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Saturday June 3rd, 2023

Conditions ripe for global commodity super-cycle: Steve Hanke

ECONOMYNEXT – Conditions are ripe to the return of a commodity super-cycle with supply constraints, low inventories from earlier low prices, inflation and economic activity set to pick up amid a weaker US dollar, Steve Hanke, a top US economist has said.

For several years commodity prices had been depressed and some have been “annihilated”.

“And when that happens, you start running down inventories, a lot of producers go the wall and shut down so supply gets very constrained,” Hanke, Professor of Applied Economics, Johns Hopkins University, Baltimore, told Kitco News, a commodity data and news portal.

“And then the economy starts kicking in and moving forward, commodity prices go way up and you do start a super cycle. And we are seeing the initial signs that might be in the wind.”

Hanke was speaking in the last week of December 2020, before Federal Reserve chief Jerome Powell said the agency would buy 140 billion dollars of securities a month to print money.

Hanke said the fundamental behind some ‘exotic’ metals gives an insight to underlying conditions.

He said in the last quarter of 2020 nickel rose 22 percent, molybdenum was up 18 percent, lithium carbonate 25 percent, aluminium 19 percent, antimony 19 percent, silicone metal 15 percent and Magnesium 26 percent.

“And my favourite – because I am involved in producing Ferro vanadium -, that is up 8 percent,” he said.

“So watching these very carefully, you can see all these coming off the bottom with substantial strength after being totally wiped out in the past year and a half or two.

Hanke said broad money measured by Divisia M4 calculated by the Centre for Financial Stability was growing at 27.4 percent a year.

“They are goosing this thing big time,” he said. “That means nominal GDP will be goosed big time.”

In general Divisia M4 had been a better guide than Fed calculated money supply numbers, he said

Since the actual gross domestic product was constrained, conditions were ripe for an inflation surge.

“That co-relates with a super cycle. We are going to have more inflation. That is always good for commodities. We will probably have continued weakness of the dollar.

“If you put all of that together, more inflation, more economic growth, supply that has been very constrained, inventories that have been very down, that is a formula to crank up the commodity market.”

Responding to a question on unemployment and inflation, Hanke said it was ‘rubbish’ but was repeated in the financial press. About 95 percent of what was reported in the financial press was false or irrelevant, he said.

In the 1970s there was stagflation, with both unemployment and inflation rising.

American unemployment numbers may not reduce due to stimulus cheques discouraging people from working, Hanke said.

He said employment numbers will begin to pick up after stimulus cheques end.

During the ‘Trump economy’ unemployment had fallen but there was no inflation, he said.

At the time Janet Yellen was bringing down excess liquidity, data show. (Colombo/Feb10/2021)

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Sri Lanka to ramp up weekend fuel deliveries after petrol price cut

More deaths reported at Sri Lanka fuel queues

ECONOMYNEXT – Sri Lanka’s state-run Ceylon Petroleum Corporation will be operating on the weekend to complete all fuel deliveries to end vehicle queues forming outside fuel stations after the price revision earlier in the week, Energy Minister Kanchana Wijesekera said.

“Instructions have been given to CPC and Ceylon Petroleum Storage Terminals to continue fuel deliveries on Saturday and Sunday this week to supply sufficient stocks to all fuel stations,” Minister Wijesekera said in a TWITTER.COM MESSAGE

“To reduce expenses on overtime, CPC and CPSTL have not been operating on Sundays and public holidays in the last 4 months,” Wijesekera said.

“Non-placement of orders by fuel stations from last Saturday, anticipating a price reduction, not maintaining minimum stocks, immediate increase in demand by consumers after the price revision, and quota increase have created shortages in the fuel stations.”

The Minister in April 2023 said all fuel stations would be required to maintain a minimum of 50 percent of stock tank capacity.

“I have asked CPC to review and suspend the license of fuel stations that had not maintained minimum stocks.” (Colombo/ June 02/ 2023)

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Sri Lanka bonds yield up at close, rupee at 291.75/292.50 against the US dollar

ECONOMYNEXT – Sri Lanka’s bonds closed steady on Friday, dealers said, following the central bank’s decision to cut its main policy rate by 250 basis points.

The Spot US dollar closed at 291.75/292.50 rupees, dealers said.

The rupee opened at 290.25/75 to the US dollar Thursday and closed at 292.50/295.50 to the US dollar.

A bond maturing on 15.09.2027 closed at 24.70/90 percent up from 24.50/90 percent a day earlier, dealers said.

A bond maturing on 15.05.2026 closed at 25.75/26.25 percent up from 25.00/26.00 percent a day earlier.

A bond maturing on 01.05.2025 closed at 27.00/30 percent, up from 26.30/27.00 per cent at last close.

A bond maturing on 01.07.2032 closed at 20.25/21.00 percent, up from 20.00/40 per cent at last close.
(Colombo/ June 02/2023)

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Sri Lanka’s shares edge up on positive macroeconomic sentiments

ECONOMYNEXT – Sri Lanka’s shares closed higher in trade on Friday, over positive macro-sentiments encouraging investors to redeem their interest towards buying, an analyst said.

The main All Share Price Index was up 0.72 percent or 62.19 points to 8,753.80,  while the most liquid index S&P SL20 was up 0.68 percent or 16.87 points to 2,487.29.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

Prior to the Monetary Policy investors were quite optimistic that inflation is to lower and interest rates will decrease and since exp, an analyst said.

Sri Lanka Central Bank is waiting for the government proposal on the domestic debt restructuring (DDR), the central bank governor Nandalal Weerasinghe said amid uncertainty over DDR and speculations over instability in the banking sector.

“On debt restructuring, the borrower is the ministry of finance’s treasury. Certainly we will announce what the strategy will be. We are waiting for a government proposal,” Weerasinghe said.

Sri Lanka’s investors are waiting on assurances to be made on debt restructuring and optimization, Central Bank Governor Nandalal Weerasinghe said, “It is up to the government to clear the uncertainty, because from our side we have done that part.”

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

The speculation of DDR has hit the market and the risk premium has kept the market lending rates well above the central bank’s policy rates. The government has yet to present its plans on DDR.

Weerasinghe said the central bank has done its best to reduce the risk premium through bringing down the market lending rates while keeping the policy rates unchanged.

Sri Lanka’s President Ranil Wickremesinghe has discussed progress of International Monetary Fund program and debt restructuring during a visit of Deputy Managing Director Kenji Okamura, statement said.

“The discussion primarily focused on the progress of the IMF program between Sri Lanka and the IMF,” a statement from President’s office said.

“Attention was also paid to the on-going debt restructuring negotiations.”

However Officials from IMF have said Sri Lanka has to focus on expanding taxes.

“We discussed the importance of fiscal measures, in particular revenue measures, for a return to macroeconomic stability,” Deputy Managing Director Kenji Okamura said in a statement.

The finance ministry this week issued rules requiring everyone above 18 year of age to register to pay income tax.

“I was encouraged by the authorities’ commitment to negotiate a debt strategy in a timely and transparent manner.

The market generated a revenue of 738 million rupees, while the daily average was 1 billion rupees.

Top gainers in trade were Vallibel One, LOLC Finance and Browns Investment. (Colombo/June02/2023)

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