Most Recent Audio: 01 October 2020

David Fuller and Eoin Treacy's Free (Abbreviated)
Comment of the Day

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October 01 2020

Commentary by Eoin Treacy

Video commentary for October 1st 2020

October 01 2020

Commentary by Eoin Treacy

Rolls-Royce Chief Unveils $6.5 Billion Covid Survival Plan

This article by Charlotte Ryan and Christopher Jasper for Bloomberg may be of interest to subscribers. Here is a section:

The funding plans:
* A 10-for-three rights issue, which will come at a 41.4% discount to Wednesday’s closing price, has been fully underwritten
* A 1 billion-pound bond offering will proceed in the near future
* Contingent on completion of the equity offer, Rolls said it also has commitments for a two-year term loan of 1 billion pounds
* U.K. Export Finance has indicated backing for an extension of its 80% guarantee to support a 1 billion-pound increase in an existing loan, subject to completion of the rights offer

The fundraising would boost Rolls-Royce borrowings to almost 16 billion pounds, according to data compiled by Bloomberg and company announcements. BNP Paribas SA, Citigroup Inc. and HSBC Holdings Plc are coordinating the company’s bond offering and new term loan facility, according to people familiar with the matter.

The package is based on a worst-case projection where a second wave of the coronavirus leads to a slower recovery, East said. The financing should “take any liquidity questions off the table” through the crisis, he said, adding that Rolls-Royce doesn’t have any plans to seek a bailout from the U.K. government, owner of a so-called golden share.

Eoin Treacy's view

Refocusing the company on defense innovation and renewable energy reflects the evolving market environment. The future is about hypersonic missiles and travel, airbreathing rockets and significant efficiency gains in fuel consumption. Meanwhile, the company’s daily revenue is heavily exposed to the service agreements on the existing and future number of engines flying around the world.

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October 01 2020

Commentary by Eoin Treacy

This Market Leviathan Dwarfs the Nasdaq Whale

Thanks to a subscriber for this edition of John Auther’s letter. Here is a section on seasonality:

That completes the good news. The bad news is that TDFs have become so big that, like whales splashing around in the bathtub, they are affecting markets. Deluard points to the weird
coincidence that each of the last four corrections (including the massive Covid-19 market break earlier this year) bottomed with a week to go in the quarter. All but one were even on the same day of the month — the 23rd. The exception was the Christmas Eve climax to the sell-off of winter 2018, which came after the 23rd had fallen on a Sunday. Here they are:

This could be a weird coincidence. It could be an example of the power of numerology. And it could be the basis of a very specific new market aphorism. Rather than “Sell in May and go away,” we can have “Buy on the 23rd of March, June, September or December.” Most usefully, however, we might look at it as an example of the newly minted power of the TDF whales. If the market is going down, these days it is a safe bet that a big infusion of money into stocks will be coming at the end of a quarter. TDFs’ contra-cyclicality means that they act as an accidental “put” option under the market. 
 

Eoin Treacy's view

Seasonality in the market is an important factor because there is a clear trend for the market to do better at certain times of the year. Sell in May and come back on Labor/St. Leger’s Day has long highlighted the tendency of markets to do best in the 4th and 1st quarters. The Santa Claus rally between Thanksgiving in late November and the first week of the new year has also statistically returned positive results, albeit with some volatility.

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October 01 2020

Commentary by Eoin Treacy

October 01 2020

Commentary by Eoin Treacy

Oil Drops in Wake of Stimulus Uncertainty and OPEC Supply Fears

This article by Andres Guerra Luz and Alex Longley for Bloomberg may be of interest to subscribers. Here is a section:

Oil slid to a two-week low as conflicting signals over the prospect of U.S. fiscal relief added to concerns over rising supply from major global producers.

Futures in New York tumbled as much as 6.5% on Thursday as the dollar moved off session lows. The U.S. benchmark fell below its 100-day moving average and if futures close below the key technical level, it will signal further selling pressure ahead.

Chances for a much needed boost for demand remains uncertain, with U.S. House Speaker Nancy Pelosi saying there are still major differences to be bridged in the negotiations over a fiscal stimulus package. Meanwhile, investors are also concerned with the unexpected return of Libyan output and higher oil exports from Saudi Arabia and Iraq. Russian exports are also expected to increase.

Eoin Treacy's view

$40 is not a high enough price to cover the costs of most oil producing nations. The ensures many OPEC members will continue to cheat on production goals and countries outside OPEC have an incentive to pump as much as possible too.

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