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Supply Chain Disruptions Force White House To Ask Walmart, UPS, FedEx To Increase Output

Supply Chain Disruptions Force White House To Ask Walmart, UPS, FedEx To Increase Output By Jack Phillips of Epoch Times, Carriers of goods including Walmart, UPS, and FedEx are moving to work more shifts—including 24 hours per day, seven days per week—to address global supply disruptions that have contributed to a surge in inflation, the White House said Wednesday. The update was announced ahead of President Joe Biden’s meeting with the heads of Walmart, FedEx, and UPS to address the supply chain bottlenecks before the Christmas season.   According to a fact sheet released by the administration, Walmart said it would “increase its use of night-time hours significantly and projects they could increase throughput by as much as 50 percent over the next several weeks.” Meanwhile, UPS said it would commit to use 24/7 operations “and enhanced data sharing with the ports” to move more containers out of ports, said the White House. And FedEx, the fact sheet said, will “work to combine an increase in nighttime hours with changes to trucking and rail use to increase the volume of containers it will move from the ports.” UPS and FedEx combined shipped approximately 40 percent of U.S. packages by volume in 2020, the White House said. A White House official told news outlets on Wednesday that FedEx, UPS, and Walmart will move toward a 24/7 working schedule. Thousands of shipping containers at the Port of Felixstowe in Suffolk, England, on Oct. 13, 2021. (Joe Giddens/PA) “Across these six companies over 3,500 additional containers per week will move at night through the end of the year,” said the fact sheet. “Those boxes contain toys, appliances, bicycles, and furniture that Americans purchased online or at their local small business, and pieces and parts that are sent to U.S. factories for our workers to assemble into products.” Additionally, the Port of Los Angeles will move to 24/7 service, coming after the Port of Long Beach began similar operations several weeks ago, officials said. The International Longshore and Warehouse Union also made a commitment to staffing 24/7, meaning that it will double the “hours that cargo will be able to move out of its docks and on highways,” according to the White House. The supply crisis is driven in part by the global COVID-19 pandemic and potential vaccine mandates, as sales of durable goods jumped amid worker shortages and transportation hub slowdowns. Lower-than-expected Christmas sales could hurt U.S. companies and pose a political risk for Biden. Thousands of shipping containers are on cargo ships offshore waiting to be offloaded at the ports of Los Angeles and Long Beach. Similar backlogs exist at ports in New York and Savannah, Georgia. A shortage of warehouse workers and truck drivers to pick up goods is another reason for the bottlenecks. Tyler Durden Wed, 10/13/2021 - 18:45.....»»

Category: blogSource: zerohedgeOct 13th, 2021

Biden Mulls Bold Steps to Curb Chip Shortage: 3 Stocks in Focus

Semiconductor manufacturing firms like Applied Materials (AMAT), Skyworks (SWKS), and Qorvo (QRVO) are likely to hog the limelight in the near future with solid demand trends. An acute shortage of semiconductor chips, which are the building blocks for various electronic gadgets, telecommunication equipment, and automobile manufacturing, has set alarm bells ringing in the higher echelons of the government, prompting the administration to consider using an aggressive stance to address the issue. Despite the best efforts of the Biden administration to increase domestic production, the demand-supply imbalance has virtually crippled operations of various related sectors and largely affected profitability due to inflated equipment prices. The government is now seeking to take the bull by the horn to tackle the worsening situation that has affected thousands of U.S. workers and forced automakers like Toyota Motor Corporation TM and General Motors Company GM to slash output and sales forecast.What Ails the Chip Manufacturing Industry?The global chip shortage has been largely triggered by the COVID-19-led constraints on the supply chain mechanism and increased demand for electronic gadgets due to an uptick in pandemic-induced nesting activities. It was also aggravated by the disruptions in production due to inclement weather conditions and natural catastrophes. Critics further allege that the initial seeds of the chip shortage were sown in 2018 with the imposition of tariffs and restrictions on Beijing by President Trump and that the problem was brewing within.Policy Shift With Change in PowerWhile the Trump administration primarily focused on ‘technology decoupling’, which enforced strict export restrictions based on national security grounds, President Biden seems more inclined toward the "small yard, high fence" strategy. This policy aims to take a more proactive approach in defining technologies that are essential to American national interests and employ stringent protective measures. Instead of an outright trade ban that largely affects the supply-chain mechanism, it intends to identify the source of the bottlenecks behind a product shortage and work in tandem with the industry to fix it so that the business interests of domestic firms are not harmed. In tune with this policy shift, the President had inked an executive order in February 2021 to launch a 100-day review process of the supply chain mechanism to address the global shortage of semiconductor chips and devise ways to increase domestic production while eliminating dependence on China.The government further introduced the Chips for America Act, which aimed to provide $52 billion for semiconductor research and development, as various reports revealed that global semiconductor manufacturing capacity in the United States fell from 37% in 1990 to about 12% at present owing to a dearth of federal investments in chip research. Although the Senate passed the bill in June 2021, the legislation is yet to be approved by the House, likely robbing the beleaguered industry of an opportunity to spearhead innovation and fast-track production facilities.Aggressive Stance in the Making? The chip shortage is leading to panic buying by some OEMs, which, in turn, is escalating prices. This has largely affected the smaller manufacturers that lack the firepower to match higher raw material costs and are forced to either halt production or make way with some relatively weaker substitutes. In order to tide over the storm, the U.S. Commerce Department is currently seeking supply-chain data from industry participants within the next 45 days on a voluntary basis in order to ease production bottlenecks and identify potential pitfalls of chip hoarding. However, companies have reportedly been dragging their feet on handing over this sensitive data, forcing the Biden administration to consider flexing its muscles by invoking the Defense Production Act that could force companies to turn over that information. The defense law vests the President with additional powers to allocate resources and production and might be called into force to bridge the demand-supply gap.3 Semiconductor Chip Manufacturing Firms in FocusAmid such a scenario, semiconductor manufacturing firms are likely to hog the limelight in the near future with continued demand trends fueling solid long-term growth potential. From the list of such firms, we have cherry-picked three stocks with strong fundamentals, carrying either a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.Applied Materials, Inc. AMAT: Headquartered in Santa Clara, CA, Applied Materials is one of the world’s largest suppliers of equipment for the fabrication of semiconductor, flat panel liquid crystal displays, and solar photovoltaic cells and modules. The company’s semiconductor business continues to be on the growth trajectory with significant design wins. Moreover, the company's AI Design Forum bodes well for its strong focus toward the development of new computing materials and designs. The industry's transition to 3D NAND is also helping Applied Materials to further expand the served available market. With a long-term earnings growth expectation of 19.4%, the stock delivered an earnings surprise of 8.1%, on average, in the trailing four quarters. This Zacks Rank #2 stock has gained 142.3% over the past year. The Zacks Consensus Estimate for current-year earnings has been revised 48.4% upward over the past year, and that for the next year is up 46.6%.Image Source: Zacks Investment ResearchSkyworks Solutions, Inc. SWKS: Headquartered in Irvine, CA, Skyworks manufactures and markets a broad range of high-performance analog and mixed-signal semiconductors that enable wireless connectivity. As demand for mobile Internet applications is exploding with the broad proliferation of smartphones, net books, notebooks, caplets, and other forms of embedded wireless devices and faster pace of 5G deployment, Skyworks continues to gain traction. High quality, environment-friendly products, and sustainable business practices have been the key differentiators for the company. Skyworks is also aggressively expanding into new vertical markets. It has introduced connected-car solutions for prominent Japan-based and Korea-based automotive OEMs along with Daimler. With a long-term earnings growth expectation of 19.4%, the stock delivered an earnings surprise of 21.4%, on average, in the trailing four quarters. This Zacks Rank #2 stock has gained 25.6% over the past year. The Zacks Consensus Estimate for current-year earnings has been revised 53.2% upward over the past year, and that for the next year is up 48%.Image Source: Zacks Investment ResearchQorvo, Inc. QRVO: Headquartered in Greensboro, NC, Qorvo is a leading provider of core technologies and radio frequency solutions for mobile, infrastructure, and aerospace/defense applications. With a broad product portfolio, Qorvo is likely to create new growth opportunities and spearhead technological innovation for the overall benefit of carriers and consumers. The company has introduced highly integrated front-end solutions that simplify and accelerate the implementation of multimode, multi-band 4G smartphones and tablets. These new RF Fusion front-end solutions showcase the company's ability to help leading OEMs to quickly launch their next-generation flagship devices. With a long-term earnings growth expectation of 12.7%, the stock delivered an earnings surprise of 14.2%, on average, in the trailing four quarters. This Zacks Rank #1 stock has gained 38.6% over the past year and has a VGM Score of B. The Zacks Consensus Estimate for current-year earnings has been revised 47.6% upward over the past year, and that for the next year is up 35.4%.Image Source: Zacks Investment Research Time to Invest in Legal Marijuana If you’re looking for big gains, there couldn’t be a better time to get in on a young industry primed to skyrocket from $17.7 billion back in 2019 to an expected $73.6 billion by 2027. After a clean sweep of 6 election referendums in 5 states, pot is now legal in 36 states plus D.C. Federal legalization is expected soon and that could be a still greater bonanza for investors. Even before the latest wave of legalization, Zacks Investment Research has recommended pot stocks that have shot up as high as +285.9%. You’re invited to check out Zacks’ Marijuana Moneymakers: An Investor’s Guide. It features a timely Watch List of pot stocks and ETFs with exceptional growth potential.Today, Download Marijuana Moneymakers FREE >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Toyota Motor Corporation (TM): Free Stock Analysis Report Skyworks Solutions, Inc. (SWKS): Free Stock Analysis Report Applied Materials, Inc. (AMAT): Free Stock Analysis Report General Motors Company (GM): Free Stock Analysis Report Qorvo, Inc. (QRVO): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksSep 24th, 2021

Futures Jump On Profit Optimism As Oil Tops $85; Bitcoin Nears $60,000

Futures Jump On Profit Optimism As Oil Tops $85; Bitcoin Nears $60,000 One day after the S&P posted its biggest one-day surge since March, index futures extended this week’s gains, helped by a stellar bank earnings, while the latest labor market data and inflation eased stagflation fears for the time being. . The 10-year Treasury yield rose and the dollar was steady. Goldman Sachs reports on Friday. At 715 a.m. ET, Dow e-minis were up 147 points, or 0.42%, S&P 500 e-minis were up 16.5 points, or 0.37%, and Nasdaq 100 e-minis were up 42.75 points, or 0.28%. Oil futures topped $85/bbl, jumping to their highest in three years amid an energy crunch that’s stoking inflationary pressures and prices for raw materials. A gauge of six industrial metals hit a record high on the London Metal Exchange.  Energy firms including Chevron and Exxon gained about half a percent each, tracking Brent crude prices that scaled the 3 year high. Solid earnings in the reporting season are tempering fears that rising costs and supply-chain snarls will hit corporate balance sheets and growth. At the same time, the wider debate about whether a stagflation-like backdrop looms remains unresolved. “We don’t sign up to the stagflation narrative that is doing the rounds,” said Hugh Gimber, global strategist at the perpetually optimistic J.P. Morgan Asset Management. “The economy is being supported by robust consumer balance sheets, rebounding business investment and a healthy labor market.” “After a choppy start to the week, equity markets appear to be leaning towards a narrative that companies can continue to grow profits, despite the combined pressures of higher energy prices and supply chain disruptions,” said Michael Hewson, chief market analyst at CMC Markets in London. Bitcoin and the crypto sector jumped after Bloomberg reported late on Thursday that the Securities and Exchange Commission is poised to allow the first U.S. Bitcoin futures exchange-traded fund to begin trading in a watershed moment for the cryptocurrency industry. Bitcoin traded off session highs having tested $60k during Asian hours, but will likely rise to new all time highs shortly. Also overnight, Joe Biden signed a bill providing a short-term increase in the debt limit, averting the imminent threat of a financial calamity. But it only allows the Treasury Department to meets its financial obligations until roughly Dec. 3, so the can has been kicked for less than two months - brace for more bitter partisan battles in the coming weeks. This week’s move into rate-sensitive FAAMG growth names looked set to continue, with their shares inching up. Moderna rose 3.0% after a U.S. FDA panel voted to recommend booster shots of its COVID-19 vaccine for Americans aged 65 and older and high-risk people. Western Digital slipped 2.5% as Goldman Sachs downgraded the storage hardware maker’s stock to “neutral” from “buy”. Here are some of the key premarket movers on Friday morning: Virgin Galactic (SPCE US) shares slump as much as 23% in U.S. premarket trading as the firm is pushing the start of commercial flights further into next year after rescheduling a test flight, disappointing investors with the unexpected delay to its space tourism business plans Cryptocurrency-exposed stocks rise in U.S. premarket trading after a report that the Securities and Exchange Commission is poised to allow the first U.S. Bitcoin futures exchange-traded fund to begin trading.  Bit Digital (BTBT US) +6.7%, Riot Blockchain (RIOT US) +4.6%, Marathon Digital (MARA US) +3.6% Alcoa (AA US) shares jump 5.6% in thin volumes after co. reported profits that beat the average analyst estimate and said it will be paying a dividend to its shareholders Moderna (MRNA US) extends Thursday’s gains; Piper Sandler recommendation on Moderna Inc. to overweight from neutral, a day after co.’s Covid-19 booster got FDA nod for use in older, high-risk people Duck Creek Technologies (DCT US) shares fell 12% in Thursday postmarket trading after the software company projected 2022 revenue that fell short of the average analyst estimate 23andMe Holdings (ME US) soared 14% in Thursday postmarket trading after EMJ Capital founder Eric Jackson called the genetics testing company “the next Roku” on CNBC Corsair Gaming (CRSR US) shares fell 3.7% in post-market trading after it cut its net revenue forecast for the full year Early on Friday, China's PBOC broke its silence on Evergrande, saying risks to the financial system are controllable and unlikely to spread. Authorities and local governments are resolving the situation, central bank official Zou Lan said. The bank has asked lenders to keep credit to the real estate sector stable and orderly. In Europe, gains for banks, travel companies and carmakers outweighed losses for utilities and telecommunications industries, pushing the Stoxx Europe 600 Index up 0.3%. Telefonica fell 3.3%, the most in more than four months, after Barclays cut the Spanish company to underweight. Temenos and Pearson both slumped more than 10% after their business updates disappointed investors. Here are some of the biggest European movers today: Devoteam shares rise as much as 25% after its controlling shareholder, Castillon, increased its stake in the IT consulting group to 85% and launched an offer for the remaining capital. QinetiQ rises as much as 5.4% following a plunge in the defense tech company’s stock on Thursday. Investec upgraded its recommendation to buy and Berenberg said the shares now look oversold. Hugo Boss climbs as much as 4.4% to the highest level since September 2019 after the German apparel maker reported 3Q results that exceeded expectations. Jefferies (hold) noted the FY guidance hike also was bigger than expected. Mediclinic rises as much as 7.7% to highest since May 26 after 1H results, which Morgan Stanley says showed strong underlying operating performance with “solid metrics.” Temenos sinks as much as 14% after the company delivered a “mixed bag” with its 3Q results, according to Baader (sell). Weakness in Europe raises questions about the firm’s outlook for a recovery in the region, the broker said. Pearson declines as much as 12%, with analysts flagging weaker trading in its U.S. higher education courseware business in its in-line results. Earlier in the session, Asian stocks headed for their best week in more than a month amid a list of positive factors including robust U.S. earnings, strong results at Taiwan Semiconductor Manufacturing Co. and easing home-loan restrictions in China.  The MSCI Asia Pacific Index gained as much as 1.3%, pushing its advance this week to more than 1.5%, the most since the period ended Sept. 3. Technology shares provided much of the boost after chip giant TSMC announced fourth-quarter guidance that beat analysts’ expectations and said it will build a fabrication facility for specialty chips in Japan. Shares in China rose as people familiar with the matter said the nation loosened restrictions on home loans at some of its largest banks.  Conditions are good for tech and growth shares now long-term U.S. yields have fallen following inflation data this week, Shogo Maekawa, a strategist at JPMorgan Asset Management in Tokyo. “If data going forward are able to provide an impression that demand is strong too -- on top of a sense of relief from easing supply chain worries -- it’ll be a reason for share prices to take another leap higher.”  Asia’s benchmark equity gauge is still 10% below its record-high set in February, as analysts stay on the lookout for higher bond yields and the impact of supply-chain issues on profit margins.  Japanese stocks rose, with the Topix halting a three-week losing streak, after Wall Street rallied on robust corporate earnings. The Topix rose 1.9% to close at 2,023.93, while the Nikkei 225 advanced 1.8% to 29,068.63. Keyence Corp. contributed the most to the Topix’s gain, increasing 3.7%. Out of 2,180 shares in the index, 1,986 rose and 155 fell, while 39 were unchanged. For the week, the Topix climbed 3.2% and the Nikkei added 3.6%. Semiconductor equipment and material makers rose after TSMC said it will build a fabrication facility for specialty chips in Japan and plans to begin production there in late 2024.  U.S. index futures held gains during Asia trading hours. The contracts climbed overnight after a report showed applications for state unemployment benefits fell last week to the lowest since March 2020.  “U.S. initial jobless claims fell sharply, and have returned to levels seen before the spread of the coronavirus,” said Nobuhiko Kuramochi, a market strategist at Mizuho Securities in Tokyo. “The fact that more people are returning to their jobs will help ease supply chain problems caused by the lack of workers.” Australian stocks also advanced, posting a second week of gains. The S&P/ASX 200 index rose 0.7% to close at 7,362.00, with most sectors ending higher.  The benchmark added 0.6% since Monday, climbing for a second week. Miners capped their best week since July 16 with a 3% advance. Hub24 jumped on Friday after Evans & Partners upgraded the stock to positive from neutral. Pendal Group tumbled after it reported net outflows for the fourth quarter of A$2.3 billion. In New Zealand, the S&P/NZX 50 index fell 0.3% to 13,012.19 In rates, the U.S. 10-year Treasury yield rose over 3bps to 1.54%. Treasuries traded heavy across long-end of the curve into early U.S. session amid earning-driven gains for U.S. stock futures. Yields are higher by more than 3bp across long-end of the curve, 10- year by 2.8bp at about 1.54%, paring its first weekly decline since August; weekly move has been led by gilts and euro-zone bonds, also under pressure Friday, with U.K. 10-year yields higher by 3.3bp. Today's bear-steepening move pares the weekly bull-flattening trend. U.S. session features a packed economic data slate and speeches by Fed’s Bullard and Williams.   In FX, the Bloomberg Dollar Spot Index was little changed even as the greenback weakened against most of its Group-of-10 peers; the euro hovered around $1.16 while European and U.S. yields rose, led by the long end. Norway’s krone led G-10 gains as oil jumped to $85 a barrel for the first time since late 2018 amid the global energy crunch; the currency rallied by as much as 0.6% to 8.4015 per dollar, the strongest level since June. New Zealand’s dollar advanced to a three-week high as bets on RBNZ’s tightening momentum build ahead of Monday’s inflation data; the currency is outperforming all G-10 peers this week. The yen dropped to a three-year low as rising equities in Asia damped demand for low-yielding haven assets. China’s offshore yuan advanced to its highest in four months while short-term borrowing costs eased after the central bank added enough medium-term funds into the financial system to maintain liquidity at existing levels. In commodities, crude futures trade off best levels. WTI slips back below $82, Brent fades after testing $85. Spot gold slips back through Thursday’s lows near $1,786/oz. Base metals extend the week’s rally with LME nickel and zinc gaining over 2%. Today's retail sales report, due at 08:30 a.m. ET, is expected to show retail sales fell in September amid continued shortages of motor vehicles and other goods. The data will come against the backdrop of climbing oil prices, labor shortages and supply chain disruptions, factors that have rattled investors and have led to recent choppiness in the market. Looking at the day ahead now, and US data releases include September retail sales, the University of Michigan’s preliminary consumer sentiment index for October, and the Empire State manufacturing survey for October. Central bank speakers include the Fed’s Bullard and Williams, and earnings releases include Charles Schwab and Goldman Sachs. Market Snapshot S&P 500 futures up 0.3% to 4,443.75 STOXX Europe 600 up 0.4% to 467.66 German 10Y yield up 2.4 bps to -0.166% Euro little changed at $1.1608 MXAP up 1.3% to 198.33 MXAPJ up 1.2% to 650.02 Nikkei up 1.8% to 29,068.63 Topix up 1.9% to 2,023.93 Hang Seng Index up 1.5% to 25,330.96 Shanghai Composite up 0.4% to 3,572.37 Sensex up 0.9% to 61,305.95 Australia S&P/ASX 200 up 0.7% to 7,361.98 Kospi up 0.9% to 3,015.06 Brent Futures up 1.0% to $84.83/bbl Gold spot down 0.5% to $1,787.54 U.S. Dollar Index little changed at 93.92 Top Overnight News from Bloomberg China’s central bank broke its silence on the crisis at China Evergrande Group, saying risks to the financial system stemming from the developer’s struggles are “controllable” and unlikely to spread The ECB has a good track record when it comes to flexibly deploying its monetary instruments and will continue that approach even after the pandemic crisis, according to policy maker Pierre Wunsch Italian Ministry of Economy and Finance says fourth issuance of BTP Futura to start on Nov. 8 until Nov. 12, according to a statement The world’s largest digital currency rose about 3% to more than $59,000 on Friday -- taking this month’s rally to over 35% -- after Bloomberg News reported the U.S. Securities and Exchange Commission looks poised to allow the country’s first futures-based cryptocurrency ETF Copper inventories available on the London Metal Exchange hit the lowest level since 1974, in a dramatic escalation of a squeeze on global supplies that’s sent spreads spiking and helped drive prices back above $10,000 a ton A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks traded higher amid tailwinds from the upbeat mood across global peers including the best day for the S&P 500 since March after strong US bank earnings, encouraging data and a decline in yields spurred risk appetite. The ASX 200 (+0.7%) was positive as the tech and mining sectors continued to spearhead the advances in the index in which the former took impetus from Wall St where the softer yield environment was conducive to the outperformance in tech, although mining giant Rio Tinto was among the laggards following weaker quarterly production results. The Nikkei 225 (+1.8%) was buoyed as exporters benefitted from the JPY-risk dynamic but with Fast Retailing failing to join in on the spoils despite an 88% jump in full-year net as its profit guidance underwhelmed with just 3% growth seen for the year ahead, while Taiwan's TAIEX (+2.2%) surged with the spotlight on TSMC earnings which reached a record high amid the chip crunch and with the Co. to also build a factory in Japan that could receive JPY 500bln of support from the Japanese government. The Hang Seng (+1.5%) and Shanghai Comp. (+0.4%) were initially indecisive amid the overhang from lingering developer default concerns although found some mild support from reports that China is to relax banks' mortgage limits through the rest of 2021. Focus was also on the PBoC which announced a CNY 500bln MLF operation, although this just matched the amount maturing this month and there are mixed views regarding prospects of a looming RRR cut with ANZ Bank's senior China strategist recently suggesting the potential for a 50bps cut in RRR or targeted MLF as early as today, although a recent poll showed analysts had pushed back their calls for a RRR cut from Q4 2021 to Q1 2022. Finally, 10yr JGBs marginally pulled back from this week’s advances after hitting resistance at the 151.50 level, with demand hampered amid the firm gains in Japanese stocks and the lack of BoJ purchases in the market today. Top Asian News Hong Kong Probes Going Concern Reporting of Evergrande U.S. Futures Hold Gains as Oil Hits 3-Year High: Markets Wrap Toyota Cuts November Outlook by 15% on Parts Shortage, Covid Yango Group Wires Repayment Fund for Onshore Bond Due Oct. 22 Bourses in Europe have held onto the modest gains seen at the cash open (Euro Stoxx 50 +0.4%; Stoxx 600 +0.3%), but the region is off its best levels with the upside momentum somewhat faded heading into the US open, and amidst a lack of fresh newsflow. US equity futures have remained in positive territory, although the latest leg lower in bonds has further capped the tech-laden NQ (+0.2%), which underperforms vs the ES (+0.3%), YM (+0.3%) and RTY (+0.7%), with traders on the lookout for another set of earnings, headlined by Goldman Sachs at 12:25BST/07:25EDT. Back to Europe, bourses see broad-based gains, whilst sectors are mostly in the green with clear underperformance experienced in defensives, with Telecoms, Utilities, Healthcare and Staples at the foot of the bunch. On the flipside, Banks reap rewards from the uptick in yields, closely followed by Travel & Leisure, Autos & Parts and Retail. Renault (+4%) drives the gains in Autos after unveiling a prototype version of the Renault Master van that will go on sale next year. Travel & Leisure is bolstered by the ongoing reopening trade with potential tailwinds heading into the Christmas period. Retail meanwhile is boosted by Hugo Boss (+1.8%) topping forecasts and upgrading its guidance. Top European News Autumn Heat May Curb European Gas Demand, Prices Next Week Bollore Looking for Buyers for Africa Logistics Ops: Le Monde U.K. Offers Foreign Butchers Visas After 6,000 Pigs Culled Europe’s Car-Sales Crash Points to Worse Year Than Poor 2020 In FX, the Greenback was already losing momentum after a relatively tame bounce on the back of Thursday’s upbeat US initial claims data, and the index failed to sustain its recovery to retest intraday highs or remain above 94.000 on a closing basis. However, the Buck did reclaim some significant and psychological levels against G10, EM currencies and Gold that was relishing the benign yield environment and the last DXY price was marginally better than the 21 DMA from an encouraging technical standpoint. Nevertheless, the Dollar remains weaker vs most majors and in need of further impetus that may come via retail sales, NY Fed manufacturing and/or preliminary Michigan Sentiment before the spotlight switches to today’s Fed speakers featuring arch hawk Bullard and the more neutral Williams. GBP/NZD/NOK - Sterling has refuelled and recharged regardless of the ongoing UK-EU rift over NI Protocol, though perhaps in part due to the fact that concessions from Brussels are believed to have been greeted with welcome surprise by some UK Ministers. Cable has reclaimed 1.3700+ status, breached the 50 DMA (at 1.3716 today) and yesterday’s best to set a marginal new w-t-d peak around 1.3739, while Eur/Gbp is edging closer to 0.8450 having clearly overcome resistance at 1.1800 in the reciprocal cross. Similarly, the Kiwi continues to derive impetus from the softer Greenback and Aud/Nzd flows as Nzd/Usd extends beyond 0.7050 and the Antipodean cross inches nearer 1.0500 from 1.0600+ highs. Elsewhere, the Norwegian Crown is aiming to add 9.7500 to its list of achievements relative to the Euro with a boost from Brent topping Usd 85/brl at one stage and a wider trade surplus. CAD - The Loonie is also profiting from oil as WTI crude rebounds through Usd 82 and pulling further away from 1.5 bn option expiry interest between 1.2415-00 in the process, with Usd/Cad towards the base of 1.2337-82 parameters. EUR/AUD/CHF/SEK - All narrowly mixed and rangy vs the Greenback, or Euro in the case of the latter, as Eur/Usd continues to straddle 1.1600, Aud/Usd churn on the 0.7400 handle, the Franc meander from 0.9219 to 0.9246 and Eur/Sek skirt 10.0000 having dipped below the round number briefly on Thursday. In commodities, WTI and Brent front month futures remain on a firmer footing, aided up the overall constructive risk appetite coupled with some bullish technical developments, as WTI Nov surpassed USD 82/bbl (vs 81.39/bbl low) and Brent Dec briefly topped USD 85/bbl (vs 84.16/bbl low). There has been little in terms of fresh fundamental catalysts to drive the price action, although Russia's Gazprom Neft CEO hit the wires earlier and suggested that reserve production capacity could meet the increase in oil demand, whilst a seasonal decline in oil consumption is possible and the oil market will stabilise in the nearest future. On the Iranian JCPOA front, Iran said it is finalising steps to completing its negotiating team but they are absolutely decided to go back to Vienna discussions and conclude the negotiations, WSJ's Norman. The crude complex seems to have (for now) overlooked reports that the White House is engaged in diplomacy" with OPEC+ members regarding output. UK nat gas prices were higher as European players entered the fray, but prices have since waned off best levels after Russian Deputy PM Novak suggested that gas production in Russia is running at maximum capacity. Elsewhere, spot gold has been trundling amid yield-play despite lower despite the Buck being on the softer side of today’s range. Spot gold failed to hold onto USD 1,800/oz status yesterday and has subsequently retreated below its 200 DMA (1,794/oz) and makes its way towards the 50 DMA (1,776/oz). LME copper prices are on a firmer footing with prices back above USD 10,000/t – supported by technicals and the overall risk tone, although participants are cognizant of potential Chinese state reserves releases. Conversely, Dalian iron ore futures fell for a third straight session, with Rio Tinto also cutting its 2021 iron ore shipment forecasts due to dampened Chinese demand. US Event Calendar 8:30am: Sept. Retail Sales Advance MoM, est. -0.2%, prior 0.7% 8:30am: Sept. Retail Sales Ex Auto MoM, est. 0.5%, prior 1.8% 8:30am: Sept. Retail Sales Control Group, est. 0.5%, prior 2.5% 8:30am: Sept. Retail Sales Ex Auto and Gas, est. 0.3%, prior 2.0% 8:30am: Oct. Empire Manufacturing, est. 25.0, prior 34.3 8:30am: Sept. Import Price Index MoM, est. 0.6%, prior -0.3%; YoY, est. 9.4%, prior 9.0% 8:30am: Sept. Export Price Index MoM, est. 0.7%, prior 0.4%; YoY, prior 16.8% 10am: Aug. Business Inventories, est. 0.6%, prior 0.5% 10am: Oct. U. of Mich. 1 Yr Inflation, est. 4.7%, prior 4.6%; 5-10 Yr Inflation, prior 3.0% 10am: Oct. U. of Mich. Sentiment, est. 73.1, prior 72.8 10am: Oct. U. of Mich. Current Conditions, est. 81.2, prior 80.1 10am: Oct. U. of Mich. Expectations, est. 69.1, prior 68.1 DB's Jim Ried concludes the overnight wrap A few people asked me what I thought of James Bond. I can’t say without spoilers so if anyone wants my two sentence review I will cut and paste it to all who care and reply! At my age I was just impressed I sat for over three hours (including trailers) without needing a comfort break. By the time you email I will have also listened to the new Adele single which dropped at midnight so happy to include that review as well for free. While we’re on the subject of music, risk assets feel a bit like the most famous Chumbawamba song at the moment. They get knocked down and they get up again. Come to think about it that’s like James Bond too. Yesterday was a strong day with the S&P 500 (+1.71%) moving back to within 2.2% of its all-time closing high from last month. If they can survive all that has been thrown at them of late then one wonders where they’d have been without any of it. The strong session came about thanks to decent corporate earnings releases, a mini-collapse in real yields, positive data on US jobless claims, as well as a further fall in global Covid-19 cases that leaves them on track for an 8th consecutive weekly decline. However, inflation remained very much on investors’ radars, with a range of key commodities taking another leg higher, even as US data on producer prices was weaker than expected. Starting with the good news, the equity strength was across the board with the S&P 500 experiencing its best daily performance since March, whilst Europe’s STOXX 600 (+1.20%) also put in solid gains. It was an incredibly broad-based move higher, with every sector group in both indices rising on the day, with a remarkable 479 gainers in the S&P 500, which is the second-highest number we’ve seen over the last 18 months. Every one of the 24 S&P 500 industry groups rose, led by cyclicals such as semiconductors (+3.12%), transportation (+2.51%) and materials (+2.43%). A positive start to the Q3 earnings season buoyed sentiment, as a number of US banks (+1.45%) reported yesterday, all of whom beat analyst estimates. In fact, of the nine S&P 500 firms to report yesterday, eight outperformed analyst expectations. Weighing in on recent macro themes, Bank of America Chief, Brian Moynihan, noted that the current bout of inflation is “clearly not temporary”, but also that he expects consumer demand to remain robust and that supply chains will have to adjust. I’m sure we’ll hear more from executives as earnings season continues today. Alongside those earnings releases, yesterday saw much better than expected data on the US labour market, which makes a change from last week’s underwhelming jobs report that showed the slowest growth in nonfarm payrolls so far this year. In terms of the details, the weekly initial jobless claims for the week through October 9, which is one of the most timely indicators we get, fell to a post-pandemic low of 293k (vs. 320k expected). That also saw the 4-week moving average hit a post-pandemic low of 334.25k, just as the continuing claims number for the week through October 2 hit a post-pandemic low of 2.593m (vs. 2.670m expected). We should get some more data on the state of the US recovery today, including September retail sales, alongside the University of Michigan’s consumer sentiment index for October. That optimism has fed through into Asian markets overnight, with the Nikkei (+1.43%), the Hang Seng (+0.86%), the Shanghai Comp (+0.29%) and the KOSPI (+0.93%) all moving higher. That came as Bloomberg reported that China would loosen restrictions on home loans amidst the concerns about Evergrande. And we also got formal confirmation that President Biden had signed the debt-limit increase that the House had passed on Tuesday, which extends the ceiling until around December 3. Equity futures are pointing to further advances in the US and Europe later on, with those on the S&P 500 (+0.30%) and the STOXX 50 (+0.35%) both moving higher. Even with the brighter news, inflation concerns are still very much with us however, and yesterday in fact saw Bloomberg’s Commodity Spot Index (+1.16%) advance to yet another record high, exceeding the previous peak from early last week. That was partly down to the continued rise in oil prices, with WTI (+1.08%) closing at $81.31/bbl, its highest level since 2014, just as Brent Crude (+0.99%) hit a post-2018 high of $84.00/bbl. Both have posted further gains this morning of +0.58% and +0.61% respectively. Those moves went alongside further rises in natural gas prices, which rose for a 3rd consecutive session, albeit they’re still beneath their peak from earlier in the month, as futures in Europe (+9.14%), the US (+1.74%) and the UK (+9.26%) all moved higher. And that rise in Chinese coal futures we’ve been mentioning also continued, with their rise today currently standing at +13.86%, which brings their gains over the week as a whole to +39.02% so far. As well as energy, industrial metals were another segment where the recent rally showed no sign of abating yesterday. On the London metal exchange, a number of multi-year milestones were achieved, with aluminum prices (+1.60%) up to their highest levels since 2008, just as zinc prices (+3.73%) closed at their highest level since 2018. Separately, copper prices (+2.56%) hit a 4-month high, and other winners yesterday included iron ore futures in Singapore (+1.16%), as well as nickel (+1.99%) and lead (+2.43%) prices in London. With all this momentum behind commodities, inflation expectations posted further advances yesterday. Indeed, the 10yr US Breakeven closed +1.0bps higher at 2.536%, which is just 3bps shy of its closing peak back in May that marked its highest level since 2013. And those moves came in spite of US producer price data that came in weaker than expected, with the monthly increase in September at +0.5% (vs. +0.6% expected). That was the smallest rise so far this year, though that still sent the year-on-year number up to +8.6% (vs. +8.7% expected). That rise in inflation expectations was echoed in Europe too, with the 10yr UK breakeven (+5.6bps) closing at its highest level since 2008, whilst its German counterpart also posted a modest +0.7bps rise. In spite of the rise in inflation expectations, sovereign bonds posted gains across the board as the moves were outweighed by the impact of lower real rates. By the end of yesterday’s session, yields on 10yr Treasuries were down -2.6bps to 1.527%, which came as the 10yr real yield moved back beneath -1% for the first time in almost a month. Likewise in Europe, yields pushed lower throughout the session, with those on 10yr bunds (-6.3bps), OATs (-6.2bps) and BTPs (-7.1bps) all moving aggressively lower. To the day ahead now, and US data releases include September retail sales, the University of Michigan’s preliminary consumer sentiment index for October, and the Empire State manufacturing survey for October. Central bank speakers include the Fed’s Bullard and Williams, and earnings releases include Charles Schwab and Goldman Sachs. Tyler Durden Fri, 10/15/2021 - 07:50.....»»

Category: personnelSource: nytOct 15th, 2021

Rabobank: The Problem Is No Central Bank Can Bail Out The Physical Economy From Shortages

Rabobank: The Problem Is No Central Bank Can Bail Out The Physical Economy From Shortages By Michael Every of Rabobank Back in the days before infinite liquidity and markets being in love with the idea of being big just for the sake of it, there used to be discussion about the difference between extensive and intensive growth. Put simply, extensive growth is achieved by adding more inputs to get more output; intensive growth is achieved by getting more output from existing inputs - what we call ‘productivity’. Back in the old days, we used to have that too. Extensive vs. intensive comes to mind on the back of yet another stronger-than-expected US inflation print (0.4% m/m, 5.4% y/y; 0.2% m/m core, 4.0% y/y). This was followed by the White House announcing early results of its supply chain task force. The longshoreman and the short is: the Port of LA is expanding to 24/7 operation; the union has announced they are willing to work extra shifts; and large US companies are announcing they will use expanded hours to move more cargo off the docks, so ships can come to shore faster. So, crisis over? Not at all, in the view of supply-chain experts. Well before this announcement they had pointed out --as did we, in ‘In Deep Ship’-- that simply getting containers out of the terminal at LA achieves very little if you don’t the solve chassis crisis; if the containers sit there waiting for trucks; or for truckers; or for rail. All you do is move the logjam from sea to shore - and that can potentially make matters worse. The Transportation Secretary running this task force is a vocal opponent of the ‘so build a bigger road’ mentality that ends up with bigger roads and the same traffic logjam. This is the same policy idea without even spending on the cement and asphalt. Some are also asking why the White House bafflingly still hasn’t appointed a US Maritime Administrator yet. Others are asking how trying to facilitate more imports into the US, rather than banging the drum for localization and ‘just in case’, is compatible with Build Back Better and resiliency. But there is bipartisanship in failing to understand what is going wrong, and how to solve it. Florida Governor De Santis is offering his state’s ports as an alternative to LA when it isn’t practical; and a Californian Republican just introduced the SHIP Act to Congress to “ban cargo ships from idling or anchoring in the coastal waters of Southern California for the next 180 days”, so forcing dozens of vessels to hang around in the ocean for months rather than safely offshore. In short, we are seeing a lot of moving faster, and very little moving smarter. The Grinch will easily steal Xmas, and far more, at this rate.    Sailing on regardless, the FOMC minutes from the September 21-22 meeting said that an illustrative path of QE tapering designed to be simple to communicate and entailing a gradual, fixed reduction in net asset purchases of $10bn Treasuries and $5bn agency MBS, ending around the middle of next year, is seen as providing a straightforward and appropriate template that policymakers might follow. Of course, the Fed also noted that it could adjust the pace of tapering if economic developments were to differ substantially from what they expected – like both inflation and employment has so far, to no effect. In short, the Fed announced tapering in just a few weeks (November 3), and then actually start to taper from either mid-November or mid-December. Isn’t that fitting in a way? After all, there will almost certainly be far less *stuff* circulating in the US economy, so shouldn’t we match that with far less liquidity? Before you say yes, if you believe the Fed actually think like that, I have a port in New Mexico to sell you. They clearly have stock portfolios to worry about instead. Meanwhile, it wouldn’t be a day ending in a y without a new global supply-chain disruption. This time China is to stop exporting refined fuel. This is just as the rest of Asia is set to consume more, as it begins to open up again. As Bloomberg puts it, quoting Oilchem: “State-owned refiners are earning more from local sales”. Which is where arguments about localization and resiliency begin to re-emerge, for some. Staying with energy, Chinese coal prices are hitting new highs again, with this now set to be passed on to industry; by contrast, the EU are talking about tax cuts to help industry and consumers cope with rising electricity prices! Isn’t this strategy, albeit via wage increases, what we tried and failed with in the 1970s? It’s not that this is necessarily the wrong thing to do to avoid recession risks and social unrest – but it will only push prices even higher, and strain supply chains even more. Indeed, while all the headlines about the IEA’s annual energy report yesterday are naturally that we need to more than redouble our efforts to shift towards renewables, if you read the nastier details, there is also a need for massive investment in fossil fuels through to 2030. If that doesn’t arrive, high energy prices are here to stay, seems to be the message: like Xmas gifts, is it on the way though? And to some places, or everywhere? After slowing loan growth yesterday in China, and another far-higher-than-expected trade surplus, today saw Chinese inflation data. CPI came in at 0.7% y/y vs. 0.8% last month and the same expected for this. More importantly, PPI came in at 10.7% y/y vs. 9.5% last month and 10.5% expected. Recall that coal prices alone will push this series much, much higher ahead in theory. Staying with China, Bloomberg says “At this point, it’s no longer about salvaging the troubled China Evergrande Group or its billionaire chairman Hui Yan Ka from the debt crisis. It’s jobs, growth and, ultimately, social stability that are at stake. In other words, a bailout of the indebted developer may not be enough to underpin one of the world’s second-largest economy as payment defaults become contagious, a sales slump spreads to the whole sector, and more players see their ratings cut.” The argument is naturally parroted by Wall Street: sure, *pretend* to deal with asset bubbles, but you cannot really deal with them “because markets!” Yet Bloomberg also notes loosening policy slightly won’t change consumer psychology, and Beijing has made clear house prices are no longer going to be allowed to keep going up – so why buy a 2nd, 3rd, 4th home, etc., which accounted for 85% of recent home sales? So, we are looking at both deflation and inflation in China, vs. just inflation everywhere else. Moreover, we are back to extensive vs. intensive growth, which Wall Street no longer understands; just as it now fails to grasp Schumpeter; just as it utterly fails to read Marx. Don’t let that all stop the Street, or Chinese markets, perpetually pricing in bailouts and hockey sticks and “transitory” and Xmas every day, however. It’s all a generation of traders have known both East and West, so who can blame them? The problem is no central bank can bail out the physical economy from shortages. To wrap up, Aussie jobs data showed a -138K print, yet where unemployment went down to 4.6%, and only part-time jobs were apparently lost, not full-time. Extensive or intensive takes on such partial data are not really worth too much of anyone’s time. They certainly won’t be moving the RBA from not moving. Tyler Durden Thu, 10/14/2021 - 10:10.....»»

Category: blogSource: zerohedgeOct 14th, 2021

Futures Surge As Banks Report Stellar Earnings; PPI On Deck

Futures Surge As Banks Report Stellar Earnings; PPI On Deck US equity futures, already sharply higher overnight, jumped this morning as a risk-on mood inspired by stellar bank earnings, overshadowed concern that supply snarls. a China property crunch, a tapering Fed and stagflation will weigh on the global recovery. Nasdaq futures jumped 1%, just ahead of the S&P 500 which was up 0.9%. 10-year Treasury yields ticked lower to about 1.5%, and with the dollar lower as well, oil jumped. Bitcoin and the broader crypto space continued to rise. Shares in Morgan Stanley, Citi and Bank of America jumped as their deal-making units rode a record wave of M&A. On the other end, Boeing shares fell more than 1% after a Dow Jones report said the plane maker is dealing with a new defect on its 787 Dreamliner. Here are some of the biggest other U.S. movers today: Occidental (OXY US) rises 1.6% in U.S. premarket trading after it agreed to sell its interests in two Ghana offshore fields for $750m to Kosmos Energy and Ghana National Petroleum Plug Power (PLUG US) rises 3.3% premarket, extending gains from Wednesday, when it announced partnership with Airbus SE and Phillips 66 to find ways to harness hydrogen to power airplanes, vehicles and industry Esports Entertainment (GMBL US) shares rise 16% in U.S. premarket trading after the online gambling company reported its FY21 results and reaffirmed its FY22 guidance Perrigo  (PRGO US) gains 2.8% in premarket trading after Raymond James upgrades to outperform following acquisition of HRA Pharma and recent settlement of Irish tax dispute AT&T (T US) ticks higher in premarket trading after KeyBanc writes upgrades to sector weight from underweight, saying it seems harder to justify further downside from here Avis Budget (CAR US) may be active after getting its only negative rating among analysts as Morgan Stanley cuts to underweight with risk/reward seen pointing toward downside OrthoPediatrics (KIDS US) dipped 2% Wednesday postmarket after it said 3Q revenue was hurt by the surge in cases of Covid-19 delta variant and RSV within children’s hospitals combined with staff shortage Investors continue to evaluate the resilience of economic reopening to supply chain disruptions, a jump in energy prices and the prospect of reduced central bank support. In the earnings season so far, executives at S&P 500 companies mentioned the phrase “supply chain” about 3,000 times on investor calls as of Tuesday -- far higher than last year’s then-record figure. “Our constructive outlook for growth means that our asset allocation remains broadly pro-risk and we continue to be modestly overweight global equities,” according to Michael Grady, head of investment strategy and chief economist at Aviva Investors. “However, we have scaled back that position marginally because of growing pains which could impact sales and margins.” Europe's Stoxx 600 index reached its highest level in almost three weeks, boosted by gains in tech shares and miners. The Euro Stoxx 50 rose over 1% to best levels for the week. FTSE 100 rises 0.75%, underperforming at the margin. Miners and tech names are the strongest sectors with only healthcare stocks in small negative territory. Here are some of the biggest European movers today: THG shares advance as much as 10%, snapping a four-day losing streak, after a non-executive director bought stock while analysts at Goldman Sachs and Liberum defended their buy recommendations. Steico gains as much as 9.9%, the most since Jan., after the insulation manufacturer reported record quarterly revenue, which Warburg says “leaves no doubt” about underlying market momentum. Banco BPM climbs as much as 3.6% and is the day’s best performer on the FTSE MIB benchmark index; bank initiated at buy at Jefferies as broker says opportunity to internalize insurance business offers 9%-16% possible upside to 2023 consensus EPS and is not priced in by the market. Hays rises as much as 4.3% after the recruiter posted a jump in comparable net fees for the first quarter. Publicis jumps as much as 3.7%, the stock’s best day since July, with JPMorgan saying the advertising company’s results show a “strong” third quarter, though there are risks ahead. Kesko shares rise as much as 6.1%. The timing of this year’s third guidance upgrade was a surprise, Inderes says. Ubisoft shares fall as much as 5.5% after JPMorgan Cazenove (overweight) opened a negative catalyst watch, citing short-term downside risk to earnings ahead of results. Earlier in the session, Asian stocks advanced, boosted by a rebound in technology shares as traders focused on the ongoing earnings season and assessed economic-reopening prospects in the region. The MSCI Asia Pacific Index gained as much as 0.7%, as a sub-gauge of tech stocks rose, halting a three-day slide. Tokyo Electron contributed the most to the measure’s climb, while Taiwan Semiconductor Manufacturing Co. closed up 0.4% ahead of its earnings release. India’s tech stocks rose following better-than-expected earnings for three leading firms in the sector. Philippine stocks were among Asia’s best performers as Manila began easing virus restrictions, which will allow more businesses in the capital to reopen this weekend. Indonesia’s stock benchmark rallied for a third-straight day, as the government prepared to reopen Bali to tourists. READ: Commodities Boom, Tourism Hopes Fuel Southeast Asia Stock Rally Ilya Spivak, head of Greater Asia at DailyFX, said FOMC minutes released overnight provided Asian markets with little direction, which may offer some opportunity for recouping recent losses. The report showed officials broadly agreed last month they should start reducing pandemic-era stimulus in mid-November or mid-December. U.S. 10-year Treasury yields stayed below 1.6%, providing support for tech stocks.  “Markets seemed to conclude the near-term narrative is on pause until further evidence,” Spivak said. Shares in mainland China fell as the country reported factory-gate prices grew at the fastest pace in almost 26 years in September. Singapore’s stock benchmark pared initial losses as the country’s central bank unexpectedly tightened policy. Hong Kong’s equity market was closed for a holiday In rates, Treasuries were steady to a tad higher, underperforming Bunds which advanced, led by the long end.  Fixed income is mixed: gilts bull steepen with short dates richening ~2.5bps, offering only a muted reaction to dovish commentary from BOE’s Tenreyro. Bunds rise with 10y futures breaching 169. USTs are relatively quiet with 5s30s unable to crack 100bps to the upside. Peripheral spreads widen slightly. In FX, the Turkish lira was again the overnight standout as it weakened to a record low after President Recep Tayyip Erdogan fired three central bankers. The Bloomberg Dollar Spot Index fell and the greenback slipped against all of its Group-of-10 peers apart from the yen, with risk-sensitive and resource-based currencies leading gains; the euro rose to trade above $1.16 for the first time in a week.  The pound rose to more than a two-week high amid dollar weakness as traders wait for a raft of Bank of England policy makers to speak. Sweden’s krona temporarily came off an almost eight-month high against the euro after inflation fell short of estimates. The euro dropped to the lowest since November against the Swiss franc as banks targeted large option barriers and leveraged sell-stops under 1.0700, traders said; Currency traders are responding to stagflation risks by turning to the Swiss franc. The Aussie advanced to a five-week high versus the greenback even as a monthly jobs report showed employment fell in September; the jobless rate rose less than economists forecast. The kiwi was a among the top performers; RBNZ Deputy Governor Geoff Bascand said inflation pressures were becoming more persistent China’s yuan declined from a four-month high after the central bank signaled discomfort with recent gains by setting a weaker-than-expected reference rate. In commodities, crude futures extend Asia’s gains with WTI up ~$1 before stalling near $81.50. Brent regains a $84-handle. Spot gold drifts through Wednesday’s highs, adding $4 to print just shy of the $1,800/oz mark. Base metals are well bid with LME copper and aluminum gaining as much as 3%.  Looking at the day ahead, we’ve got central bank speakers including the Fed’s Bullard, Bostic, Barkin, Daly and Harker, the ECB’s Elderson and Knot, along with the BoE’s Deputy Governor Cunliffe, Tenreyro and Mann. Data releases from the US include the September PPI reading along with the weekly initial jobless claims. Lastly, earnings releases will include UnitedHealth, Bank of America, Wells Fargo, Morgan Stanley, Citigroup, US Bancorp and Walgreens Boots Alliance. Market Snapshot S&P 500 futures up 0.6% to 4,382.50 STOXX Europe 600 up 0.9% to 464.38 MXAP up 0.7% to 196.12 MXAPJ up 0.6% to 642.66 Nikkei up 1.5% to 28,550.93 Topix up 0.7% to 1,986.97 Hang Seng Index down 1.4% to 24,962.59 Shanghai Composite little changed at 3,558.28 Sensex up 0.7% to 61,190.63 Australia S&P/ASX 200 up 0.5% to 7,311.73 Kospi up 1.5% to 2,988.64 Brent Futures up 1.0% to $83.98/bbl Gold spot up 0.2% to $1,796.13 U.S. Dollar Index down 0.25% to 93.84 German 10Y yield fell 1.5 bps to -0.143% Euro little changed at $1.1615 Brent Futures up 1.0% to $84.13/bbl Top Overnight News from Bloomberg A flattening Treasury yield curve signals increasing concern Federal Reserve efforts to keep inflation in check will derail the recovery in the world’s largest economy China’s factory-gate prices grew at the fastest pace in almost 26 years in September, potentially adding to global inflation pressure if local businesses start passing on higher costs to consumers. Turkish President Recep Tayyip Erdogan fired monetary policy makers wary of cutting interest rates further, driving the lira to record lows against the dollar with his midnight decree Singapore’s central bank unexpectedly tightened its monetary policy settings, strengthening the local dollar, as the city-state joins policymakers globally concerned about risks of persistent inflation Shortages of natural gas in Europe and Asia are boosting demand for oil, deepening what was already a sizable supply deficit in crude markets, the International Energy Agency said A tropical storm that’s lashing southern China mixed with Covid-related supply chain snarls is causing a ship backlog from Shenzhen to Singapore, intensifying fears retail shelves may look rather empty come Christmas A more detailed look at global markets courtesy of Newsquawk A constructive mood was seen across Asia-Pac stocks with the region building on the mild positive bias stateside where the Nasdaq outperformed as tech and growth stocks benefitted from the curve flattening, with global risk appetite unfazed by the firmer US CPI data and FOMC Minutes that suggested the start of tapering in either mid-November of mid-December. The ASX 200 (+0.5%) traded higher as tech stocks found inspiration from the outperformance of US counterparts and with the mining sector buoyed by gains in underlying commodity prices. The Nikkei 225 (+1.5%) was the biggest gainer amid currency-related tailwinds and with the latest securities flow data showing a substantial shift by foreign investors to net purchases of Japanese stocks during the prior week. The KOSPI (+1.5%) conformed to the brightening picture amid signs of a slowdown in weekly infections, while the Singapore’s Straits Times Index (+0.3%) lagged for most of the session following weaker than expected Q3 GDP data, and after the MAS surprisingly tightened its FX-based policy by slightly raising the slope of the SGD nominal effective exchange rate (NEER). The Shanghai Comp. (U/C) was initially kept afloat but with gains capped after slightly softer than expected loans and financing data from China and with participants digesting mixed inflation numbers in which CPI printed below estimates but PPI topped forecasts for a record increase in factory gate prices, while there was also an absence of Stock Connect flows with participants in Hong Kong away for holiday. Finally, 10yr JGBs were higher after the recent curve flattening stateside and rebound in T-notes with the US longer-end also helped by a solid 30yr auction, although gains for JGBs were capped amid the outperformance in Tokyo stocks and mostly weaker metrics at the 5yr JGB auction. Top Asian News Chinese Developer Shares Fall on Debt Crisis: Evergrande Update Japan’s Yamagiwa Says Abenomics Fell Short at Spreading Wealth China Seen Rolling Over Policy Loans to Keep Liquidity Abundant Malaysia’s 2020 Fertility Rate Falls to Lowest in Four Decades Bourses in Europe have modestly extended on the upside seen at the European cash open (Euro Stoxx 50 +1.1%; Stoxx 600 +0.9%) in a continuation of the firm sentiment experienced overnight. US equity futures have also conformed to the broader upbeat tone, with gains seen across the ES (+0.7%), NQ (+0.8%), RTY (+0.8%) and YM (+0.7%). The upside comes despite a lack of overly pertinent newsflow, with participants looking ahead to a plethora of central bank speakers. The major indices in Europe also see a broad-based performance, but the periphery narrowly outperforms, whilst the SMI (Unch) lags amid the sectorial underperformance seen in Healthcare. Overall, the sectors portray somewhat of a cyclical tilt. The Basic Resources sector is the clear winner and is closely followed by Tech and Financial Services. Individual moves are scarce as price action is largely dictated by the macro picture, but the tech sector is led higher by gains in chip names after the world's largest contract chipmaker TSMC (+3.1% pre-market) reported strong earnings and upgraded its revenue guidance. Top European News German 2021 Economic Growth Forecast Slashed on Supply Crunch U.K. Gas Shipper Stops Supplies in Another Blow to Power Firms Christmas Toy Shortages Loom as Cargo Clogs a Major U.K. Port Putin Is Back to Building Financial Fortress as Reserves Grow In FX, the Dollar and index by default have retreated further from Tuesday’s 2021 peak for the latter as US Treasury yields continue to soften and the curve realign in wake of yesterday’s broadly in line CPI data and FOMC minutes that set the schedule for tapering, but maintained a clear differential between scaling down the pace of asset purchases and the timing of rate normalisation. Hence, the Buck is losing bullish momentum with the DXY now eying bids and downside technical support under 94.000 having slipped beneath an early October low (93.804 from the 5th of the month vs 93.675 a day earlier) and the 21 DMA that comes in at 93.770 today between 94.090-93.754 parameters before the next IJC update, PPI data and a heavy slate of Fed speakers. NZD/AUD - No real surprise that the Kiwi has been given a new lease of life given that the RBNZ has already taken its first tightening step and put physical distance between the OCR and the US FFR, not to mention that the move sparked a major ‘sell fact’ after ‘buy rumour’ reaction. However, Nzd/Usd is back on the 0.7000 handle with additional impetus via favourable tailwinds down under as the Aud/Nzd cross is now nearer 1.0550 than 1.0600 even though the Aussie is also taking advantage of the Greenback’s fall from grace to reclaim 0.7400+ status. Note, Aud/Usd may be lagging somewhat on the back of a somewhat labour report overnight as the employment tally fell slightly short of expectations and participation dipped, but the jobless rate fell and full time jobs rose. Moreover, RBA Deputy Governor Debelle repeated that circumstances are different for Australia compared to countries where policy is tightening, adding that employment is positive overall, but there is not much improvement on the wage front. CAD/GBP/CHF - The next best majors in terms of reclaiming losses vs their US counterpart, with the Loonie also encouraged by a firm bounce in oil prices and other commodities in keeping with a general recovery in risk appetite. Usd/Cad is under 1.2400, while Cable is now over 1.3700 having clearly breached Fib resistance around 1.3663 and the Franc is probing 0.9200 for a big figure-plus turnaround from recent lows irrespective of mixed Swiss import and producer prices. EUR/JPY - Relative laggards, but the Euro has finally hurdled chart obstacles standing in the way of 1.1600 and gradually gathering impetus to pull away from decent option expiry interest at the round number and just above (1.5 bn and 1 bn 1.1610-20), and the Yen regrouping around the 113.50 axis regardless of dovish BoJ rhetoric. In short, board member Noguchi conceded that the Bank may have little choice but to extend pandemic relief support unless it becomes clear that the economy has returned to a pre-pandemic state, adding that more easing may be necessary if the jobs market does not improve from pent-up demand, though he doesn't see and immediate need to top up stimulus or big stagflation risk. In commodities, WTI and Brent front month futures are continuing the grind higher seen since the European close yesterday as the risk tone remains supportive and in the aftermath of an overall bullish IEA oil market report. The IEA upgraded its 2021 and 2022 oil demand forecasts by 170k and 210k BPD respectively, which contrasts the EIA STEO and the OPEC MOMR – with the former upping its 2021 but cutting 2022 forecast, whilst the OPEC MOMR saw the 2021 demand forecast cut and 2022 was maintained. The IEA report however noted that the ongoing energy crisis could boost oil demand by 500k BPD, and oil demand could exceed pre-pandemic levels in 2022. On this, China has asked Russia to double electricity supply between November-December. The morning saw commentary from various energy ministers, but perhaps the most telling from the Russian Deputy PM Novak who suggested Russia will produce 9.9mln BPD of oil in October (in-line with the quota), but that Russia has no problem in increasing oil output which can go to 11.3mln BPD (Russia’s capacity) and even more than that, but output will depend on market situation. Long story short, Russia can ramp up output but is currently caged by the OPEC+ pact. WTI Nov extended on gain about USD 81/bbl to a current high of USD 81.41/bbl (vs 80.41/bbl low) while its Brent counter topped USD 84.00/bbl to a USD 84.24/bbl high (vs 83.18/bbl low). As a reminder, the weekly DoEs will be released at 16:00BST/11:00EDT on account of the Columbus Day holiday. Gas prices have also moved higher in intraday, with the UK Nat Gas future +5.5% at the time of writing. Returning to the Russian Deputy PM Novak who noted that Nord Stream 2 will be ready for work in the next few days, still expects certification to occur and commercial supplies of gas via Nord Stream 2 could start following certification. Elsewhere, spot gold and silver have been drifting higher as the Buck wanes, with spot gold topping its 200 DMA (1,7995/oz) and in striking distance of its 100 DMA (1,799/oz) ahead of the USD 1,800/oz mark. Over to base metals, LME copper is again on a firmer footing, owing to the overall constructive tone across the market. Dalian iron ore meanwhile fell for a second straight day in a continuation of the downside seen as Beijing imposed tougher steel output controls for winter. World Steel Association also cut its global steel demand forecast to +4.5% in 2021 (prev. forecast +5.8%); +2.2% in 2022 (prev. forecast 2.7%). US Event Calendar 8:30am: Sept. PPI Final Demand MoM, est. 0.6%, prior 0.7%; YoY, est. 8.6%, prior 8.3% 8:30am: Sept. PPI Ex Food and Energy MoM, est. 0.5%, prior 0.6%; YoY, est. 7.1%, prior 6.7% 8:30am: Sept. PPI Ex Food, Energy, Trade MoM, est. 0.4%, prior 0.3%; YoY, est. 6.5%, prior 6.3% 8:30am: Oct. Initial Jobless Claims, est. 320,000, prior 326,000; Continuing Claims, est. 2.67m, prior 2.71m 9:45am: Oct. Langer Consumer Comfort, prior 53.4 Central Banks 8:35am: Fed’s Bullard Takes Part in Virtual Discussion 9:45am: Fed’s Bostic Takes Part in Panel on Inclusive Growth 12pm: New York Fed’s Logan Gives Speech on Policy Implementation 1pm: Fed’s Barkin Gives Speech 1pm: Fed’s Daly Speaks at Conference on Small Business Credit 6pm: Fed’s Harker Discusses the Economic Outlook DB's Jim Reid concludes the overnight wrap Inflation dominated the conversation yet again for markets yesterday, after another upside surprise from the US CPI data led to the increasing realisation that we’ll still be talking about the topic for some time yet. Equities were pretty subdued as they looked forward to the upcoming earnings season, but investor jitters were evident as the classic inflation hedge of gold (+1.87%) posted its strongest daily performance since March, whilst the US dollar (-0.46%) ended the session as the worst performer among the G10 currencies. Running through the details of that release, headline US consumer prices were up by +0.4% on a monthly basis in September (vs. +0.3% expected), marking the 5th time in the last 7 months that the figure has come in above the median estimate on Bloomberg, though core prices were in line with consensus at +0.2% month-over-month. There were a number of drivers behind the faster pace, but food inflation (+0.93%) saw its biggest monthly increase since April 2020. Whilst some pandemic-sensitive sectors registered soft readings, housing-related prices were much firmer. Rent of primary residence grew +0.45%, its fastest pace since May 2001 and owners’ equivalent rent increased +0.43%, its strongest since June 2006. These housing gauges are something that Fed officials have signposted as having the potential to provide more durable upward pressure on inflation. The CPI release only added to speculation that the Fed would be forced to hike rates earlier than previously anticipated, and investors are now pricing in almost 4 hikes by the end of 2023, which is over a full hike more than they were pricing in just a month earlier. In response, the Treasury yield curve continued the previous day’s flattening, with the prospect of tighter monetary policy seeing the 2yr yield up +2.0bps to a post-pandemic high of 0.358%, whilst the 10yr decreased -4.0bps to 1.537%. That move lower in the 10yr yield was entirely down to lower real rates, however, which were down -7.4bps, suggesting investors were increasingly concerned about long-term growth prospects, whereas the 10yr inflation breakeven was up +3.3bps to 2.525%, its highest level since May. Meanwhile in Europe, 10yr sovereign bond yields took a turn lower alongside Treasuries, with those on bunds (-4.2bps), OATs (-4.0bps) and BTPs (-2.3bps) all falling. Recent inflation dynamics and issues on the supply-side are something that politicians have become increasingly attuned to, and President Biden gave remarks last night where he outlined efforts to address the supply-chain bottlenecks. This followed headlines earlier in the session that major ports in southern California would move to a 24/7 schedule to unclog delivery backlogs, and Mr. Biden also used the opportunity to push for the passage of the infrastructure plan. That comes as it’s also been reported by Reuters that the White House has been speaking with US oil and gas producers to see how prices can be brought lower. We should hear from Mr. Biden again today, who’s due to give an update on the Covid-19 response. On the topic of institutions that care about inflation, the September FOMC minutes suggested staff still remained optimistic that inflationary pressures would prove transitory, although Committee members themselves were predictably more split on the matter. Several participants pointed out that pandemic-sensitive prices were driving most of the gains, while some expressed concerns that high rates of inflation would feed into longer-term inflation expectations. Otherwise, the minutes all but confirmed DB’s US economists’ call for a November taper announcement, with monthly reductions in the pace of asset purchases of $10 billion for Treasuries and $5 billion for MBS. Markets took the news in their stride immediately following the release, reflecting how the build-up to this move has been gradually telegraphed through the year. Turning to equities, the S&P 500 managed to end its 3-day losing streak, gaining +0.30% by the close. Megacap technology stocks led the way, with the FANG+ index up +1.13% as the NASDAQ added +0.73%. On the other hand, cyclicals such as financials (-0.64%) lagged behind the broader index following flatter yield curve, and JPMorgan Chase (-2.64%) sold off as the company’s Q3 earnings release showed muted loan growth. Separately, Delta Air Lines (-5.76%) also sold off along with the broader S&P 500 airlines index (-3.51%), as they warned that rising fuel costs would threaten earnings over the current quarter. European indices posted a more solid performance than the US, with the STOXX 600 up +0.71%, though the sectoral balance was similar with tech stocks outperforming whilst the STOXX Banks index (-2.05%) fell back from its 2-year high the previous session. Overnight in Asia equities have put in a mixed performance, with the KOSPI (+1.17%) and the Nikkei (+1.01%) moving higher whilst the Shanghai Composite (-0.25%) and the CSI (-0.62%) have lost ground. Those moves follow the release of Chinese inflation data for September, which showed producer price inflation hit its highest in nearly 26 years, at +10.7% (vs. +10.5% expected), driven mostly by higher coal prices and energy-sensitive categories. On the other hand, the CPI measure for September came in slightly below consensus at +0.7% (vs. +0.8% expected), indicating that higher factory gate prices have not yet translated into consumer prices. Meanwhile, equity markets in the US are pointing to a positive start later on with S&P 500 futures up +0.32%. Of course, one of the drivers behind the renewal of inflation jitters has been the recent surge in commodity prices across the board, and we’ve seen further gains yesterday and this morning that will only add to the concerns about inflation readings yet to come. Oil prices have advanced yet again, with Brent Crude up +0.69% this morning to be on track to close at a 3-year high as it stands. That comes in spite of OPEC’s monthly oil market report revising down their forecast for world oil demand this year to 5.8mb/d, having been at 5.96mb/d last month. Elsewhere, European natural gas prices were up +9.24% as they continued to pare back some of the declines from last week, and a further two energy suppliers in the UK collapsed, Pure Planet and Colorado Energy, who supply quarter of a million customers between them. Otherwise, copper (+4.4x%) hit a 2-month high yesterday, and it up a further +1.01% this morning, Turning to Brexit, yesterday saw the European Commission put forward a set of adjustments to the Northern Ireland Protocol, which is a part of the Brexit deal that’s caused a significant dispute between the UK and the EU. The proposals from Commission Vice President Šefčovič would see an 80% reduction in checks on animal and plant-based products, as well as a 50% reduction in paperwork by reducing the documentation needed for goods moving between Great Britain and Northern Ireland. It follows a speech by the UK’s David Frost on Tuesday, in which he said that Article 16 of the Protocol, which allows either side to take unilateral safeguard measures, could be used “if necessary”. Mr. Frost is due to meet with Šefčovič in Brussels tomorrow. Running through yesterday’s other data, UK GDP grew by +0.4% in August (vs. +0.5% expected), and the July number was revised down to show a -0.1% contraction (vs. +0.1% growth previously). The release means that GDP in August was still -0.8% beneath its pre-pandemic level back in February 2020. To the day ahead now, and on the calendar we’ve got central bank speakers including the Fed’s Bullard, Bostic, Barkin, Daly and Harker, the ECB’s Elderson and Knot, along with the BoE’s Deputy Governor Cunliffe, Tenreyro and Mann. Data releases from the US include the September PPI reading along with the weekly initial jobless claims. Lastly, earnings releases will include UnitedHealth, Bank of America, Wells Fargo, Morgan Stanley, Citigroup, US Bancorp and Walgreens Boots Alliance. Tyler Durden Thu, 10/14/2021 - 08:29.....»»

Category: blogSource: zerohedgeOct 14th, 2021

Futures Reverse Losses Ahead Of Key CPI Report

Futures Reverse Losses Ahead Of Key CPI Report For the second day in a row, an overnight slump in equity futures sparked by concerns about iPhone sales (with Bloomberg reporting at the close on Tuesday that iPhone 13 production target may be cut by 10mm units due to chip shortages) and driven be more weakness out of China was rescued thanks to aggressive buying around the European open. At 800 a.m. ET, Dow e-minis were up 35 points, or 0.1%, S&P 500 e-minis were up 10.25 points, or 0.24%, and Nasdaq 100 e-minis were up 58.50 points, or 0.4% ahead of the CPI report due at 830am ET. 10Y yields dipped to 1.566%, the dollar was lower and Brent crude dropped below $83. JPMorgan rose as much as 0.8% in premarket trading after the firm’s merger advisory business reported its best quarterly profit. On the other end, Apple dropped 1% lower in premarket trading, a day after Bloomberg reported that the technology giant is likely to slash its projected iPhone 13 production targets for 2021 by as many as 10 million units due to prolonged chip shortages. Here are some of the biggest U.S. movers today: Suppliers Skyworks Solutions (SWKS US), Qorvo (ORVO) and Cirrus Logic (CRUS US) slipped Tuesday postmarket Koss (KOSS US) shares jump 23% in U.S. premarket trading in an extension of Tuesday’s surge after tech giant Apple was rebuffed in two patent challenges against the headphones and speakers firm Qualcomm (QCOM US) shares were up 2.7% in U.S. premarket trading after it announced a $10.0 billion stock buyback International Paper (IP US) in focus after its board authorized a program to acquire up to $2b of the company’s common stock; cut quarterly dividend by 5c per share Smart Global (SGH US) shares rose 2% Tuesday postmarket after it reported adjusted earnings per share for the fourth quarter that beat the average analyst estimate Wayfair (W US) shares slide 1.8% in thin premarket trading after the stock gets tactical downgrade to hold at Jefferies Plug Power (PLUG US) gains 4.9% in premarket trading after Morgan Stanley upgrades the fuel cell systems company to overweight, saying in note that it’s “particularly well positioned” to be a leader in the hydrogen economy Wall Street ended lower in choppy trading on Tuesday, as investors grew jittery in the run-up to earnings amid worries about supply chain problems and higher prices affecting businesses emerging from the pandemic. As we noted last night, the S&P 500 has gone 27 straight days without rallying to a fresh high, the longest such stretch since last September, signaling some fatigue in the dip-buying that pushed the market up from drops earlier this year. Focus now turn to inflation data, due at 0830 a.m. ET, which will cement the imminent arrival of the Fed's taper.  "A strong inflation will only reinforce the expectation that the Fed would start tapering its bond purchases by next month, that's already priced in," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. "Yet, a too strong figure could boost expectations of an earlier rate hike from the Fed and that is not necessarily fully priced in." The minutes of the Federal Reserve's September policy meeting, due later in the day, will also be scrutinized for signals that the days of crisis-era policy were numbered. Most European equities reverse small opening losses and were last up about 0.5%, as news that German software giant SAP increased its revenue forecast led tech stocks higher. DAX gained 0.7% with tech, retail and travel names leading. FTSE 100, FTSE MIB and IBEX remained in the red. Here are some of the biggest European movers today: Entra shares gain as much as 10% after Balder increases its stake and says it intends to submit a mandatory offer. Spie jumps as much as 10%, the biggest intraday gain in more than a year, after the French company pulled out of the process to buy Engie’s Equans services unit. Man Group rises as much as 8.3% after the world’s largest publicly traded hedge fund announced quarterly record inflows. 3Q21 net inflows were a “clear beat” and confirm pipeline strength, Morgan Stanley said in a note. Barratt Developments climbs as much as 6.3%, with analysts saying the U.K. homebuilder’s update shows current trading is improving. Recticel climbs 15% to its highest level in more than 20 years as the stock resumes trading after the company announced plans to sell its foams unit to Carpenter Co. Bossard Holding rises as much as 9.1% to a record high after the company reported 3Q earnings that ZKB said show strong growth. Sartorius gains as much as 5.9% after Kepler Cheuvreux upgrades to hold from sell and raises its price target, saying it expects “impressive earnings growth” to continue for the lab equipment company. SAP jumps as much as 5% after the German software giant increased its revenue forecast owing to accelerating cloud sales. Just Eat Takeaway slides as much as 5.8% in Amsterdam to the lowest since March 2020 after a 3Q trading update. Analysts flagged disappointing orders as pandemic restrictions eased, and an underwhelming performance in the online food delivery firm’s U.S. market. Earlier in the session, Asian stocks posted a modest advance as investors awaited key inflation data out of the U.S. and Hong Kong closed its equity market because of typhoon Kompasu. The MSCI Asia Pacific Index rose 0.2% after fluctuating between gains and losses, with chip and electronics manufacturers sliding amid concerns over memory chip supply-chain issues and Apple’s iPhone 13 production targets. Hong Kong’s $6.3 trillion market was shut as strong winds and rain hit the financial hub.  “Broader supply tightness continues to be a real issue across a number of end markets,” Morgan Stanley analysts including Katy L. Huberty wrote in a note. The most significant iPhone production bottleneck stems from a “shortage of camera modules for the iPhone 13 Pro/Pro Max due to low utilization rates at a Sharp factory in southern Vietnam,” they added. Wednesday’s direction-less trading illustrated the uncertainty in Asian markets as traders reassess earnings forecasts to factor in inflation and supply chain concerns. U.S. consumer price index figures and FOMC minutes due overnight may move shares. Southeast Asian indexes rose thanks to their cyclical exposure. Singapore’s stock gauge was the top performer in the region, rising to its highest in about two months, before the the nation’s central bank decides on monetary policy on Thursday. Japanese stocks fell for a second day as electronics makers declined amid worries about memory chip supply-chain issues and concerns over Apple’s iPhone 13 production targets.  The Topix index fell 0.4% to 1,973.83 at the 3 p.m. close in Tokyo, while the Nikkei 225 declined 0.3% to 28,140.28. Toyota Motor Corp. contributed the most to the Topix’s loss, decreasing 1.3%. Out of 2,181 shares in the index, 608 rose and 1,489 fell, while 84 were unchanged. Japanese Apple suppliers such as TDK, Murata and Taiyo Yuden slid. The U.S. company is likely to slash its projected iPhone 13 production targets for 2021 by as many as 10 million units as prolonged chip shortages hit its flagship product, according to people with knowledge of the matter Australian stocks closed lower as banks and miners weighed on the index. The S&P/ASX 200 index fell 0.1% to close at 7,272.50, dragged down by banks and miners as iron ore extended its decline. All other subgauges edged higher. a2 Milk surged after its peer Bubs Australia reported growing China sales and pointed to a better outlook for daigou channels. Bank of Queensland tumbled after its earnings release. In New Zealand, the S&P/NZX 50 index rose 0.2% to 13,025.18. In rates, Treasuries extended Tuesday’s bull-flattening gains, led by gilts and, to a lesser extent, bunds. Treasuries were richer by ~2bps across the long-end of the curve, flattening 5s30s by about that much; U.K. 30-year yield is down nearly 7bp, with same curve flatter by ~6bp. Long-end gilts outperform in a broad-based bull flattening move that pushed 30y gilt yields down ~7bps back near 1.38%. Peripheral spreads widen slightly to Germany. Cash USTs bull flatten but trade cheaper by ~2bps across the back end to both bunds and gilt ahead of today’s CPI release. In FX, the Bloomberg Dollar Spot Index fell by as much as 0.2% and the greenback weakened against all of its Group-of-10 peers; the Treasury curve flattened, mainly via falling yields in the long- end, The euro advanced to trade at around $1.1550 and the Bund yield curve flattened, with German bonds outperforming Treasuries. The euro’s volatility skew versus the dollar shows investors remain bearish the common currency as policy divergence between the Federal Reserve and the European Central Bank remains for now. The pound advanced with traders shrugging off the U.K.’s weaker-than-expected economic growth performance in August. Australia’s sovereign yield curve flattened for a second day while the currency underperformed its New Zealand peer amid a drop in iron ore prices. The yen steadied after four days of declines. In commodities, crude futures hold a narrow range with WTI near $80, Brent dipping slightly below $83. Spot gold pops back toward Tuesday’s best levels near $1,770/oz. Base metals are in the green with most of the complex up at least 1%. To the day ahead now, and the main data highlight will be the aforementioned US CPI reading for September, while today will also see the most recent FOMC meeting minutes released. Other data releases include UK GDP for August and Euro Area industrial production for August. Central bank speakers include BoE Deputy Governor Cunliffe, the ECB’s Visco and the Fed’s Brainard. Finally, earnings releases include JPMorgan Chase, BlackRock and Delta Air Lines. Market Snapshot S&P 500 futures up 0.1% to 4,346.25 STOXX Europe 600 up 0.4% to 459.04 MXAP up 0.2% to 194.60 MXAPJ up 0.4% to 638.16 Nikkei down 0.3% to 28,140.28 Topix down 0.4% to 1,973.83 Hang Seng Index down 1.4% to 24,962.59 Shanghai Composite up 0.4% to 3,561.76 Sensex up 0.8% to 60,782.71 Australia S&P/ASX 200 down 0.1% to 7,272.54 Kospi up 1.0% to 2,944.41 Brent Futures down 0.4% to $83.12/bbl Gold spot up 0.5% to $1,768.13 U.S. Dollar Index down 0.23% to 94.30 German 10Y yield fell 4.2 bps to -0.127% Euro little changed at $1.1553 Brent Futures down 0.4% to $83.12/bbl Top Overnight News from Bloomberg Vladimir Putin wants to press the EU to rewrite some of the rules of its gas market after years of ignoring Moscow’s concerns, to tilt them away from spot-pricing toward long-term contracts favored by Russia’s state run Gazprom, according to two people with knowledge of the matter. Russia is also seeking rapid certification of the controversial Nord Stream 2 pipeline to Germany to boost gas deliveries, they said. Federal Reserve Vice Chairman for Supervision Randal Quarles will be removed from his role as the main watchdog of Wall Street lenders after his title officially expires this week. The EU will offer a new package of concessions to the U.K. that would ease trade barriers in Northern Ireland, as the two sides prepare for a new round of contentious Brexit negotiations. U.K. Chancellor of the Exchequer Rishi Sunak is on course to raise taxes and cut spending to control the budget deficit, while BoE Governor Andrew Bailey has warned interest rates are likely to rise in the coming months to curb a rapid surge in prices. Together, those moves would mark a simultaneous major tightening of both policy levers just months after the biggest recession in a century -- an unprecedented move since the BoE gained independence in 1997. Peter Kazimir, a member of the ECB’s Governing Council, was charged with bribery in Slovakia. Kazimir, who heads the country’s central bank, rejected the allegations A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mixed following the choppy performance stateside with global risk appetite cautious amid the rate hike bets in US and heading into key events including US CPI and FOMC Minutes, while there were also mild headwinds for US equity futures after the closing bell on reports that Apple is set to reduce output of iPhones by 10mln from what was initially planned amid the chip shortage. ASX 200 (unch.) was little changed as gains in gold miners, energy and tech were offset by losses in financials and the broader mining sector, with softer Westpac Consumer Confidence also limiting upside in the index. Nikkei 225 (-0.3%) was pressured at the open as participants digested mixed Machinery Orders data which showed the largest M/M contraction since February 2018 and prompted the government to cut its assessment on machinery orders, although the benchmark index gradually retraced most its losses after finding support around the 28k level and amid the recent favourable currency moves. Shanghai Comp. (+0.4%) also declined as participants digested mixed Chinese trade data in which exports topped estimates but imports disappointed and with Hong Kong markets kept shut due to a typhoon warning. Finally, 10yr JGBs were steady with price action contained after the curve flattening stateside and tentative mood heading to upcoming risk events, although prices were kept afloat amid the BoJ’s purchases in the market for around JPY 1tln of JGBs predominantly focused on 1-3yr and 5-10yr maturities. Top Asian News Gold Edges Higher on Weaker Dollar Before U.S. Inflation Report RBA Rate Hike Expectations Too Aggressive, TD Ameritrade Says LG Electronics Has Series of Stock-Target Cuts After Profit Miss The mood across European stocks has improved from the subdued cash open (Euro Stoxx 50 +0.5%; Stoxx 600 +0.3%) despite a distinct lack of newsflow and heading into the official start of US earnings season, US CPI and FOMC minutes. US equity futures have also nursed earlier losses and trade in modest positive territory across the board, with the NQ (+0.5%) narrowly outperforming owing to the intraday fall in yields, alongside the sectorial outperformance seen in European tech amid tech giant SAP (+4.7%) upgrading its full FY outlook, reflecting the strong business performance which is expected to continue to accelerate cloud revenue growth. As such, the DAX 40 (+0.7%) outperformed since the cash open, whilst the FTSE 100 (-0.2%) is weighed on by underperformance in its heavyweight Banking and Basic Resources sectors amid a decline in yields and hefty losses in iron ore prices. Elsewhere, the CAC 40 (+0.3%) is buoyed by LMVH (+2.0%) after the luxury name topped revenue forecasts and subsequently lifted the Retail sector in tandem. Overall, sectors are mixed with no clear bias. In terms of individual movers, Volkswagen (+3.5%) was bolstered amid Handelsblatt reports in which the Co was said to be cutting some 30k jobs as costs are too high vs competitors, whilst separate sources suggested the automaker is said to be mulling spinning off its Battery Cell and charging unit. Chipmakers meanwhile see mixed fortunes in the aftermath of sources which suggested Apple (-0.7% pre-market) is said to be slashing output amid the chip crunch. Top European News The Hut Shares Swing as Strategy Day Feeds Investor Concern U.K. Economy Grows Less Than Expected as Services Disappoint Man Group Gets $5.3 Billion to Lift Assets to Another Record Jeff Ubben and Singapore’s GIC Back $830 Million Fertiglobe IPO In FX, the Dollar looks somewhat deflated or jaded after yesterday’s exertions when it carved out several fresh 2021 highs against rival currencies and a new record peak vs the increasingly beleaguered Turkish Lira. In index terms, a bout of profit taking, consolidation and position paring seems to have prompted a pull-back from 94.563 into a marginally lower 94.533-246 range awaiting potentially pivotal US inflation data, more Fed rhetoric and FOMC minutes from the last policy meeting that may provide more clues or clarity about prospects for near term tapering. NZD/GBP - Both taking advantage of the Greenback’s aforementioned loss of momentum, but also deriving impetus from favourable crosswinds closer to home as the Kiwi briefly revisited 0.6950+ terrain and Aud/Nzd retreats quite sharply from 1.0600+, while Cable has rebounded through 1.3600 again as Eur/Gbp retests support south of 0.8480 yet again, or 1.1800 as a reciprocal. From a fundamental perspective, Nzd/Usd may also be gleaning leverage from the more forward-looking Activity Outlook component of ANZ’s preliminary business survey for October rather than a decline in sentiment, and Sterling could be content with reported concessions from the EU on NI customs in an effort to resolve the Protocol impasse. EUR/CAD/AUD/CHF - Also reclaiming some lost ground against the Buck, with the Euro rebounding from around 1.1525 to circa 1.1560, though not technically stable until closer to 1.1600 having faded ahead of the round number on several occasions in the last week. Meanwhile, the Loonie is straddling 1.2450 in keeping with WTI crude on the Usd 80/brl handle, the Aussie is pivoting 0.7350, but capped in wake of a dip in Westpac consumer confidence, and the Franc is rotating either side of 0.9300. JPY - The Yen seems rather reluctant to get too carried away by the Dollar’s demise or join the broad retracement given so many false dawns of late before further depreciation and a continuation of its losing streak. Indeed, the latest recovery has stalled around 113.35 and Usd/Jpy appears firmly underpinned following significantly weaker than expected Japanese m/m machinery orders overnight. SCANDI/EM - Not much upside in the Sek via firmer Swedish money market inflation expectations and perhaps due to the fact that actual CPI data preceded the latest survey and topped consensus, but the Cnh and Cny are firmer on the back of China’s much wider than forecast trade surplus that was bloated by exports exceeding estimates by some distance in contrast to imports. Elsewhere, further hawkish guidance for the Czk as CNB’s Benda contends that high inflation warrants relatively rapid tightening, but the Try has not derived a lot of support from reports that Turkey is in talks to secure extra gas supplies to meet demand this winter, according to a Minister, and perhaps due to more sabre-rattling from the Foreign Ministry over Syria with accusations aimed at the US and Russia. In commodities, WTI and Brent front-month futures see another choppy session within recent and elevated levels – with the former around USD 80.50/bbl (80.79-79.87/bbl) and the latter around 83.35/bbl (83.50-82.65/bbl range). The complex saw some downside in conjunction with jawboning from the Iraqi Energy Minster, who state oil price is unlikely to increase further, whilst at the same time, the Gazprom CEO suggested that the oil market is overheated. Nonetheless, prices saw a rebound from those lows heading into the US inflation figure, whilst the OPEC MOMR is scheduled for 12:00BST/07:00EDT. Although the release will not likely sway prices amidst the myriad of risk events on the docket, it will offer a peek into OPEC's current thinking on the market. As a reminder, the weekly Private Inventory report will be released tonight, with the DoE's slated for tomorrow on account of Monday's Columbus Day holiday. Gas prices, meanwhile, are relatively stable. Russia's Kremlin noted gas supplies have increased to their maximum possible levels, whilst Gazprom is sticking to its contractual obligations, and there can be no gas supplies beyond those obligations. Over to metals, spot gold and silver move in tandem with the receding Buck, with spot gold inching closer towards its 50 DMA at 1,776/oz (vs low 1,759.50/oz). In terms of base metals, LME copper has regained a footing above USD 9,500/t as stocks grind higher. Conversely, iron ore and rebar futures overnight fell some 6%, with overnight headlines suggesting that China has required steel mills to cut winter output. Further from the supply side, Nyrstar is to limit European smelter output by up to 50% due to energy costs. Nyrstar has a market-leading position in zinc and lead. LME zinc hit the highest levels since March 2018 following the headlines US Event Calendar 8:30am: Sept. CPI YoY, est. 5.3%, prior 5.3%; MoM, est. 0.3%, prior 0.3% 8:30am: Sept. CPI Ex Food and Energy YoY, est. 4.0%, prior 4.0%; MoM, est. 0.2%, prior 0.1% 8:30am: Sept. Real Avg Weekly Earnings YoY, prior -0.9%, revised -1.4% 2pm: Sept. FOMC Meeting Minutes DB's Jim Reid concludes the overnight wrap So tonight it’s my first ever “live” parents evening and then James Bond via Wagamama. Given my daughter (6) is the eldest in her year and the twins (4) the youngest (plus additional youth for being premature), I’m expecting my daughter to be at least above average but for my boys to only just about be vaguely aware of what’s going on around them. Poor things. For those reading yesterday, the Cameo video of Nadia Comanenci went down a storm, especially when she mentioned our kids’ names, but the fact that there was no birthday cake wasn’t as popular. So I played a very complicated, defence splitting 80 yard through ball but missed an open goal. Anyway ahead of Bond tonight, with all this inflation about I’m half expecting him to be known as 008 going forward. The next installment of the US prices saga will be seen today with US CPI at 13:30 London time. This is an important one, since it’s the last CPI number the Fed will have ahead of their next policy decision just 3 weeks from now, where investors are awaiting a potential announcement on tapering asset purchases. Interestingly the August reading last month was the first time so far this year that the month-on-month measure was actually beneath the consensus expectation on Bloomberg, with the +0.3% growth being the slowest since January. Famous last words but this report might not be the most interesting since it may be a bit backward looking given WTI oil is up c.7.5% in October alone. In addition, used cars were up +5.4% in September after falling in late summer. So given the 2-3 month lag for this to filter through into the CPI we won’t be getting the full picture today. I loved the fact from his speech last night that the Fed’s Bostic has introduced a “transitory” swear jar in his office. More on the Fedspeak later. In terms of what to expect this time around though, our US economists are forecasting month-on-month growth of +0.41% in the headline CPI, and +0.27% for core, which would take the year-on-year rates to +5.4% for headline and +4.1% for core. Ahead of this, inflation expectations softened late in the day as Fed officials were on the hawkish side. The US 10yr breakeven dropped -1.9bps to 2.49% after trading at 2.527% earlier in the session. This is still the 3rd highest closing level since May, and remains only 7bps off its post-2013 closing high. Earlier, inflation expectations continued to climb in Europe, where the 5y5y forward inflation swap hit a post-2015 high of 1.84%. Also on inflation, the New York Fed released their latest Survey of Consumer Expectations later in the European session, which showed that 1-year ahead inflation expectations were now at +5.3%, which is the highest level since the survey began in 2013, whilst 3-year ahead expectations were now at +4.2%, which was also a high for the series. The late rally in US breakevens, coupled with lower real yields (-1.6bps) meant that the 10yr Treasury yield ended the session down -3.5bps at 1.577% - their biggest one day drop in just over 3 weeks. There was a decent flattening of the yield curve, with the 2yr yield up +2.0bps to 0.34%, its highest level since the pandemic began as the market priced in more near-term Fed rate hikes. In the Euro Area it was a very different story however, with 10yr yields rising to their highest level in months, including among bunds (+3.5bps), OATs (+2.9bps) and BTPs (+1.0bps). That rise in the 10yr bund yield left it at -0.09%, taking it above its recent peak earlier this year to its highest closing level since May 2019. Interestingly gilts (-4.0bps) massively out-performed after having aggressively sold off for the last week or so. Against this backdrop, equity markets struggled for direction as they awaited the CPI reading and the start of the US Q3 earnings season today. By the close of trade, the S&P 500 (-0.24%) and the STOXX 600 (-0.07%) had both posted modest losses as they awaited the next catalyst. Defensive sectors were the outperformers on both sides of the Atlantic. Real estate (+1.34%) and utilities (+0.67%) were among the best performing US stocks, though some notable “reopening” industries outperformed as well including airlines (+0.83%), hotels & leisure (+0.51%). News came out after the US close regarding the global chip shortage, with Bloomberg reporting that Apple, who are one of the largest buyers of chips, would revise down their iPhone 13 production targets for 2021 by 10 million units. Recent rumblings from chip producers suggest that the problems are expected to persist, which will make central bank decisions even more complicated over the coming weeks as they grapple with increasing supply-side constraints that push up inflation whilst threatening to undermine the recovery. Speaking of central bankers, Vice Chair Clarida echoed his previous remarks and other communications from the so-called “core” of the FOMC that the current bout of inflation would prove largely transitory and that underlying trend inflation was hovering close to 2%, while admitting that risks were tilted towards higher inflation. Atlanta Fed President Bostic took a much harder line though, noting that price pressures were expanding beyond the pandemic-impacted sectors, and measures of inflation expectations were creeping higher. Specifically, he said, “it is becoming increasingly clear that the feature of this episode that has animated price pressures — mainly the intense and widespread supply-chain disruptions — will not be brief.” His ‘transitory swear word jar’ for his office was considerably more full by the end of his speech. As highlighted above, while President Bostic spoke US 10yr breakevens dropped -2bps and then continued declining through the New York afternoon. In what is likely to be Clarida’s last consequential decision on monetary policy before his term expires, he noted it may soon be time to start a tapering program that ends in the middle of next year, in line with our US economics team’s call for a November taper announcement. In that vein, our US economists have updated their forecasts for rate hikes yesterday, and now see liftoff taking place in December 2022, followed by 3 rate increases in each of 2023 and 2024. That comes in light of supply disruptions lifting inflation, a likely rise in inflation expectations (which are sensitive to oil prices), and measures of labour market slack continuing to outperform. For those interested, you can read a more in-depth discussion of this here. Turning to commodities, yesterday saw a stabilisation in prices after the rapid gains on Monday, with WTI (+0.15%) and Brent Crude (-0.27%) oil prices seeing only modest movements either way, whilst iron ore prices in Singapore were down -3.45%. That said it wasn’t entirely bad news for the asset class, with Chinese coal futures (+4.45%) hitting fresh records, just as aluminium prices on the London Metal Exchange (+0.13%) eked out another gain to hit a new post-2008 high. Overnight in Asia, equity markets are seeing a mixed performance with the KOSPI (+1.24%) posting decent gains, whereas the CSI (-0.06%), Nikkei (-0.22%) and Shanghai Composite (-0.69%) have all lost ground. The KOSPI’s strength came about on the back of a decent jobs report, with South Korea adding +671k relative to a year earlier, the most since March 2014. The Hong Kong Exchange is closed however due to the impact of typhoon Kompasu. Separately, coal futures in China are up another +8.00% this morning, so no sign of those price pressures abating just yet following recent floods. Meanwhile, US equity futures are pointing to little change later on, with those on the S&P 500 down -0.12%. Here in Europe, we had some fresh Brexit headlines after the UK’s Brexit minister, David Frost, said that the Northern Ireland Protocol “is not working” and was not protecting the Good Friday Agreement. He said that he was sharing a new amended Protocol with the EU, which comes ahead of the release of the EU’s own proposals on the issue today. But Frost also said that “if we are going to get a solution we must, collectively, deliver significant change”, and that Article 16 which allows either side to take unilateral safeguard measures could be used “if necessary”. Elsewhere yesterday, the IMF marginally downgraded their global growth forecast for this year, now seeing +5.9% growth in 2021 (vs. +6.0% in July), whilst their 2022 forecast was maintained at +4.9%. This masked some serious differences between countries however, with the US downgraded to +6.0% in 2021 (vs. +7.0% in July), whereas Italy’s was upgraded to +5.8% (vs. +4.9% in July). On inflation they said that risks were skewed to the upside, and upgraded their forecasts for the advanced economies to +2.8% in 2021, and to +2.3% in 2022. Looking at yesterday’s data, US job openings declined in August for the first time this year, falling to 10.439m (vs. 10.954m expected). But the quits rate hit a record of 2.9%, well above its pre-Covid levels of 2.3-2.4%. Here in the UK, data showed the number of payroll employees rose by +207k in September, while the unemployment rate for the three months to August fell to 4.5%, in line with expectations. And in a further sign of supply-side issues, the number of job vacancies in the three months to September hit a record high of 1.102m. Separately in Germany, the ZEW survey results came in beneath expectations, with the current situation declining to 21.6 (vs. 28.0 expected), whilst expectations fell to 22.3 (vs. 23.5 expected), its lowest level since March 2020. To the day ahead now, and the main data highlight will be the aforementioned US CPI reading for September, while today will also see the most recent FOMC meeting minutes released. Other data releases include UK GDP for August and Euro Area industrial production for August. Central bank speakers include BoE Deputy Governor Cunliffe, the ECB’s Visco and the Fed’s Brainard. Finally, earnings releases include JPMorgan Chase, BlackRock and Delta Air Lines. Tyler Durden Wed, 10/13/2021 - 08:13.....»»

Category: blogSource: zerohedgeOct 13th, 2021

The Mechanics Of The Global Gold Market

The Mechanics Of The Global Gold Market Submitted by Jan Nieuwenhuijs of The Gold Observer How the physical gold price is set, and how physical and derivates markets around the world are connected and interact. Introduction The price of physical gold is set by supply and demand for physical gold. The global physical market can be divided into exchange trading and bilateral trading. In addition to the physical market there are multiple gold derivate markets that influence the physical market. To understand the entire machine, we will examine the workings of gold exchanges, bilateral trading (networks), and derivate markets separately, and finally how all derivatives are tied to the physical market. Derivatives are traded on exchanges and on a bilateral basis as well, but for the sake of clarity we will discuss them independently. Important to mention is that there is not one physical gold price. As gold is a commodity and the forces of supply and demand for commodities are not equal at any and all locations—and energy and time are needed to transport commodities—the price of physical gold differs geographically. Moreover, physical gold comes in many shapes, weights and purities. Manufacturing costs for bars are more or less fixed, but relatively cheaper for larger bars due to their higher value. What most people refer to as the spot gold price is the price per fine troy ounce of gold, derived from trade in large wholesale bars located in London (“loco London”). Large wholesale bars weigh roughly 400-ounces. The smaller a bar compared to “large bars,” the higher the premium it will attract. Gold coins and jewelry enjoy even higher premiums per fine weight, due to even higher manufacturing costs. The “real price of physical gold” thus depends on where you are and what type of product you are trading. A gold product’s fine weight is calculated as: Fine weight = gross weight * purity Collection of large wholesale gold bars. In the wholesale market gold is always priced per fine weight. Large bars have a fineness of no less than “995.0 parts per thousand.” Gold Exchanges An exchange is a centralized market. On any exchange multiple gold contracts can be listed. On the Shanghai Gold Exchange, for example, spot gold contracts varying in size from 100 grams to 12.5 Kg are traded. Supply and demand on an exchange meets through the exchange’s order book. Simplified, some market participants submit limit order bids (buy) and asks (sell) in the order book, while others submit market orders (buy or sell). A matching engine connects and clears all orders and this is how the price is set. The order book of the Shanghai Gold Exchange’s Au99.99 contract in the night trading session of March 18, 2021. Bid and ask quotes are shown in red (top righthand corner); the corresponding quantities in yellow show the depth of the market (liquidity). The highest bid in this order book is ¥365.15 yuan per gram; the lowest ask is ¥366 yuan. The market was illiquid during this trading session, as the quantities in the order book were very low. Because the order book is visible to all traders and there is a central authority that sets the trading rules, exchange trading is more transparent than bilateral trading networks called over-the-counter (OTC) markets. Some traders prefer exchange trading, some prefer OTC trading that offers more flexibility and discretion. Spot gold exchanges are sparse. Examples are the Shanghai Gold Exchange in China, the Borsa Istanbul in Turkey, and the Dubai Gold and Commodities Exchange in the U.A.E. Arbitrage causes prices between different parts of the global gold market to synchronize. When gold is cheaper in Dubai than in Shanghai an arbitrager can make a risk-free profit. The classic example is that the arbitrager will lock in his profit by buying the gold where its cheap and physically transports the metal to where it’s more expensive to sell. If the trade is profitable depends not only on the price spread, but also on the costs of financing (interest), shipping, insurance, and possibly the recasting of bars. Alternatively, the arbitrager can take a long position on one exchange and a short position on the other until the spread has closed, and exit his positions. Generally, gold trades at a discount in net exporting countries, such as South Africa, versus a premium in countries that are net importers. Gold trading hubs like the U.K. can flip from a net importer to a net exporter, which will cause the local price to trade at a premium or discount versus parts of the world that are on the other side of the trade (usually Asia). Gold bar standards around the world. Some exchanges listed are derivate exchanges. Courtesy Gold Bars Worldwide.Gold bar weighing 187.5 grams (five tael) traded on the Chinese Gold and Silver Exchange in Hong Kong. Bilateral Trading In the previous chapter we discussed that globally there are only a few physical gold exchanges. Implying, the majority of physical gold trading is done bilaterally: negotiated on a principal-to-principal basis, whether that be through an electronic trading system, by phone, or face to face. Because gold doesn’t perish and has been highly valued for millennia, all gold that has ever been mined is still with us. This makes gold trade more like a currency than a commodity in terms of supply and demand dynamics. Physical supply and demand are anything but restricted to annual mine output and newly fabricated products. Every day, gold is traded on a bilateral basis between thousands of companies—refineries, banks, dealers, mints, miners, jewelers, industrial fabricators, investment funds, etc.—and perhaps millions of individuals around the world. Gold can be exchanged in any form, and of course it can be altered in shape, weight and purity throughout the supply chain. At the smallest level a bilateral trade can be a Turkish woman selling a golden bracelet to her male neighbor. By agreeing to her offer price, the neighbor affects the global price of gold, albeit extremely little. For, if the neighbor would reject the woman’s offer, she would sell the bracelet to a jewelry store that is connected to the global gold market where supply would increase. Accepting her offer causes supply not to increase. Through this example it’s clear that with every (bilateral) trade buyer and seller influence the gold price. Gold jewelry shop in the U.A.E. Business-to-business trading in a bilateral trading network is referred to as an OTC market. Globally, the London Bullion Market, overseen by the London Bullion Market Association (LBMA), is the most dominant gold OTC market. Another vibrant OTC market is in Switzerland, which is the gold refining capital of the world. Each year, hundreds to thousands of tonnes of gold supply are transported to Switzerland, where 400-ounce bars destined for London, 1 Kg bars destined for Asia, 100-ounce bars destined for New York, or other bars and products are manufactured depending on demand. Switzerland also accommodates many large vaults for gold investors. The London Bullion Market has a unique framework because it’s based on bilateral trading, yet it has a centralized character. We will discuss this market in the next chapter on derivatives, because most trades in London are executed through “paper contracts.” Derivative Markets A derivative is a “a type of financial contract whose value is dependent on an underlying asset.” In this article we discuss derivatives with physical gold as the underlying asset. The single most important difference between physical gold and a derivative of gold, is that owning physical gold doesn’t incur any counterparty risk, whereas owning a gold derivative does. For other commodities, like corn, it can be said: “you can eat corn, but you cannot eat a corn derivative.” It boils down to the same economic conclusion: physical supply can’t be increased by the creation of derivatives. Yet derivatives have a considerable impact on the physical gold price, as they trade in large volumes and many use leverage. In my view, the most relevant derivates markets are the paper market in London, Exchange Traded Funds, and the futures market in New York. The LBMA’s Chain of Integrity and the London Bullion Market The London Bullion Market is an OTC market so there isn’t a rulebook like with an exchange. However, this unique market is to an extent organized. Let’s start with the basics.  Globally, there are 71 LBMA accredited refineries, which are the gate-keepers of the LBMA’s chain of integrity. These refineries strictly accept gold from reputable sources, and when supply is cast into bars weighing in between 350 and 430 troy ounces, having a fineness of no less than 995 parts per 1000, they adhere to the LBMA’s Good Delivery standards. The chain of integrity is a closed system of refineries, secure logistics companies, and custodians that ensure all metal within the chain is of the quality it’s supposed to be. Bars withdrawn from the LBMA’s chain of integrity can only re-enter through the accredited refineries. Number of LBMA accredited refineries per continent in 2021. Courtesy The Alchemist. LBMA member secure logistics companies may transport large bars to vaults located within the M25 London ringway. When stored in the London vaults the bars are now London Good Delivery, and underpin trade in the London Bullion Market. Although the gold is located in London, traders from all over the world participate in the London Bullion Market, as we will see in a minute. Keep in mind that the system of vaults in London must not be confused with the LBMA’s chain of integrity. The chain of integrity spans the globe and also includes bars with divergent weights from LBMA Good Delivery. Gold bars produced by LBMA accredited refineries are the global standard. The Shanghai Gold Exchange (SGE), as an example, accepts gold bars from SGE certified refineries in its vaults, next to LBMA certified metal. AURUM and Global OTC Trading At the heart of the London Bullion Market is an electronic clearing system called AURUM, which connects the LBMA member clearing banks. The London Bullion Market can be seen as a gold banking system with physical gold located in London as reserves, and AURUM as the clearing house. Trading gold in London is mainly done on a spot unallocated basis. An unallocated account at a bullion bank is a claim on a pool of physical gold owned by the bank. Holding an unallocated balance (in short, “unallocated”) can be compared to a fiat deposit at a regular bank. Unallocated is the credit in the London Bullion Market. In contrast, through an allocated account at a bullion bank a customer owns uniquely identifiable bars that are set aside, and are not on the balance sheet of the bank. Customers pay storage fees for holding allocated metal, versus much lower costs, if any, for holding unallocated. Any customer is allowed to switch from unallocated to allocated, and vice versa, which connects the paper market with the physical market in London. Bullion banks have agreed that any fee for “allocating” metal can only be changed on a 30-day notice.   The main reasons why the majority of trading in the London Bullion Market is done on an unallocated basis are convenience and efficiency. What makes gold special is that it’s both a commodity and a currency. Trading on an unallocated basis makes it possible, for example, to buy gold for exactly $1,000,000 U.S. dollars, or borrow exactly 25,000 ounces. The size of an allocated trade is always tied to varying bar weights, which leads to inconvenient numbers. This is why “loco London unallocated” is used as the primary currency in the global OTC gold market. Clearing through AURUM is overseen and managed by London Precious Metals Clearing Limited (LPMCL). The clearing banks that take part in AURUM (the LPMCL members) are HSBC, ICBC Standard Bank, JP Morgan, and UBS. Other banks and participants in the London Bullion Market are in one way or another connected to the clearing banks. Clearing banks either have their own vault in London, have an account with custodians such as Brinks or Loomis, or use the Bank of England’s vault. Illustration of the London Bullion Market’s trading structure. The clearing banks are connected through AURUM, and client banks and sub-clients are connected to the clearing banks. All clearing banks, but not all client banks and sub-clients, are included in this graph. All connections between the corporations are hypothetical. So, how does the actual trading work? Suppose, a gold mining company borrows 180,000 ounces of unallocated, at an interest rate of 2% from a bullion bank in London it has an account with. The bank is UBS, which happens to be a clearing bank. After receiving the loan, the miner sells the metal spot to use the proceeds for a mining project in Australia. A year later the miner has mined 183,600 ounces and wants to repay UBS the principal plus interest (assuming the interest was agreed to be paid in gold). The miner transports the unrefined gold to a refinery in Australia and indicates it wants to be paid in loco London unallocated. The refinery accepts the gold and instructs its bullion bank in London, Merrill Lynch, to transfer 183,600 ounces from its own account to the miner’s account at UBS (see the above graph for clarification). Merrill Lynch will inform its clearing bank JP Morgan regarding the transfer of 183,600 ounces to the miner’s account at UBS. When UBS has received the unallocated through AURUM, the miner’s account will be debited by 183,600 ounces and the loan is repaid. What is settled in Australia are the cash costs for refining the gold, and a correction for the local gold price discount/premium versus the price in London.      Unrefined gold mine output, called “doré,” which usually has a purity of 80%. Doré bars trade at a discount versus refined bars, due to refining costs. Courtesy Barrick. If any physical gold is transferred between JP Morgan and UBS through AURUM depends on all trades of these banks and their clients. In the London Bullion Market thousands of unallocated trades are executed on a daily basis, causing the clearing banks to have many claims on each other at the end of each day. The clearing procedure starts each day at 4:00 PM GMT with the LPMCL members “netting out” all claims. After this process is exhausted the residual claims are settled in physical gold. Another example of how gold is being exchanged in the London OTC market is companies, central banks, and investors trading gold like they trade any other currency in foreign exchange markets. On a spot basis, but also through forwards, swaps, options, and leasing. The LBMA Gold Price Benchmark Trading in the London Bullion Market is done between all LBMA members. But with so many participants you may wonder what is the spot gold price in this market? Technically, in this web of trading there is not one price of gold. At the core of this market there are 12 LBMA market making members that are required to quote a two-way (bid and ask) market throughout the day. These quotes are only accessible for entities that have an account with these banks. The spot gold price you see on, i.e., Bloomberg, Reuters or Netdania is often an amalgamation of several feeds from LMBA market makers. As a consequence, prices can slightly differ across said media. Which brings us to another feature of the London Bullion Market: the LBMA Gold Price benchmark. Previously named the London Fix, the LBMA Gold Price is an auction held twice a day: at 10:30 AM and 03:00 PM. It’s used for a variety of purposes in the global market, such as industrial contracts. There are 16 registered direct participants in the LBMA Gold Price, all of which can provide access to the auction for clients. An auction begins with the announcement of a starting price. Based on the starting price, the direct participants and clients present if they are buyers or sellers and in what quantity (loco London unallocated). Typically, after the first round the buying and selling volumes of all participants are not in equilibrium, and the price is adjusted up or down, followed by a new round of bidding. The process is repeated until the net volumes of all participants fall within the pre-determined tolerance. Finally, the metal is settled and the auction price is published. LBMA PM Gold Price data from March 1, 2021. The price finished at $1,734.15 USD per troy ounce. Courtesy ICE. The above is a simplification of the London Bullion Market. For more information, please refer to the LBMA OTC Guide and visit the LBMA website. For researching the workings of the London Bullion Market I have consulted with industry insiders Bron Suchecki, Ross Norman, and Jeffrey Christian. Any inaccuracies in this article remain my responsibility. Exchange Traded Funds Exchange Traded Funds (ETFs) are funds backed by commodities, stocks, derivatives, or other financial assets. Shares of ETFs are traded on a stock exchange. Commonly, gold ETFs are backed by physical gold. The largest gold ETF is GLD with a current inventory of roughly 1,000 tonnes in London Good Delivery bars. Buying a share of GLD does not provide ownership of physical gold, but a slice of ownership in the Fund. GLD caters exposure to the price of gold without leverage. Investors choose to invest in ETFs, because they are regulated financial products and easily accessible through brokers.   One GLD share represents roughly 0.1 ounce of gold. This amount decreases over time because the storage fees are subtracted from the assets (gold) held by the Fund.   The price of GLD is connected to the physical market, because a select group of arbitragers, called the Authorized Participants (APs), can create and redeem GLD shares at the Fund’s Trustee BNY Mellon Asset Servicing. If, due to supply and demand of GLD shares, the GLD price falls below the spot price in London, the APs can buy GLD shares and redeem them at the Trustee for physical metal which they can sell at a profit in the spot market. Consequently, GLD inventory will decrease. Should the price of GLD rise above London spot, the APs do the opposite: buy spot metal and create GLD shares to sell in the stock market. When shares are created the APs must deposit gold in the allocated account of the Trustee (“All of the Trust’s gold is fully allocated at the end of each business day”). As a result, GLD inventory increases.    Through arbitrage GLD and the physical market interact and influence each other. The Futures Market A futures contract is an agreement between two parties to exchange a commodity (or stock index, bond, etc.) for cash at a specific price at a fixed date in the future. Although, the majority of commodity futures contracts never reach physical delivery—most are “rolled over” or terminated before expiration. Futures contracts involve leverage and are used by hedgers and speculators. Futures are traded many months into the future, but for this article we will focus on the “near month” contract, which captures the bulk of trading volume. Hereafter, I will refer to the price of the near month contract simply as the futures price. The most traded gold futures contract is GC, listed on the COMEX futures exchange in New York. Similar to GLD, gold futures interact with the spot market through arbitrage. Because London is the most liquid spot market, this is where most arbitragers will trade versus New York. Say, the futures price transcends London spot, to an extent that arbitragers can profit by buying spot and sell short futures. Surely, the arbitragers can allocate metal in London, recast large bars into 100-ounce bars, fly it to New York, and physically deliver the futures contract when it expires. However, in reality this will rarely happen. Unless there is, in example, a pandemic that derails global flights, arbitragers will take a long position in London and sell short futures in New York, wait until both markets converge and close their positions. Needless to say, when the spot price is higher than the futures price, arbitragers will do the opposite: short London and buy long futures. The futures market, too, is connected to the physical market through arbitrage. Worth mentioning is that when a futures long (short) position is rolled to the next near month, and the initial buying (selling) caused an arbitrager to buy (sell) spot in London, on a systemic level the arbitrager will roll its position as well. In this sense, London serves as a warehouse for the COMEX. Conclusion Below you can see a graph that shows how GLD and the futures market are connected to the physical market in London, and how London is connected to the rest of the world. Effectively, all gold markets are connected. Arrows are added between several physical markets to illustrate that Switzerland is the largest refining hub. In the U.K. there are no LBMA accredited refineries. The price of physical gold is set by “regular traders” in the physical market, and arbitragers that trade physical gold versus derivatives. Hence, I wrote in the introduction: “the price of physical gold is set by supply and demand for physical gold.” Gold derivatives can be seen as an extension of the physical market. Measuring the impact of derivatives on the physical market falls outside the scope of this article, but I have planned a discussion on this subject. I took the opportunity to make this “article on request” part of my series Gold Market Essentials. Previous articles in this series are: The Essence of Gold Supply and Demand Dynamics The West-East Ebb and Flood of Gold GLD—a Crash Course Coin Demand of Little Relevance to the Gold Price Upcoming articles in this series will be more detailed discussions on the workings of the futures market, bullion banking, and the London Bullion Market. If you enjoyed reading this article please consider to support The Gold Observer and subscribe to the newsletter. Tyler Durden Mon, 10/11/2021 - 12:45.....»»

Category: dealsSource: nytOct 11th, 2021

Crescat Capital September 2021: The Psychology Of Inflation

Crescat Capital’s commentary for the month ended September 2021, titled, “The Psychology Of Inflation.” Q3 2021 hedge fund letters, conferences and more The Psychology Of Inflation Today’s macro environment is indeed very different than any other period we have experienced in the last four decades. Inflation is infiltrating the mindset of US households in a […] Crescat Capital’s commentary for the month ended September 2021, titled, “The Psychology Of Inflation.” if (typeof jQuery == 'undefined') { document.write(''); } .first{clear:both;margin-left:0}.one-third{width:31.034482758621%;float:left;margin-left:3.448275862069%}.two-thirds{width:65.51724137931%;float:left}form.ebook-styles .af-element input{border:0;border-radius:0;padding:8px}form.ebook-styles .af-element{width:220px;float:left}form.ebook-styles .af-element.buttonContainer{width:115px;float:left;margin-left: 6px;}form.ebook-styles .af-element.buttonContainer input.submit{width:115px;padding:10px 6px 8px;text-transform:uppercase;border-radius:0;border:0;font-size:15px}form.ebook-styles .af-body.af-standards input.submit{width:115px}form.ebook-styles .af-element.privacyPolicy{width:100%;font-size:12px;margin:10px auto 0}form.ebook-styles .af-element.privacyPolicy p{font-size:11px;margin-bottom:0}form.ebook-styles .af-body input.text{height:40px;padding:2px 10px !important} form.ebook-styles .error, form.ebook-styles #error { color:#d00; } form.ebook-styles .formfields h1, form.ebook-styles .formfields #mg-logo, form.ebook-styles .formfields #mg-footer { display: none; } form.ebook-styles .formfields { font-size: 12px; } form.ebook-styles .formfields p { margin: 4px 0; } Get The Full Henry Singleton Series in PDF Get the entire 4-part series on Henry Singleton in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues (function($) {window.fnames = new Array(); window.ftypes = new Array();fnames[0]='EMAIL';ftypes[0]='email';}(jQuery));var $mcj = jQuery.noConflict(true); Q3 2021 hedge fund letters, conferences and more The Psychology Of Inflation Today’s macro environment is indeed very different than any other period we have experienced in the last four decades. Inflation is infiltrating the mindset of US households in a way not seen since the wage-price spirals of the 1970s. Prices for the goods and services that individuals require to meet basic needs have been increasing at an accelerated pace. These necessities include shelter, food, energy, and transportation. The rising cost of living is due to both supply constraints and increased demand from fiscal and monetary stimulus. In the mix, net profit margins for S&P 500 companies at large are at record highs today, because these firms have been able to pass rising costs onto their customers in the short run. These windfall profit margins are unsustainable and poised to reverse quickly in our analysis. The two biggest costs of running a business that affect net profit margins are on track to rise imminently: taxes and labor. Corporate tax rate hikes are almost certain with the legislation now under consideration by the Democratic-controlled Congress and White House. Even less discounted by today’s buoyant stock market in our view is an impending rise in labor costs. Individuals and families cannot rely on continued government handouts to the degree they were provided during the pandemic lockdowns and the US government cannot afford to provide them. We believe a new and well-justified psychology of rising inflation will be forcing more of the population back into the labor force. At the same time, we are likely to see workers at large both demanding and receiving significantly higher wages and salaries contributing to a substantial squeeze to corporate profit margins in the years ahead. Increases in the general price level for goods and services and the rising inflation expectations that go along with them are a self-reinforcing helix that is set to become a durable feature of the economy. Just like the 1970s, these inflationary macro forces will likely lead to shorter economic expansions and more frequent stagflationary recessions in the 2020s and beyond than we have had in the last four decades under a generally disinflationary regime. These more contractions in real GDP due to rising inflation are likely to contrast with the deflationary recessions of the 2008-2009 Global Financial Crisis and the short-lived Covid recession in 2020. Starting from record valuations relative to underlying cash flows in the broad financial markets today, combined with historic loose financial conditions, we see substantial downside risk in crowded and highly speculative equity and fixed income markets at large. Rising inflationary pressures and ultimate Fed tightening measures needed to counter them will put downward pressure on hyper-overvalued, low yielding, long duration growth stocks and fixed income investments. We believe investors should be reducing exposure to these limited-upside and high downside-risk-areas of the financial markets today. We see a silver lining, however, in deep value and high near-term fundamental growth investments in the energy and materials sectors of the economy that are likely to be among the biggest beneficiaries of the new secular stagflationary environment ahead. These sectors are not without volatility but represent a calculated risk with substantial value-driven upside potential for investors who want to profit from the underlying fundamental tailwinds identified by Crescat’s equity and macro models. Diversifying among the best industries and companies within these sectors is what we are focused on now at Crescat with our own money and for clients with a like-minded outlook, risk tolerance, needs, and objectives. In our analysis, this approach is the highest probability path to generating strong risk-adjusted, real returns in the immediate years ahead. Supply Problems are Structural Supply chain disruptions will be with us for some time. They are due to complex structural problems that include a new deglobalization countertrend, particularly between the US and China. Another problem is the chronic underinvestment in the energy and basic materials sectors of the economy. As capital has overwhelmingly flowed to the information technology and innovation sectors of the economy in the last decade, the capital needs of the primary resource producing sectors of the economy got left behind. The goods produced by these industries are at the core of the supply chain and have long lead times with challenging permitting issues and heavy capital expenditure requirements. While demand continues to increase for the raw materials produced by these industries, companies are having difficulty filling jobs with qualified management and technical professionals to produce them efficiently. A decade of declining college enrollment in geosciences worldwide is one of the long-term structural imbalances affecting the oil and gas and mining industries. Skilled tradespeople in these industries are also in short supply. Source: Samuel Boone and Mark Quigley, University of Melbourne. Resource logistics issues are compounded by the environmental moment, which has captured both social norms and government technocrats, significantly adding to costs and lead times to produce basic resources. The push for the new green economy might be well intentioned but continues to have many blind spots regarding the need for traditional energy and material resources to ensure a healthy economy today as well as in the more environmentally friendly future. Stagflation is Here The problem is that while consumer prices are rising, we are also seeing signs that the global economy is starting to decelerate. China is the elephant in the room in that respect. The second largest economy in the world has achieved that spot while creating a property and credit bubble that, as measured by banking assets to GDP, is more than four times the size of the US housing and financial sector bubble ahead of the GFC. With its equity markets under pressure since February, the Evergrande collapse, and nationwide energy shortages, China’s economy appears to be in a serious meltdown. The spillover effects should not be underestimated. We need to start discounting now the ultimate new global fiscal and monetary stimulus that will be needed to counter China’s currently unfolding credit collapse and what that portends for its currency given its communist banking system with a whopping $52 trillion of suspiciously priced assets. As we have learned throughout the world in the post GFC era, the speed at which governments can create new central bank money is instantaneous. At the same time, and more than ever today, the speed at which countries can deliver the basic resources to meet their citizens’ needs is significantly impaired. The US economy has already started to slow significantly. The Atlanta Fed GDP nowcast, for instance, just went from 6% to 1.3% in the last couple of months. With business activity now decelerating as inflation remains historically elevated, the set of monetary and fiscal policies needed to fix one problem would worsen the other. At the same time, with historic high valuations for equity and credit markets in the US at large, there is much downside risk. The Fed is trapped to do anything to prevent a rotation out of speculatively priced assets with deteriorating fundamentals. Note the tight correlation between the real-time Atlanta Fed’s macro quantitative measure of real GDP growth and actual subsequently reported economic growth after inflation. Great Rotation Financial markets are not correctly priced for the stagflation that is already evident in the macro data. This creates both risks and opportunities for a large swath of investors who are crowded on the wrong side of this trade in our view. First and foremost, we see a major shift out of overpriced growth stocks and fixed income securities and into a much narrower group of deeply undervalued and high near-term growth stocks and commodity investments that will be the primary beneficiaries of stagflation, creating a reflexive inflationary loop. The smart money should be the first to make this move. We call it the Great Rotation. The motivation for such a shift in our research is that it is the most highly probable way to both protect against the downside risk of significantly rising inflation to financial assets at large while potentially substantially profiting from it at the same time. Investors should take note while overall price to book values for the broad market are at record highs along with many other fundamental measures, the relative price-to-book value of the Russell 1000 Growth compared to the Russell 1000 Value indices is about 60% higher than it was at the peak of the tech bubble in 2000, further illustrating the extreme imbalances and market risks along with the set-up for a growth to value rotation. Getting Ahead with Gold and Silver As inflation continues to develop in the economy, the chart below shows the incredible link between gold prices and CPI since the Global Financial Crisis. Note how after the pandemic lows, gold front ran the potential risk of a rise in consumer prices and the entire precious metals market appreciated sharply. Gold and silver not only diverged from CPI but also significantly outperformed the rest of the commodities market. It is important to remember that before recently peaking, gold had been going on a streak for two years already. The metal was up more than 75% from August 2018 to August 2020 and even reached historical highs during this period. Back then, with CPI around 1%, very few investors foresaw inflation as a risk to the economy. Now it is a real problem. We think gold likely appreciated too quick and too fast becoming what some thought as an obvious trade. Extreme sentiment probably explains the reason for its recent weakness after signaling way earlier than any other asset the possibility that an inflationary environment could be ahead of us. We are now on the other side of this extreme. Gold looks fundamentally cheap, technically oversold while inflation continues to gain traction. We think the historic relationship between precious metals and the growth in consumer prices will continue to be strong and the recent pullback in gold and silver related assets poses an incredible opportunity for investors to deploy capital at what we believe to be truly attractive levels. Also, keep in mind that we are using government reported numbers to gauge inflation in this analysis. We should all know by now that the true cost of goods and services is growing at a drastically faster pace than CPI. Recent Pullback in Precious Metals Presents Constructive Buying Opportunity The decline in Crescat’s strategies in the past two months has been almost entirely attributable to our precious metals long holdings which has been deliberately the largest exposure we have had firmwide. Our gold and silver names are ultra-cheap, worth an estimated 15 times their current market prices in aggregate according to our company-by-company model in the Crescat Precious Metals Fund. This fund was up 235% net in its first year ended in July and has experienced an 18.9% net pullback in August and September. The precious metals longs similarly have been the largest contributor to the last two-month decline in our Global Macro and Long/Short funds. These latter two funds also have significant short positions that have held the fund back year to date. We believe they are poised to deliver strong returns as the broad equity markets appear to finally be breaking down. We are not pleased at all with the recent pullback, but believe it is an inevitable part of the game. We think that accepting a moderate amount of volatility is necessary to build wealth and protect against rising inflation in the current environment of financial repression that we live in where governments maintain artificially low risk-free interest rates compared to true inflation. The goal of this policy is to resolve unsustainable debt-to-GDP imbalances with hidden inflation. We have been increasing our exposure to other resource industries in Large Cap, Global Macro, and Long/Short to add more diversification also with strong upside potential, based on our equity fundamental model scores within the energy and materials sectors. We remain highly committed and significantly exposed on the long side to activist positions in gold and silver mining companies with a strong focus on exploration under the guidance of our Geologic and Technical Director, Quinton Hennigh, Ph.D. We believe gold and silver commodity and equity markets are due for a major bull market resumption. This market may have already turned in our favor this month from deeply oversold levels for mining stocks and extreme negative sentiment despite incredibly positive fundamentals. All Crescat strategies are up month to date in October. Overvalued equity short positions in our Global Macro and Long/Short also generated positive profit attribution in September though modestly. We aim to increase our short exposure in these two funds to be able to take advantage of the abundant opportunities on this side of the market now that the risk of shorting has been decreased with inflationary pressures becoming more acknowledged and the Fed attempting to start tapering. With Crescat’s three high conviction macro themes coalescing, and after the recent pullback in Crescat’s strategies, we believe it is a highly constructive time for new and existing clients to be adding money to our strategies. HFM Award We are pleased to announce that the Crescat Global Macro Fund was just shortlisted for a HFM performance award in the macro category for funds with assets under $1 billion for the one-year period ended June 30, 2021. The final winner will be announced next month in NYC. We understand this is one of the most prestigious awards in the hedge fund industry. There is no guarantee that we will win, but for what it’s worth, according to Bloomberg and eVestment data, our fund was far-and-away the best performer for the period among all five shortlisted for the category. The fund was up 45% net over that time frame. September Performance Estimates Download PDF Version Sincerely, Kevin C. Smith, CFA Member & Chief Investment Officer Tavi Costa Member & Portfolio Manager For more information including how to invest, please contact: Marek Iwahashi Client Service Associate miwahashi@crescat.net 303-271-9997 Cassie Fischer Client Service Associate cfischer@crescat.net (303) 350-4000 Linda Carleu Smith, CPA Member & COO lsmith@crescat.net (303) 228-7371 © 2021 Crescat Capital LLC Updated on Oct 11, 2021, 11:27 am (function() { var sc = document.createElement("script"); sc.type = "text/javascript"; sc.async = true;sc.src = "//mixi.media/data/js/95481.js"; sc.charset = "utf-8";var s = document.getElementsByTagName("script")[0]; s.parentNode.insertBefore(sc, s); }()); window._F20 = window._F20 || []; _F20.push({container: 'F20WidgetContainer', placement: '', count: 3}); _F20.push({finish: true});.....»»

Category: blogSource: valuewalkOct 11th, 2021

Futures Slide As Soaring Oil Nears $85

Futures Slide As Soaring Oil Nears $85 While cash bonds may be closed today for Columbus Day, which may or may not be a holiday - it's difficult to know anymore with SJW snowflakes opinions changing by the day - US equity futures are open and they are sliding as soaring oil prices add to worries over growing stagflation (Goldman and Morgan Stanley both slashed their GDP estimates over the weekend even as they both see rising inflation), fueling concern that a spreading energy crisis could hamper economic recovery (as a reminder, yesterday we had one, two, three posts on stagflation, showing just how freaked out Wall Street suddenly is). Rising raw material costs, labor shortages and other supply chain bottlenecks have raised concerns of elevated prices hammering corporate profits while rising rates are suggesting that a tidal wave of inflation is coming. And while cash bonds may be closed, one can easily extrapolate where they would be trading based on TSY futures which are currently trading at a 1.65% equivalent. But while cash bonds may be closed, the big mover on Monday was oil, with WTI surging nearly 3% and touched a seven-year high as an energy crisis gripping the major economies showed no sign of easing. Meanwhile, Brent rose just shy of $85, rising to the highest since late 2018 when the Fed abruptly reversed tightening course. Over in China, coal futures reached a record as flooding shuttered mines. The surge in oil lifted shares of Chevron Corp, Exxon Mobil Corp and APA Corp between 1.2% and 3% in premarket trading. At the same time, rising rates hit FAAMGs, with Apple, Microsoft and Amazon all falling between 0.6% and 0.8%. The surge above 1.6% for 10-year Treasury yields is intensifying debate among strategists over how to position investor portfolios amid anxiety over whether transitory inflation is transitioning into stagflation. Lucid Group rose 2.2% and Occidental Petroleum climbed 3.1%, leading gains in the U.S. premarket session. Here are some of the biggest movers and stocks to watch today: U.S.-listed Chinese tech stocks soar 2% to 5% in premarket trading, extending their recent rebound. Rally supported by Beijing slapping a smaller-than-expected fine on food delivery giant Meituan and last week’s news that U.S. President Joe Biden was planning to meet with Xi Jinping before the end of the year. Alibaba (BABA US +5%) leads gains, while JD.com (JD US) and Baidu (BIDU US) rise 2% apiece Watch U.S. energy stocks as oil surges past $80 a barrel as the global power crunch rattled a market in which OPEC+ has only been restoring output at a modest pace. Exxon Mobil (XOM US +1.1%), Chevron (CVX US +1%) and Occidental (OXY US +3.1%) among top risers in premarket trading. Robinhood (HOOD US) dropped 2%; the company was under pressure in U.S. premarket trading as a looming share sale by early investors and a toughening regulatory environment for cryptocurrencies are adding to the headwinds in the stock market for the darling of the U.S. retail trading mania. ChemoCentryx (CCXI US) up 2% in U.S. premarket trading, adding to Friday’s massive gains after the drug developer won U.S. approval for Tavneos as a treatment for a rare autoimmune disorder Cloudflare (NET US) slides 1.8% in U.S. premarket trading after Piper Sandler downgraded stock to neutral Akerna Corp. (KERN US) gained in Friday postmarket trading after Matthew Ryan Kane, a board member, bought $346,032 of shares, according to a filing with the U.S. Securities & Exchange Commission. “We see rising risks to global growth and evidence of more persistent inflation, which makes us more cautious on the outlook for global markets overall,” Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, wrote in a note to clients. In Europe, the Stoxx 600 Index fell 0.2%, led by declines in travel and property firms. Miners and energy stocks were the two strongest-performing sectors in Europe on Monday on rising prices for iron ore and oil. The Stoxx 600 Basic Resources Index climbed as much as 2.4%, while the Energy Index gains as much as 1.5% to the highest since Feb. 24, 2020. European banking stocks also advanced on Monday, following four weeks of gains, and traded about 1.3% below pre-pandemic high. The sector has gained 36% ytd, is the best performer among 20 European sectors in 2021. Up 0.7% today, outperforming a slightly weaker broader Stoxx 600 Index and as investors tilt toward cyclical sectors. Earlier in the session, Asian stocks jumped, buoyed by Hong Kong-listed technology shares including Meituan, which was consigned a lower-than-expected regulatory fine. The MSCI Asia Pacific Index climbed as much as 0.9%, driven by the consumer-discretionary and communication sectors. Alibaba and Meituan were the top contributors to the gauge, each surging about 8% in the first trading in Hong Kong after the food-delivery giant was handed a $533 million fine for violating anti-monopolistic practices.  The result of the investigation into Meituan is “a relief and likely to provide closure to the share price overhang,” Citigroup analysts wrote in a note Friday, when the penalty was announced.  Hong Kong’s stock gauge was among the top performing in the region. Japan’s benchmarks also climbed as the yen weakened to an almost three-year low against the dollar and new Prime Minister Fumio Kishida said he’s not considering changes to the country’s capital-gains tax at present. Improved sentiment in China is providing much-needed support to Asian equities, which declined for four straight weeks amid uncertainty circling global markets. Power shortages in China and India, supply-chain woes, inflation risks and rising bond yields are all on the radar as the earnings season kicks off. “We are still in a market that is very, very concerned about the growth outlook,” said Kyle Rodda, market analyst at IG Markets. These sort of rallies that appear almost inexplicable are “symptomatic of the market still trying to piece together all pieces of the puzzle,” he added. Australia The S&P/ASX 200 index fell 0.3% to close at 7,299.80, with most subgauges taking a hit. Miners advanced, posting gains for a third session, offsetting losses in healthcare and consumer discretionary stocks.  Star Entertainment was the worst performer after a report saying the company had enabled suspected money laundering, organized crime and fraud at its Australian casinos for years. Fortescue surged after the company said it plans to build a green energy factory to rival China.  In New Zealand, the S&P/NZX 50 index dropped 0.5% to 13,019.37. In FX, the pound crept higher to touch an almost 2-week high versus the dollar and the Gilt curve shifted higher, led by the front-end, after the Bank of England’s Michael Saunders, one of the most hawkish members of the Monetary Policy Committee, suggested in remarks published Saturday that investors were right to bring forward bets on rate hikes. Hours earlier, Governor Andrew Bailey warned of a potentially “very damaging” period of inflation unless policy makers take action. Australia’s dollar led gains among G-10 currencies on the back of increases in oil, natural gas and iron ore prices and as Sydney emerges from a 15- week lockdown on Monday. Iron ore futures extended gains as improved rebar margins at Chinese steel mills buoyed demand prospects. The yen dropped against the dollar, with analysts forecasting more weakness ahead as the nation’s yield differentials widen. As noted above, treasury futures slumped in U.S. trading Monday, with the cash market closed for Columbus Day; they implied a yield of 1.65% on the 10Y. 10-year note futures price is down 8+/32, a price change equivalent to a yield increase of about 3bp. Benchmark 10-year yield ended Friday at 1.615%, its highest closing level since June, as investors focused on the inflationary aspects in mixed September employment data. China's10-year government bond futures declined to a three-month low while the yuan advanced as the central bank’s latest liquidity draining weakened expectations of fresh monetary policy easing. Futures contracts on 10-year notes fall 0.4% to 99.14, the lowest level since July 12. It dropped 0.4% on Friday. 10-year sovereign bond yields rose 5bps, the biggest gains in two months, to 2.96%. Looking ahead, upcoming reports on third-quarter company profits which start this week are seen as the next potential pressure point in a market already under siege from slowing global growth, sticky inflation and tighter monetary policies. Global earnings revisions are sliding - an omen for U.S. stocks that have taken their cue from rising earnings estimates all year. “The coming earnings’ season in the U.S. will be heavily scrutinized for pricing power, margins and clues on the shortage situation, as well as wage pressures,” according to Geraldine Sundstrom, a portfolio manager at  Pacific Investment Management Co. in London. “Already a number of large multinationals have issued warnings about production cuts and downgraded their Q3 outlook due to supply chain and labor shortages.” Market Snapshot S&P 500 futures down 0.3% to 4,371.25 STOXX Europe 600 down 0.2% to 456.41 German 10Y yield up 1.5 bps to -0.135% Euro little changed at $1.1568 MXAP up 0.8% to 196.45 MXAPJ up 0.7% to 642.13 Nikkei up 1.6% to 28,498.20 Topix up 1.8% to 1,996.58 Hang Seng Index up 2.0% to 25,325.09 Shanghai Composite little changed at 3,591.71 Sensex up 0.5% to 60,358.30 Australia S&P/ASX 200 down 0.3% to 7,299.79 Kospi down 0.1% to 2,956.30 Brent Futures up 1.9% to $83.98/bbl Gold spot down 0.1% to $1,755.02 U.S. Dollar Index up 0.11% to 94.17 Top Overnight News from Bloomberg The U.S. labor market will see “ups and downs” as the pandemic lingers, but it’s premature to judge that the recovery is in peril, said San Francisco Federal Reserve President Mary Daly Treasury Secretary Janet Yellen said she expects Congress to take action soon to bring the U.S. into line with a global minimum tax agreed on last week by 136 countries Chinese builders are looking to payment extensions or debt exchanges to avoid default on imminent bond obligations as liquidity conditions tighten for the real estate sector Austria will get a new chancellor, though the career diplomat stepping into Sebastian Kurz’s shoes is a close ally of the departing conservative leader who resigned over a corruption scandal Just because pandemic inflation is transitory doesn’t mean it’s going away anytime soon. That’s the awkward conclusion that policy makers and investors are arriving at, as prices accelerate all over the world. European natural gas has climbed 25% in two weeks, and oil topped $80 for the first time since 2014. Fertilizers hit a record on Friday, which means food prices -- already at a 10- year peak -- will likely rise even higher A more detailed summary of overnight news from Newsquawk Asia-Pac stocks traded mostly positive but ended the day somewhat mixed after having shrugged off the early weakness stemming from last Friday’s lacklustre performance stateside and disappointing NFP jobs data. Note, markets in Taiwan and South Korea were closed. ASX 200 (-0.3%) was the laggard with underperformance in tech, consumer stocks and defensives overshadowing the gains in commodities and with Star Entertainment the worst hit with losses of more than 20% after media outlets alleged that it enabled suspected money laundering, organised crime, fraud and foreign interference which the Co. said were misleading reports. However, downside for the index was limited as New South Wales businesses reopened from the lockdown that lasted for over three months. Nikkei 225 (+1.6%) reversed opening losses as exporters cheered a weaker currency and with the government mulling over JPY 100bln financial support for chip factory construction. Hang Seng (+2.0%) and Shanghai Comp. (Unch) were both positive following talks between China's Vice Premier Liu He and USTR Tai on Saturday in which China was said to be negotiating for a cancellation of tariffs and sanctions. The advances in Hong Kong were led by tech stocks including Meituan despite the Co. being fined CNY 3.4bln by China’s market regulator for monopolistic behaviour, as the amount was seen to be a slap on the wrist, while the gains in the mainland were only mild as participants also reflected on the substantial liquidity drains by the PBoC totalling a net CNY 510bln since Saturday. Finally, 10yr JGBs were pressured amid the gains in Japanese stocks and lack of BoJ purchases in the market, while price action was also not helped by the continued weakness in T-note futures amid the semi-holiday conditions in US for Columbus Day in which the NYSE and the Nasdaq will open but bonds trading will remain shut. Top Asian News Australian IPOs Heading for Biggest Haul Since 2014: ECM Watch Syngenta’s Shanghai IPO Proposal Suspended For Earnings Update China Junk-Rated Dollar Bond Rout Deepens Amid Builder Worries China’s 10-Year Bond Yield Jumps By The Most Since August Bourses in Europe are mostly but modestly lower (Euro Stoxx 50 -0.1%, Stoxx 600 -0.2%) whilst the FTSE 100 (+0.2%) bucks the trend, owing to firm performances in its heavyweight sectors. US equity futures meanwhile trade within tight ranges with broad-based losses of some 0.3-0.4%. Fresh fundamental catalysts have remained light, although inflation and stagflation remain on traders' minds heading into this week's US and Chinese inflation metrics and against the backdrop of rising energy prices. Thus, the sector configuration sees Basic Resources, Oil & Gas and Banks at the top of the bunch, whilst the downside sees Travel & Leisure, Real Estate and Retail, with no overarching theme to be derived. Basic Resources is the marked outperformer as base metals are bolstered in what seems to be a function of the coal shortage in Asia, with iron ore contracts also surging overnight and copper following suit, in turn boosting the likes of Rio Tino (+3.2%), Antofagasta (+3.1%), Glencore (+3.1%), BHP (+2.8%). The top of the Stoxx 600 is dominated by metal names. In terms of individual movers, Carrefour (-2.2%) is softer after sources stated that exploratory talks over a Carrefour-Auchan tie-up ended due to the complexity of the deal. Evotec (+0.7%) holds onto gains as it seeks a Nasdaq listing. Roche (+0.6%) and Morphosys (+3.7%) underpin the health sector after the Cos received Breakthrough Therapy Designation from the US FDA for gantenerumab for the treatment of Alzheimer's disease. Top European News BOE Officials Double Down on Signals of Imminent Rate Hike Brexit Clash on Northern Ireland Means Headaches for Johnson Asos CEO Beighton Steps Down as Sales Growth Slows Adler Shares Flounder After Asset Disposal Plan, Past M&A Report In FX, the Aussie has secured a considerably firmer grip of the 0.7300 handle vs its US rival as COVID-19 restrictions are relaxed in NSW and base metals tread water after a mostly positive APAC equity session overnight. However, Aud/Usd is also firmer on the back of ongoing Greenback weakness and long liquidation from what some are calling ‘stretched’ levels of IMM positioning going in to Friday’s NFP release, while the Aud/Nzd cross has rebounded further above 1.0550 in wake of a rise in NZ virus cases that has prompted the PM to keep Auckland on level 3 alert for another week pending review. Hence, Nzd/Usd is capped around 0.6950 and continues to lag on the unwinding of Kiwi longs built up in advance of last week’s universally anticipated 25 bp RBNZ hike. Back to the Buck, but looking at the index in relation to where it was before and after the latest BLS report, 94.000 is providing some underlying support on Columbus Day that is not a full US market holiday, but will see cash Treasuries remain closed. Moreover, the DXY is gleaning momentum within a narrow 94.028-214 range via marked Yen underperformance amidst the latest rout in bonds and more pronounced technical impulses as Usd/Jpy extends beyond 112.50 and sets yet another 2021 peak around 112.95. GBP - Sterling is taking up post-payrolls Dollar slack as well, but firmer in its own right too as comments from BoE Governor Bailey and MPC member Saunders add to the growing expectation that rate hikes may be delivered sooner than had been expected before the former revealed that policy-setters were evenly divided at 4-4 in August on the subject of minimum criteria being achieved for tightening. Cable is hovering under 1.3650 and Eur/Gbp is sub-0.8500 in response, with the latter not really fazed by the UK-EU rift on NI protocol. CAD/NOK - The Loonie remains firm against its US peer after the stellar Canadian jobs data and Usd/Cad continues to probe support/bids at 1.2450 against the backdrop of strength in oil prices that is also keeping the Norwegian Krona afloat and Eur/Nok eyeing deeper sub-10.0000 lows irrespective of marginally mixed vs consensus inflation metrics. CHF/EUR/SEK - All rather rangy, aimless and looking for inspiration or clearer direction as the Franc straddles 0.9275 vs the Greenback, but remains firmer against the Euro above 1.0750 following only a faint rise in Swiss domestic bank sight deposits. Meanwhile, the Euro is pivoting 1.1575 vs the Buck and looks hemmed in by decent option expiry interest just outside the range given.1 bn rolling off between 1.1540-50 and 1.6 bn from 1.1590-1.1600 at the NY cut. Elsewhere, the Swedish Crown is slipping on risk-off grounds towards 10.1250 having tested resistance circa 10.1000. In commodities, WTI and Brent front-month futures continue the upward trajectory seen during the APAC session, with the complex underpinned heading into the winter period and against the backdrop of higher gas prices. The gains have been more pronounced in the US counterpart vs the global benchmark with no clear catalysts behind the outperformance, although this may be a continuation of the unwind seen after reports suggested a release of the US SPR (Strategic Petroleum Reserve) is unlikely. For context, reports of such a release last week took the WTI-Brent arb to almost USD 4.2/bbl vs USD 2.7/bbl at the time of writing. Furthermore, there have also been reports of lower US production under President Biden's "build back better" initiative, which puts more weight on renewable energy, with some energy analysts also suggesting that OPEC+ sees less of a threat from a "shale boom" as a result. Back to price action, WTI has been in the limelight after topping the USD 80/bbl overnight and extending gains to levels north of USD 81.50/bbl (vs low 79.55/bbl), whilst the Brent Dec contract topped USD 84.00/bbl (vs low USD 82.50/bbl). In terms of other news flow, sources suggested the fire at Lebanon's Zahrani fuel tank has been put out after the energy minister suggested the fire was contained – the cause of the fire is not yet known. Gas prices also remain elevated with UK nat gas futures relatively flat on the day but still north of GBP 2/Thm vs GBP 1/Thm mid-August and vs GBP 4/Thm last week, whilst the Qatari Energy Minister said he is unhappy about gas prices being high amid negative follow-through to customers. Over to metals, spot gold and silver are somewhat lacklustre, but with magnitudes of price action contained, with the former meandering just north of USD 1,750/oz and the latter above USD 22.50/oz heading into this week's key risk events. Overnight, iron ore futures were bolstered some 10% in Dalian and Singapore Exchanges amid fears of coking coal supply shortages - coking coal is an essential input to produce iron and steel. Traders should also be cognizant of the Chinese metrics released this week as another elevated PPI metric could see the release of more state reserves, as had been the case over the recent months. Using the Caixin PMIs as a proxy for the release, the PMI suggested sharp increases in both input costs and output prices – largely owed to supply chain delays, with the "rate of inflation was the quickest seen for four months, amid reports of greater energy and raw material costs. This, in turn, led to a solid increase in prices charged". The measure for output prices its highest in three months, whilst "the pressure of rising costs was partly transmitted downstream to consumers, as the demand was not weak." US Event Calendar Nothing major scheduled DB's Jim Reid concludes the overnight wrap A reminder that it’s Columbus Day today where US bond markets are closed. Equity markets are open but expect it to be quiet. Ahead of this, this morning we have published our latest monthly survey results covering over 600 global market participants. See here for more. For the first time since June, the biggest perceived risk to markets is now higher yields and inflation, whilst direct Covid-19 risks are out of the top 3 for the first time. A further equity correction before YE remains the consensus now. 71% expect at least another 5% off equities at some point before YE (68% correctly suggested that last month). A very overwhelming 84% thought the next 25bps move in 10yr US Treasury yields would be up. Of some additional interest is that the definition of stagflation is varied but that the majority think it’s a high or very high risk for the next 12 months. The extreme of this view surprised me. While I’ve long thought the market has underestimated the inflation risks I would still say there is enough of a growth cushion for 2022. However it’s clear the risks have built. Anyway, lots more in the survey. Thanks for filling it in and see the results for details. The week ahead will centre around the US CPI release on Wednesday but it might be a touch backward looking given that energy has spiked more recently and that used car prices are again on the march after a late summer fall that will likely be captured in this week’s release. Elsewhere, we’ve got a potentially more challenging US earnings season than that seen over the last year will commence with the big financials from Wednesday. In addition minutes from the last FOMC will give clues to the latest taper thinking on Wednesday as well. The IMF/World Bank meetings will generate plenty of headlines this week with their latest world outlook update tomorrow the highlight. The best of the rest data wise consists of JOLTS (Tuesday),which we think is a better labour market indicator than payrolls albeit a month behind, US PPI (Thursday) which will give a scale of building pipeline price pressures, US retail sales and UoM consumer sentiment (Friday), and China’s CPI and PPI (Thursday). With all that to look forward to, markets have started the week on a strong note, with equity indices including the Hang Seng (+2.02%), Nikkei (+1.57%), CSI (+0.32%) and Shanghai Composite (+0.32%) all moving higher, whilst the Kospi (-0.11%) has seen a slight decline. Japanese stocks have been buoyed by comments from new PM Kishida over the weekend that he isn’t currently considering changes to the country’s capital-gains tax. That comes with just 20 days remaining until the country’s general election. Separately in China, the country’s energy woes continue with 60 of 682 coal mines closed in the Shanxi province due to heavy floods, with Chinese coal futures up +8.00% this morning. And the property market issues are continuing to persist, with a new Chinese developer Modern Land seeking a 3 month extension to a $250 million dollar bond due to mature on October 25. By the end of last week, a Bloomberg index of Chinese junk-rated dollar bonds had seen yields climb to a decade-high above 17%, so clearly one to still look out for. Unlike in Asia, equity futures are pointing lower in the US and Europe this morning, with those on the S&P 500 down -0.21%. In terms of the main highlight it’s clearly US CPI mid-week. Given my views that inflation risks have been massively understated this year I’ve been saying for months that these reports have potentially been the most important monthly data we have seen for years. But since they mostly come and go with a “meh… mostly transitory” and a relative whimper, I’ve clearly been wrong to over hype them. So ignore me when I say that this month’s report might not be that interesting. With energy soaring over the last month and signs of inflation pressures continuing to build elsewhere then I’m not sure we can read too much into this month’s figures. Take used cars. Given the 2-3 month lag between actual prices and their CPI impact, this month will more than likely reflect a softening of prices in the summer. However September saw prices rise +5.4% so this will probably show up towards the end of the year along with the recent rise in energy costs. Our economists expect a +0.41% headline (vs. +0.27% previously) and +0.27% core (vs. +0.10%) mom rate. This is a bit above consensus and would take the yoy rate to 5.4% (up a tenth) and 4.1% (unch) respectively. Speaking of inflationary pressures, this morning has seen energy prices take a further leg higher, with WTI oil (+1.90%) moving back above $80/bbl for the first time since late 2014, whilst Brent crude (+1.42%) has moved above $83/bbl. European natural gas prices will continue to be an important one to follow amidst the astonishing price surge there, but the declines at the end of last week mean prices finished the week down by more than -45% since their intraday peak on Wednesday, before the comments from Russian President Putin that brought down prices. The rest of the day-by-day calendar is at the end as usual but although it’s a second tier release normally, tomorrow’s JOLTS will be interesting in as far as it might confirm that the main labour problems in August were a lack of supply rather than demand. The report’s full value is reduced by it being a number of weeks out of date but there’s a reasonable argument for saying that this is a better gauge of the state of the labour market than the payroll release. We go through Friday’s mixed report at the end when looking back at last week. Outside of data, it’s that time again as earnings season gets going, with a number of US financials kicking things off from mid-week. In terms of the highlights, we’ll hear from JPMorgan Chase, BlackRock and Delta Air Lines on Wednesday. Then on Thursday, we’ll get UnitedHealth, Bank of America, Wells Fargo, Morgan Stanley, Citigroup, US Bancorp and Walgreens Boots Alliance. Finally on Friday, we’ll hear from Charles Schwab and Goldman Sachs. For more info on the upcoming earnings season, you can read DB’s equity strategists Q3 S&P 500 preview here. Back to markets, it was interesting over the weekend that the BoE’s Saunders chose to endorse market expectation of an earlier start to the hiking cycle in the UK rather than push back against it. He is on the more hawkish end of the spectrum but it was an important statement. Earlier, Governor Bailey suggested that there could potentially be a very damaging period of higher inflation ahead if policy makers didn’t react. Interestingly our survey showed that the market thinks the BoE is likely to make a policy error by being too hawkish so a battle seems likely to commence over policy here in the UK over the coming weeks and months. The November meeting appears live. Those comments have helped to support the pound this morning, which is up by +0.16% against the US Dollar. Looking back to last week now, risk sentiment was supported in the first full week of Q4 by easing European energy prices and a cease fire on the debt ceiling that avoided disaster and bought Washington lawmakers 8 weeks to find a more permanent solution. Global equity indices thus gained on the week: the S&P 500 picked up +0.79%, with a slight -0.19% pullback on Friday, and European equities kept pace with the STOXX 600 rallying +0.97% (-0.28% on Friday). Cyclical stocks led the way on both sides of the Atlantic; energy stocks were among the best performers whist financials benefitted from higher yields and a steeper curve. Speaking of which, US 10yr Treasury yields gained a punchy +14.1bps to close the week at 1.603%, their highest levels since early June. The benchmark gradually increased 3.0bps after Friday’s employment data. Inflation compensation continued to drive rate increases, as US 10yr breakevens gained +13.5 bps to finish the week at 2.515%. We need to go back to May to find higher levels. The sovereign yield increases were global in nature, with German bunds gaining +7.3bps and UK gilts +15.6bps higher. German 10yr breakevens gained +3.9bps while UK breakevens were +12.0bps higher. US nonfarm payrolls increased +194k in September, well below consensus expectations of a +500k gain, though private payrolls increased +317k and net two month revisions were up +169k. The unemployment rate ticked down to a post-pandemic low of 4.8% on the back of a declining labour force participation rate. Average hourly earnings were robust, increasing +0.6% mom (+0.4% expected). Taken in concert, the print likely cleared the (admittedly low) bar to enable the FOMC to announce tapering at the November meeting, whilst also feeding the creeping stagflation narrative (see survey results). Elsewhere, building on a preliminary July deal, the OECD said 136 nations have signed up to implement a 15% minimum global tax rate to address adequate taxation of multinational tech firms. As part of the deal, countries agreed not to impose any additional digital services taxes.       Tyler Durden Mon, 10/11/2021 - 08:12.....»»

Category: blogSource: zerohedgeOct 11th, 2021

Ride Out the Volatile October Month With These ETFs

Low-volatility products could be fascinating picks for those seeking steady investment in equities amid the current market volatility. After a seasonally weak month like September comes October, which carries the reputation of being volatile. It’s been just four trading days and the month has already been showing volatile straits. The Dow Jones Industrial Average rose 483 points on Oct 1, fell 324 points on Oct 4 and climbed 312 points on the third trading day of the month. Finally, on Oct 6, the Dow Jones swung over 550 points. In this regard, Ryan Detrick of LPL Financial has said that “Well, October is sure living up to its reputation as the most volatile month of the year. We expect the October roller-coaster market to stick around for a bit longer,” per a CNBC article.Investors may have to handle certain issues like inflationary pressures, supply chain challenges, probabilities of Fed tapering the fiscal stimulus, China’s Evergrande crisis along with concerns over a debt-ceiling breach in October. These factors can also keep the stock market volatile.The rapid spread of the COVID-19 Delta variant has resulted in a section of market analysts and financial experts curtailing their forecast for third-quarter U.S. economic growth.Notably, higher inflationary pressure might persist next year owing to prolonged supply-chain disruptions due to the pandemic. Fed Chairman Jerome Powell has also signaled that the central bank will begin tapering its $120 billion per month bond-buy program possibly this year, and the first hike in interest rates may happen as early as the second half of 2022. Consequently, yields on government bonds have been spiking significantly.Commenting on the market conditions in October, CFRA chief investment strategist Sam Stovall has said that “Q4 2021 will likely record a higher-than-average return. However, investors will need to hang on tight during the typically tumultuous ride in October, which saw 36% higher volatility when compared with the average for the other 11 months,” as stated in a CNBC article.Meanwhile, the news' optimism highlighting positive updates on Merck (MRK) and Ridgeback Biotherapeutics’ investigational oral antiviral medicine, molnupiravir, can support the market. The update supports the spaces expected to gain from the reopening of economies as molnupiravir will help fight against COVID-19, if approved by the FDA.Going on, U.S. consumer sentiment marginally improved despite rising concerns about coronavirus cases and inflation levels. The University of Michigan’s preliminary consumer sentiment inched up to 71 in September from 70.3 last month, per a BloombergQuint article.The strength in consumer sentiment can be the primary driving force behind the solid performance by the consumer discretionary space as consumers are expected to splurge this holiday season after being restricted for more than a year.According to the Bespoke Investment Group, the Dow Jones Industrial Average has risen 60% of the time in October over the past 50 years, averaging an increase of 0.5% (per a CNBC article). The market index was negative with an average loss of 0.9%, most of the time in September.Low-Volatility ETFs to the RescueLow-volatility products could be intriguing choices for those who want to continue investing in equities in turbulent market conditions. Consider the following exciting options:iShares MSCI USA Min Vol Factor ETF USMVThis fund offers exposure to 183 U.S. stocks with lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility (USD) Index. With AUM of $27.00 billion, the product charges 0.15% in expense ratio (read: September's Weak History Turning True: 5 ETF Buying Zones).Invesco S&P 500 Low Volatility ETF SPLVThis ETF provides exposure to stocks with the lowest realized volatility over the past 12 months. The fund is based on the S&P 500 Low Volatility Index and holds 102 securities in its basket. It has AUM of $7.48 billion and charges an expense ratio of 25 basis points (bps) as stated in the prospectus (read: Growth Concerns to Drive Demand for Low-Volatility ETFs).iShares MSCI Global Min Vol Factor ETF ACWVThe fund provides exposure to global stocks with potentially less risk. The fund tracks the MSCI All Country World Minimum Volatility Index and holds 399 securities. It has AUM of $5.13 billion and charges 20 bps in annual fees.Invesco S&P 500 High Dividend Low Volatility ETF SPHDThe fund seeks investment results that generally correspond (before fees and expenses) to the price and yield of the S&P 500 Low Volatility High Dividend Index. It holds 51 securities. The fund has AUM of $2.95 billion and charges 30 bps in annual fees (read: ETF Strategies to Play Rising U.S. Treasury Yields). Breakout Biotech Stocks with Triple-Digit Profit Potential The biotech sector is projected to surge beyond $2.4 trillion by 2028 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases. Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Recommendations from previous editions of this report have produced gains of +205%, +258% and +477%. The stocks in this report could perform even better.See these 7 breakthrough stocks now>>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report iShares MSCI USA Min Vol Factor ETF (USMV): ETF Research Reports Invesco S&P 500 High Dividend Low Volatility ETF (SPHD): ETF Research Reports Invesco S&P 500 Low Volatility ETF (SPLV): ETF Research Reports iShares MSCI Global Min Vol Factor ETF (ACWV): ETF Research Reports To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksOct 8th, 2021

Futures Tumble As Nat Gas Prices Explode, Stagflation Fears Surge

Futures Tumble As Nat Gas Prices Explode, Stagflation Fears Surge In our market comments on Tuesday we were stunned by the resilient surge in tech names and the broader market, even as yields soared on the biggest jump in breakevens since the presidential election, noting that something is very broken with this picture. Well, one day later normalcy is back: US stock index futures tumbled as much as 1.3% on Wednesday before paring some losses, after soaring oil and gas prices (rising as much as 40% in Europe today alone) fed into fears of higher inflation and fueled concerns of sooner-than-expected tapering, which in turn pushed 10Y yields just shy of 1.57%. At 730 a.m. ET, Dow e-minis were down 309 points, or 0.9%, S&P 500 e-minis were down 49 points, or 1.12%, and Nasdaq 100 e-minis were down 181 points, or 1.23%, to the lowest level since June 25 on a closing basis, signaling more downside for tech shares after Tuesday’s short reprieve Up to Tuesday’s close, the S&P 500 index logged its fourth straight day of 1% moves in either direction. According to Reuters, the last time the index saw that much volatility was in November 2020, when it rose or fell 1% or more for seven straight sessions. The selloff was much more severe in Europe, with the Stoxx 600 falling as much as 2% to a 2 month low, with every industry sector firmly in the red as the region’s natural gas prices soared to catastrophic levels... ... even as the European Union pledged swift action to ensure the spiking costs don’t stifle the economy (it just didn't explain precisely what it would do). Asian stocks also dropped amid continued China property contagion fears. The 10-year TSY yield touched their highest since June, slamming shares of mega-cap FAAMGs; tech shares led the stocks selloff Apple (AAPL US -1.5%), Facebook (FB US -1.6%), Microsoft (MSFT US -1.6%), Tesla (TSLA US -1.4%) down in U.S. premarket trading. Economy-sensitive parts of the market also came under pressure, with lenders such as Bank of America Corp , JPMorgan Chase & Co and Morgan Stanley shedding more than 1% each. Boeing and industrial conglomerates Caterpillar Inc and 3M Co dropped between 0.8% and 2.0%. Ironically, even though Brent remained well above $82, energy names also slumped with Exxon sliding 1% on what appears to be profit taking to plug margin holes elsewhere. American Airlines’ shares fell 3.7% in U.S. premarket session after Goldman cut its recommendation for the stock to sell. Meanwhile, Palantir Technologies extended its gains to rise 9.3% as the company said it won a U.S. Army contract to supply data and analytics services. Here are some of the other notable market movers: Gogo (GOGO US) drops 5.3% in U.S. premarket trading after Morgan Stanley downgrades to underweight, with competitive landscape expected to pressure valuation and free cash flow over coming year American Airlines (AAL US) slides 3.6% in U.S. premarket trading on Goldman Sachs downgrade, according to Bloomberg data U.S. Steel (X US) down more than 5% in U.S. premarket trading on Goldman Sachs downgrade, according to Bloomberg data Calyxt (CLXT US) shares jump 5.4% premarket after the company said it will focus on engineering synthetic biology solutions for customers across the nutraceutical, cosmeceutical, pharmaceutical, advanced materials, and chemical industries Indus Realty Trust (INDT US) fell postmarket Tuesday after launching a 2 million stock offering Noodles & Co. (NDLS US) shares rose 2% in Tuesday postmarket trading after Stephens started coverage with an overweight rating, saying the restaurant chain is poised for strong growth that should lead to higher multiples Allison Transmission (ALSN US) is accelerating the development of electrification technology for integration into the U.S. Army’s ground combat vehicle fleet Palantir (PLTR US) shares rise 14% in U.S. premarket trading after the the software company said Tuesday it was selected by the U.S. Army to provide data and analytics for the Capability Drop 2 program "Right now you’re seeing inflation risk really start to percolate and I do think that you’re going to see that really eat into margins as we go through the fourth quarter into 2022,” Erin Browne, multi-asset portfolio manager at Pimco, said on Bloomberg Television. “The energy crisis that’s starting to loom in Europe is a real risk that is being underestimated by the market right now." “The spike in energy prices continue fueling expectations of higher inflation for longer. Therefore, central banks will be forced to cool down the overheating in inflation rather than trying to boost recovery,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “Any weakness in the jobs figure could send the U.S. equities back below their 100-dma levels, as soft economic data could no longer revive the central bank doves." As such, all eyes will be on the U.S. private payrolls data, due at 8:15 a.m. ET. The numbers come ahead of the more comprehensive non-farm payrolls data on Friday, which is expected to cement the case for the Federal Reserve’s slowing of asset purchases. Meanwhile, a stalemate over Republicans and Democrats about the debt limit showed no sign of abating, with President Joe Biden saying that his Democrats might make an exception to a U.S. Senate rule to allow them to extend the government’s borrowing authority without Republican help. European stocks fell even more, with the Stoxx Europe 600 index plunging 2% to lowest since July 20; Travel, autos and retail names are the weakest sectors although all Stoxx 600 sub-indexes are off at least 1%, tech was also underperforming. As noted above, gas prices remain a focal pressure point with several measures hitting record levels. Here are some of the biggest European movers today: Adler shares extend decline to 21% in Frankfurt after Viceroy Research publishes a report saying it is short Adler Group SA and its listed subsidiaries. Deutsche Telekom shares fall 4%, close to the level at which Goldman Sachs offered about EU1.5b worth of shares, as part of a deal to swap some of Softbank’s T- Mobile stake for one in Deutsche Telekom. Ambu shares fall as much as 8.1%, most since Aug. 17, after company cut its FY financial outlook. IP Group shares drop as much as 8.1%, their worst day in nine months, after CEO Alan Aubrey and CIO Mike Townend retire. GN Store Nord shares rise as much as 7.5% as it agrees to buy SteelSeries, a maker of software-enabled gaming gear, from Nordic private equity company Axcel for an enterprise value of DKK8b on a cash and debt-free basis. Tesco shares rise as much as 4.6% to an eight-month high after Britain’s biggest supermarket operator said it will buy back GBP500m of stock and raised its FY profit forecast. HSBC rises as much 2.5% as UBS upgrades the Asia-focused lender to buy from neutral, saying the market is taking a risk by being underweight. PageGroup shares jump as much as 6.9%, most since April, as the staffing firm boosts its profit forecast. Peer Hays also gains. Dustin shares jump as much as 11%, most since April 13, after the IT solutions provider’s Ebit for the fourth quarter beat the average analyst estimate. Atlantic Sapphire gains as much as 15% as Pareto sees improvements ahead. Asian stocks headed for their longest losing streak since August as a selloff in the heavyweight tech sector deepened amid rising Treasury yields. The MSCI Asia Pacific Index declined as much as 0.8%, in its fourth day of decline, with Samsung and Tencent among the biggest drags. A benchmark tracking Chinese technology stocks in Hong Kong closed at a record low. Japan’s Nikkei 225 and South Korea’s Kospi were the biggest losers, sliding more than 1% each. China Tech Stock Gauge Falls to Test Record Low as Yields Rise Investors have yet to digest issues such as the inflation outlook, among other concerns including gridlock over the U.S. debt ceiling and higher global energy prices. The MSCI Asia Pacific Index is approaching year-to-date lows seen in August.  “At the moment, given all the uncertainties regarding the growth, inflation and policy outlooks, we are still in the middle of the tempest, so to speak,” Kyle Rodda, an analyst at IG Markets, said by email.  Indonesian, Malaysian and Philippine stock benchmarks were among the region’s best performers. In Japan, the Topix closed 0.3% lower while the Nikkei225 capped its worst daily losing streak since July 2009 and entered a technical correction, as Japanese equities tumbled while Treasury yields climbed. Fast Retailing Co. and Tokyo Electron Ltd. were the largest contributors to a 1.1% loss in the Nikkei 225, which fell for an eighth-straight day. The gauge, which had risen as much as 1.4% earlier in the day, closed more than 10% down from its September high. The broader Topix dipped 0.3%, erasing an early 1.6% advance, driven by losses in automakers. Banks climbed on the spike in Treasury yields. Japanese stocks had opened the day higher, following a rebound in U.S. shares. Both major gauges fell for a seventh day Tuesday amid market disappointment with the new government and a host of threats to global economic growth. ‘Kishida Shock’ Hits Japan Markets Wary of Redistribution Plan “Technicals such as RSI and Bollinger are showing that these moves may have been overdone in the short term, but Japan is hostage to the continued global concerns regarding inflation, supply chains and Chinese credit along with PM Kishida’s ‘new capitalism’ concept,” said Takeo Kamai, head of execution services at CLSA Securities Japan Co Australia's S&P/ASX 200 index fell 0.6% to close at 7,206.50, reversing an earlier advance of as much as 0.4%. Banks contributed the most to the benchmark’s decline after Australia’s banking regulator raised loan buffers in a bid to cool the nation’s booming housing market. a2 Milk was the worst performer after a class action lawsuit was filed against the company. Whitehaven was the top performer, rising for a fourth straight day.  In New Zealand, the S&P/NZX 50 index fell 0.3% to 13,166.44. The nation’s central bank raised interest rates for the first time in seven years and signaled further increases will likely be needed to tame inflation. The RBNZ lifted the official cash rate by a quarter percentage point to 0.5%. In rates, Treasuries were off their worst levels of the day after the 10Y yield rose briefly topped 1.57%, and remained cheaper by more than 2bps across long-end. The 10-year yield was around 1.55%, cheapest since June 17; U.K. 10-year cheapens by further 1.8bp vs U.S., German 10-year by 0.5bp. In the U.K., the 10-year breakeven rate climbed above 4%, twice the Bank of England’s target, spurred by soaring energy costs. Money markets have almost fully priced a rate hike as soon as December, in what would be the central bank’s first increase in over three years. Peripheral spreads widen to core with long-dated BTPs widening ~3bps to Germany. In FX, USD is well bid with risk assets trading poorly. Bloomberg dollar index rises 0.5%, pushing through last Friday’s highs. NZD, NOK and AUD are the weakest in G-10. Crude futures trade a narrow range near Asia’s opening levels. WTI is down 0.4% near $78.60, Brent briefly trades above $83 before dipping into the red. Spot gold extends Asia’s weakness to print fresh lows for the week near $1,745/oz. Base metals are in the red. LME copper the worst performer, dropping 1.9% to trade near the $9k mark. In commodities, crude futures trade a narrow range near Asia’s opening levels. WTI is down 0.4% near $78.60, Brent briefly trades above $83 before dipping into the red. Spot gold extends Asia’s weakness to print fresh lows for the week near $1,745/oz. Base metals are in the red. LME copper the worst performer, dropping 1.9% to trade near the $9k mark Elsewhere, Bitcoin traded around the $51,000 mark. Looking at the day ahead, data releases include German factory orders for August, the German and UK construction PMIs for September, Euro Area retail sales for August, and the ADP’s September report on private payrolls from the US. From central banks, we’ll also hear from the ECB’s Centeno. Market Wrap S&P 500 futures down 0.9% to 4,294.75 STOXX Europe 600 down 1.5% to 449.34 MXAP down 0.7% to 191.25 MXAPJ down 0.8% to 622.40 Nikkei down 1.1% to 27,528.87 Topix down 0.3% to 1,941.91 Hang Seng Index down 0.6% to 23,966.49 Shanghai Composite up 0.9% to 3,568.17 Sensex down 0.2% to 59,596.78 Australia S&P/ASX 200 down 0.6% to 7,206.55 Kospi down 1.8% to 2,908.31 Brent Futures up 0.1% to $82.67/bbl Gold spot down 0.7% to $1,747.69 U.S. Dollar Index up 0.32% to 94.28 German 10Y yield up 2 bps to -0.168% Euro down 0.3% to $1.1560 Top Overnight News from Bloomberg Boris Johnson’s insistence that higher pay for U.K. workers is worth the pain of supply chain turmoil is generating buzz among Conservative Party members that he’s planning to raise the minimum wage in a keynote speech on Wednesday European energy prices extend their blistering rally as the supply crunch shows no sign of easing and the European Union pledged a quick response to keep the crisis from damaging the economy Chinese Fantasia Holdings Group Co., which develops high-end apartments and urban renewal projects, failed to repay a $205.7 million bond that came due Monday. That prompted a flurry of rating downgrades late Tuesday to levels signifying default. The stumble stirred broader angst in volatile markets amid public holidays in China and uncertainty about Evergrande President Emmanuel Macron nominated Bank of France Governor Francois Villeroy de Galhau for a second term, opting for stability in one of the most important appointment decisions on European Central Bank policy making for years to come The German Green Party is seeking to start exploratory talks with the SPD and liberal FDP party on forming a governing coalition, Green Party co-leader Annalena Baerbock said Saudi Arabia reduced oil prices for its main buyers, a day after OPEC+ sent crude futures surging by sticking to a plan for slow and steady supply increases A more detailed look at global markets courtesy of Newsquawk: Asia-Pac bourses traded mostly lower after failing to sustain the initial momentum from Wall St, where all major indices gained as investors bought back into tech and with sentiment helped by better-than-expected ISM services PMI, while continued upside in oil prices and a higher yield environment also underpinned energy and financials. This initially lifted the overnight benchmark indices although gains in the ASX 200 (-0.6%) were later reversed as the strength in energy and tech was overshadowed by weakness in the broader market including underperformance in the top-weighted financials sector after the regulator announced a loan curb measure targeting mortgage lending. Nikkei 225 (-1.1%) faded its opening gains and brief foray into 28k territory with auto names among the laggards amid ongoing production disruptions and with PM Kishida’s new cabinet beginning on shaky ground as polls showed his approval rating was at just 55% heading into the upcoming election, which was also the lowest for a new leader in 13 years, while KOSPI (-1.8%) gave up initial spoils with firmer than expected CPI data supporting the case for another hike by the BoK this year. Hang Seng (-0.6%) conformed to the soured mood amid weakness in property and biotech with participants also focusing on Chief Executive Lam’s final policy address of her current term where she proposed measures to address the housing issue, although this failed to lift the property sector as Evergrande concerns lingered after Hong Kong property agencies sued the Co. to recover overdue commissions and with shares in its New Energy Vehicle unit suffering double-digit percentage losses. Finally, 10yr JGBs were lower on spillover selling from T-notes and despite the downturn in stocks, while the absence of BoJ purchases in the market today added to the lacklustre demand with the central bank instead offering to buy JPY 125bln in corporate bonds from October 11th with 1yr-3yr maturities. Top Asian News China Tech Stock Gauge Falls to Record Low as Yields Rise Top Glove Says Cooperating in Investigation Over Worker’s Death China Resources Unit Said to Be in Talks for JLL China Business Asian Stocks Drop as Tech Selloff Deepens Amid Rising Yields Stocks in Europe have extended on the losses seen at the cash open (Euro Stoxx 50 -2.4%; Stoxx 600 -1.8%) with risk aversion intensifying from a downbeat APAC session as markets grapple with the prospect of stagflation, the energy crunch, Evergrande woes, and geopolitics. US equity futures have conformed to the losses across stocks with the ES (-1.3%) RTY (-1.5%), NQ (-1.5%) and YM (-1.0%) all softer, whilst the former two dipped under 4,300 and 2,200 respectively. From a news-flow standpoint, fresh catalysts have been light. Euro-bouses see broad-based losses whilst the FTSE 100 (-1.6%) is somewhat cushioned (albeit under 7k) by a softer sterling alongside some heavyweight individual stocks including HSBC (+3.3%) following a broker move, and Tesco (+4.5%) after topping H1 forecasts, raised guidance and a GBP 500mln share buyback scheme. Sectors in Europe are all in the red. Banks are the best of the bunch amid the favourable yield environment. On this note, SocGen suggested that the banking sector should benefit from the rise in yields and limited exposure to China, higher energy and supply-chain bottlenecks, while that market consolidation offers some opportunities in the European tech and industrial sectors. Back to sectors, the downside sees some of the more cyclical sectors including Travel & Leisure and Auto names. In terms of some individual movers, Deutsche Telekom (-5.6%) is hit after a bookrunner noted a share offering of some 90mln shares priced at a discount to yesterday’s close. Top European News German Greens Seek Talks With SPD, FDP on Post-Merkel Government European Industry Buckles Under a Worsening Energy Squeeze Polish Central Bank Unbowed Despite Price Spike: Decision Guide Bayer Shares Turn Lower After Initial Gains on Roundup Win In FX, the Dollar is firmly back in the driving seat and the index is eyeing YTD highs having reclaimed 94.000+ status amidst another sharp downturn in risk appetite just a day after what some pundits were dubbing as a ‘turnaround Tuesday’. Instead, Asia-Pacific bourses were reluctant to pick up the baton from Wall Street and the failure to keep the ball rolling against the backdrop of ongoing strength in gas and oil prices has rattled EU equities to the extent that the Dax has lost grip of the 15k handle and FTSE is down below 7k regardless of the fact that the UK benchmark has some positive impulses beyond the obvious revenue implications for the energy sector. Back to the DXY 94.448 is the best so far ahead of 94.500 for sentimental reasons and the current y-t-d peak just a fraction above at 94.504. In terms of fundamentals, next up for the Greenback is ADP as one of the usual pointers for NFP, while Fed speak comes from Bostic who is down to talk twice today. NZD/AUD - Ironically perhaps, the Kiwi is underperforming even though the RBNZ matched market expectations with a 25 bp OCR hike overnight, and this could well be described as a classic ‘buy rumour, sell fact’ reaction given that the move was all priced in. Moreover, the accompanying statement has not altered expectations for further measured tightening and this could compound the inclination to re-position/take profit/cut longs to the detriment of the Nzd. Indeed, the Kiwi has retreated from around 0.6980 vs its US rival to circa 0.6878 and is struggling to tread water on the 1.0500 mark against the Aussie that is also losing out to its US rival on the aforementioned risk dynamic, as Aud/Usd hovers towards the bottom end of 0.7295-0.7227 parameters ahead of AIG’s services sector index. CAD/GBP - Also somewhat perverse, though a measure of the degree that the market mood has changed since yesterday, the Loonie and Sterling are both struggling to derive much from the latest advances in WTI or Brent. In fact, Usd/Cad approached 1.2650 having breached the 50 DMA (1.2626) and pulling away from a cluster of decent option expiries that start at 1.2520-25 (1 bn) and continue through 1.2550-60 (2.1 bn) to 1.2600 (1 bn) and end between 1.2720-30 (1.5 bn, while Cable has reversed through 1.3600 and the 10 DMA (1.3592) with little assistance from a sub-consensus UK construction PMI. EUR/CHF/JPY - All unable to escape the Buck’s clutches, with the Euro down to a minor new 2021 low and probing barriers at 1.1550, while the Franc is treading water around 0.9300 and the Yen is thriving to keep tabs on 111.50 due to its renowned safe-haven properties, and with the prop of JGB yields reaching multi-month peaks, albeit in catch-up trade with US Treasuries and other global bonds. SCANDI/EM - Little solace for the Nok via Brent almost touching Usd 83.50/brl at one stage, though it is holding a firm line following its ascent beyond 10.0000 vs the Eur, while the Sek has largely taken mixed Swedish data and Riksbank rhetoric from Skingsley in stride (caution warranted and now is not the time to change monetary policy), but EM currencies are all floundering with the Try sliding to yet another record trough and on course to hit 9.0000. Ahead, the Zar will be looking for something supportive from SARB Governor Kganyago via a webinar on the economy, jobs and growth. RBNZ hiked the OCR by 25bps to 0.50% as expected and the committee noted further removal of monetary policy stimulus is expected over time. RBNZ added that it is appropriate to continue reducing the level of stimulus and that future moves are contingent on the medium term outlook for inflation and employment, while policy stimulus will need to be reduced to maintain price stability and maximum sustainable employment over the medium term. Furthermore, it noted that cost pressures are becoming more persistent and capacity pressures are still evident, but added that demand shortfalls are less of an issue than the economy hitting capacity constraints and that economic activity will rebound quickly as alert level restrictions ease. (Newswires) In commodities, WTI and Brent front month futures are choppy in early European trade with a downside bias amid the risk tone, but ultimately, prices remain near recent highs with the WTI Nov contract north of USD 78.50/bbl (78.25-79.78/bbl) and Brent Dec around 82/bbl (vs USD 81.92-83.47/bbl range) at the time of writing. Nat gas has once again been the focus in the energy complex, with the UK Nat Gas future surging some 40% intraday at one point, although its US counterpart has lost some steam. A lot of attention has been the Nord Stream 2 pipeline to alleviate some of the supply/demand imbalances in the gas market heading into the winter period. Yesterday, an EU lawmaker suggested that the pipeline does not comply with EU rules, although an EU court adviser noted that Nord Stream 2 could challenge the energy rule and the decision is not final. European natural gas futures climbed to a fresh all-time high. Back to crude, it’s worth being cognizant of the underlying demand that could be fed via the higher gas prices as other energy sources are more sought after, including diesel generators for electricity usually produced by Nat Gas. Over to metals, spot gold and silver are pressured by the firmer Buck with the former back under USD 1,750/oz and at session lows at the time of writing. The downbeat tone has also taken a toll on the base metals complex, with LME copper again dipping below the USD 9,000/t from a USD 9,135/t intraday peak. US Event Calendar 7am: Oct. MBA Mortgage Applications, prior -1.1% 8:15am: Sept. ADP Employment Change, est. 430,000, prior 374,000 DB's Jim Reid concludes the overnight wrap Risk appetite returned to markets yesterday, but not without some astonishing moves in commodities and inflation markets alongside a selloff in bonds. On top of that, we also had a fresh round of signals that supply-chain issues and inflation were beginning to have real economic impacts, thanks to the global September PMI readings. The most eye catching stat of the last 24 hours is probably that the UK’s index linked bonds are now implying that the April 2022 YoY UK RPI print will be c.7%. Thanks to DB’s Sanjay Raja for pointing this out to me. That’s the point in time where Ofgem next updates its price cap for utility bills. This comes after further astonishing moves in natural gas. In the UK, gas prices were up +19.54%, marking the biggest daily percentage increase in over a year and a +183.3% move since the start of August. 10 year UK breakevens closed at an incredible 3.979% (+9.6bps on the day). To be fair this is based on RPI not the CPI that other index linked markets are. As of early next year the UK is moving to a CPI-H benchmark so these numbers will come down but it’s still an astonishing reflection on expectations for 10-year average inflation numbers. Benchmark European natural gas futures weren’t much different and were up by +20.04% to a record €116.02 per megawatt hour. That’s also the biggest daily percentage increase in over a year, and the absolute increase of €19.37 is actually more than the level at which natural gas was trading as recently as Q1 this year! That leaves natural gas prices up more than six-fold since the start of the year, and up more than three-fold since the start of July. In comparison the US gas future was “only” up +9.20%, but still reached its highest closing level since December 2008. And oil itself saw another round of gains, with Brent Crude (+1.60%) rising to its highest in almost 3 years, at $82.56/bbl, whilst WTI was up +1.69% to $78.93/bbl, its highest since 2014. This fresh round of price surges has led to another spike in inflation expectations across multiple countries even in 10 year markets, so way beyond the transitory stage. We’ve already highlighted the UK number but the 10yr German breakeven (+7.6bps) saw its biggest daily increase in nearly a year, hitting a fresh 8-year high of 1.796%. Its Italian counterpart (+8.3bps) hit a new high for the decade at 1.715%. Even in the US, where breakevens have been trading in a fairly tight band recently, we saw a +6.8bps rise to 2.460%, which is its highest closing level in 4 months. With breakevens moving sharply higher, this was clearly bad news for sovereign bonds, which sold off on both sides of the Atlantic across different maturities. Yields on 10yr Treasuries were up +4.7bps to 1.53%, with the entirety of that move resulting from higher inflation expectations rather than real rates, which actually fell on the day (-2.0bps). Over in Europe, gilts saw the biggest declines as investors continue to anticipate a potential BoE rate hike in the coming months, with 10yr yields rising by a further +7.3bps, whilst the spread of UK 10yr yields over bunds actually widened to its biggest level since the day of the Brexit referendum in 2016. That said, yields were also moving higher on the continent, with those on 10yr bunds (+2.6bps), OATs (+2.5bps) and BTPs (+3.0bps) all moving to their highest level in 3 months. The case for inflation was given further support by the September PMI releases, which pointed to supply-chain issues across multiple countries. In the Euro Area, the composite PMI was revised up a tenth to 56.2, but the release said that input prices were rising at the joint-fastest on record. Over in the US, the composite PMI was also revised up half a point from the flash reading to 55.0, but the release similarly mentioned labour shortages and capacity constraints holding back growth. The US composite PMI of 55.0 was its lowest level in a year, albeit still above the 50-mark that separates expansion from contraction. The September US ISM services reading rose 0.2 to 61.9 (59.9 expected) with the report suggesting that delta variant concerns are easing as 17 of the 18 industries reported growth over the last month. However, there were still comments in the report highlighting supply chain issues and some inability to retain or hire labour. In spite of the renewed inflation concerns clouding the Q4 outlook, the major equity indices managed to post a decent rebound from Monday’s losses, although it’s worth noting that many were only recouping those declines rather than advancing to new heights. The S&P 500 was up +1.05%, so still just beneath where it started the week after Monday’s -1.30% decline, whilst the NASDAQ was up +1.25% and the FANG+ recovered +2.23%. It was the 4th straight day that the S&P 500 moved more than 1% in either direction, the longest such streak since November 2020. While yesterday saw a broad-based rally with 21 of the 24 S&P 500 industries gaining, financials were the big outperformer thanks to higher yields. The US Financials sectors added +1.78%, whilst in Europe the STOXX Banks index (+3.99%) hit a post-pandemic high, well outpacing the broader STOXX 600 (+1.17%). Overnight in Asia, most markets continued to slide with the Nikkei (-1.00%), Kospi (-1.00%), Hang Seng (-0.71%) and Australia’s ASX (-0.68%) all moving lower on the back of higher energy prices and inflation concerns. In Japan the Nikkei extended losses for an eighth consecutive session on concerns that new PM Fumio Kishida could be outlining a redistribution plan that includes higher taxes, including on capital gains, although he’s yet to outline the specifics of the policy. Separately the Reserve Bank of New Zealand joined the club of central banks raising rates, hiking by 25bps in a move that was the first rate rise in seven years, as they also indicated more hikes might be warranted. In terms of the latest on Evergrande, the firm is still yet to release details of the “major transaction” we mentioned on Monday, with the company’s shares still suspended, whilst Fantasia saw its long-term rating cut to selective default by S&P yesterday, down from CCC. US futures are pointing to further declines later with those on the S&P 500 down -0.39%. Turning to the ongoing debt ceiling saga, the US Senate has a cloture vote scheduled for today to suspend the ceiling, but Republican leadership are confident they can block the measure and force the Democrats to raise the debt ceiling unilaterally using the budget reconciliation process (which only requires a simple majority of votes in the Senate). So this would tie a move on the debt ceiling into the reconciliation bill that includes President Biden’s “Build Back Better” economic plan. However, the Democrats are maintaining that the reconciliation process takes too long, with the Treasury estimating it will run out of funding around October 18, and have made the case that both parties have a duty to raise the ceiling, since it reflects debts racked up under administrations of both parties rather than just the Democrats. Irrespective of the debt ceiling though, it does continue to sound like there’s movement toward a deal amongst Congressional Democrats on the size of the plan, withSenator Manchin (a key Democratic moderate) reportedly not ruling out a $1.9-2.2 trillion spending plan price tag, which is also the level that President Biden had been floating to House Democrats last week. Speaking of the Senate, yesterday Senator Elizabeth Warren had yet more strong words for Fed Chair Powell. Warren has already said she opposes giving Powell a second term as the Fed Chair, and yesterday’s speech criticised him for his lack of oversight of the trading activity of Federal Reserve officials. She said Powell has “failed as a leader” and that there are “legitimate questions about conflicts of interest and insider trading” around the actions of certain Fed Officials. This follows her actions on Monday, when she called the SEC to investigate Federal Reserve officials for insider trading. At the same time, Chair Powell asked its inspector general to conduct a review of trades made by Federal Reserve members to ensure they complied with the law and Fed rules. While a White House spokesperson said yesterday that President Biden continues to have confidence in Chair Powell, Senator Warren may be setting up to float an alternative candidate for Chair in the coming weeks ahead of Powell’s term ending early next year. To the day ahead now, and data releases include German factory orders for August, the German and UK construction PMIs for September, Euro Area retail sales for August, and the ADP’s September report on private payrolls from the US. From central banks, we’ll also hear from the ECB’s Centeno. Tyler Durden Wed, 10/06/2021 - 08:07.....»»

Category: dealsSource: nytOct 6th, 2021

Futures Rebound As Energy Prices Soar

Futures Rebound As Energy Prices Soar US equity futures and European markets rebounded from a tech rout on Monday that was triggered by fears of soaring energy costs, stagflation, tech overvaluation and escalating Chinese property distress even as Asian shares tracked Monday's broad Wall Street sell-off to weaken for a third straight session. The dollar rose and yields rebounded back ato 1.50% as the rise in oil continued, pushing Brent above $82/bbl. At of 7:15am ET, S&P futures were up 16.25 points, or 0.38%, to 4,307; Dow futs were up 116 points and Nasdaq futures rose 47.25 points as technology shares bounced in Europe. Bitcoin jumped above $50,000 for the first time since Sept 7. The “market correction, initially sparked by tapering expectations and China’s property sector worries, is now being driven by record energy prices as well as lingering political uncertainties in the U.S. about the crucial question of the debt ceiling,” said Pierre Veyret, a technical analyst at ActivTrades. “Markets are likely to stay volatile this week and with no clear direction until there is significant progress on the existing concerns.” Additionally, the recent calm in global markets which hit an all time high as recently as a few weeks ago, has been shattered by a growing wall of worry spanning a debt crisis in China, elevated inflation on the back of commodity supply shocks, fading economic recovery and U.S. political bickering. Meanwhile, investors brace for a tapering of stimulus by the Federal Reserve. Nerves eased on Tuesday, however, led by a tech rebound following Monday's Facebook-led rout, and big bank stocks were higher in premarket trading as 10-year Treasury yields climbed to about 1.5% led again by breakevens as oil not only held onto recent impressive gains - along with most other commodities after a gauge of commodities soared to an all-time record - but Brent rose above $82 . As to the insanity in Europe's gas sector, European natural gas contracts soared on Tuesday to an unprecedented 111.70 euros per megawatt-hour, compared with 15.49 euros in February. The continent is bracing for a winter crunch in energy supply, with German front-month power contracts also jumping to record levels. Global shortages of gas and coal are pushing energy prices higher, disrupting markets from the U.K. to China, as economies emerge from the pandemic. Surging costs are threatening to raise inflation and starting to weigh onindustrial production, with some companies in Europe forced to cut output. “The fiercely nervous sentiment on the market continues due to fears of reduced supply during the winter,” trader Energi Danmark wrote in a note Tuesday. “Everything looks set for another week of price climbs.” In U.S. premarket trading, Facebook found dip buyers in premarket trading after a 4.9% plunge on Monday amid an hours-long service disruption. The stock added 1.6% in the early New York session. Lordstown Motors shares declined as much as 4.6% after the electric vehicle automaker was downgraded to underweight by Morgan Stanley, while the PT was also cut to $2 from $8. Uphealth fell after pricing its share offering at a discount. And Facebook was up 1.5% following Monday’s slump after it blamed a global service outage that kept its social media apps offline for much of yesterday on a problem with its network configuration. Here are some other notable premarket movers: Amplify Energy (AMPY US) rises 10% in U.S. premarket trading, paring some of Monday’s 44% plunge tied to an oil spill from a California offshore pipeline operated by the company Comtech Telecom (CMTL US) slid more than 7% Monday postmarket after it reported adjusted earnings below average analyst estimates It is “the period of a multiplicity of shocks percolating through the financial markets leaving them in the fog, with many watching from the sidelines for clarity,” Sebastien Galy, a senior macro strategist at Nordea Invetsment, wrote in a note. The technology subgroup in Europe’s benchmark Stoxx 600 advanced for the first time in eight days. European natural-gas contracts jumped as much as 16% and West Texas Intermediate crude headed for a seven-year high. Earlier in the session, MSCI's broadest index of Asia-Pacific shares outside Japan dropped as much as 1.3%, declining for a third consecutive session. Japan stocks were down 2.5%, South Korea gave up 2% and Australia shed 0.4%. The drop in markets took MSCI's main benchmark to 619.77, the lowest since November 2020 but it pared losses to be down 0.6% in late Asia trade. The index has shed more than 5% this year, with Hong Kong and Japanese markets among the big losers. "Investors are clearly worried about inflation due to supply chain disruptions and the rally in energy prices," said Vasu Menon, executive  director of investment strategy at OCBC Bank.  "We have seen tech stocks outperform value stocks, so if inflation remains a worry, then tech stocks tend to get hit," Menon said. In rates, Treasuries were under pressure with yields near session highs, cheaper by up to 2.5bp across belly of the curve. Yields rose not only on the continued surge in commodities, but about the total chaos over the debt ceiling D-Date which will be hit in two weeks. Gilts lag amid bond auctions, adding to upside pressure on yields, while S&P 500 futures pare about a third of Monday’s 1.3% slide. The RBA kept monetary policy unchanged as expected.  In FX, the dollar rose against most Group-of-10 currencies near a one-year high versus major peers ahead of key U.S. payrolls data due at the end of the week; the pound bucked the trend, advancing for a fourth session. The euro fell 0.25% to $1.1592, while the yen rose 0.29% to $111.18. Leveraged funds sold the kiwi aggressively after a New Zealand business survey showed weak third-quarter economic sentiment.  Sentiment on the euro over the next year reached its most bearish since June 2020 on Friday amid a widening policy divergence between the Federal Reserve and the European Central Bank. In commodities, oil prices reached a three-year high on Monday (and continued higher on Tuesday) after OPEC+ confirmed it would stick to its current output policy as demand for petroleum products rebounds, despite pressure from some countries for a bigger boost to production. Underscoring the rise in commodity prices, the Refinitiv/CoreCommodity CRB index rose to 233.08 on Monday, the highest in more than six years. U.S. oil rose 1.15% to $78.51 a barrel, a day after hitting its highest since 2014. Brent crude stood at $82.2 after rising to a three-year top. Gold prices eased to $1,757 per ounce, after rising on Monday to the highest since Sept. 23. "OPEC+ may inadvertently cause oil prices to surge even higher, adding to an energy crisis that primarily reflects very tight gas and coal markets," said Commonwealth Bank of Australia's commodities analyst Vivek Dhar. "That potentially threatens the global economic recovery, just as global oil demand growth is picking up as economies re‑open on the back of rising vaccination rates," Dhar said in a note. Traders are now turning their attention to Friday’s nonfarm-payrolls data to gauge the timing of the Fed’s taper. In the latest Fed comments, St. Louis President James Bullard said elevated price pressures may be changing the mentality of businesses and consumers by making them more accustomed to higher inflation. Australia’s central bank kept its monetary settings unchanged. Looking at the day ahead now, the main data highlight will be the services and composite PMIs for September from around the world. We’ll also get the Euro Area PPI reading for August, and from the US there’s the August trade balance and the September ISM Services index. Otherwise, central bank speakers include ECB President Lagarde, the ECB’s Holzmann, and the Fed’s Quarles. Market Snapshot S&P 500 futures up 0.2% to 4,301.00 STOXX Europe 600 up 0.4% to 452.37 MXAP down 0.7% to 192.58 MXAPJ down 0.3% to 626.41 Nikkei down 2.2% to 27,822.12 Topix down 1.3% to 1,947.75 Hang Seng Index up 0.3% to 24,104.15 Shanghai Composite up 0.9% to 3,568.17 Sensex up 0.4% to 59,531.35 Australia S&P/ASX 200 down 0.4% to 7,248.36 Kospi down 1.9% to 2,962.17 Brent Futures up 0.7% to $81.86/bbl Gold spot down 0.6% to $1,758.11 U.S. Dollar Index up 0.15% to 93.92 German 10Y yield fell 1.2 bps to -0.225% Euro down 0.2% to $1.1603 Top Overnight News from Bloomberg China’s heavily leveraged property firms saw their stocks and bonds tumble after a failure by developer Fantasia Holdings Group Co. to repay notes deepened investor concerns about the sector’s outlook A steep surge in inflation in the euro area has started to take its toll on the economy, according to a survey by IHS Markit China will strictly prevent bank and insurance funds from being used in speculating commodities in a push to maintain market order and stabilize prices The Federal Reserve said that its internal watchdog plans to open an investigation into trading activity by senior U.S. central bank officials, following revelations about transactions in 2020 Facebook Inc. blamed a global service outage that kept its social media apps offline for much of Monday on a problem with its network configuration, adding that it found no evidence that user data was compromised during the downtime A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were pressured following the tech sell-off in the US and amid several headwinds for global markets including US-China trade frictions, China's record incursion into Taiwanese airspace and with higher oil prices stoking inflationary concerns. ASX 200 (-0.6%) was dragged lower after the losses in tech rolled over into the region and following somewhat mixed Trade and PMI data releases, but with downside stemmed by resilience in gold miners and the energy sector, after gains in the underlying commodity prices including the rally in oil to a seven-year high. Nikkei 225 (-2.2%) slumped below the 28k level and briefly entered into correction territory as it suffered intraday losses of as much as 3% and with index heavyweights Fast Retailing and SoftBank dominating the list of worst performers, while KOSPI (-1.9%) also fell into a correction with the index at least 10% below the record highs registered earlier this year despite efforts by South Korea’s antitrust regulator to dispel fears of a harsh tech crackdown. Hang Seng (+0.3%) was pressured at the open amid tech woes and default fears after reports that Fantasia Holdings missed payments due yesterday for USD 206mln of bonds, although the Hong Kong benchmark then pared its losses with notable strength seen in Chinese oil majors as they benefit from the rising energy prices. Finally, 10yr JGBs were initially kept afloat by the risk aversion but then reversed course amid the uninspired mood in T-notes and Bund futures, as well as weaker metrics from the 10yr JGB auction which attracted a lower bid to cover despite a decline in accepted prices. Top Asian News Gold Drops After Three-Day Gain as Yields and Dollar Push Higher ‘Kishida Shock’ Hits Japan Markets Wary of Redistribution Plan China Orders Banks to Ramp Up Funding to Boost Coal Output S.Korea’s NPS Could Lose $3.5m From Evergrande Stock Investment European equities (Euro Stoxx 50 +0.9%; Stoxx 600 +0.7%) have extended on the marginal gains seen at the open as indices attempt to claw back some of yesterday’s losses. Incremental macro newsflow since the close has not provided much cause for optimism and therefore it remains to be seen how durable any recovery will be. Overnight, the APAC session was mostly downbeat as the region contended with the negative US lead, ongoing US-China trade frictions, China's record incursion into Taiwanese airspace and higher oil prices stoking inflationary concern. Final PMIs for the Eurozone saw the composite revised very modestly higher to 56.02 from 56.1 with IHS Markit noting “the current economic situation in the eurozone is an unwelcome mix of rising price pressures but slower growth”. Stateside, futures are exhibiting gains of a similar magnitude to their European counterparts with the ES +0.2% and no real discernible theme across the US majors as traders await further progress in Washington. Sectors in Europe are mostly higher with clear outperformance in banking names with JP Morgan bullish on the sector; Credit Agricole sits at the top of the CAC after launching a new EUR 500mln share repurchase scheme. To the downside, laggards include Construction & Materials and Autos. Individual movers include Greggs (+8.7%) at the top of the Stoxx 600 after raising its profit outlook for the FY despite concerns over supply chain disruptions and staffing issues. Elsewhere, Infineon (+2.8%) has provided some support for the IT sector after confirming its FY 21 forecasts and being confident about the FY22 outlook. Finally, Melrose (-2.2%) is a notable laggard after the Co. cautioned on the fallout of the global chip shortage which has prompted a surge in client cancellations. Top European News European Banks Have Upside on Capital Returns, Yields, JPM Says Romania Edges Toward First Rate Hike Since 2018: Decision Guide Romania Approves Partial Compensation for Higher Energy Costs Morgan Stanley Expands Diversity-Focused ‘Shark Tank’ to Europe In FX, the broader Dollar and index remain firmer on the session, with the latter on either side of 94.000 from a 93.804 overnight base, but still within yesterday’s 93.675-94.104 range which marks the first immediate points of support/resistance. State-side, US President Biden spoke with 12 progressive members of Congress in which they agreed to follow through on key priorities, while it was also reported that President Biden told House progressives the spending package needs to be between USD 1.9tln-2.2tln. Biden will meet with moderate House Democrats virtually today. It is also worth keeping an eye on the Fed’s review of trading activities which could lead to a shift in the balance between hawks and doves, following the parting of hawks Rosengren (2022 voter) and Kaplan (2023 voter), who were set to be voters during the projected rate hike period. Ahead, the US ISM Services PMI will likely be the focal point from a state-side data standpoint. EUR, GBP - The EUR and GBP continue to diverge. Sterling extends on earlier gains, seemingly a function of the EUR/GBP cross topping out just before its 50 DMA (0.8546) before taking out yesterday’s 0.8529 low on its way towards 0.8500. The Sterling strength has helped Cable regain 1.3600+ status from a 1.3585 low. EUR/USD meanders around 1.1600 in a relatively narrow 1.1591-1.1622 current intraday band – with yesterday’s low at 1.1586 ahead of the 200 WMA at 1.1572. Europe saw the release of final Services and Composite PMIs, which continue to highlight the theme of rising prices and spillover into demand. AUD, NZD, CAD - he non-US Dollars see mild losses but trade off worst levels as the Dollar recedes and as market sentiment holds an upside bias. The AUD/NZD cross meanwhile remains in focus amid this week’s RBA/RBNZ central bank standoff. The RBA overnight provided no surprises and did not contain any significant new observations, with the currency experiencing choppiness upon the release. The RBNZ, meanwhile, is poised for a 25bps OCR hike at its announcement at 02:00BST/21:00EDT tomorrow. The AUD/NZD cross resides around session lows near 1.0455, whilst OpEx sees some AUD 2.1bln at strike 1.0410. The Loonie sees an underlying bid from crude prices, with USD/CAD back under its 50 DMA at 1.2600 ahead of Canadian trade data. JPY, CHF - The traditional havens are at the foot of the G10 bunch in what is seemingly a risk-influenced move. USD/JPY within a tight 110.88-111.25 band vs yesterday’s 110.50-112.07 range. USD/CHF, meanwhile, has popped above its 21 DMA (0.9250) and trades towards the top of its current 0.9238-70 parameter. In commodities, WTI and Brent front month futures are choppy but ultimately hold an upside bias in the aftermath of the OPEC+ meeting yesterday. Nonetheless, the benchmarks remain near yesterday’s highs which saw Brent Dec test USD 82.00/bbl to the upside. Brent resides around USD 81.50/bbl at the time of writing whilst WTI Nov hovers just under USD 78/bbl. With OPEC out of the way and until the next meeting, traders will be eyeing developments (if any) regarding the Iranian nuclear talks, alongside the electricity situation in China. Furthermore, traders must be cognizant of potential intervention by governments in a bid to control rising energy prices. As a reminder, the White House held talks with Saudi counterparts before the recent OPEC+ meeting and expressed concern on prices. Aside from that, news flow for the complex has been light during the European morning. Elsewhere, precious metals are softer on the day but spot gold and silver trade off worst levels with the yellow metal still holding into USD 1,750/oz-status and spot silver back above USD 22.50/oz. Over to base metals, LME copper remains pressured in what seems to be a continuation of the lacklustre trade seen during APAC hours amid a lack of demand as China remains on holiday. US Trade Calendar 8:30am: Aug. Trade Balance, est. -$70.8b, prior -$70.1b 9:45am: Sept. Markit US Composite PMI, prior 54.5 9:45am: Sept. Markit US Services PMI, est. 54.4, prior 54.4 10am: Sept. ISM Services Index, est. 59.8, prior 61.7 DB's Jim Reid concludes the overnight wrap I’m hoping you all survived without WhatsApp, Instagram and Facebook yesterday after the outage. We actually had to resort to a conversation over dinner last night. It was a bit weird without hearing pings go off every few minutes. Once the conversation dried up we went on Twitter and then watched Netflix so it wasn’t a total disaster for US tech in our household. Oh and I’m writing this on my iPad while looking up a few things on Google. Tech led the sell-off last night that stretched to both equities and bonds. One of the noticeable features of the recent weakness in equities is that bonds have struggled to rally. This hints at technicals being nowhere near as strong as they were in the summer and also a realisation that bonds aren’t a great haven if the sell-off is partly inflation related. By the close of trade yesterday, the S&P 500 had shed another -1.30%, making it the 3rd time in the last 5 sessions that the index has lost more than 1%, with the latest move now taking it -5.21% beneath its all-time closing high back in early September. However, unlike some of the other declines of the last month, which have been quite obviously connected to a particular concern like Evergrande or the impact of higher yields, the latest selloff looks to be coming from a more generalised set of concerns, with those worries given a fresh impetus by yet another rise in energy prices yesterday as oil hit multi-year highs. In turn, that spike in energy prices has led to renewed fears about inflation accelerating even further than current forecasts are implying, with knock-on implications for central banks and the amount of monetary stimulus we can expect over the coming months. We’ll start with those moves in energy given the effects they had elsewhere. Yesterday saw Brent Crude oil prices (+2.50%) close above $81/bbl for the first time in nearly 3 years, and this morning it’s up another +0.42%. On top of that, WTI (+2.29%) oil prices hit a 6-year high of its own at $77.62/bbl, which saw its YTD gains rise above +60%. The latest advance for oil has come as the OPEC+ group agreed yesterday that they’d stick to their planned output hike of +400k barrels per day in November, in spite of some speculation that there could be a larger increase in supply. However, it wasn’t just oil moving higher, with European natural gas prices (+2.07%) taking another leg up after their recent surge, which leaves them just shy of their recent peak last Thursday. And what’s also concerning from an inflationary standpoint is that the moves in commodities were broader than simply energy, with metals including copper (+1.17%) seeing sizeable gains as well. Overall, that meant Bloomberg’s Commodity Spot Index (+1.12%) finally exceeded its 2011 high yesterday, and brings the index’s gains since the post-pandemic low in March 2020 to +94.7%. Against this backdrop, equities took another tumble as the major indices on both sides of the Atlantic moved lower, including the S&P 500 (-1.30%) and Europe’s STOXX 600 (-0.47%). Tech stocks saw the brunt of the declines, with the NASDAQ down -2.14% and the FANG+ index down -3.00%, while Europe’s STOXX Technology Index (-2.39%) fell for a 7th consecutive session. Facebook was one of the bigger laggards yesterday as it fell -4.89% - its worst day since November 2020. The company is dealing with whistleblower allegations that their internal research doesn’t match what executives have been saying about the effect the social media company has on its users. The equal weight S&P 500 was only down -0.63% so the big tech stocks definitely led the way. European equities were less affected than their US counterparts however, having missed out on Friday’s late US equity rally following the European close, with the DAX (-0.79%), the CAC 40 (-0.61%) and the FTSE 100 (-0.23%) all seeing declines of less than 1%. A lower tech weighting probably also helped. Those concerns about stagflation represented further bad news for sovereign bonds yesterday, as investors moved to upgrade their expectations of future inflation. In Europe, 10yr German breakevens were up by +2.0bps to an 8-year high of 1.72%, while their Italian counterparts hit their highest level in over a decade, at 1.63%. Meanwhile in the US, 10yr breakevens were also up +1.3bps to 2.39%. Those moves in inflation expectations supported higher yields, with those on 10yr Treasuries up +1.7bps to 1.479% by the close of trade, as yields on bunds (+1.0bps), OATs (+1.3bps) and BTPs (+1.8bps) similarly moved higher. Overnight in Asia, equities have mostly followed the US lower, with the Nikkei (-2.77%), KOSPI (-1.71%), and Australia’s ASX 200 (-0.74%) all losing ground, though the Hang Seng (+0.20%) has recovered slightly thanks to energy stocks, and S&P 500 futures (+0.13%) are also pointing to a modest recovery. Those declines for the Nikkei and the KOSPI leave them just shy of a 10% correction from their recent peaks. In terms of the latest on Evergrande, there are signs that risks are spreading to other property developers, as China’s Fantasia Holdings missed a repayment worth $205.7m on a bond that matured Monday. Unsurprisingly, the developments are continuing to affect China’s HY dollar bond prices, with a Bloomberg index now down by -14.3% since its high back in May. Elsewhere in Asia, we got confirmation shortly after we went to press yesterday from new Japanese PM Fumio Kishida that there’d be a general election on October 31. Interestingly, that will actually be the 3rd general election in a G7 economy in the space of just six weeks, following the votes in Canada and Germany in late September. Back to the US, and Treasury Secretary Yellen’s estimated deadline to raise the debt ceiling – 18 Oct – is now under 2 weeks away, and during a press conference yesterday President Biden called on Republicans to join with Democrats to raise the debt limit, arguing that over a quarter of the US debt was accumulated during the Trump administration and that it should not be tied to “any new spending being considered. It has nothing to do with my plan for infrastructure or building back better, zero.” Senate Majority Leader Schumer plans to hold a vote this week to lift the debt ceiling, though Republicans are set to block the legislation and are forcing Democrats to use the partisan budget reconciliation process that is currently the vehicle of the Biden “Build Back Better” plan. Whilst time was running out to deal with the debt ceiling, President Biden also met with progressive House Democrats yesterday to discuss the budget reconciliation package and about potentially limiting the scope of the bill that makes up much of the President’s economic agenda. Press Secretary Psaki said that there is a “recognition that this package is going to be smaller than originally proposed,” but that the President is looking to get it across the goal line. Initial estimates could see the final package closer to $2 trillion over 10 years versus the current $3.5 trillion plans. Meanwhile on trade, the Biden administration also announced yesterday that they would hold direct talks with Chinese officials in the coming week seeking to enforce prior commitments and start fresh talks to exclude some goods from US tariffs. US Trade Representative Katherine Tai will meet with Chinese Vice Premier Liu He, and is expected to focus on how to add and adjust to the Trump administration’s most recent deal with the Chinese government rather than starting from scratch. There wasn’t much in the way of data yesterday, though US factory orders in August rose by +1.2% (vs. +1.0% expected), and the previous month’s growth was revised up to +0.7% (vs. +0.4% previously). To the day ahead now, and the main data highlight will be the services and composite PMIs for September from around the world. We’ll also get the Euro Area PPI reading for August, and from the US there’s the August trade balance and the September ISM Services index. Otherwise, central bank speakers include ECB President Lagarde, the ECB’s Holzmann, and the Fed’s Quarles. Tyler Durden Tue, 10/05/2021 - 07:45.....»»

Category: blogSource: zerohedgeOct 5th, 2021

Economic Theory & Long-Wave Cycles

Economic Theory & Long-Wave Cycles Authored by Alasdair Macleod via GoldMoney.com, Investors and others are confused by the early stages of accelerating price inflation. One misleading belief is in cycles of industrial production, such as Kondratieff’s waves. The Kondratieff cycle began to emerge in financial commentaries during the inflationary 1970s, along with other wacky theories. We should reject them as an explanation for rising prices today. This article explains why the only cycle that matters is of bank credit, from which all other cyclical observations should be made. But that is not enough, because on their own cycles of bank credit do not destroy currencies - that is the consequence of central bank policies and the expansion of base money. The relationship between base money and changes in a currency’s purchasing power is not mechanical. It merely sets the scene. What matters is widespread public perceptions of how much spending liquidity is personally needed. It is by altering the ratio of currency-to-hand to anticipated needs that purchasing power is radically altered, and in the earliest stages of a hyperinflation of prices it leads to imbalances between supply and demand, resulting in the panic buying for essentials becoming evident today. Panics over energy and other necessities are only the start of it. Unless it is checked by halting the expansion of currency and credit, current dislocations will slide rapidly into a wider flight from currency into real goods - a crack-up boom. Introduction For eighteen months, the world has seen a boom in commodity prices, which has inevitably led to speculation about a new Kondratieff, or K-wave. Google it, and we see it described as a long cycle of economic activity in capitalist economies lasting 40—60 years. It marks periods of evolution and correction driven by technological innovation. Today’s adherents to the theory describe it in terms of the seasons. Spring is recovery, leading into a boom. Summer is an increase in wealth and affluence and a deceleration of growth. Autumn is stagnating economic conditions. And winter is a debilitating depression. But these descriptions did not feature in Kondratieff’s work. Van Duijan construed it differently around life cycles: introduction, growth, maturity, and decline. We must discard the word growth, substituting for it progress. Growth as measured by GDP is no more than an increase in the amount of currency and bank credit in circulation and therefore meaningless. Most people who refer to growth believe they are describing progress, or a general improvement in quality of life. Instead, they are sanctioning inflationism. There is little doubt that economic progress is uneven, but that is down to innovation. Kondratieff’s followers argue that innovation is a cyclical phenomenon, otherwise as a cyclical theory it cannot hold water. An economic historian would argue that the root of innovation is the application of technological discoveries which by their nature must be random, as opposed to cyclical, events. Furthermore, a decision must be made about how to measure the K-wave. Is it of fluctuations in the price level and of what, or of output volumes? Bear in mind that GDP and GNP were not invented until the 1930s, and all prior GDP figures are guesswork. Is it driven by Walt Rostow’s contention that the K-wave is pushed by variations in the relative scarcity of food and raw materials? Or is it a monetary phenomenon, which appeared to cease after the Second World War, when currency expansion was not hampered by a gold standard? It was an argument consistent with that put forward by Edward Bernstein, who was a key adviser to the US delegation at Bretton Woods, when he concluded that the war need not be followed by the deep post-war depression which based on historical precedent was widely expected at the time. Kondratieff’s wave theories were buried by the lack of a post-war slump, until price inflation began to increase in the 1970s and Kondratieff became fashionable again. Kondratieff maintained that his wave theory is a global capitalist phenomenon, applicable to and detected in major economies, such as those of Britain, America, and Germany. But there is no statistical evidence of a long wave in Britain’s industrial production in the first half of the nineteenth century, when Britannia ruled the economic waves. And while there were financial crises from time to time, the downward phase to complete Kondratieff’s cycle never materialised. Today, with K-waves being fundamental to so much analysis of cyclical factors and their extrapolation, the lack of evidence and rigour in Kondratieff theory should be concerning to those who believe in it. That there are variations in the pace of human progress is unarguable, and that there is a discernible cycle of them beyond mundane seasonal influences cannot be denied. But that is a cycle of credit, a factor which was at least partially understood by Bernstein, when he correctly surmised that the way to bury a post-war depression was by expanding the quantity of money. Bank credit cycles and inflation When the inflation of money supply is mostly that of bank credit, it is cyclical in nature. Its consequences for the purchasing power of the currency conforms with the cycle, but with a time lag. Furthermore, the effect is weaker in a population which tends to save than with one which tends to spend more of its income on immediate consumption. No further comment is required on this effect, other than to state that over the whole cycle of bank credit prices are likely to be relatively stable. This was the situation in Britain, which dominated the global economy for most of the period between the introduction of the gold sovereign following the 1816 Coinage Act until the First World War. Figure 1 confirms that despite fluctuating levels of bank credit, from 1822—1914 the general level of prices was broadly unchanged. The price effect of the expansion of coin-backed currency between the two dates and the increase in population offset the reduction of costs in production through a combination of improvements in production methods, technological developments, and increased volumes. What cannot be reflected in the graph is the remarkable progress made in improving the standards of living for everyone over the nineteenth century. The gold standard was abandoned at the start of the First World War, and the general level of prices more than doubled. Having seen prices rise during the war, in December 1919 the Cunliffe Committee recommended a return to the gold standard and the supply of currency was restricted from 1920 with this objective in mind. A gold bullion standard instead of a coin standard was introduced in 1925, tying sterling at the pre-war rate of $4.8665, which remained in place until 1931.[iv] From thereon, the purchasing power of the currency began its long decline as central bank money supply expanded. There is no long-term cyclicality in these changes. Following the abandonment of the gold standard, and in line with other currencies which abandoned gold convertibility in the 1930s sterling simply sank. The key to this devaluation is not fluctuations in bank credit, but the expansion of base currency. And there is no evidence of a Kondratieff, or any other long-term cycle of production. It can only be a monetary effect. The role of money in long waves It is worth bearing in mind that the so-called evidence discovered by Kondratieff was in the mind of a Marxist convinced that capitalism would fail. The downturn of a capitalist winter, or decline in growth — whatever definition is used, was baked in the anti-capitalist cake. The Marxists and other socialists were and still are all too ready to claim supposed failings of capitalism, evidenced in their eyes by periodic recessions, slumps, and depressions. Kondratieff’s economic bias may or may not have coloured his analysis — only by digging deeply into his own soul could he have answered that. But in the absence of firm evidence supporting his wave theory we should discard it. After all, there is a rich history of the religious zeal with which spurious theories in the fields of economics and money arise. The consequences of sunspot cycles and the supposed importance of anniversary dates are typical of this ouija board theme. Non-monetary cycle themes such as that devised by Kondratieff have socialism at their core. It is assumed that capitalists, bourgeois businessmen seeking through the division of labour to manufacture and supply consumer goods for profit, in their greed are reckless about commercial risks from overinvestment. This is nonsense. Fools are quickly discovered in free markets, and they are also quickly dismissed. Successful entrepreneurs and businessmen are very much aware of risk and do not embark on projects in the expectation they will be unprofitable, and it is therefore untrue to suggest that the capitalist system fails for this reason. To the contrary, markets that are truly free have been entirely responsible for the rapid improvement in the human condition, while it is government intervention that leads to periodic crises by interfering in the relationships between producers and consumers and setting in motion a cycle of interest rate suppression and currency expansion. Markets which are truly free deliver economic progress by anticipating consumer demands and deploying capital efficiently to meet them. It is no accident that economies with minimal government intervention deliver far higher standards of living than those micro-managed by governments. Hong Kong under hands-off British administration, with no natural resources and enduring floods of impoverished refugees from Mainland China stood in sharp contrast with China under Mao. Post-war East and West Germany, populated by the same ethnic people, the former communist and the latter capitalist, provides further unarguable proof that capitalism succeeds where socialism fails. Marxist socialism kills cycles by the most brutal method. It cannot entertain the economic calculations necessary to link production with anticipated demand. There is no mechanism for the redistribution of capital for its more efficient use. Consumption is never satisfied, and consumers must wait interminably for inferior products to be supplied. Any pretence at a cycle is simply suppressed out of existence. Almost all long-wave literature assumes that prices change due to supply and demand for commodities and goods alone, and never from variations in the quantity of money and credit. But even under a gold standard, the quantities of money and credit varied all the time. In Britain, and therefore in the rest of the financially developed world which adopted its banking practices, gold was merely partial backing for currency and bank deposits, which since the days of London’s goldsmiths also lubricated the creation of debt outside the banking system. While originally gold was used as coin money, since 1914 when Britain went off the gold coin standard even this role in transactions ceased. Having explained the random nature of free market capitalism, the difference from capitalistic banking must be explained. It owes its origin to London’s goldsmiths, who took in deposits to use for their own benefit, paying six per cent out of the profits they made by dealing in money. This evolved into fractional reserve banking which became the banking model for the British Empire and the rest of the world. As well as renewing the Bank of England’s charter, the Bank Charter Act of 1844 further legitimised fractional reserve banking by giving in to the Banking School’s argument that the amount of credit in circulation is adequately controlled by the ordinary processes of competitive banking. If banks acted independently from one another competing for customers and business, we might reasonably conclude that there would be from time-to-time random bank failures without cyclicality, as the Banking School argued. In capitalistic commerce, it is this process of creative destruction that ensures consumers are best served and an economy progresses to their advantage. But with banks, it is different. Each bank creates deposits which are interchanged between other banks, and imbalances are centrally cleared. Therefore, every bank has financial relations with its competitors and is exposed to its competitors’ counterparty risks, which if acted upon creates losses for themselves and other banks, risking in extremis a system-wide crisis. Banking is therefore a cartel whose members acting in their own interests tend to act in unison. In the nineteenth century his led to systemic crises, the most infamous of which were the Overend Gurney and Baring failures. It was to address this systemic risk that central banking took upon itself the role of lender of last resort, so that in future these failures would be contained. But this mitigation of risk merely strengthened the banking cartel even further, leading to the possibility of a complete banking and currency failure. And since bankers have limited liability and personally risk little more than their salary in the knowledge that a central bank will always backstop them, reckless balance sheet expansion is richly rewarded — until it fails. Fred “the shred” Goodwin, who grew a staid Royal Bank of Scotland to become the largest bank in Europe before it collapsed into government ownership was a recent example of the genre. It is these differences between banking and other commercial activities that drive a cycle of bank credit expansion and contraction while non-financial business activities cannot originate cycles. The state-sponsored structure of the banking system attempts to control it. Governments through their central banks also trigger a boom in business activity by suppressing interest rates as the principal means of encouraging the growth of currency and credit. The distortions created by these interventions and their continuence inevitably lead to a terminating crisis. As Ludwig von Mises put it: “The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." A long period of credit expansion with relatively minor hiccups ending in such a crisis could easily be confused with a Kondratieff 40—60-year cycle. But the error is to mistake its origins. Kondratieff tried to persuade us that the boom and bust was a feature of capitalist business failings when it is a currency and credit problem. The irony is that Stalin refused to admit even to an expansionary phase in capitalism, condemning Kondratieff to the gulags, and then a firing squad in 1938. He lived as a Marxist-Leninist and was executed by the system he venerated. Having identified the source of cycles as being a combination of state action and fluctuations in currency and credit in a state-sponsored banking system and not capitalistic production for profit, we can admit that there are further cyclical consequences. Whether they exist or not is usually a matter of conjecture. Purely financial cycles, such as Elliott Wave Theory, will also owe their motive forces to cycles of credit and not business activity. The effect on commodity and consumer prices Kondratieff wave followers claim that commodity bull and bear markets are the consequence of a K-wave spring and summer followed by autumn, when it tops out, and winter when it collapses before rising into the next K-wave cycle. But we have demonstrated that the K-wave is not supported by the evidence. Instead, changes in the general level of commodity prices are a function of changes in the quantity of money. And as we have seen, there is a base component and a cyclical component of bank credit. We must now refocus our attention from the long-run UK statistics shown in Figure 1 to the contemporary situation for the US dollar, in which commodities have been priced almost exclusively since the early 1970s. The chart from the St Louis Fed below is of an index of industrial materials from 1992. We can see why the Kondratieff myth might be perpetuated, with industrial material prices more than halving between 2011 and 2016. But these swings came substantially from the dollar side of prices, whose trade-weighted index rose strongly between these dates. Between 2016—2018 the dollar weakened, before strengthening into 2020. Clearly, it was the purchasing power of the dollar driving speculative as well as commercial flows in international commodity markets. In March 2020, the Fed reduced its fund rate to the zero bound and announced QE (money-printing) of an unprecedented $120bn every month. Figure 2 below shows the consequences for the general level of commodity prices. Since late-March, the components of this ETF have almost doubled in price, and after a period of consolidation appear to be increasing again. K-wave followers might conclude that it is evidence of a new Kondratieff spring or summer, with the global economy set for a new spurt of economic “growth”. But this ignores the expansion of the Fed’s balance sheet reflected in base money, which is the next FRED chart. The monetary base has approximately doubled since the Fed’s March 2020 stimulus, additional to the post-Lehman crisis expansion. The last expansion undermined the purchasing power of the dollar to a similar extent in terms of the commodity prices shown in Figure 2. Evidential consequences of price inflation Sudden increases in the money quantity have disruptive effects on markets for goods and services and the behaviour of individuals. As well as undermining a currency’s purchasing power, supplies of essential goods become disordered by unexpected shifts in demand. Throughout history there has been evidence of these inflationary consequences, often exacerbated by statist attempts to impose price controls. The Roman emperor Diocletian with his edict on maximum prices caused starvation for citizens, who were forced to leave Rome to forage for food in the surrounding countryside. The edict made the provision of food uneconomic, leading to extreme scarcity. During the reign of Henry I in England there was a monetary crisis in 1124 from the debasement of silver coins, which combined with a poor harvest drove up the prices of staples, causing widespread famine. The French revolution has been attributed to the insensitivity of royalty and the aristocracy to the masses; but it occurred at the time of the assignat inflation, which led to aggravated discontent among the lower orders and the storming of the Bastille. And today, we have widespread disruption of essential supplies, ranging from energy to carbonated foodstuffs. The lesson from history is it has only just started. Why today’s logistics and energy disruptions have only just started The problems arise because individuals’ knowledge of the relationship between money and goods comes from the immediate past. They use that knowledge to decide what to buy for future consumption, and if they are in business, for production. In the latter case, they might change inventory policies from today’s just-in-time practices to ensure an adequate stock of components is available, driving up demand for them and creating shortages of vital factors of production. Consumers faced with shortages will alter the balance between their money liquidity and goods for which they may not have an immediate need but expect to consume at a future date. Bank account balances and credit available on credit cards will be drawn down, for example, to fill their car tanks with fuel, even though no journey is planned. And as we see in the UK today, it rapidly leads to fuel shortages and rationing at the petrol pumps. While the authorities try to calm things down, either by denying there is a supply problem or by imposing price controls, consumers are likely to see these moves as propaganda and justification for reducing money liquidity even further by purchasing yet more goods. The flight out of currency liquidity has a disproportionate effect on prices, particularly for essentials. They will simply drive prices higher until no further price rises are expected. Or put more accurately, the value of the currency continues to fall. It is worth illustrating the problem for its true context. If on the one hand everyone decides they would rather have as much cash in hand money as possible rather than goods, prices will collapse. It is, as a matter of fact, a situation which cannot occur. If alternatively, everyone decides to dispose of all their liquidity by buying everything just to get rid of the currency, then the purchasing power of the currency sinks to zero. Unlike the former case, this can and does happen, when it becomes widely recognised that the currency might become worthless. In other words, a state-issued unbacked currency then collapses. Almost no one, so far, attributes today’s logistical and economic dislocations to monetary inflation, yet as pointed out above, empirical evidence points to a clear connection. Governments and central banks also seem unaware. But they appear to sense that there is an undefinable risk of consumer panic, making fuel and other shortages even worse. So far, the blame lies with logistic failures, which seem to be getting worse. Comments from leading central bankers, currently meeting in Portugal and organised by the ECB, confirm the official position of playing popular tunes while the ship goes down. The heads of the Fed, the ECB, the Bank of England, and the Bank of Japan are quoted in the Daily Telegraph as agreeing that staff shortages, shipping chaos and surging fuel costs are likely to cause further disruption as winter draws near. Andrew Bailey, Governor of the Bank of England, warned “…that the UK’s GDP will not recover to pre-pandemic levels until early next year”. But besides the Bank keeping a close watch on inflation, he commented that monetary policy can’t solve supply side shocks. Jay Powell admitted that at the margin apparently bottleneck and supply chain problems are getting marginally worse. But all the central bankers agreed that price pressures will be temporary. We can see from these comments a desire not to rock the boat and cause further panic among consumers. More worrying is the insistence that inflation remains a temporary problem. Unless there is a move to stop the monetary printing presses, they must believe it. It is confirmation that there is no intention to change monetary policy. But these problems are not restricted to the West. This week we learn that even China, which has followed a policy of restricting monetary growth, faces an energy crisis with coal at power plants critically low, and coal prices up fourfold. Energy is being rationed with production of everything from food and animal feedstuffs to steel and aluminium plants supplying other factories, which in turn face power outages. China is the world’s manufacturing hub. The United States relies on China’s exports. There were some seventy container ships at anchor or at drift areas off San Pedro earlier this week, but after dropping slightly the numbers are expected to rise again. And in China, there are delays at ports of more than three days in Busan, Shanghai, Ningbo and Yantian. Ship charter rates have rocketed from $10,000 a day to as much as $200,000.[ix] There can be no doubt as the northern hemisphere enters its winter that the consuming nations in America and Europe will see yet more product shortages, more price rises, and continuing logistics disruption. Central banks will become increasingly desperate to discourage consumers’ from hoarding items by claiming that shortages and price increases are transitory. What they fail to realise is that the consequences of currency debasement have led to consumption goods being wrongly priced, fuelling the shortages. These shortages can only be addressed by yet higher prices, even in the absence of further monetary debasement — until no further price increases are expected by consumers. But with massive and increasing government deficits to finance, central banks have no mandate to restrict the expansion of currency. An acceleration of monetary debasement as each unit of it buys less is therefore inevitable because consumers and businesses alike will begin to understand there is no limit to prices increasing. Left to its logical conclusion, the purchasing power of a currency falls exponentially until it has no value left. The speed at which it happens depends on the time taken for acting humans to realise what is happening. Unless it is stopped, an economy experiences what in the 1920s was described as a flight into real goods, or a crack-up boom. Economists today seem unable to comprehend the instability caused by monetary inflation. They adopt their models to ignore it. As von Mises put it, “The mathematical economists are at a loss to comprehend the causal relation between the increase in the quantity of money and what they call ‘velocity of circulation’". The confusion in the minds of central bank economists renders it unlikely that they will take the actions necessary to stop their currencies sliding towards worthlessness sooner rather than later. Central to resolving the problem is maintaining confidence that the currency will retain its purchasing power. But with the advent of cryptocurrencies, there is a growing proportion of the public who understand in advance of inflationary consequences that fiat currencies are being debauched at an accelerating rate. This represents a major change from the past, when, as Keynes put it supposedly quoting Lenin, “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction and does it in a manner which not one man in one million is able to diagnose”. The fact that millions now do understand the currency is being debauched is likely to make it more difficult for the state to maintain confidence in the currency in these troubled times. We should know that what is happening to commodity prices is not some long-term Kondratieff wave, or any other wave with origins in production beyond purely seasonal factors. We can say unequivocally that the cause is in changing quantities of currency and bank credit. We can also see that there are yet further effects driving prices higher from the expansion of currency so far. We can expect currency expansion to continue, so prices of commodities and consumer goods will continue to rise. Or put in a way in which it is likely to become more widely understood as the current hiatus continues, the purchasing power of the currencies in which prices are measured will continue to fall. Tyler Durden Mon, 10/04/2021 - 21:40.....»»

Category: blogSource: zerohedgeOct 4th, 2021

Luongo: Energy Subsidies, Bitcoin, & The Socialist Takeover That Isn"t

Luongo: Energy Subsidies, Bitcoin, & The Socialist Takeover That Isn't Authored by Tom Luongo via Gold, Goats, 'n Guns blog, “When you subsidize something, you get more of it." - RON PAUL I have a friend who once described Bitcoin to me as an organism which feeds on electricity subsidies. Bitcoin searches out the lowest cost of electricity available and consumes as much of it as it can to produce profit for the miners, since electricity costs are their biggest costs. This is partly why China, for years, attracted the lion’s share of Bitcoin mining. Miners could co-locate next to hydroelectric power plants in China and suck up every extra available cheap and subsidized kilowatt-hour. This is the essence of the free market. It finds inefficiencies and exploits them as capital flows to where it is treated best. It may be ‘predatory’ from the central planners’ point of view, but they opened themselves up to this effect the moment they intervened by subsidizing the market in the first place. Bitcoin exposed a structural weakness in China’s electricity grid this summer which was under massive stress thanks to drought conditions there dimming the output of its hydroelectric generators. This is partly why Chairman Xi Jinping took the aggressive steps to kick the Bitcoin miners out of China this summer. He could see the real costs of electricity rising as coal, oil and natural gas prices skyrocketed but, because of rate subsidies to end-users, revenue to power generating companies was flat. It served him in other strategic ways, like kicking out the flow of Bitcoin within the Chinese economy, cutting down would-be mining company financial oligarchs and ultimately lessening competition for the Digital Yuan. The response from the Socialist is always the same, however. Today Russia is getting blamed for gas prices in Europe. Price gouging in a crisis a moral failure, not the original wealth transfer (itself a theft) from one group of people to another, which is what an electrical subsidy is. They see this as a market failure because to them the greater good is served by subsidizing certain aspects of the economy to achieve political and/or social goals. And, in some ways, they may be correct, but you’ll never know it because there can be no rational calculation of the costs versus the benefits, c.f. Mises’ critique of Socialism from 1921. You see, the market is neutral. It doesn’t have a perspective other than expressing the very human response of seeing an arbitrage opportunity and exploiting it. Rather than being a failure of the free market, Bitcoin miners seeking out and exposing the unsustainability of electricity subsidies is a massive success of market principles. It is firmly rooted in actual human behavior rather than some fantastical one created by a central committee and the force of the gun. China kicking out the Bitcoin miners only forestalled the day of reckoning for its energy industry because their presence was a symptom of a deeper problem not the source of the problem itself. Today, four months later China is now rationing electricity to force demand down. Rather than let market forces raise the prices, divert capital away from energy intensive (and possibly uneconomic) activity and give accurate signals to producers and consumers, China will do the authoritarian thing to blame the people and take away a basic function of a first world society. This is a simple, yet dramatic, example of what’s fundamentally wrong with the world we live in today. China isn’t the only one guilty of this. Subsidies like these are everywhere and they do nothing except create pricing dislocations which attract massive amounts of capital creating economic bubbles in price. If you’re wondering where this headline could come from: Zerohedge answers it with the pullquote. In fact, it is the Austrian School critique of these subsidies which is its core competency; to explain in real terms why government intervention in a market ultimately subsidizes overinvestment in one activity at the expense of another. Capital at any given moment is finite. That means there is competition for it ceteris paribus. That competition means that if better profits can be made mining Bitcoin in China rather than building a new road or gas pipeline, then that’s what will happen. We can create more capital but that requires time, ingenuity and labor. Capital compounds at a pretty linear rate and all we do with things like deficit spending is pull forward capital from the future to subsidize production in the present. Today we produce far more electricity than we use. It’s estimated that as much as 30% of global electricity goes to ground. Bitcoin uses up less than 0.5% of that wasted electricity. It’s actually performing a major market function to blow apart these layers of bureaucratic insanity by preying on a fraction of this over-production. Since prices are set at the margin, small demand or supply shocks can create massive spikes or drops in price if the market is operating at peak capacity. If you really stop to think about it, it’s quite astounding that the world’s economic system is this vulnerable to this basic application of free market principles. Today Bitcoin mining is co-locating next to the cheapest electricity produced on the planet, next to volcanos and nuclear power plants. It’s coming to America in a big, big way where it will further expose rural electrical subsidies here in the U.S. just like it did in China. But, for now, this organism is healthy, strong and in no danger of dying from the heavy hand of inept socialists. French Fried Grid Lines What prompted this article was my reading with a certain perverse glee that France is dealing with the same problem China has but in a different way. They are now suspending a planned tax hike in electricity tariffs because prices to the French consumer are spiking thanks to rising gas, oil and coal prices that its nuclear power infrastructure can’t overcome. Even if France fully passed on the input cost rises to the consumer, the tariffs the government charges for using electricity are another form of subsidy, not to the electricity generator, but to government itself. Why was France considering raising taxes on electricity during a global energy price spike? Because its government spends too much money, doing what…? …regulating its economy, which it has done an objectively miserable job of. So, to subsidize its bloated and now openly tyrannical government France wanted to squeeze its citizens for more money to keep that arrangement in place: to fund The Davos Crowd’s mandates about COVID-9/11 vaccines, restrictions on travel, blasting protestors with water cannons… you know, protecting and serving the public. But with massive protests around the country and the people’s falling confidence and patience with its government, France had to back off lest this latest tax hike enflame passions there even more six months out from a Presidential election. In typical central planner Newspeak they called the simple act of not raising taxes, the ultimate form of government aggression, ‘price protection.’ It’s patently absurd for them to frame it this way when the last thing the French government actually does is protect its people, except those that work for it, from, well, anything. He {French Prime Minister Jean Castex} said any new natgas tariffs following Friday’s scheduled 12.6% hike would be postponed until prices decrease in late March/April, adding that it will shield 5 million households who are on floating-rate contracts. Castex said the French government would lower taxes on power prices, capping the scheduled increase in residential electricity tariffs at 4% in February. In the midst of an energy price crisis the French government, in a blatant pander to voters for the 2022 election, not only scrapped raising taxes but also further subsidized lower income households, encouraging them to use even more electricity and worsening the government’s fiscal position. Someone has to pay to move those electrons around just not those that might vote to re-elect Emmanuel Macron. These are decisions not made with any long-term economic benefits in mind, but rather the most crass short-term political consequences trying to put a band-aid on a government-inflicted wound on the people themselves. “The government is good at one thing. It knows how to break your legs, and then hand you a crutch and say, ‘See if it weren’t for the government, you wouldn’t be able to walk.” - HARRY BROWNE Capital Gone Walkabout Meanwhile, Germany is now running out of coal, as a major coal power plant there had to shut down because it ran out. German utility Steag halted its coal-fired power plant Bergkamen-A after it ran out of hard coal supplies amid an energy crunch globally and logistics challenges domestically, the company told Bloomberg on Friday. “We are short of hard coal,” Steag spokesman Daniel Muhlenfeld told Bloomberg via email. Germany has been the poster child for Europe’s Quixotic quest for carbon-neutrality. What it’s wound up with is windmills not spinning (and the birds chirped in excitement), solar panels covered in snow when the cloud cover clears and gas prices never before seen in history, at over $1200 per thousand cubic meters. Oil prices keep trying to fall and new conflicts and controls keep trying to push the price higher, be it from OPEC+ members trying to subsidize their national governments, or the U.S. actively pushing supply off the market to subsidize its LNG exports. But, none of the price rise is because we’re running out but because supply is being artificially restricted by central planners wanting to create a false reality. How does anyone expect the mighty German industrial economy to absorb these costs without some kind of output slowdown? The answer is no one. In fact, if you think through the situation, it’s clear Davos is happy about this because this puts downward pressure on growth, starving out Germany’s powerful industrial and middle class, who stand confused as to the cause, if the results of the election there are any indication. Because those people produce wealth. Growing wealth to those of limited understanding is problematic. If the world is finite, they argue, growth must be finite. That’s only true, however, at any single point on the timeline of our understanding of the universe. Tomorrow we’ll figure out some new thing, some new efficiency, material or overcome some obstacle we didn’t have time for yesterday. We’ll take our surplus time we earned as profit today and deploy it to fix some other problem tomorrow, opening up new pathways for growth. But this type of growth, where it isn’t directed by oligarchs and governments who stand in front of them, is somehow evil or unsustainable. Yeah, for them. For the past fifty years they’ve been telling us peak oil would end modern civilization and yet, absent their manipulations of energy markets through lockdowns, wars, currency manipulation and regulation, the real price of oil has risen just 12% over the past fifty years, when indexed for inflation, which they manipulate to the downside to sustain their power. One could easily argue that today’s price shocks aren’t any more sustainable than any other commodity whose supply and demand fundamentals are driven by politics more than they are the markets themselves. Remove those obstacles and I bet we’ll see oil production subsidies driven out of the market the same way that bitcoin drove China and France to ‘protect consumers’ from electricity subsidies. We had to invent a new word to describe the fight over energy, geopolitics, because of our adherence to the socialists’ maleducation on basic human behavior. We also had to invent a new definition of inflation in the age of money unmoored from the stored energy of gold and other hard assets, based on prices not the supply of money. Instead of basing our money on our past work, tokenized by gold, they gave us a money based on what we will produce for them, debt. What I didn’t show in the above graph is the stability of oil in real terms before we entered this era. All Malthusian arguments about the end of cheap energy are themselves indefensible and unsustainable and yet that is all we are ever told is coming. They deny the Marginal Revolution (1871-74) in economics, which negated all of Marx’s complaints about capitalism before his death (1883), and yet his idiotic ideas fuel the unquenchable thirst for power of midwit oligarchs and the envy of their socialist useful idiots. When someone is lying to you, you really owe it to yourself to ask why. Davos has broken the world supply chain for energy for the sole purpose of proving a point that history itself has already debunked, Facebook be damned. They do this, nominally, in the name of sustainability, arguing the wastefulness of capitalism is the end state of it. But, as I’ve already shown with bitcoin and electricity, oil and money printing, it is the over-production of something through subsidization that creates unsustainable waste and malinvestment which eventually has to be liquidated in a rational system. But instead of bowing to the rational, ending that system of privilege for them, they make the monetary system ever more irrational to the point of absurdity. Last year, Paul Krugman was calling the $1 trillion coin “an accounting gimmick” that “wouldn’t even fool anyone”, now he’s all in on the illegal power grab with a New York Times column headlined, “Biden Should Ignore the Debt Limit and Mint a $1 Trillion Coin”. That only took a little over a year.   The End of Socialism This brings me to the final point of this essay. They are losing. They are losing not because they aren’t powerful or aren’t making our lives miserable but because their system of subsidy, which produces unearned wealth (or rent) for them is failing rapidly. They embarked on this Great Reset solely for the purpose of defaulting on their socialist promises made by buying off present generations with the labor of future generations. We call this in modern parlance debt. Now that the debt is unpayable and the future liabilities of their governments overwhelming everything they have unleashed a torrent of policies around the world to starve, freeze and kill off entire generations of taxpayers who they can’t afford to bribe anymore. COVID-9/11, no matter how you look at it, as a political operation has shortened lifespans in the U.S. by 18 months in 2020, according to the CDC. What will those numbers look like in 2021? This is a radical contraction which lifted trillions of unfunded liabilities in Social Security and Medicare payments from future U.S. governments. And they call libertarians heartless? Draw your own conclusions from this but I think you know what it means. Davos is purposefully shrinking the division of labor in order to prove the Marxist critique of capitalism correct when it has done nothing but lift billions out of poverty which the Malthusian central planners told us a century ago then was unsustainable. Central planners aren’t rational. They are simply tyrants who prey on the fear and weakness of people grown soft through abundance. Because in their mind sustainability is only measured by the continuity of their power over society not the actual economics of that society. The instability, chaos and conflict come from their inability to accept that someone else may have a better solution to society’s problems than they do. And what truly keeps them up at night is the gnawing feeling that the best system is the one where no one person or group of people could ever manage a system as complex and dynamic as seven-plus billion people acting in their own self-interest creating a spontaneous and self-correcting order which doesn’t need their help. When I look out today and see bills in the U.S. Congress to deny unvaccinated people from flying or children from getting an education all I see is a failing system of energy distribution and subsidy trying to protect itself from the ravages of its own stupidity. I’ve said it before and I’ll say it again here, power doesn’t prove you’re smart, it simply makes you stupid. Bitcoin, among other technologies, is slowly eating away at these unsustainable markets while the socialists in China, France and yes, Washington D.C. scramble to keep the central planners’ dream alive of a world where they control access to everything you need to live your most productive life. They are scared to death of a private banking system that doesn’t need them or a division of labor that coordinates production where their toll booths can’t collect. To them we are just livestock to be farmed, batteries to be discharged and liabilities on their balance sheets to be written down. Energy isn’t scarce, it is abundant. Human energy, that is. Oil is finite. So is gas. So is coal. But until we properly price its costs, we’ll never figure out what’s the best replacement for them and at what point in time that change should occur. Between now and then it will be a long, cold winter. “I know you’re out there. I can feel you now. I know that you’re afraid. You’re afraid of us. You’re afraid of change. I don’t know the future. I didn’t come here to tell you how this is going to end. I came here to tell you how it’s going to begin. I’m going to hang up this phone, and then I’m going to show these people what you don’t want them to see. I’m going to show them a world without you, a world without rules and controls, without borders or boundaries, a world where anything is possible. Where we go from there, is a choice I leave to you.”. - NEO, THE MATRIX *  *  * Join my Patreon if you want to subsidize the truth BTC: 3GSkAe8PhENyMWQb7orjtnJK9VX8mMf7ZfBCH: qq9pvwq26d8fjfk0f6k5mmnn09vzkmeh3sffxd6rytDCR: DsV2x4kJ4gWCPSpHmS4czbLz2fJNqms78oELTC: MWWdCHbMmn1yuyMSZX55ENJnQo8DXCFg5kDASH: XjWQKXJuxYzaNV6WMC4zhuQ43uBw8mN4VaWAVES: 3PF58yzAghxPJad5rM44ZpH5fUZJug4kBSaETH: 0x1dd2e6cddb02e3839700b33e9dd45859344c9edcDGB: SXygreEdaAWESbgW6mG15dgfH6qVUE5FSE Tyler Durden Sun, 10/03/2021 - 13:32.....»»

Category: blogSource: zerohedgeOct 3rd, 2021

In Deep Ship: What"s Really Driving The Supply-Chain Crisis

In Deep Ship: What's Really Driving The Supply-Chain Crisis By Michael Every and Matteo Iagatti of Rabobank Summary It is impossible to ignore the current shipping crisis and its impact on global supply chains  A common view is that this is all the result of Covid-19. Yet while Covid has played a key role, it is only part of a far larger interconnected set of problems This report examines current shipping market dynamics; overlooked “Too Big to Sail” structural issues; a brewing political tsunami as a backlash; possible Cold War icebergs ahead; and the ‘ship of things to come’ if maritime past is a guide to maritime future  The central argument is that while central banks and governments both insist inflation is transitory and will fall once supply-chain bottlenecks are resolved, shipping dynamics suggest they are closer to becoming systemically entrenched Moreover, both historical and current trends towards addressing such problems suggest potential global market disruptions at least equal to the shocks we have already experienced. Many ports will get caught in this storm, if so Ready to ship off? It is impossible to ignore the current shipping crisis and its impact on global supply chains and economies. Businesses face huge headaches as supply dries up. Consumers see bare shelves and rising prices. Governments have no concrete solutions – save the army? Economists have to discuss the physical economy rather than a model. Central banks still assume this will all resolve itself. And shippers make massive profits. The giant Ever Given, which blocked the Suez Canal for six days in March 2021, is emblematic of these problems, but they run far deeper. This report will explore the shipping issue coast-to-coast, and past-to-present in six ‘containers’: “Are you shipping me?”, a deep-dive into market dynamics and supply-demand causes of soaring shipping prices; “To Big to Sail”, a key structural issue driving things; “Tsunami of politics” of the looming backlash to what is happening; “Cold War icebergs” of fat geopolitical tail risks; “Ship of things to come?”, asking if the maritime past is a potential guide to maritime future; and “Wait and sea?”, a strategic overview and conclusion. Are You Shipping Me? Since 2020, global shipping has been frenetic, with equally frenetic shipping rates (figure 2); difficulties for both businesses and consumers; and container-carrier profits. Is Covid-19 driving these developments, or are there other structural and cyclical factors at play? Let’s take stock. One root of the problem… In 2020, COVID-19 become a global pandemic, and lockdowns ensued: factories, restaurants, and shops all closed, bringing global supply chain almost to a halt. In this context, container carriers had no visibility on future demand and did the only reasonable thing: cut capacity. There is no economic sense in moving half-empty ships across the globe; it is costly, especially for a sector operated on tiny margins for a very long time. The consequence was widespread vessel cancellations, which soared in the first months of 2020 (figure 3). Progressively, more trade lines and ports were involved as containment measures were enacted globally. By H2-2020, virus containment measures were over in China, and many other nations eased them too. Shipping cancellations did not stop, however, just continuing at a slower pace. Indeed, capacity cuts have plagued supply-chains in 2021. Excluding the January-February peaks, from March to September 2021, an average of 9.2 vessels per week were cancelled, four vessels per week more than the previous off-peak period of July to December 2020 (figure 3). Cumulative cancellations (figure 4) underline the problems. Transpacific (e.g., China-US) and Asia-Northern Europe lines saw the largest capacity cuts, but Transatlantic and Mediterranean-North America vessels also reached historic levels of cancellations. Transpacific and Asia-Europe lines are the backbone of global trade, each representing 40% of the total container trade. More than 3 million TEUs (Twenty-foot Equivalent Units, a standard cargo measure) are moved on Transpacific and Asia-Europe lines in total per month. Due to cancellations, more than 10% of that capacity was lost in early 2020. In such a context, it was only normal to expect a rise in container rates. Over January-December 2020 the Global Baltic index (the world reference for box prices) increased by 115% from $1,460 to $3,140/TEU. However, as figure 2 shows, things then changed dramatically in 2021 for a variety of reasons. As can be seen (figure 5), cancellations alone cannot explain the price surge seen in the Baltic Dry Index -- the leading international Freight Rate Index, providing market rates for 12 global trade lines-- and on key global shipping routes (figure 6). So what did? We have instead identified five key themes that have pushed up shipping costs, which we will explore in turn: Suez – and what happened there; Sickness – or Covid-19 (again); Structure – of the shipping market; Stimulus – most so in the US; and “Stuck” – as in logistical congestion. Suez On March 23rd 2021, a 20,000TEU giant vessel, the Ever Given, owned by the Taiwanese carrier Evergreen, was forced by strong winds to park sideways in the Suez Canal, ultimately obstructing it. For the following six days, one of the fundamental arteries of trade between Europe, the Gulf, East Africa, the Indian Ocean, and South East Asia was closed for business. While the world realized how fragile globalized supply chains are, carriers and shippers were counting the costs. 370 ships could not pass the Canal, with cargoes worth around $9.5bn. Every conceivable good was on those ships. The result was more unforeseen delays, more congestions and, of course, more upward pressure on container rates. Sickness New COVID-19 Delta variant outbreaks in 20201 forced the closure of major Chinese ports such as Ningbo and Yantian causing delays and congestion that reverberated both in the region and globally. Vietnamese ports also suffered similar incidents. These closures, while not decisive blows, contributed to taking shipping capacity off the global grid, hindering the recovery trend. They were also signals of how thin the ice is that global supply chain are walking on. Indeed, Chinese and South-east Asian ports are still suffering the consequences of those earlier closures, with record queues of ships waiting to unload. Structure When external shocks cause price spikes it is always wise to look at structure of the sector in which disruption caused the price spike. This exercise provides precious hints on what the “descent” from the spike might look like. Crucially, in the shipping sector, consolidation and concentration has achieved levels that few other sectors of the economy reach. In the last five years, carriers controlling 80% of global capacity became more concentrated, with fewer operators of even larger size (figure 7). However, this is just the most obvious piece of the puzzle. In our opinion, the real change started in 2017, when the three main container alliances (2M, THE, and Ocean) were born. This changed horizontal cooperation between market leaders in shipping. The three do not fix prices, but via their networks capacity is shared and planned jointly, fully exploiting economies of scale that are decisive to making a capital-intensive business profitable and efficient. Unit margins can stay low as long as you move huge volume with high precision, and at the lowest cost possible. To be able to move the huge volumes required by a globalized and increasingly e-commerce economy at the levels of efficiency and speed demanded by operators up and down supply chains, there was little other options than to cooperate and keep goods flowing for the lowest cost possible at the highest speed possible. A tight discipline of cost was imposed on carriers, who also had to get bigger. This strategy more than paid off in the Covid crisis, when shippers demonstrated clear minds, efficiency in implementing capacity control, and a key understanding of the elements they could use to their advantage: in other words – how capitalism actually works. Carriers did not decide on the lockdowns or port closures; but they exploited their position in the global market when the pandemic erupted. In a recent report, Peter Sands from BIMCO (the Baltic and International Maritime Council) put it as follows: “Years of low freight rates resulting in rigorous cost-cutting by carriers have left them in a great position to maximise profits now that the market has turned.” Crucially, this market structure is here to stay - for now. It is a component of the global system. Carriers will continue to exert pressure and find ways to make profit but, most importantly, they will make more than sure that, this time, it is not only them that end up paying the costs of rebalancing within the global system. In short, the current market allows carriers to make historic levels of profits. However, in our view this is not the end of the story – as shall be shown later. Stimulus 2020 and 2021 saw unprecedented economic shocks from Covid-19, as well as unprecedented economic stimulus from some governments. In particular, the US government sent out direct stimulus cheques to taxpayers. With few services to spend the money on, it was instead centred on goods. Hence, consumer demand for some items is red-hot (figures 8-10). The consequences of this surge in buying on top of a workforce still partly in rolling lockdowns, and against a backlog of infrastructure decades in the making, was obvious: logistical gridlock. Moreover, with the US importing high volumes, and not exporting to match, and its own internal logistics log-jammed, there has been a build-up of shipping containers inside the US, and a shortage elsewhere. Shippers are, in some cases, even dropping their cargo and returning to Asia empty: the same has been reported in Australia. Against this backdrop, the US is perhaps close to introducing further major fiscal stimulus, with little of this able to address near-term infrastructure/logistical shortfalls. Needless to say, the impact on shipping, if such stimulus is passed, could be enormous. As such, while central banks and governments still insist that inflation is transitory, supply-chain dynamics suggest it is in fact closer to becoming systemically entrenched. Stuck In normal times, a surge in consumer spending would be a bonanza for everyone: raw material producers, manufacturers, carriers, shippers, and retailers alike. In Covid times, this is all a death-blow to global supply chains. Due to misplaced global capacity, high export volumes cannot be moved fast enough, intermediate goods cannot reach processors in time, and everybody is fighting to get a container spot on the ships available. Ports cannot handle the throughput given the backlog of containers that are still waiting to be shipped inland or loaded on a delayed boat. It is not by chance that congestion hit record peaks at the same time in Los Angeles – Long beach (LALB), and in the main ports in China, the two main poles of transpacific trade. Clearly, LALB cannot handle the surge in imports, the arrival queue keeps on growing by the day (figure 11). There are now plans to shift to working 24/7. However, critics note that all this would do is to shift containers from ships to clog other already backlogged areas of the port, potentially reducing efficiency even further. Meanwhile, in Shanghai and Ningbo there were also 154 ships waiting to unload at time of writing. The power-cuts seeing Chinese factories only operating 3-4 day weeks in many locations suggest a slow-down in the pace of goods accumulating at ports, but also imply disruption, shortages, and delays in loading, still making problems worse overall. Imagine large-scale US stimulus on top of a drop in supply! Overall, “endemic congestion” is the perfect definition for the state of the global shipping market. It is the results of many factors: vessels cancellations and capacity control; Covid; bursts of demand in some trade lines; imbalances in container distribution; regular disruption in key arteries and ports; a backlog and increasing volumes cannot be dealt with at the same time, all creating an exponentially amplifying effect. The epicenter is in the Pacific, but the problem is global. At present 10% of global container capacity is waiting to be unloaded on ship at the anchor outside some port. Solutions need to be found quickly – but can they be? The Transpacific situation is particularly delicate, stemming from a high number of cancellations, ongoing disruption, and the highest demand surge in the global economy. However, this perfect recipe for a disaster is also affecting Asia–Europe lines where shipping rates hikes also do not show any signs of slowing down. …and unstuck? The shipping business would logically seem best-placed to get out of this situation by increasing vessel capacity. Indeed, orders of new ships spiked in 2021, and in coming years 2.5m TEUs will come on stream (figure 12). However, this will not arrive for some time, and may not sharply reduce shipping prices when it does. Indeed, the industry --which historically operates on thin margins, and has seen many boom and bust cycles—knows all too well the old Greek phrase: “98 ships, 101 cargoes, profit; 101 ships, 98 cargoes, disaster”. They will want to preserve as much of the current profitability as possible, which a concentrated ‘Big 3’ makes easier. Tellingly, a recent article stressed: “Ship-owners and financiers should avoid sinking money into new container vessels despite a global crunch because record orders have driven up prices, according to industry insiders.” True, CMA CGM just froze shipping spot rates until February 2022, joining Hapag-Lloyd. Yet in both cases the new implied benchmark is of price freezes at what were once unthinkable levels – not price falls. To conclude, shipping prices are arguably very high for structural reasons, and are likely to stay high ahead – if those structures do not change. On which, we even need to look at the structure of ships themselves. Too Big to Sail Shipping, like much else, has become much larger over the years. Small feeder ships of up to 1,000TEU are dwarfed by the largest Ultra-Large Container Vessels (ULCVs), which start from 14,501 TEUS up, and are larger than the US Navy’s aircraft carriers. Of course, there is a reason for this gigantism: economy of scale. It is a sound argument. However, the same was said in other industries where painful experience, after the fact, has shown such commercial logic is not the best template for systemic stability. In banking we are aware of the phenomenon, and danger, of “Too Big to Fail”. In shipping, ULCVs and their associated industry patterns could perhaps be seen as representing “Too Big to Sail”. After all, there are downsides to so much topside beyond the obvious incident with the Ever Given earlier in the year: ULVCs cannot fit through the Panama Canal; Not all ports can handle ULCVs; They are slow at sea; They are slow to load and unload; They require more complex cargo placement / handling; They force carriers to maximize efficiency to cover costs; They force all in-land logistics to adapt to their scale; They force a hub-and-spokes global trade model; and They are vulnerable to accident or disruption, i.e., they were designed for an entirely peaceful shipping environment at a time of rising geopolitical tensions (which we will return to later). In short, current ULCV hub-and-spokes trade models are the antithesis of a nimble, distributed, flexible, resilient system, and actually help create and exacerbate the cascading supply-chain failures we are currently experiencing. However, we do not have a global shipping regulator to order shippers to change their commercial practices! Specifically, building ULVCs takes time, and shipyard capacity is more limited. As shown, the issue is not so much a lack of ULCVs, but limited capacity from ports onwards. That means we need to expand ports, which is a far slower and more difficult process than adding new containers or ships, given the constraints of geography, and the layers of local and international planning and politics involved in such developments. There is also then a need for matching warehousing, roads, trucks, truckers, rail, and retailer warehousing, etc. As we already see today, just finding truckers is already a huge issue in many  economies. Meanwhile, any incident that impacts on a ULCV port --a Covid lockdown, a weather event, power-cuts, or a physical action-- exacerbates feedback loops of supply-chain disruption more than any one, or several, smaller ports servicing smaller feeder ships would do. So why are we not adapting? Economic thinking, partly dictated by the need to survive in a tough industry; massive sunk costs; and equally massive vested interests – which we can collectively call “Too Big to Sail”. Naturally, some parties do not wish to move to a nimbler, less concentrated, more widely-distributed, locally-produced, more resilient supply-chain system --with lower economies of scale-- while some do: and this is ultimately a political stand-off. Crucially, nobody is going to make much-needed new investments in maritime logistics until they know what the future map of global production looks like. Post-Covid, do we still make most things in China, or will it be back in the US, EU, and Japan – or India, etc.? Are we Building Back Better? Where? Resolving that will help resolve our shipping problems: but it will of course create lots of new ones while doing so. Tidal Wave of Politics Against this backdrop, is it any surprise that a tsunami of politics could soon sweep over global shipping? In July, US President Biden introduced Executive Order 14036, “Promoting Competition in the American Economy”. This puts forward initiatives for federal agencies to establish policies to address corporate consolidation and decreased competition - which will include shipping. Ironically, the US encouraged “Too Big to Sail” for decades, but real and political tides both turn. Indeed, in August a bipartisan bill was introduced in Congress --“The Ocean Shipping Reform Act of 2021”-- which proposes radical changes to: Establish reciprocal trade to promote US exports as part of the Federal Maritime Commission’s (FMC) mission; Require ocean carriers to adhere to minimum service standards that meet the public interest, reflecting best practices in the global shipping industry; Require ocean carriers or marine terminal operators to certify that any late fees --known in maritime parlance as “detention and demurrage” charges-- comply with federal regulations or face penalties; Potentially eliminate “demurrage” charges for importers; Prohibit ocean carriers from declining opportunities for US exports unreasonably, as determined by the FMC in new required rulemaking; Require ocean common carriers to report to the FMC each calendar quarter on total import/export tonnage and TEUs (loaded/empty) per vessel that makes port in the US; and Authorizes the FMC to self-initiate investigations of ocean common carrier’s business practices and apply enforcement measures, as appropriate. Promoting reciprocal US trade would either slow global trade flows dramatically and/or force more US goods production. While that would help address the global container imbalance, it would also unbalance our economic and financial architecture. Fining carriers who refuse to pick up US exports would also rock many boats. Moreover, forcing carriers to carry the cost of demurrage would change shipping market dynamics hugely. At the moment, the profits of the shipping snarl sit with carriers and ports, and the rising costs with importers: the US wants to reverse that status quo. While global carriers and US ports obviously say this bill is “doomed to fail”, and will promote a “protectionist race to the bottom”, it is bipartisan, and has been endorsed by a large number of US organisations, agricultural producers and retailers. Even smaller global players are responding similarly. For example, Thailand is considering re-launching a national shipping carrier to help support its economic growth: will others follow suite ahead? Meanwhile, shipping will also be impacted by another political decision - the planned green energy transition. The EU will tax carbon in shipping from 2023, and new vessels will need to be built. For what presumed global trade map, as we just asked? The green transition will also see a huge increase in the demand for resources such as cobalt, lithium, and rare earths. Economies that lack these, e.g., Japan and the EU, will need to import them from locations such as Africa and Australia. That will require new infrastructure, new ports, and new shipping routes – which is also geopolitical. Indeed, the US, China, the EU, UK, and Japan have all made clear that they wish to hold commanding positions in new green value chains - yet not all will be able to do so if resources are limited. Therefore, green shipping threatens to be a zero-sum game akin to the 19th century scramble for resources. As Foreign Affairs noted back in July: “Electricity is the new oil” – meant in terms of ugly power politics, not more beautiful power production. Before the green transition, energy prices are soaring (see our “Gasflation” report). On one hand, this may lift bulk shipping rates; on another, we again see the need for resilient supply chains, in which shipping plays a key role. In short, current zero-sum supply-chains snarls, already seeing a growing backlash, are soon likely to be matched by a zero-sum shift to new green industrial technologies and related raw materials. In both dimensions, shipping will become as (geo)political as it is logistical. Notably, while tides may be turning, we can’t ‘just’ reshape the global shipping system, or get from “just in time” to “just in case”, or to a more localized “just for me” just like that: it will just get messy in the process. Cold War Icebergs The US is now pushing “extreme competition” between “liberal democracy and autocracy”; China counters that US hegemony is over. For both, part of this will run through global shipping. Both giants are happy to decouple supply chains from the other where it benefits them. However, the larger geostrategic implications are even more significant. Piracy and national/imperial exclusion zones used to be maritime problems, but post-WW2, the US Navy has kept the seas safe and open to trade for all carriers equally. This duty is extremely expensive, and will get more so as new ships have to be built to replace an ageing fleet. Meanwhile, China is building its own navy at breath-taking speed, and a maritime Belt and Road (BRI). As a result, a clear shift has occurred in US maritime strategy: 2007’s “A Co-operative Strategy for 21st Century Sea Power”, stressed: “We believe that preventing wars is as important as winning wars.” 2015’s update argued: “Our responsibility to the American people dictates an efficient use of our fiscal resources.” 2020’s title was changed to “Advantage at Sea: Prevailing with Integrated All-Domain Naval Power”, and stressed: “...the rules-based international order is once again under assault. We must prepare as a unified Naval Service to ensure that we are equal to the challenge.” The US is also pressing ahead with the AUKUS defence alliance and the ‘Quad’ of Japan, India, and Australia to maintain naval superiority in the Indo-Pacific. This is generating geopolitical frictions, and fears of further escalation of maritime clashes in the region. The Quad has also agreed to key tech and supply-chain cooperation, with Australia a key part of a new green minerals strategy – a race in which China is still well ahead, and the EU lags. Should any kind of major incident occur, shipping costs would escalate enormously, as can easily be seen in the case of US-UK shipping from 1887-1939: this leaped 1,600% during WW1, and these shipping data stopped entirely in September 1939 due to WW2. Crucially, US naval strategy is rooted in the post-WW2 power structure in which it benefitted from such control commercially. That architecture is crumbling - and there is a matching US consensus to shift towards “America First”, or “Made in America”. The thought progression from here is surely: “Why are we paying to protect shipping from China, or economies that do not support us against China?” In short, the strategic and financial logic is: surrender control of the seas, or ensure commercial gains from it. There are enormous implications for shipping if such a shift in thinking were to occur - and such discussions are already taking place. July 2020’s “Hidden Harbours: China’s State-backed Shipping Industry” from the Center for Strategic and International Studies argued: “The time is long overdue for the US to reinvigorate its maritime industries and challenge the Chinese in the same game by using the very same techniques the Chinese have used to gain dominance in the global maritime industry. The private-sector maritime industry cannot do this alone—the US maritime industry simply cannot compete against the power of the Chinese state. The US and allied governments must bring to bear substantial and sustained political action, policies, and financial support. To do anything less is to cede control of the world’s maritime industry and global supply chains to China, and perhaps to force the US and its allies to enter their own ‘century of shame.’” Meanwhile, stories link ports and shipping to national security (see here and here), underlining logistics are no longer seen as purely commercial areas, but rather fall within the “grey zone” between war and peace – as was the case pre-WW2. This again has major implications for the shipping business. Expect that trend to continue ahead if the maritime past as guide, as we shall now explore. The Ship of Things to Come? US maritime history in particular holds some clear lessons for today’s shipping world if looked at carefully. First, the importance of the sea to what we now think of as a land-based US: the US merchant marine helped it win independence from the powerful naval forces of the British, and the first piece of legislation Congress passed in 1789 was a 10% tariff on British imports, both to build US industry and merchant shipping. Indeed, the underlying message of US maritime history is that the US is a major commercial force at sea – but only when it sees this as a national-security goal. Following independence, US commercial shipping and industry surged in tandem, with an understandable dip only due to war with the British in 1812. The gradual normalisation of maritime trade with the UK after that saw a gradual decline in the share of trade US shipping carried, which accelerated with the end of steamship subsidies --which the British maintained-- and the US Civil War. By the start of the 20th century, W. L. Marvin was arguing: “A nation which is reaching out for the commercial mastery of the world cannot long suffer nine-tenths of its ocean-carrying to be monopolized by its foreign rivals.” Yet 1915 saw the welfare-focused US Seaman’s Act passed and US flags move to Panama, where costs were lower. However, WW1 saw US shipping surge, and the Jones Act in 1920 reaffirmed ‘cabotage’ – only US flagged and crewed vessels can trade cargo between US ports. The 1930s saw global trade and the US maritime marine dwindle again – until 1936, when the Federal Maritime Commission was set up "to promote the commerce of the US, and to aid in the national defense." WW2 then saw US mass production of Liberty Ships account for over a third of global merchant shipping – and then post-1945, this lead slipped away again, and the US merchant marine now stands at around just 0.4% of the world fleet. Indeed, in 2020, US sealift capability was reported short on personnel, hulls, and strategy such that the commercial fleet would be unlikely to meet the Pentagon’s needs for a large-scale troop build-up overseas. As we see, the US has been here several times before. If the past is any guide for the future response, this suggests the following US actions could be seen ahead: Use its market size to force shippers to change pricing – which may already be happening; Raise tariffs again (on green grounds?); Refuse to take goods from some foreign ships or ports; Force vessels to re-flag in the US, at higher cost; Build a rival to China’s marine BRI with allies; Massive ship-building, for the 3rd time in the last century; Charter US private firms to bring in green materials; or The US Navy stops protecting some sea lanes/carriers, or forces the costs of their patrols onto others. It goes without saying that any of these steps would have enormous implications for global shipping and the global economy – and yet most of them are compatible with both the strategic military/commercial logic previously underlined, as well as the lessons of history. Wait and Sea? We summarize what we have shown in the key points below: Markets For markets, there are obvious implications for inflation. How can it stay low if imported prices stay high? How will central banks respond? Rate hikes won’t help. Neither will loose monetary policy – and less it is directed to a directly-related government response on supply chains and logistics. This suggests greater impetus for a shift to more localised production on cost grounds, at least at the lower end of the value chain, if not the more-desirable higher end. Yet once this wave starts to build, it may be hard to stop. Look at EU plans for strategic autonomy in semiconductors, for example, which are echoed in the US, China, and Japan. For FX, the countries that ride that wave best will float; the ones that don’t will sink. Helicopter view of ships Clearly, shipping will continue to boom. There are huge opportunities in capex on ships, ports, logistics, and infrastructure ahead – as well as in new production and supply chains. Yet one first needs to be sure what, or whose, map of production will be used for them! As the industry sits and waits for the wind and tide to change, logically one wants to position oneself best for what may be coming next. That implies global consolidation and/or vertical integration: Large shippers looking at smaller shippers to snuff out alternative routes and capacity; shippers looking at ports; ports looking at shippers; giant retailers/producers looking at shippers; importers banding together for negotiating power in ultra-tight markets. Of course, nationally, governments are looking at shippers, or at starting new carriers. If this is to be a realpolitik power struggle for who rules the waves --“Too Big to Sail”, or a new more national/resilient map of production-- then having greater scale now increases your fire-power. Of course, it also makes you a larger target for others. Let’s presume current trends continue. Could we even end up with a return to older patterns of production, e.g., where oil used to be produced by company X, refined in its facilities, shipped on its vessels, to its de facto ports, and on to its retail distribution network. Might we even see the same for consumer goods? That is the logic of globalisation and geopolitics, as well as the accumulation of capital. However, if history is a guide, and (geo)politics is a tsunami, things will look very different on both the surface and at the deepest depths of the shipping industry and the global economy. Much we take as normal today could become flotsam and jetsam. To conclude, who benefits from the huge profits of the current shipping snarl, and who will pay the costs, is ultimately a (geo)political issue, not a market one. Many ports are likely going to be caught up in that storm. Tyler Durden Sun, 10/03/2021 - 12:15.....»»

Category: blogSource: zerohedgeOct 3rd, 2021

US Hog Herd Hit By Largest Monthly Drop Since 1999

US Hog Herd Hit By Largest Monthly Drop Since 1999 US hog herds experienced the most significant monthly drop in two decades, according to new data from the USDA. The reason behind the drop is because farmers decreased hog-herd development over the last year due to labor disruptions at slaughterhouses plus high animal feed.  USDA data showed the US hog herd was 3.9% lower in August than a year ago. It was the largest monthly drop since 1999 after analysts only expected a decline of about 1.7%, according to Bloomberg.  On Monday, hog futures soared in Chicago after the news of tightening supply. Since contracts hit a seven-year high in June, they have plunged from $120 to $80 but have since recovered in recent days to $90.  Supply chain woes at slaughterhouses, and declining cold pork storage in US warehouses, have pushed up pork consumer prices to record highs.  Farmers are experiencing a challenging environment of skyrocketing feed prices and other commodity prices used to maintain and growing pig herds, along with the labor disruptions at slaughterhouses that sometimes force them to cull herds.  Soaring supermarket meat prices have been devastating for working-poor families who allocate a high percentage of their incomes to basic and essential items. The Biden administration spent most of the year ignoring the dramatic increase in food prices and only addressed the issue earlier this month by blaming meatpackers. The administration even had the nerve to say that if meat prices are taken out of the equation, troubling grocery inflation would be lower.  To sum up, shrinking hog herds means pork prices will stay high.  Tyler Durden Tue, 09/28/2021 - 20:25.....»»

Category: worldSource: nytSep 28th, 2021

Ida, Supply Constraints Dent US Chemicals as August Output Dips

The August reading showed lower production on a monthly comparison basis across all regions barring Northeast, reflecting the impacts of Hurricane Ida and supply-chain disruptions. U.S. chemical production edged down in August following three consecutive months of gains held back by hurricane-related disruptions and supply-chain constraints, according to the latest monthly report from the American Chemistry Council (“ACC”).The Washington, DC-based chemical industry trade group said that the U.S. Chemical Production Regional Index ("CPRI") slipped 0.3% in August on a monthly comparison basis, following a 1.1% growth a month ago and a 3.4% rise in June. The U.S. CPRI, which is measured using a three-month moving average, was created to track chemical production in seven regions nationwide.Per the ACC, activities for the U.S. manufacturing sector rose in August with output increasing 0.5% on a three-month moving average basis. Gains in output were witnessed in aerospace, construction supplies, motor vehicles and parts, machinery, computers, semiconductors, iron and steel products, foundries, plastic products, printing, furniture, textile mill products and apparel.The manufacturing sector serves as a barometer to gauge the overall health of the U.S. economy and has a major influence on the chemical industry. The sector is a major driver for the chemical industry which touches around 96% of manufactured goods. Manufacturing activity is also a key indicator for chemical production and demand.Broad-Based Decline in Regional Production The August reading showed lower production on a monthly comparison basis across all regions barring Northeast. Gulf Coast — the epicenter of the U.S. specialty chemicals and petrochemicals industry — witnessed a sharp decline in output in the reported month. Hurricane Ida that slammed into Louisiana — one of the largest chemical hubs in the United States — with devastating force on Aug 29 had a significant impact on chemical production.Production from Gulf Coast dropped 0.8% in August, per the ACC. Output in Midwest fell 0.3% while Southeast and West Coast saw 0.1% decline. Production also slipped 0.2% in Ohio Valley and Mid-Atlantic. Northeast recorded a 0.1% gain in the reported month.Chemical production was mixed by segments in August. Improved production was witnessed in synthetic rubber, manufactured fibers, other specialty chemicals, fertilizers, coatings and consumer products, offset by organic chemicals, plastic resins, miscellaneous inorganic chemicals, crop protection chemicals and adhesives.Strong Demand Drives U.S. Chemicals Amid Supply-Chain WorriesThe U.S. chemical industry has pulled off a comeback from coronavirus-induced challenges, aided by a return of economic activities. The industry faced the heat from a significant downturn in demand during the first half of 2020 as lockdowns and travel restrictions amid the pandemic brought economic activities to a near-standstill.However, demand for chemicals started to recover from the third quarter last year with a rebound in business activities as major parts of the United States reopened following the loosening of restrictions. The upturn in demand is being driven by an upswing in manufacturing and industrial activities.The U.S. manufacturing sector remains in the expansion territory despite the ongoing supply-chain problems and the spread of the highly contagious Delta variant, supported by strong demand for goods and an upturn in the overall economy. The sector has staged a strong rebound from the pandemic blues with activities showing a V-shaped recovery.A recovery in construction and automotive markets is also driving demand for chemicals. The U.S. automotive industry has witnessed a speedy recovery on the back of a strong rebound in customer demand for new vehicles. Despite the semiconductor crunch, chemical makers are seeing healthy demand from the automotive market.The construction sector has also recovered on the restart of projects that were stalled earlier partly due to supply chain disruptions. Residential construction is picking up, supported by lower interest rates. Demand for chemicals is likely to remain strong in these major markets through the balance of 2021.However, U.S. chemical producers are reeling under the effects of raw material cost inflation as well as higher supply chain and logistics costs. Supply chain disruptions due to coronavirus and weather-related events have led to a spike in input costs.  Higher input costs partly due to the impacts from the devastating winter storm in the U.S. Gulf Coast — the biggest refining and petrochemical production hub in North America — weighed on margins of chemical makers during the first half of 2021. The storm also curbed chemical production in the U.S. Gulf Coast and other parts of the country due to raw material and supply chain disruptions.The supply constraints are compounded by the disruptions associated with Hurricane Ida. Force majeures and plant shutdowns related to Ida are expected to further squeeze the supply of major raw materials including ethylene and propylene and push up their prices, impacts of which are likely to be felt on chemical companies’ third-quarter results.Chemical Stocks Worth ConsideringA few stocks currently worth considering in the chemical space are Avient Corporation AVNT, AdvanSix Inc. ASIX, Olin Corporation OLN, The Chemours Company CC and Ingevity Corporation NGVT. While Avient and AdvanSix sport a Zacks Rank #1 (Strong Buy), Olin, Chemours and Ingevity carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.Avient has expected earnings growth rate of 43.7% for the current year. The Zacks Consensus Estimate for earnings for the current year also has been revised 5.9% upward over the last 60 days.AdvanSix has expected earnings growth rate of 160.4% for the current year. The consensus estimate for the current year has been revised 24.5% upward over the last 60 days.Olin has an expected earnings growth rate of 46.2% for the current year. The Zacks Consensus Estimate for current-year earnings has also been revised 23% upward over the last 60 days.Chemours has expected earnings growth rate of 86.4% for the current year. The consensus estimate for the current year has also been revised 11.5% upward over the last 60 days.Ingevity has expected earnings growth rate of 12.7% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised 3.4% upward over the last 60 days. 5 Stocks Set to Double Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%. Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Olin Corporation (OLN): Free Stock Analysis Report The Chemours Company (CC): Free Stock Analysis Report Ingevity Corporation (NGVT): Free Stock Analysis Report AdvanSix Inc. (ASIX): Free Stock Analysis Report Avient Corporation (AVNT): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Category: topSource: zacksSep 28th, 2021

Globus Maritime Limited Reports Financial Results for the quarter and six-month period ended June 30, 2021

GLYFADA, Greece, Sept. 27, 2021 (GLOBE NEWSWIRE) -- Globus Maritime Limited ("Globus", the "Company", "we", or "our") (NASDAQ:GLBS), a dry bulk shipping company, today reported its unaudited consolidated operating and financial results for the quarter and six-month period ended June 30, 2021. Financial Highlights In H1 2021, Total revenues increased by about 161% compared to H1 2020. The Adjusted EBITDA for H1 2021 increased by about 6.8 million compared to H1 2020. The Total comprehensive loss for H1 2021 decreased by about 94% compared to H1 2020. As of June 30, 2021, and December 31, 2020, our cash and bank balances and bank deposits (including restricted cash) were $78.5 and $21.1 million, respectively, an increase of 272%. As of June 30, 2021, the total outstanding borrowings under our Loan agreements decreased to $34.25 million compared to $37 million as of December 31, 2020, gross of unamortized debt discount, a decrease of about 7%.                                 Three months ended June 30, Six months ended June 30, (Expressed in thousands of U.S. dollars except for daily rates and per share data)   2021   2020   2021   2020   Total revenues   6,829   2,299   11,996   4,589   Total comprehensive loss   (23 ) (4,197 ) (789 ) (13,199 ) Adjusted EBITDA (1)   3,055   (783 ) 4,361   (2,447 ) Basic loss per share (2)   -   (38.66 ) (0.09 ) (158.35 ) Daily Time charter equivalent rate ("TCE") (3)   11,781   3,778   10,859   3,016   Average operating expenses per vessel per day   5,256   4,353   5,471   4,437   Average number of vessels   6.2   5.0   6.1   5.0         (1)   Adjusted EBITDA is a measure not in accordance with generally accepted accounting principles ("GAAP"). See a later section of this press release for a reconciliation of Adjusted EBITDA to total comprehensive loss and net cash used in operating activities, which are the most directly comparable financial measures calculated and presented in accordance with the GAAP measures. (2)   The weighted average number of shares for the six-month period ended June 30, 2021 was 9,001,704 compared to 83,354 shares for the six-month period ended June 30, 2020. The weighted average number of shares for the three-month period ended June 30, 2021 was 10,774,058 compared to 108,577 shares for the three-month period ended June 30, 2020. (3)   Daily Time charter equivalent rate ("TCE") is a measure not in accordance with generally accepted accounting principles ("GAAP"). See a later section of this press release for a reconciliation of Daily TCE to Voyage revenues. Current Fleet ProfileAs of the date of this press release, Globus' subsidiaries own and operate seven dry bulk carriers, consisting of four Supramax, one Panamax and two Kamsarmax. Vessel Year Built Yard Type Month/Year Delivered DWT Flag Moon Globe 2005 Hudong-Zhonghua Panamax June 2011 74,432 Marshall Is. Sun Globe 2007 Tsuneishi Cebu Supramax Sept 2011 58,790 Malta River Globe 2007 Yangzhou Dayang Supramax Dec 2007 53,627 Marshall Is. Sky Globe 2009 Taizhou Kouan Supramax May 2010 56,855 Marshall Is. Star Globe 2010 Taizhou Kouan Supramax May 2010 56,867 Marshall Is. Galaxy Globe 2015 Hudong-Zhonghua Kamsarmax October 2020 81,167 Marshall Is. Diamond Globe 2018 Jiangsu New Yangzi Shipbuilding Co. Kamsarmax June 2021 82,027 Marshall Is. Power Globe 2011 Universal Shipbuilding Corporation Kamsarmax   80,655 Marshall Is. Weighted Average Age: 10.4 Years as of September 27, 2021 544,420   Current Fleet Deployment All our vessels are currently operating on short-term time charters ("on spot"). Management Commentary "During the second quarter we have seen the market gaining momentum. We are pleased to see increased rates across all sectors, the factors being demand as well as supply driven. On the demand side, we see a healthy demand of commodities both on the major as well as the minor bulks. There is significant congestion in ports all around the globe mainly due to COVID-19 related delays and complications. The combined effect of a healthy demand and a limit on the supply of ships helps the market and elevates rates. Since we expect the market to remain strong for the medium term and as our fleet comes out from legacy charters, we will be able to take advantage of the strong rates by positioning it accordingly. "During the second Quarter we continued to improve our balance sheet and build up our fleet. We have managed to refinance and reduce our bank debt at much lower levels compared to our previous loan agreements with the effects to be visible in the following quarters and years. We feel that the new refinancing and new relationship with a respectable financial institution provides the Company with a good base for the future. "In early June we have taken delivery of m/v Diamond Globe, further expanding and modernizing our fleet. As previously communicated, the vessel assumed a charter cover until about the end of the year. Additionally, we have recently announced the delivery of our new vessel m/v Power Globe joining our fleet which immediately performed a short trip at about $31,000 gross per day before proceeding to drydocking for her scheduled maintenance. We will examine the market and hopefully find lucrative business for the vessel when the scheduled maintenance is completed. "Furthermore, last week we entered into an agreement to acquire a 2015 Japanese Kamsarmax for $28,4 million and expect to take delivery of the vessel during the 4th Quarter of 2021. We will examine the charter and market condition closer to the delivery date and do our best to secure the highest rate possible at that time. The addition of this new vessel will expand our fleet and its carrying capacity further and align well with our renewal and expansion strategy. We consider this to be a good addition to the fleet which will further strengthen the position of the company in the market as well as help us build new relationships with customers. "COVID-19 is affecting most parts of our operations, we see delays related to the pandemic on most aspects that relate to technical as well as commercial matters. There are delays on schedules of loading, discharging, crew exchanges and spare part procurement as well as repairs, the delays are also accompanied with increased costs of such operations. We are trying our best as a company to mitigate any effects and delays, always keeping in mind international and local regulations as well as our vessels and crew safety and wellbeing. We are focused in helping and supporting our seafarers during these trying times; we want them to be healthy, happy and demonstrate high morale on board and will continue doing whatever is necessary for their safety and good physical and mental health. "Finally, we believe that the company has a strong balance sheet, and the growing fleet will help us to fully take advantage of the strong market. We are keeping our focus on future environmental regulations and continue to modernize and build up our fleet on that basis. We are confident that with a bigger and modernized fleet will be able to take advantage of the strong market and by extent build long term value for our shareholders." Management Discussion and Analysis of the Results of Operations Recent Developments Issuance of the Series B preferred shares On March 2, 2021, we issued an additional 10,000 of our Series B Preferred Shares to Goldenmare Limited in return for $130,000. The $130,000 was paid by reducing, on a dollar-for-dollar basis, the amount payable as compensation by the Company to Goldenmare Limited pursuant to a consultancy agreement. The issuance of the Series B preferred shares to Goldenmare Limited was approved by an independent committee of the Board of Directors of the Company, which received a fairness opinion from an independent financial advisor. Each Series B preferred share entitles the holder thereof to 25,000 votes per share on all matters submitted to a vote of the shareholders of the Company, provided however, that no holder of Series B preferred shares may exercise voting rights pursuant to Series B preferred shares that would result in the aggregate voting power of any beneficial owner of such shares and its affiliates (whether pursuant to ownership of Series B preferred shares, common shares or otherwise) to exceed 49.99% of the total number of votes eligible to be cast on any matter submitted to a vote of shareholders of the Company. To the fullest extent permitted by law, the holders of Series B preferred shares shall have no special voting or consent rights and shall vote together as one class with the holders of the common shares on all matters put before the shareholders. The Series B preferred shares are not convertible into common shares or any other security. They are not redeemable and have no dividend rights. Upon any liquidation, dissolution or winding up of the Company, the Series B preferred shares are entitled to receive a payment with priority over the common shareholders equal to the par value of $0.001 per share. The Series B preferred shareholder has no other rights to distributions upon any liquidation, dissolution or winding up of the Company. All issued and outstanding Series B preferred shares must be held of record by one holder, and the Series B preferred shares shall not be transferred without the prior approval of our Board of Directors. Finally, in the event the Company (i) declares any dividend on its common shares, payable in common shares, (ii) subdivides the outstanding common shares or (iii) combines the outstanding common shares into a smaller number of shares, there shall be a proportional adjustment to the number of outstanding Series B preferred shares. As of June 30, 2021, Goldenmare Limited owned 10,300 of the Company's Series B preferred shares. Public Offerings On January 13, 2021, the remaining pre-funded warrants from the December 2020 Pre-Funded Warrants were exercised and 130,000 common shares, par value $0.004 per share were issued. On January 27, 2021, the Company entered into a securities purchase agreement with certain unaffiliated institutional investors to issue (a) 2,155,000 common shares, par value $0.004 per share, (b) pre-funded warrants to purchase 445,000 common shares, par value $0.004 per share and (c) warrants (the "January 2021 Warrants") to purchase 1,950,000 common shares, par value $0.004 per share, at an exercise price of $6.25 per share. Total proceeds, net of commission retained by the placement agent, amounted to $15,108,050, before issuance expenses of approximately $122,000. The pre-funded warrants were all exercised subsequently and the total proceeds amounted to $4,450. No January 2021 Warrants have been exercised as of the date hereof. The January 2021 Warrants are exercisable for a period of five and one-half years commencing on the date of issuance. The warrants will be exercisable, at the option of each holder, in whole or in part by delivering to the Company a duly executed exercise notice with payment in full in immediately available funds for the number of common shares purchased upon such exercise. If a registration statement registering the issuance of the common shares underlying the warrants under the Securities Act is not effective, the holder may, in its sole discretion, elect to exercise the warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of common shares determined according to the formula set forth in the warrant. If the Company does not issue the shares in a timely fashion, the warrant contains certain liquidated damages provisions. On February 12, 2021, the Company entered into a securities purchase agreement with certain unaffiliated institutional investors to issue (a) 3,850,000 common shares par value $0.004 per share, (b) pre-funded warrants to purchase 950,000 common shares, par value $0.004 par value, and (c) warrants (the "February 2021 Warrants") to purchase 4,800,000 common shares, par value $0.004 per share, at an exercise price of $6.25 per share. Total proceeds, net of commission retained by the placement agent, amounted to $27,890,500 before issuance expenses of approximately $150,000. The pre-funded warrants were all exercised subsequently and the total proceeds amounted to $9,500. No February 2021 Warrants have been exercised as of the date hereof. The February 2021 Warrants are exercisable for a period of five and one-half years commencing on the date of issuance. The warrants will be exercisable, at the option of each holder, in whole or in part by delivering to the Company a duly executed exercise notice with payment in full in immediately available funds for the number of common shares purchased upon such exercise. If a registration statement registering the issuance of the common shares underlying the warrants under the Securities Act is not effective, the holder may, in its sole discretion, elect to exercise the warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of common shares determined according to the formula set forth in the warrant. If the Company does not issue the shares in a timely fashion, the warrant contains certain liquidated damages provisions. On June 25, 2021, the Company entered into a securities purchase agreement with certain unaffiliated institutional investors to issue (a) 8,900,000 common shares par value $0.004 per share, (b) pre-funded warrants to purchase 1,100,000 common shares, par value $0.004 par value, and (c) warrants (the "June 2021 Warrants") to purchase 10,000,000 common shares, par value $0.004 per share, at an exercise price of $5.00 per share. Total proceeds amounted to $46,580,875 before issuance expenses of approximately $129,000. As of June 30, 2021 550,000 pre-funded warrants were exercised and the total proceeds amounted to $5,500. The remaining 550,000 pre-funded warrants were exercised subsequently. No June 2021 Warrants have been exercised as of the date hereof. The June 2021 Warrants are exercisable for a period of five and one-half years commencing on the date of issuance. The warrants will be exercisable, at the option of each holder, in whole or in part by delivering to the Company a duly executed exercise notice with payment in full in immediately available funds for the number of common shares purchased upon such exercise. If a registration statement registering the issuance of the common shares underlying the warrants under the Securities Act is not effective, the holder may, in its sole discretion, elect to exercise the warrant through a cashless exercise, in which case the holder would receive upon such exercise the net number of common shares determined according to the formula set forth in the warrant. If the Company does not issue the shares in a timely fashion, the warrant contains certain liquidated damages provisions. Acquisition of new vessel On June 9, 2021, the Company took delivery of the m/v "Diamond Globe", a 2018-built Kamsarmax dry bulk carrier, through its subsidiary, Argo Maritime Limited, for a purchase price of $27 million financed with available cash. The m/v "Diamond Globe" was built at Jiangsu New Yangzi Shipbuilding Co., Ltd and has a carrying capacity of 82,027 dwt. On July 20, 2021, the Company took delivery of the m/v "Power Globe", a 2011-built Kamsarmax dry bulk carrier, through its subsidiary, Talisman Maritime Limited, for a purchase price of $16.2 million financed with available cash. The m/v "Power Globe" was built at Universal Shipbuilding Corporation in Japan and has a carrying capacity of 80,655 dwt. On September 22, 2021, the Company entered into a memorandum of agreement with an unrelated third party, for the acquisition of the m/v "Peak Liberty", a 2015-built Kamsarmax dry bulk carrier, for a purchase price of $28.4 million. The m/v "Peak Liberty" was built at Tsuneishi Zosen in Japan and has a carrying capacity of 81,837 dwt. The agreement is subject to customary closing conditions. Delivery of the vessel is expected during the 4th quarter of 2021. Debt financing In March 2021, the Company prepaid $6.0 million of the Entrust loan facility, which represented all amounts that would otherwise come due during calendar year 2021. As a result, after this pre-payment we had an aggregate debt outstanding of $31 million, gross of unamortized debt costs, from the Entrust Loan Facility. On May 10, 2021, the Company reached an agreement with CiT Bank N.A. for a loan facility of $34.25 million bearing interest at LIBOR plus a margin of 3.75% per annum. This loan facility is referred to as the CiT loan facility. The proceeds of this financing were used to repay the outstanding balance of EnTrust Loan Facility. Impact of COVID-19 on the Company's Business The spread of the COVID-19 virus, which has been declared a pandemic by the World Health Organization in 2020 had caused substantial disruptions in the global economy and the shipping industry, as well as significant volatility in the financial markets, the severity and duration of which remains uncertain. The measures taken by governments worldwide in response to the outbreak, which included numerous factory closures, self-quarantining, and restrictions on travel, as well as potential labour shortages resulting from the outbreak, had slowed down production of goods worldwide and decreased the amount of goods exported and imported worldwide. Some experts fear that the economic consequences of the coronavirus could cause a recession that outlives the pandemic. Besides reducing demand for cargo, coronavirus may functionally limit the amount of cargo that the Company and its competitors are able to move because countries worldwide have imposed quarantine checks on arriving vessels, which have caused delays in loading and delivery of cargoes. It is possible that charterers may try to invoke force majeure clauses as a result.  Crewing and Crew management operations. Due to COVID-19 there are restrictions on travelling on many jurisdictions. We may face problems in the embarkation and disembarkation our crew members. Many airports around the world as well as many countries impose heavy travel restrictions such as quarantine periods for incoming and outgoing travelers. By extent it is increasingly hard, if not restrictive, for our crews to be relieved by new crew members. We continue to monitor the situation with respect and utmost care for our seafarers, always communicating with the relevant authorities in order to assist them as much as we can in these unprecedented times. Disruption in operations in case crew members get infected. In case one of our crew members is found to be infected by COVID-19 this may lead to delays in cargo operations. It may also need to a detention and quarantine of the ship for an unspecified amount of time. Relevant authorities may require us to perform disinfection and fumigation operations if a crew member gets infected by COVID-19. Crew members may be quarantined if a member is found to be infected. The above may lead to increased costs and lower utilization of our fleet. Dry docking and Repairs. Repair yards and dry docks in the far east, usually selected for the scheduled maintenance of our vessels, may be affected by the closures and travel restrictions in their countries. Shipyard staff and third-party experts as well as spare parts may be harder to procure and provide making the maintenance process potentially lengthier, costlier or unfeasible. Spare parts and supplies may be harder to produce and deliver to a shipyard where they would be utilized for a scheduled maintenance. In addition to the above, and always relating to COVID-19 travel restrictions, it will be difficult for our in-house technical teams to travel to the shipyards in order to monitor the maintenance process, so the maintenance may have to be postponed or 3rd party monitoring technical crews will be hired. Finally, classification society surveyor attendance may be restricted thus not only affecting the time spent within a repair facility but also causing scheduled survey work to be postponed as far as this is permissible. Effect on the following technical department activities yet not limited to: Logistics and supply of spares and expert services may incur increased costs and disruption in Planned Maintenance and consequently lead to increased failures / incidents. Office Personnel attendance is disrupted or impossible, which can have as a result inadequate supervision and lead to increased incidents in third party inspection and reduced maintenance quality. Long-Term planned maintenance (dry docking) unsupervised by company personnel, that can result to lower quality and increased costs. Delays in class surveys, which can lead to postponements. The above ultimately are translated to possible increased costs and reduced maintenance quality which in the long term shall spiral to cost increases again as the aftermath shall have to be dealt with. However, there are presently insufficient statistics to reach to prediction model as regards to the actual increase in costs due to the above disruptions. The Company has evaluated the impact of current economic situation on the recoverability of the carrying amount of its vessels. During the first half of 2020, the Company concluded that events and circumstances triggered the existence of potential impairment of its vessels. These indicators included volatility in the charter market as well as the potential impact the current marketplace may have on the future operations. As a result, the Company performed an impairment assessment of the Company's vessels by comparing the discounted projected net operating cash flows for each vessel to its carrying values. For the first half of 2020, the Company concluded that the recoverable amounts of the vessels were lower than their carrying amounts and an impairment loss of $4.6 million was recorded (see also Note 5). For the first half of 2021 the Company re-evaluated the carrying amount of its vessels and concluded that no further impairment of its vessels should be recorded or previously recognized impairment should be reversed. Results of Operations Second quarter of the year 2021 compared to the second quarter of the year 2020 Total comprehensive loss for the second quarter of the year 2021 amounted to $23 thousand compared to total comprehensive loss of $4.2 million for the same period last year or $38.66 basic and diluted loss per share based on 108,577 weighted average number of shares. The following table corresponds to the breakdown of the factors that led to the decrease in total comprehensive loss during the second quarter of 2021 compared to the second quarter of 2020 (expressed in $000's): 2nd Quarter of 2021 vs 2nd Quarter of 2020 Net loss for the 2nd quarter of 2020 (4,197 ) Increase in Voyage revenues 4,530   Decrease in Voyage expenses 364   Increase in Vessels operating expenses (1,003 ) Increase in Depreciation (238 ) Increase in Depreciation of dry-docking costs (257 ) Increase in Total administrative expenses (156 ) Increase in Other income, net 102   Increase in Interest income 1   Increase in Interest expense and finance costs (487 ) Decrease in Loss on derivative financial instruments 1,309   Decrease in Foreign exchange losses 9   Net loss for the 2nd quarter of 2021 (23 )       Voyage revenuesDuring the three-month period ended June 30, 2021, and 2020, our Voyage revenues reached $6.8 million and $2.3 million, respectively. The 197% decrease in Voyage revenues was mainly attributed to the decrease in the average time charter rates achieved by our vessels during the second quarter of 2021 compared to the same period in 2020. Daily Time Charter Equivalent rate (TCE) for the second quarter of 2021 was $11,781 per vessel per day against $3,778 per vessel per day during the same period in 2020 corresponding to an increase of 212%. Voyage expenses Voyage expenses reached $0.2 million during the second quarter of 2021 compared to $0.6 during the same period in 2020. Voyage expenses include commissions on revenues, port and other voyage expenses and bunker expenses. Bunker expenses mainly refer to the cost of bunkers consumed during periods that our vessels are ...Full story available on Benzinga.com.....»»

Category: earningsSource: benzingaSep 27th, 2021

Key Events This Busy Week: Core PCE, ISM, Fed Speakers Galore And Government Shutdown

Key Events This Busy Week: Core PCE, ISM, Fed Speakers Galore And Government Shutdown With 10Y yields briefly spiking above 1.50% this morning, Deutsche Bank's Jim Reid writes that one factor that will greatly influence yields over the week ahead is the ongoing US debt ceiling / government shutdown / infrastructure bill saga that is coming to a head as we hit October on Friday - the day that there could be a partial government shutdown without action by the close on Thursday. Needless to say, it’s a fluid situation. So far the the House of Representatives has passed a measure that would keep the government funded through December 3, but it also includes a debt ceiling suspension, so Republicans are expected to block this in the Senate if it still includes that. The coming week could also see the House of Representatives vote on the bipartisan infrastructure bill (c.$550bn) that’s already gone through the Senate, since Speaker Pelosi had previously committed to moderate House Democrats that there’d be a vote on the measure by today. She reaffirmed that yesterday although the timing may slip. However, there remain divisions among House Democrats, with some progressives not willing to support it unless the reconciliation bill also passes. In short it remains unclear how this get resolved but most think some compromise will be reached before Friday. Pelosi yesterday said it “seems self-evident” that the reconciliation bill won’t reach the $3.5 trillion hoped for by the administration which hints at some compromise. Overall the sentiment has seemingly shifted a little more positively on there being some progress over the weekend. From politics to central banks and following a busy week of policy meetings, there are an array of speakers over the week ahead. One of the biggest highlights will be the ECB’s Forum on Central Banking, which is taking place as an online event on Tuesday and Wednesday, and the final policy panel on Wednesday will include Fed Chair Powell, ECB President Lagarde, BoE Governor Bailey and BoJ Governor Kuroda. Otherwise, Fed Chair Powell will also be testifying before the Senate Banking Committee on Tuesday, alongside Treasury Secretary Yellen, and on Monday, ECB President Lagarde will be appearing before the European Parliament’s Committee on Economic and Monetary Affairs as part of the regular Monetary Dialogue. There are lots of other Fed speakers this week and they can add nuances to the taper and dot plot debates. Finally on the data front, there’ll be further clues about the state of inflation across the key economies, as the Euro Area flash CPI estimate for September is coming out on Friday. Last month's reading showed that Euro Area inflation rose to +3.0% in August, which was its highest level in nearly a decade. Otherwise, there’s also the manufacturing PMIs from around the world on Friday given it’s the start of the month, along with the ISM reading from the US, and Tuesday will see the release of the Conference Board’s consumer confidence reading for the US as well. For the rest of the week ahead see the day-by-day calendar of events at the end. Here is a day-by-day calendar of events, courtesy of Deutsche Bank: Monday September 27 Data: Euro Area August M3 money supply, US preliminary August durable goods orders, core capital goods orders, September Dallas Fed manufacturing activity Central Banks: ECB President Lagarde, BoE Governor Bailey, and Fed’s Williams, Brainard and Evans speak Tuesday September 28 Data: China August industrial profits, Germany October GfK consumer confidence, France September consumer confidence, US preliminary August wholesale inventories, July FHFA house price index, September Conference Board consumer confidence, Richmond Fed manufacturing index Central Banks: ECB President Lagarde, Vice President de Guindos, ECB’s Schnabel and Panetta, Fed’s Evans, Bostic and BoE’s Mann speak, Fed Chair Powell appears alongside Treasury Secretary Yellen before Senate Banking Committee Wednesday September 29 Data: UK August mortgage approvals, Euro Area final September consumer confidence, US August pending home sales Central Banks: Fed Chair Powell, ECB President Lagarde, BoJ Governor Kuroda and BoE Governor Bailey speak on policy panel at ECB Forum on Central Banking, Fed’s Bostic, ECB Vice President de Guindos, ECB’s Elderso, Lane and Visco speak, Fed’s Bullard speaks (00:00 London time) Politics: Japan’s Liberal Democratic Party leadership election Thursday September 30 Data: Japan August retail sales, preliminary August industrial production, China September non-manufacturing PMI, manufacturing PMI, composite PMI, UK final Q2 GDP, preliminary September CPI from France, Germany and Italy, Germany September unemployment change, Italy August unemployment rate, Euro Area August unemployment rate, US weekly initial jobless claims, third estimate Q2 GDP, September MNI Chicago PMI Central Banks: Fed’s Williams, Bostic, Evans, Bullard and Harker speak, Central Bank of Mexico monetary policy decision Politics: US Government funding runs out (at time of writing) Friday October 1 Data: September manufacturing PMIs from Australia, South Korea, Indonesia, Japan, India, Russia, Turkey, Italy, France, Germany, Euro Area, UK, South Africa, Brazil, Canada, US and Mexico, US September ISM manufacturing, August personal income, personal spending, final September University of Michigan consumer sentiment index, Japan August jobless rate, Euro Area September CPI flash estimate, Canada July GDP Central Banks: Fed’s Harker and Mester, and ECB’s Schnabel speak * * * Turning to just the US, Goldman writes that the key economic data releases this week are the durable goods report on Monday and the core PCE inflation and ISM manufacturing reports on Friday. There are many speaking engagements from Fed officials this week, including congressional testimony by Chair Powell on Tuesday and possibly on Thursday. Monday, September 27 08:00 AM Chicago Fed President Evans (FOMC voter) speaks; Chicago Fed President Charles Evans will speak at the NABE annual meeting. 8:30 AM Durable goods orders, August preliminary (GS +1.5%, consensus +0.6%, last -0.1%); Durable goods orders ex-transportation, August preliminary (GS +0.3%, consensus +0.5%, last +0.8%); Core capital goods orders, August preliminary (GS +0.3%, consensus +0.4%, last +0.1%); Core capital goods shipments, August preliminary (GS +0.3%, consensus +0.5%, last +0.9%): We estimate durable goods rose 1.5% in the preliminary August report, reflecting a rebound in commercial aircraft orders. We estimate more modest increases in core capital goods orders (+0.3%) and core capital goods shipments (+0.3%), reflecting supply chain disruptions and a drag from the covid resurgence abroad. 09:00 AM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will make opening and closing remarks at a conference on culture hosted by his bank. 12:00 PM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will discuss the economic outlook before the Economic Club of New York. Prepared text and Moderated Q&A are expected. 12:50 PM Fed Governor Brainard (FOMC voter) speaks: Fed Governor Lael Brainard will discuss the economic outlook at the annual NABE meeting. Prepared text and Moderated Q&A are expected. Tuesday, September 28 08:30 AM Advance goods trade balance, August (GS -$89.0bn, consensus -$87.3bn, last -$86.4bn); We estimate that the goods trade deficit increased by $2.6bn to $89.0bn in August compared to the final July report, reflecting strengthening imports. 08:30 AM Wholesale inventories, August preliminary (consensus +0.8%, last +0.6%); Retail inventories, August (consensus +0.4%, last +0.4%) 09:00 AM FHFA house price index, July (consensus +1.5%, last +1.6%) 09:00 AM S&P/Case-Shiller 20-city home price index, July (GS +1.7%, consensus +1.6%, last +1.77%); We estimate the S&P/Case-Shiller 20-city home price index rose by 1.7% in July, following a 1.77% increase in June. 09:00 AM Chicago Fed President Evans (FOMC voter) speaks: Chicago Fed President Charles Evans will give welcoming remarks at a payments system conference hosted by his bank. 10:00 AM Conference Board consumer confidence, September (GS 115.5 consensus 115.0, last 113.8): We estimate that the Conference Board consumer confidence index increased by 1.7pt to 115.5 in September. Our forecast reflects mixed signals from other consumer confidence measures and modest improvements in the virus situation. 10:00 AM Richmond Fed manufacturing index, September (consensus 10, last 9) 10:00 AM Fed Chair Powell (FOMC voter) speaks: Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen will appear before a Senate Banking Committee CARES Act oversight hearing. Prepared text and Q&A are expected. 01:40 PM Fed Governor Bowman (FOMC voter) speaks: Fed Governor Michelle Bowman will discuss community banking during a virtual event. Prepared text is expected. 03:00 PM Atlanta Fed President Bostic (FOMC voter) speaks: Atlanta Fed President Raphael Bostic will discuss the economic outlook during a virtual banking conference. Audience Q&A is expected. 07:00 PM St. Louis Fed President Bullard (FOMC non-voter) speaks: St. Louis Fed President James Bullard will take part in a virtual moderated panel discussion on the U.S. economy and monetary policy hosted by the Central Bank of the Philippines. Prepared text is expected. Wednesday, September 29 10:00 AM Pending home sales, August (GS +2.0%, consensus +1.0%, last -1.8%); We estimate that pending home sales increased 2.0% in August. 11:45 AM Fed Chair Powell (FOMC voter) speaks: Federal Reserve Chair Jerome Powell will take part in a virtual panel discussion on central banking hosted by the European Central bank. Moderated Q&A is expected. 02:30 PM San Francisco Fed President Daly (FOMC voter) speaks: San Francisco Fed President Mary Daly will give a virtual speech at an event hosted by UCLA Anderson. Prepared text and Q&A are expected. 02:00 PM Atlanta Fed President Bostic (FOMC voter) speaks: Atlanta Fed President Raphael Bostic will discuss the topic of inclusive payments at a virtual conference hosted by the Chicago Fed. Audience Q&A is expected. Thursday, September 30 08:30 AM Initial jobless claims, week ended September 25 (GS 330k, consensus 330k, last 351k); Continuing jobless claims, week ended September 18 (consensus 2,815k, last 2,845k): We estimate initial jobless claims decreased to 330k in the week ended September 25. 08:30 AM GDP (third), Q2 (GS +6.6%, consensus +6.6%, last +6.6%); Personal consumption, Q2 (GS +11.9%, consensus +11.9%, last +11.9%): We estimate no revision on net in the third vintage of the Q2 GDP report (previously reported at +6.6% qoq saar). 09:45 AM Chicago PMI, September (GS 62.0, consensus 65.0, last 66.8): We estimate that the Chicago PMI pulled back further, falling 4.8 points to 62.0 in September. Our forecast reflects the still-elevated level relative to other business surveys and weaker industrial data abroad. 10:00 AM Fed Chair Powell (FOMC voter) speaks: Although the witness list has not yet been published, Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen may appear before a House Financial Services Committee hearing on the Federal Reserve and Treasury Department’s pandemic response. If so, prepared text and Q&A are expected. 10:00 AM New York Fed President Williams (FOMC voter) speaks: New York Fed President John Williams will make opening remarks at a webinar on the Fed’s pandemic response. 11:00 AM Atlanta Fed President Bostic (FOMC voter) speaks: Atlanta Fed President Raphael Bostic will discuss economic mobility as a tool for sustainability at a virtual event hosted by Georgia Tech. Audience Q&A is expected. 12:30 PM Chicago Fed President Evans (FOMC voter) speaks: Chicago Fed President Charles Evans will discuss the economic outlook at an event hosted by the Bendheim Center for Finance. Audience Q&A is expected. 01:05 PM St. Louis Fed President Bullard (FOMC non-voter) speaks: St. Louis Fed President James Bullard will make opening remarks at a book launch on the future of building wealth. 02:30 PM San Francisco Fed President Daly (FOMC voter) speaks: San Francisco Fed President Mary Daly will speak virtually to the 2021 Idaho Women and Leadership conference hosted by Boise State University. 03:30 PM Philadelphia Fed President Harker (FOMC non-voter) speaks: Philadelphia Fed President Patrick Harker will take part in a discussion on regulations, sustainable assets and financial markets hosted by the Official Monetary and Financial Institutions Forum. Friday, October 1 Personal income, August (GS +0.3%, consensus +0.2%, last +1.1%); Personal spending, August (GS +0.4%, consensus +0.6%, last +0.3%); PCE price index, August (GS +0.32%, consensus +0.3%, last +0.41%); Core PCE price index, August (GS +0.25%, consensus +0.2%, last +0.34%); PCE price index (yoy), August (GS +4.19%, consensus +4.2%, last +4.17%); Core PCE price index (yoy), August (GS +3.54%, consensus +3.5%, last +3.62%): Based on details in the PPI, CPI, and import price reports, we forecast that the core PCE price index rose by 0.25% month-over-month in August, corresponding to a 3.54% increase from a year earlier. Additionally, we expect that the headline PCE price index increased by 0.32% in August, corresponding to a 4.19% increase from a year earlier. We expect a 0.3% increase in personal income and a 0.4% increase in personal spending in August. 09:45 AM Markit US manufacturing PMI, September final (consensus 60.5, last 60.5) 10:00 AM University of Michigan consumer sentiment, September final (GS 71.2, consensus 71.0, last 71.0): We expect the University of Michigan consumer sentiment index increased by 0.2pt to 71.2 in the final September reading. 10:00 AM Construction spending, August (GS +0.2%, consensus +0.3%, last +0.3%); We estimate a 0.2% increase in construction spending in August. 10:00 AM ISM manufacturing index, September (GS 58.9, consensus 59.5, last 59.9); We estimate that the ISM manufacturing index declined 1pt to 58.9, reflecting weaker industrial data abroad, supply constraints, and a related pullback in auto production. 11:00 AM Philadelphia Fed President Harker (FOMC non-voter) speaks; Philadelphia Fed President Patrick Harker will take part in a virtual discussion on the economic outlook hosted by the New Castle County Chamber of Commerce. Prepared text and audience Q&A are expected. 01:00 PM Cleveland Fed President Mester (FOMC non-voter) speaks; Cleveland Fed President Loretta Mester will take part in a virtual moderated discussion on inflation and employment hosted by the Shadow Open Market Committee. Audience Q&A is expected. 5:00 PM Wards Total Vehicle Sales, September (GS 12.5m, consensus 13.3m, last 13.06m) Source: DB, Goldman, BofA Tyler Durden Mon, 09/27/2021 - 09:15.....»»

Category: blogSource: zerohedgeSep 27th, 2021

“The Housing Market Is Almost Frozen" - An Even Bigger Problem Emerges For China

“The Housing Market Is Almost Frozen" - An Even Bigger Problem Emerges For China With Wall Street's fascination with risk associated with Evergrande's default fading fast, and the sellside pumping out charts such as this one showing that the contagion in China junk bond market is unlikely to spillover globally... ... the smartest men in the room are once again missing the forest for the trees because as we explained in detail over the weekend, and again reminded earlier this week... Remember: for China this is not about Evergrande, it's about preserving confidence in the property sector — zerohedge (@zerohedge) September 22, 2021 ... for Beijing the real risk is not whether foreign creditors are impacted - in fact Evergrande's willingness to default on offshore bondholders while preserving operational cash flow and continuing to build homes shows just how much China "cares" about Blackrock's P&L - but how an Evergrande crisis could impact China's massive, $60 trillion, property sector, something which CCB International, the Chinese investment bank, touched on in a recent research note in which it said that Evergrande "contagion risk has spread from financing to land sales, property sales, project deliveries and home prices." And indeed, as the FT reports this morning, some very ominous cracks in China's property market - which according to Goldman is the largest asset class globally - are starting to emerge. In a letter to the Shaoxing municipal government in eastern Zhejiang province, the local office of developer Sunac China appealed for “policy assistance” as it was struggling through what it called a "turning point in China’s real estate industry." "We have never experienced such a radical change in the external environment," Sunac’s Shaoxing office said, pointing to a 60% year-on-year fall in home sales over the summer. "The market is almost frozen," it added in the letter, which was first reported by the Financial Times. “The radical change in policy and environment has seriously disrupted our business and made it very difficult to maintain normal operations.” The sudden, sharp collapse in China's property market is shown in the charts below which reveal that the amount of actual land transactions was not only well below the land supply in recent weeks, an unprecedented divergence, but that volumes were 65% below year-ago levels as potential buyers are suddenly terrified of investing in real estate as the Evergrande fate remains in limbo, with some worried that some of the 65 million empty apartments could hit the market and lead to a crash in property values. While the plunge in transactions is demand-induced, there are also concerns that an Evergrande insolvency and eventual collapse could lead to a supply crunch. As reported earlier, in July a Chinese city halted sales at two Evergrande projects alleging the troubled developer misappropriated funds by only depositing a portion of the proceeds from housing sales into the escrow accounts, according to a local government statement.  To ensure Evergrande doesn’t divert these funds, the housing bureau in Nansha district created an escrow account under its own name this month to take in proceeds from Evergrande homebuyers, cutting off the developer’s direct access to the money. A lack of funds has already led to a construction halt on some unfinished housing properties, sparking social unrest among buyers. In Guangzhou, buyers surrounded a local housing bureau earlier this month to demand Evergrande restart construction. As we discussed over the weekend, one of the most troubling downstream consequences from chaos in the property sector would be social unrest, and as we noted, maintaining social order has always been a key priority for the Communist Party, which has no tolerance for protests of any kind. In Guangzhou, homebuyers surrounded a local housing bureau last week to demand Evergrande restart stalled construction. Disgruntled retail investors have gathered at the companys Shenzhen headquarters for at least three straight days this week, and videos of protests against the developer in other parts of China have been shared widely online. Without a social safety net and with limited places to put their money, Chinese savers have for years been encouraged to buy homes whose prices were only ever supposed to go up (similar to the US before 2007 when even idiots like Ben Bernanke said that the US housing market never goes down). Today, buying a house (or two) is a cultural touchstone. And while housing affordability has become a hot topic in the West, many Chinese are more likely to protest falling home prices than spiking ones. Which brings us to a must read report from Goldman's Kinger Lau published overnight and focusing entirely on China's property sector - instead of just Evergrande - where it addresses a glaring dilemma: Beijing's desire to regulate and deleverage the housing sector even as it keeps property prices rising, a dynamic we summarized concisely earlier this week inside a tweet: Markets used to focus on China's "impossible trinity" but it's time to shift to China's "impossible dilemma": you can't have deleveraging/tightening/"3 red lines" AND rising home prices at the same time. China wants both, will have to pick one — zerohedge (@zerohedge) September 22, 2021 In his must read report (available for professional subscribers in the usual place) Goldman's Lau explains that what is going on with Evergrande, and in fact the turmoil gripping China's broader property sector is largely self-inflicted as "regulatory actions in China Internet have resulted in more than US$1tn market cap loss on the tech sector since mid-Feb, but in the past two weeks, investor focus has shifted to the US$60tn China property market which is linked to ~20% of Chinese GDP and represents 62% of household wealth." Specifically, Goldman notes that more than 400 new property regulations (shown in the appendix) that are largely tightening in nature have been announced ytd to restrain housing market activity, spanning supply, demand, funding, leverage, to price control measures. It is these measures that have contributed to a 14% year-on-year fall in property sales and $90 billion of market-cap losses among developer stocks in 3Q alone. In his attempt to summarize the critical linkages between China's all-important property sector and the broader economy (something we first tried to do back in 2017 in "Why The Fate Of The World Economy Is In The Hands Of China's Housing Bubble"), Goldman first focuses on the immediate catalyst behind the current crisis, which according to the bank has to do with the unprecedented regulatory tightening "in the largest asset class globally." Or, as Goldman puts it succinctly, "Property is everywhere in China" Some explanatory notes on the chart above: The regulatory cycle keeps evolving: The ongoing regulatory tightening cycle, which is unprecedented in terms of its duration, intensity, scope, and velocity (of new regulation announcement) as suggested by our POE regulation proxy, has so far provoked significant concerns among investors in and have resulted in more than US$1tn market cap loss on China Tech. From Tech to Social Sector, and then to Property: According to Centaline, more than 400 new property regulations have been unveiled ytd across the central and local governments to address the issues of rising property prices and imbalanced supply/demand in certain areas, over-reliance on property for economic growth and fiscal revenues, and potential speculation in the real estate market where 22% of property could be vacant and ~60% of recent-year purchases were driven by investment demand. Property market tightening isn’t a new feature in the Chinese policy cycle over the past decade, but the severity of the measures, the scope of tightening, and the determination of policy implementation (e.g. the 3 Red Lines) are arguably unprecedented. China property is big: Almost two years ago, Goldman took a deep dive into the US$40tn Chinese residential housing market and analyzed its impacts on macro and asset markets. Since then, the market has grown to US$60tn in notional value including inventory, likely the largest asset class in the world on current prices. It has also registered Rmb26tn (US$4tn) of home sales with more than 3bn sqm of GFA being sold, almost 3x the size of HK SAR. Additionally, it is well-documented that Chinese households have a strong investment and allocation bias towards real assets for different economic and cultural reasons—as of Aug 2021, property accounted for around 62% of household assets in both the total and net terms, vs. 23% in the US and 36% in Japan, where stocks are the dominant household assets. Property is ubiquitous in China, fundamentally and financially: Goldman economists estimate that the housing sector contributes to around 20% of GDP via direct and indirect channels such as property FAI, property construction supply chain, consumption, and wealth effect. In the financial markets, 15% of aggregate market earnings (i.e. ~US$150bn out of US$1tn in 2020) could be exposed to ‘property demand’ in the extended housing construction-to-sale cycle which typically spans over three years, and that property-related loans (developer loans, mortgages, shadow banking)/ developer bonds represent 35%/23% of banks’ loan books/the outstanding balance of the offshore USD credit (IG + HY) market,respectively. And visually: While a full-blown property crisis would impact virtually every aspect of the Chinese economy, starting with capital markets, shadow banks, and social stability, the most immediate one for global investors is of course, the equity market. Here are Goldman's key observations on this topic: The regulation headwinds have resulted in a noticeable slowdown in property activities in recent months: nationwide property sales have fallen 14% yoy in3Q21 alongside stable prices in the primary market but large declines of transactions in the secondary market; property FAI and new starts have fallend rastically, although completion growth momentum has remained strong largely on favorable base effects. At the macro level, Goldman economists have laid out 3 scenarios to model the contagion impacts from reduced property impulse on macro growth. Overall, they see 2022 GDP growth hit ranging from 1.4% to 4.1% depending on the magnitude/severity of the property market slowdown and the tightening of financial conditions domestically, although their scenario analysis does not take into consideration potential monetary and fiscal policy easing in response to the property market declines. While listed developers only account for 4% of earnings in the aggregate listed universe, the housing market could be linked, directly and indirectly, to ~15% of corporate earnings, and every 10pp growth deceleration in housing activity could reduce profit growth of the housing market by ~2pp, all else equal. Broadly, Goldman lists five key transmission mechanisms along the extended property market food chain: Property developers and management companies (4% of equity market earnings): Developers’ earnings are highly sensitive to the property market fundamentals. However, given the time lag between transaction (pre-sales) and revenue recognition (accrual-based accounting), reported earnings usually lag sales by around 2 years, meaning that their current- and next-year earnings may not fully reflect the latest situation in the physical market. For property management companies, their near-term earnings profile is more sensitive to completions than sales but slowing property sales could dampen their future growth prospect. Financial institutions (54% of equity market earnings): Developer loans and mortgage loans account for 35% of commercial banks’ aggregate loan book. Goldman's banks analysts see the potential for mortgage NPLs to rise (at 0.3% now, 1% increase in mortgage NPL ratio translates into 18.7% drop in net profits per their bear case) although their risk exposures to property-related WMPs have fallen substantially since 2016. For insurers, Goldman's team believes the listed insurers’ exposure to the property sector is low, but the potential indirect wealth effect could pose a bigger fundamental challenge. While not directly linked to the housing market, equity brokers’ earnings cycles have been negatively correlated with property sales, likely reflecting the asset allocation decisions/flows from Chinese households between the two asset classes. Construction (2% of equity market earnings): From new property FAI start to completion, the construction cycle for commodity housing typically lasts 20-30 months in China. It drives demand for construction materials (China is the largest consumer of copper, iron ore and steel), although the focus of materials and their consumption intensity varies in different parts of the cycle. The process also directly impacts construction-related equipment, with excavators, heavy-duty trucks, bulldozers, cranes, and loaders all exhibiting reasonably high demand correlation with land sales. Consumption: (3% of equity market earnings): Whether property purchase is considered consumption (at least for first time buyer) remains an open-ended debate, but the housing market is undoubtedly a key demand driver for a wide range of consumption items, including white goods,consumer durables like furniture equipment, and certain electronic products(e.g. Audio devices and air conditioners). Goldman's study shows that housing completion usually leads the sales and earnings in these sectors by 6-9months. Wealth effect (1% of equity market earnings): At the micro level, capital appreciation (or depreciation) in the housing market could have short-term material impact on discretionary spending given the potential wealth creation from the US$60tn asset market, especially considering the relatively high investment ratios there. Industries that are sensitive to this channel encompass the Autos (luxury), Macau gaming, HK retailers and travel-related companies (before the pandemic), which tend to lag property sales by around two quarters, although these relationships may be also reflective of the broader macro dynamics including liquidity easing. A snapshot of the various top-down impact of the Chinese property cycle on corporate earnings is shown below: In sum, mapping Goldman' base case assumptions on GDP growth and property activities for 2022 onto corporate earnings via these channels,the bank lowers its 2022E EPS growth for MSCI China from 13% to 7%, but as the bank warns "the earnings downside (delta) could be much more significant (-28pp) if their bear cases prevail." And should more companies warn that "the market is almost frozen" as a result of the Evergrande crisis, the bear case is virtually assured. We conclude with Goldman's observations on the contagion risks which according to the bank - and contrary to the market - "are building", even if systemic risks can still be avoided. While the restrictive policies have cooled the market, it has put highly-geared developers, notably Evergrande, in the spotlight as their deleveraging path becomes increasingly challenging. On one hand, Goldman agrees with us, and says that on a standalone basis, Evergrande should not be a serious systemic threat given that its total liability of Rmb1.9tn accounts for 0.6% of China’s outstanding TSF, its bank loans of Rmb572bn represent 0.3% of systemwide loan book, and its market share in nationwide commodity housing sales stood at 4% by 1H21. However, the real risks emerges in the context of the slowing property market: indeed, as in other systemic/crisis episodes, investors are concerned about specific weak links which could spread to the broader system via fundamental and financial channels in the case of disorderly default, and therefore the financial condition tightening risk could be much more significant than the Rmb1.9tn liability would suggest, according to Goldman. How much risk is priced in? This is a popular question from investors but also a difficult one to answer given the fluidity of the situation. However, the following analyses lead Goldman to believe that the market may have priced in some degrees of degradation in macro/corporate fundamentals and possibly policy response from the authorities (i.e. a “muddle-through” scenario), but not a harsh scenario that is systemic and global in nature Episodic analysis: Historical physical property market downturns were short-lived and shallow, but if we focus on episodes where developer equities traded at depressed valuations to proxy for property-related concerns (eg.2H11, early 2015, and late 2018), prevailing NAV discounts of listed developers(-60%) are roughly in-line with those difficult times. At the index level, MSCI China bottomed at around 10-11x fwd P/E and 10% ERP in those periods, vs. 13xand 9% at present respectively. Fair PE targets: The MSCI China index is currently trading on 13x fP/E, having already de-rated from 19.6x at the peak in mid-Feb. Applying Goldman's three scenarios to its top-down macro PE model, the bank estimates that the index fair PE could fall to 12.5x in the base case, and 11.0x in their most bearish case. Correlation analysis: Intra- and inter-sector, and cross-asset correlations with regard to Chinese stocks or developer equities have all risen in the past weeks, albeit from a low base. However, compared with previous cases where concerns related to China regulations or trade relations had spooked global markets (e.g. 2015 FX reform, 2018 US-China trade war), the absolute correlation levels are more benign at present, suggesting a global contagious impact is not fully priced in. In light of all this, the good news is that in Goldman's view systemic risks could still be avoided considering: broad liquidity and risk-appetite indicators such as 7d repo, the onshore funding stress index, as well as the A-share market performance/ turnover suggest that the imminent "minsky moment" remains a narrative but far from a reality; the effective leverage (LTV) for the housing market is low, around 40% to 50% per our Banks team’s estimate; the institutional setup in China where the government has strong control over its banking system makes a market-driven collapse less likely to happen than would otherwise be the case; Losses will be realized by stakeholders associated with highly-geared developers, but the liabilities are relatively transparent and are less widely socialized in the financial markets than in previous global financial crises; the potential economic, social, and financial impacts have been well publicized and discussed, and it appears that the authorities are assessing the situation and starting to take actions; and, economists believe there is potential for the authorities to ease policy to prevent a disorderly default of Evergrande from developing into a crisis leading up to the Sixth Plenum in November. Ultimately, timing will be key to a happy ending: Given the outsized market value of China property, and its intricate linkages to the real economy and the financial markets, deleveraging the property market and improving financial stability - two contradictory concepts - could raise systemic concern if policy actions are pursued too aggressively, or without clear coordination among regulators and communication with the market. Importantly, as market concerns over tail risk and spillovers start to build, there is increasing focus on the narrowing window for policymakers to provide the necessary circuit breakers to ring-fence the (collateral) damages and stop the downward spirals. A key risk from continued delayed action would be a bigger snowball effect and more damage on markets and investor (already strained) confidence in Chinese assets. As such, Goldman expects the market to focus on potential actions that could be pursued, such as a combination of debt restructuring (bank loans, WMP, credits), conditional government involvement in working capital bridges and unfinished property projects, and a coordinated plan to divest and cash in assets. Finally, as promised earlier, here is a summary of the key loosing (green) and tightening (red) policies in China's property market.   Tyler Durden Fri, 09/24/2021 - 13:00.....»»

Category: blogSource: zerohedgeSep 24th, 2021

US Services PMI Plunges To 14-Month Low As Input Prices Soar

US Services PMI Plunges To 14-Month Low As Input Prices Soar After August's surprising tumble in Markit's PMIs (Services much more so than Manufacturing), analysts expected that trend to continue in preliminary September data (albeit at a far more gradual rates), all of which fits with the ongoing trend of collapse in actual macro-economic data relative to over-optimistic expectations. The actual prints were worse than expected: Markit US Manufacturing fell to 60.5 in early Sept from 61.1 in August (below the 61.0 expected) Markit US Services fell to 54.4 in early Sept from 55.1 in August (below the 54.9 expected) - a 14-month low Source: Bloomberg On the price front, input costs rose at a sharper pace during September. The rate of cost inflation was the quickest for four months, and the second-highest on record, as supply chain disruptions and material shortages pushed prices and transportation costs up. Output charges continued to increase markedly, continuing to rise at a pace far outstripping anything seen in the survey’s history prior to May, as firms sought to pass on higher costs to clients where possible. The flash US Composite PMI tumbled to 54.5 (below expectations) - its weakest in 12 months... Source: Bloomberg Commenting on the PMI data, Chris Williamson, Chief Business Economist at IHS Markit, said: “The pace of US economic growth cooled further in September, having soared in the second quarter, reflecting a combination of peaking demand, supply chain delays and labour shortages. “The slowdown was led by a cooling of demand in the service sector, linked in part to the Delta variant spread. However, while manufacturers have seen far more resilient demand, factories face growing problems in sourcing enough supplies and labour to meet orders. Supply chain delays show no signs of easing, with another near-record lengthening of delivery times in September. Hence factory output growth also weakened and order book backlogs rose at a record pace in September. “The upshot is yet another month of sharply rising prices charged for goods and services as demand outpaces supply, and higher costs are passed on to customers.” So economic growth is cooling but prices are still soaring... Cough "stagflation" cough. Tyler Durden Thu, 09/23/2021 - 09:54.....»»

Category: blogSource: zerohedgeSep 23rd, 2021