not start any new projects in 2023, blaming inflation in construction costs and interest rates.

Given the crisis, building permits have plunged by 35% from the levels in late 2021, to the lowest level since 2012, on a seasonally adjusted basis, according to the German statistical agency Destatis, a harbinger of industry activity to come.

No one needs more office towers, with working-from-home at least on a hybrid basis having gotten entrenched in Germany, same as in the US. And no one needs more retail spaces, with ecommerce taking over brick-and-mortar retail except in some segments, such as groceries, gasoline, and services such as restaurants, hair salons, nail salons, etc., same as in the US. And that’s the price to be paid for structural changes in the economy.

But multifamily construction is crucial in Germany to deal with surging rents and the affordability crisis. And the conditions to develop residential properties have become very difficult.

*  *  *

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. 

Tyler Durden Wed, 10/18/2023 - 05:00

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Newcastle Airport continues digitalisation journey with cloud-based SITA Flex solution “to innovate and improve CX”

The following article was published by Future Travel Experience
SITA (a Platinum Sponsor of FTE APEX Asia Expo, 8-9 November 2023, Singapore) is helping…



The following article was published by Future Travel Experience

SITA (a Platinum Sponsor of FTE APEX Asia Expo, 8-9 November 2023, Singapore) is helping Australia’s Newcastle Airport to reduce IT costs, rapidly scale up passenger processing capability, and improve CX.

SITA (a Platinum Sponsor of FTE APEX Asia Expo, 8-9 November 2023, Singapore) is helping Australia’s Newcastle Airport to reduce IT costs, rapidly scale up passenger processing capability, and improve CX.

SITA (a Platinum Sponsor of FTE APEX Asia Expo, 8-9 November 2023, Singapore) is helping Australia’s Newcastle Airport to reduce IT costs and rapidly scale up its passenger processing capability.

Using SITA’s cloud-based solution, SITA Flex, Newcastle Airport has cut costs and the associated complexity of operations by leveraging SITA’s common use solution across their preferred devices, removing the need for more expensive certified equipment and giving control and cost savings on hardware choices.

Newcastle is the first regional airport in the world to adopt the new customised solution designed for smaller airports with fewer touchpoints. The solution standardises the hardware and support to simplify the infrastructure and improve ease of operation. SITA Flex makes the most of limited physical space, enabling airports and airlines to switch effortlessly between dedicated and shared check-in and boarding gate counters. With plug-and-play functionality, Flex eliminates the need for onsite infrastructure while ensuring complete security.

The solution’s benefits include reducing airport costs, enabled by the simplification of infrastructure. It also allows the airport to operate in a common use environment at significantly lower expenses without sacrificing functionality.

“We’re excited to partner with Newcastle Airport and support their ambitious growth plans,” said Sumesh Patel, President, SITA, Asia Pacific. “From our experience in digitising the industry – before, during, and post-pandemic – we see common issues facing highly cost-conscious regional airports, with a desire to be able to fund the types of smart digital ways of working found in larger airports.”

Cloud technology makes the digital journey and cutting-edge IT affordable and accessible for regional airports. With leading passenger processing capabilities accessible via the cloud, airports can enable shared common use approaches cost-effectively, saving on infrastructure, space, and maintenance. They are also well-placed to embrace additional capabilities as they choose, such as self-boarding, self-bag drop, off-airport processing, and more.

“Newcastle Airport is undergoing a massive transformation to optimise the passenger experience, increase efficiency and sustainability, and support tourism,” said Dr Peter Cock, Chief Executive Officer, Newcastle Airport. “As we work to deliver the airport our Hunter Region deserves, we will soon be offering direct international flights to key trading and tourism destinations. We will build on our position as one of the region’s economic and employment hubs, driving innovation, job growth, and commercial opportunities. Today, we’re excited to be leading the way in digitalising airport operations with the help of SITA and look forward to continuing to innovate and improve the passenger experience.”

Hear more from SITA at FTE APEX Asia Expo, taking place in Singapore on 8-9 November 2023. Sumesh Patel, President, Asia Pacific, SITA, is speaking in the Premium Conference in the Opening Keynote Panel – “Leadership perspectives on the biggest opportunities and challenges for the aviation industry across Asia and beyond”.

Register for the free-to-attend FTE APEX Asia Expo 2023 >>

Article originally published here:
Newcastle Airport continues digitalisation journey with cloud-based SITA Flex solution “to innovate and improve CX”

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