ASX Today — Live ASX News | XJO Up, Wall Street Mixed, German Inflation Sticky

How long will interest rates have to remain elevated to purge the economy of high inflation?

According to Atlanta Fed president Raphael Bostic, the US federal funds rate should be raised to between 5% and 5.25% and left there ‘until well into 2024’.

That may sounds drastic to someone, but Bostic has his reasons:

“History teaches that if we ease up on inflation before it is thoroughly subdued, it can flare anew. That happened with disastrous results in the 1970s. After the FOMC loosened policy prematurely, it took about 15 years to bring inflation under control, and then only after the federal funds rate hit 20 percent.”

Bostic also thinks interest rates are not ‘sufficiently influencing business activity’. Bostic wants aggregate demand slowed even more from here, enough to curb actual consumer spending and anticipated consumer spending by businesses:

“When businesses think customers will buy less of their product or service in the near and medium term, then they will adjust hiring and investment plans accordingly.”

Bostic further pointed to the breadth of inflation. About 50% of the goods in the CPI basket still show inflation rates of 6% or higher. In the months prior to the pandemic, only about 10% of goods in the CPI basket had inflation at levels of 6% or higher.

Inflation is always a macroeconomic phenomenon, right?

Not necessarily, argue two University of Massachusetts Amherst economists.

Isabella Weber and Evan Wasner just released a research paper arguing that COVID-19 inflation in the US was ‘predominantly a sellers’ inflation that derived from microeconomic origins, namely the ability of firms with market power to hike prices.’

The pair based their analysis on key principles relating to firm behaviour:

“First, firms typically do not lower prices and, aside from the case of new innovative product lines, raise prices only if they expect other firms to do the same – in other words, they stick to the pack. Second, besides a formal cartel and norms of price leadership, sector-wide cost increases can function as a coordinating mechanism for price hikes within the industry, since all firms want to protect their profit margins and know that the other firms pursue the same goal. Firms that do not follow this rule can be penalized by financial investors. Third, if demand outstrips existing capacity by a wide margin – either because of a supply or a demand shock or both – firms can gain temporary monopoly power which allows them to hike prices in ways that increase profit margins. Absent such a temporary monopoly, firms can increase profit margins by lowering costs.”

Weber and Wasner also make the point that if seller’s inflation is operating in the economy, restrictive monetary policy may have counterproductive effects on the big firms with price power:

“If sellers’ inflation is tackled by inducing a recession using tools designed for aggregate excess demand, it can aggravate the institutional conditions that gave rise to it in the first place. The giant corporations we have surveyed in this paper express confidence on earnings calls that they are weathered against a recession. Their product portfolios are so versatile and their revenue management so perfected that they have a playbook to make sure customers stick to them through bad times. Their global reach, which makes them less dependent on any single national market, adds to their resilience. By contrast, a recent survey shows that, when expecting a recession, small business owners do not feel prepared to navigate it successfully (Shippy, 2022). Contractionary monetary policy in itself also tends to hit smaller businesses harder (Galbraith, 1957). Price takers, in contrast to price makers, cannot raise their prices when costs go up due to higher interest rate payments, and thus – unlike firms with market power – they see their profitability decline. This in turn undermines their creditworthiness and access to loans. Large firms also tend to have more financing options beyond bank loans, which can make them generally less dependent on bank rates. But the injustice of monetary policy does not stop at the discriminatory effect on small versus big businesses. Ultimately, hiking interest rates is meant to increase unemployment, which hurts workers who have already been in a defensive position in this inflation.”

 

Elon Musk has unveiled Tesla’s hyped up “Master Plan 3″ in a live-streamed investor day event.

But the hype exceeded the product.

No new Tesla model was revealed, nor any concrete day set for the Cybertruck launch. No mention of robo-taxis either!

Tesla shares were down in after-hours trading, indicating the market’s mood.

Tesla’s chief financial officer did lay out an ambitious cost-cutting goal, however.

Claiming that the automotive industry is defined by cost management, CFO Zach Kirkhorn said Tesla is aiming to halve costs for its next-gen vehicle, but offered little details.

The EV automaker also aspires to sell 20 million vehicles a year by 2030.

It sold about 1.3 million in 2022.

Tesla Investor Day https://t.co/kcJWQcAFkJ

— Tesla (@Tesla) March 1, 2023

Pushpay (ASX:PPH) revealed that as things stand right now, the scheme of arrangement that would see Sixth Street and BGH Capital acquire the donor management platform will not receive the required 75% majority.

Pushpay said the resolution will not pass ‘absent a material change in the votes of shareholders who have already cast proxy votes’.

The fintech said it would not normally advise proxy votes prior to a vote at a shareholder meeting, it thought the ‘importance of the scheme vote to the future of the company’ warranted an update.

Pushpay intends to proceed with the scheme meeting this Friday. The company slyly pointed out shareholders who have already voted and ‘wish to change their vote’ can do so by attending the scheme meeting online or in person and revoking their proxy appointment.

Source: Pushpay

Over recent months, influential tech titans have made a surprising entry into the mining industry.

According to some sources, tech will be the answer to a looming crisis in metal supplies.

So how do computer engineers plan on finding the next generation of ore bodies?

The answer…Artificial Intelligence!

As a major consumer of critical metals, tech has a lot of skin in the game when it comes to securing supply chains of raw materials.

It’s why there’s been some high-profile tech names entering the mining space of late…

‘Disrupters’ looking to flip the traditional methods of discovery.

According to them, AI and algorithms will replace boots on the ground.

That’s what the Californian-based KoBold Metals is looking to achieve.

It has some pretty powerful backers too…billionaire tech giants Bill Gates and Jeff Bezos recently committed US$150 million.

It enabled the company to secure a prized high-grade, copper-cobalt mine in Zambia.

Known as Mingomba and grading at around 3.64% copper, the company now holds one of the highest-grade undeveloped deposits in the world.

Thanks to Gates and Bezos, this tech company has a flagship project to showcase across the mining industry.

Yet, interestingly, the mine was NOT discovered by algorithms or artificial intelligence. It was found by a team of Zambian and Australian geologists years before KoBold acquired the asset.

But looking at the board of KoBold, you can quickly recognise that there’s not a geologist or mining engineer in sight…

Instead, it’s made up of a list of young ‘start-up’ tech entrepreneurs, with mostly computer and data science backgrounds:

Source: KoBold Metals

The world is certainly changing…‘Disruption’ has been the catchy slogan for the tech industry for the last 10 years.

Now it’s looking to stamp its authority on the future of mine discovery.

So how does the company intend to achieve this?

According to KoBold, the Californian-based explorer has built up an enormous geological database that includes geologic reports, soil samples, drilling results, satellite imagery, and academic research papers.

Apparently, they’ve even been able to feed handwritten field notes and sketches written by geologists decades ago into the AI’s brain network.

The data is then run through the AI machine, which spits out the approximate location for the next major discovery.

So, is tech on the edge of transforming mineral exploration?

At first glance the ideas look ‘innovative’…

In reality, though, it’s just a reworking of how mineral discovery has always taken place.

https://www.moneymorning.com.au/20230302/tech-titans-turn-their-hand-at-mineral-discovery.html

Last year, the Reserve Bank of Australia announced a research collaboration probing the use cases for central bank digital currencies (CBDCs). Part of that will involve the RBA running a ‘limited-scale pilot CBDC that is a real digital claim on the Reserve Bank‘.

To select the use-cases for the pilot, the RBA fielded a ‘large number’ of use case submissions from many industry participants.

Today, the Reserve Bank announced the use case proposals it invited to participate in the live pilot. This pilot will commence in the next few months.

 

The #RBA will run a research project using a ‘limited-scale pilot #CBDC that is a real digital claim on the Reserve Bank’.

Today, the #RBA announced the use cases selected for the live pilot, which will take place over the coming months.https://t.co/7p6bp3CCbZ#auspol #CBDCs pic.twitter.com/SlFpP2YH3d

— Fat Tail Daily (@FatTailDaily) March 2, 2023

 

Huge Chinese battery developer Contemporary Amperex Technology (CATL) has sold its stake in Pilbara Minerals for $601 million overnight in a block trade overseen by Goldman Sachs and UBS.

CATL sold all 146 million shares it held in PLS for $4.10 a share, a slight discount to Pilbara’s last close, bringing to an end a highly successful trade for the battery manufacturer.

CATL originally invested in Pilbara via a strategic placement at 30 cents a share in late 2019.

Pilbara is currently down 4% in midday trade on Thursday.

Lithium analyst Joe Lowry thinks the sale will only yield short term benefits:

CATL’s attempts to drive #lithium price down will only yield short term benefits. They can use the cash from selling their $PLS shares to help pay their lithium bill after the next supply panic in China later in the year. @catl_official https://t.co/oxzUzqEmxp

— Joe Lowry (@globallithium) March 1, 2023

Andromeda Metals (ASX:ADN) is up over 20% on Thursday after receiving a Program for Environment Protection and Rehabilitation (PEPR) approval from the South Australian Department for Energy and Mining (DEM) for it Great White Project.

The approval is the final stage of the South Australian government’s regulatory process. Andromeda said this is a ‘significant step forward in the development of the Great White Project’.

The PEPR permits Andromeda to process up to 300,000 tonnes of ore per annum, producing a ‘nominal 150,ooo tpa of halloysite-kaolin’ products from the site.

ADN anticipates ‘early-stage site preparation’ for Stage 1A construction ‘over the coming months’.

 

Lithium, lithium, liffium.

Even investors living under a rock have heard of lithium. One of the hottest investment themes of recent years that sent juniors like Sayona Mining and Lake Resources to market caps over $1 billion.

Until a correction hit and lithium stocks stalled.

Lake is now even no longer trading at a $1 billion valuation.

And Sayona is the third most shorted stock on the ASX.

Yet lithium bulls argue the long-term is still positive for the sector.

The EV revolution is still nascent. To truly overthrow the internal combustion engine, the world will need much more lithium to power the electrified fleet.

At least two questions pop up.

1. Will the surge in prices incentivise a glut of supply in the years ahead?
   1. a) Given that new lithium mines take years to come online, will lithium prices remain elevated in the medium-term until — all at once — supply floods the market?
2. How much growth is already reflected in prices for lithium stocks?

Robert Rapier argued this week in Forbes that the first question has parallels to the oil industry. Namely:

“When prices are high, oil companies tend to invest a lot more into increasing production. But there is a lag between those investments and additional supply. So, prices may be high for a while, which can also … influence consumer behavior to consume less.

“Thus, new supplies may come online even as demand softens. That often results in a price crash in which investments dry up. Eventually demand recovers, but new supply stagnates. Finally, the excess supply dries up, prices start to rise, and the cycle repeats.”

Will this cycle repeat with lithium?

Rapier doesn’t think so:

“[C]ontrary to modern oil demand growth, lithium demand growth is on a steep increase. Thus, lithium demand growth may slow, but it is unlikely to contract as demand for oil did in 2008.”

Another question is how much growth has already been priced in by the market. Everyone knows lithium has long-term demand tailwinds. There’s no information edge in that observation. So how far ahead have the markets already looked?

Cash is no longer trash. Cash is now fresh.

The yield on 10-year US Treasury notes hit 4% overnight as traders continue to sell government debt, anticipating more interest rates.

The yield on 2-year US Treasury notes rose to 4.88% — a 16-year high!

The rising yield for the 2-year note also deepened the yield inversion. That is, shorter-dated bonds are yielded more than longer-dated bonds, often a sign of a looming contraction.

 

After recording losses in February, the three major US indexes started March in a similar fashion.

The S&P 500 and the Nasdaq Composite closed 0.5% and 0.7% down overnight. The staid Dow Jones was in the red for much of the day before finishing 0.02% higher — a rounding error away from going nowhere.

The main explanation for the move was US factory activity that — while contracting for the fourth month in a row — still beat analysts’ expectations.

Manufacturers quizzed by the Institute for Supply Management’s February survey also said they saw signs last month of demand improving and persistent price pressures ahead.

The US economy is still weathering the US Fed’s punches. Interest rates are yet to knock the wind out of the economy … and that worries markets, who are now re-calibrating their terminal rate bets.

February ISM Manufacturing ticked up slightly to 47.7 vs. 48 est. & 47.4 in prior month; new orders bounced to 47 while prices paid jumped back into expansion; employment dipped back into contraction pic.twitter.com/F3QYWazZJ3

— Liz Ann Sonders (@LizAnnSonders) March 1, 2023