November Market Recap

Strengths

• In the quarter ended September 30, Singapore Airlines Ltd. saw a 68 percent rise in profit year-over-year. The carrier reported that net income was around $70 million and that sales climbed 3.9 percent. Singapore Air has added more fuel-efficient A350s and 787-10s to its fleet to help mitigate uncertainty related to fuel costs.
• IAG SA, parent company to British Airways, is set to buy Spanish carrier Air Europa for $1.1 billion in a push to strengthen Madrid as a rival to European hubs. Daniel Roeska, analyst at Berstein, wrote in a note to clients that the deal is “strategically sensible” and will give IAG 26 percent market share of the Europe-Latin America routes, up from 19 percent.
• Air Arabia ordered a whopping 120 single-aisle A320 aircraft worth approximately $14 billion at the Dubai Air Show, reports Bloomberg News. Air Arabia says the deal is a “game-changer for Air Arabia’s business” as the new planes will allow the discount carrier to expand into Southeast Asia and Africa. This is a big victory for Airbus as rival Boeing continues to see orders cancelled due to its two high profile crashes in the last 18 months.

Weaknesses

• Although Airbus scored big deals, the biennial Dubai Air Show, known as one of the largest air shows in the world, had a lackluster year overall. The three-day show in mid-November said on site orders totaled $54.5 billion this year, down significantly from $113.8 billion in 2017. Airbus landed orders and non-firm commitments for 232 commercial planes versus Boeing’s 95. Although Boeing saw a big drop in sales due to its ongoing issues with the737 MAX jets, the fact that it secured orders for more of the jet is a positive sign.

• The Boeing 737 MAX 8 jet that was involved in two deadly crashes remains grounded with an unknown return to service date. Many expect the jet to be in the air again in 2020, but airlines that fly the plane have it removed from flight schedules until at least March. On November 25, Boeing quietly unveiled a new version of the jet, the Max 10, which can hold 30 more passengers than the Max 8. The Max 10 is Boeing’s competition to the Airbus A321 XLR, which was a star of the Dubai Air Show.
• One of the world’s fastest growing carriers, IndiGo, has been forced to ground some of its Airbus SE A320neo planes for engine upgrades, which could impede its expansion, reports Bloomberg News. India’s Directorate General of Civil Aviation said that a series of problems involving the carrier’s jets, including in-flight shutdowns, must be addressed by upgrading engines. For every jet that IndiGo adds to its fleet, it must ground another jet, essentially preventing it from adding new routes or increasing frequencies until all engine problems are resolved.

Opportunities

• According to Boeing, the Latin America aviation market will more than double in 20 years and drive a need for 2,960 new planes due to Brazil’s recovering economy and discount carriers boosting demand. Brazil makes up 40 percent of the region’s market and will grow 4 percent to 5 percent in the next year as economic growth slowly resumes and capacity returns, reports Bloomberg News. International Air Transport Association (IATA) data shows that the number of passengers carried by Latin America airlines have more than doubled in the last decade.
• The first blockchain-based airline tickets were issued this week. German airline Hahn Air flew passengers with blockchain-powered tickets on a routine flight between Dusseldorf and Luxemburg, reports Reuters. The airline partnered with Winding Tree, an open-source travel distribution platform, to issue the tickets. Hahn Air head of corporate strategy and government and industry affairs Jorg Troester said “it is important to look into the future to understand how can we make distribution faster.”
• As airlines are under growing pressure to reduce carbon emissions, especially in Europe, some carriers are taking initial steps. EasyJet announced that it will spend 25 million pounds ($32.3 million) on planting trees and protecting deforestation with the objective of removing as much carbon dioxide from the atmosphere as its fleet emits, reports Bloomberg News. EasyJet CEO Johan Lundgren said “it’s not to say that this is the perfect solution, we know it’s an interim step before new technologies come into play.” Aircraft are becoming increasingly fuel efficient, but hybrid and fully electric jetliners are not expected until the 2030s.

Threats

• The U.S. Federal Aviation Administration (FAA) downgraded Malaysia to a category 2 nation, banning the nation’s carriers from setting up new flights to America. The FAA said that Malaysia does not currently meet International Civil Aviation Organization safety standards. It was awarded a category 1 status in 2003. Bloomberg reports that the only other category 2 countries are Bangladesh, Thailand, Costa Rica, Curacao and Ghana.
• The airline operating the first Boeing MAX 737 crash has largely escaped criticism over its role in causing the disaster. Lion Air, a low-cost Indonesian carrier, has a long track record of overworking pilots, faking training certifications and forcing pilots to fly planes they worried were unsafe, according to an investigation by the New York Times. Lion Air Flight 610 crashed shortly after takeoff in part due to a flawed anti-stall system, but new details about the crash show that other factors contributed including improper maintenance, overworked pilots and improper recordkeeping of the planes issues. The airline, which is the world’s fastest growing and benefits from strong political connections, has not fully acknowledged the concerns regarding its safety practices.
• Allen Onyema, a Nigerian businessman who is owner and CEO of Air Peace, was indicted by U.S. authorities on charges of fraud and money laundering, reports Bloomberg News. A statement by the U.S. Department of Justice says that Onyema moved more than $20 million from Nigeria to the U.S. involving fake documents based on the purchase of airlines.

Strengths

• Serbia bought nine tonnes of gold in October and the metal now accounts for 10 percent of the nation’s foreign reserves. The Serbian central bank governor told reporters that “Serbia is safer today” now that it bought more gold. Bloomberg reports that the purchase is one of many moves by the country to shore up its financial stability by changing the structure of its foreign debt.
• In another big central bank surprise, Germany bought gold for the first time in 31 years. Reserves climbed to 108.34 million ounces in September, up from 108.25 a month earlier, and the first change since 1988. International Monetary Fund (IMF) data shows that Turkey also increased reserves in September, rising to 17.29 million ounces from 16.49 million ounces a month earlier.
• Barrick Gold announced that it has agreed to sell its entire stake in Australia’s Kalgoorlie Mine for $750 million – a big move toward selling non-core assets to raise more than $1.5 billion by the end of 2020. The stake was purchased by Saracen Mineral, which already owns two operations in the same region. CEO Mark Bristow of Barrick says that “the sale allows us to further focus our portfolio on core operations.”

Weaknesses

• China halted its 10-month gold buying spree. The People’s Bank of China (PBOC), which purchased over 100 tons of gold from December to September, kept holdings at 62.64 million ounces from September to October. Gold consumption in China fell 9.6 year-over-year in the first nine months of 2019 at 768.31 tons, according to the China Gold Association. Demand in the world’s largest consuming country was hit by higher prices and downward pressure on the economy.
• Pre-Diwali sales of gold and silver in India fell as much as 40 percent as high prices and lower consumer spending hurt purchases, reports the Economic Times. The Confederation of All India Traders (CAIT) said “there was a decline of business from 35 to 40 percent which is a cause of major worry for the traders.” Gold imports by India fell for a fourth month to 20.8 metric tons in October, down 46 percent year-over-year. Bloomberg reports that the figure is a small improvement from 13.5 tons in September. Higher gold prices and a weak Indian economy are hurting demand in the world’s second largest consuming nation.
• The Perth Mint reported that gold coin and bar sales totaled 32,469 ounces in October, down from 46,837 ounces the month prior. Silver sales did increase at 1.39 million ounces, versus 1.35 in September.

Opportunities

• According to a statement from Lundin Gold, the company has received a key permit for its Fruta del Norte gold project in Ecuador. The mine will provide $1.96 billion to the Ecuadorian state through taxes and royalties through 2034 and will have a mine lifetime of 15 years. K92 Mining announced strong drill results from its Kainantu gold mine in Papua New Guinea. The company recorded a drill hole of 288.73 grams per ton of gold and another hole of 107.55 grams per ton of gold. TriStar Gold also reported strong drilling results from its Castelo de Sonhos gold project in Brazil, including 24 meters at 1.1 grams per ton from 95 to 119 meters.
• Several major gold miners have boosted dividends as they work to cut costs and consolidate operations in the midst of higher bullion prices. Barrick Gold raised its dividend by 25 percent, Kirkland Lake Gold raised its quarterly payout by 50 percent and B2Gold Corp announced its first ever dividend, reports Bloomberg. Stephen Walker, RBC Capital Markets’ head of global mining research, said in a phone interview that “the ability to return a portion of excess capital to shareholders” is evidence of their improved cost performance.

• Macquarie, an Australian bank, wrote in a report that gold is likely to stabilize around $1,400 an ounce in 2020 before rallying to $1,600 an ounce in 2021. Although gold faces potential headwinds of global growth improving or stabilization of geopolitical turmoil, the bank says prices should be supported by ongoing central bank buying and increased long-term investor allocations. Strategists wrote that “investors worldwide have already substantially boosted their exposure to the metal, net-length in CME futures and ETF holdings are oscillating around all-time highs.”

Threats

• A World Gold Council (WGC) survey shows that just 12 percent of China’s Generation Z intend to buy gold jewelry in the coming year, which is lower than the millennial generation and people over 39 years old. China is the world’s top buyer of the metal, and changing tastes between generations could hurt overall demand.
• A convoy transporting workers of Canadian gold producer Semafo Inc. in Burkina Faso was attacked in mid-November and killed at least 39 people. An ongoing conflict in the West African nation has displaced more than half a million people and has led to an increase in violence. This attack was the third in the past 15 months for Semafo and occurred just 25 miles away from a mine site.
• The House Natural Resources Committee voted to give preliminary approval to update a 147-year-old hardrock mining law that was signed by President Ulysses S. Grant in 1872. The Hardrock Leasing and Reclamation Act would protect national parks and tribal areas from being leased for mining, increase mining royalties and create a fund to clean abandoned mines. Bill proponents say it brings mining into the 21st century, while critics say that it will do major harm to mining companies. Cronkite News reports that the bill would impose a minimum 8 percent royalty on mineral production at already existing mine sites and a 12.5 percent royalty on mines with permits issued after the law takes effect.