Eoin Treacy's view

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Type-2 top formation completions are often followed by period of ranging. Wall Street rebounds from lows as shorts are cut ahead of Microsoft and Apple earnings and the Fed meeting Wednesday, oil steady, gold rebounds from intraday lows, Dollar steady, Renminbi firm.

Meanwhile, the earnings season so far has failed to assuage growing pessimism about the macroeconomic outlook. Goldman Sachs Group Inc. strategists said Monday that guidance for the months ahead has been “disappointing,” as only one S&P 500 company -- Micron Technology Inc. -- has both beaten earnings estimates and raised its outlook.

Markets are increasingly concerned that a more hawkish shift from the Fed could hit earnings growth, Goldman strategists led by David Kostin wrote in a note. “Investors will require a catalyst in the near-term to add length, but few obvious catalysts are evident in the near-term,” they said.

Eoin Treacy's view

We have described this bull market as liquidity fuelled since 2009. Nothing has changed to question that assumption. The reality of tapering and the threat of rate hikes and quantitative tightening are weighing on asset prices from cryptocurrencies to unprofitable innovation companies. Many of the world’s largest companies are now also feeling the pain.

Nuclear power is dwindling elsewhere in Europe too. EDF has shut down some reactors in the U.K. earlier than planned because of other safety issues, while Germany will permanently close its three remaining reactors by the end of the year, after shutting down three others a few weeks ago. Belgium will also close a reactor in October, and halt its six others by the end of 2025. 

At the same time, those countries are adding large amounts of wind and solar generation, filling the gap left by nuclear but increasing their energy systems’ dependence on the whims of the weather. Without reliable baseload power exports from EDF, a cold and windless winter day will become a potentially stressful scenario. 

“The dependency on France is likely to increase with Germany getting out of coal and nuclear,” said Johannes Pretel, head origination for Germany at Swiss utility Axpo Holding AG. “This winter we still had all of our capacity, next winter we don’t have it anymore because the last nuclear plants will be out.”

Eoin Treacy's view

Europe stopped building reactors thirty years ago. Today there is little appetite to invest in the infrastructure required to maintain aging plants or to build new ones. The loss of the primary source of base load electricity is going to be felt across the continent for years to come. Even if they decided to spend the money today, it would still be a decade before new reactors come into service.

Overseas investors boosted their holdings of Chinese sovereign bonds by 575.6 billion yuan ($90.9 billion) in 2021, the fastest pace on record compared with previous years, according to Bloomberg calculations of Chinabond data. 

Foreign exchange settlement under securities investment in the capital account, which reflects offshore investors’ buying of onshore equities and bonds, surged to $23 billion in December, the highest since records began in 2010.

Ken Cheung, chief Asian FX strategist at Mizuho Bank Ltd., said the high returns of yuan-denominated assets and the stability of the yuan exchange rate are attractive to foreign capital. 

However, the narrowing U.S.-China yield spread will lead to slower inflows into the onshore bond market, and direct investment next year could ease, considering multiple factors, including regulations, U.S.-China relations and China’s slowing economy, Cheung said.

Eoin Treacy's view

The Renminbi has been slowly appreciating versus the Dollar since early 2021. That reticence of the Chinese government to deploy massive monetary and fiscal stimulus during the pandemic have contributed to the strength of the currency and the relative attraction of Renminbi bonds.