David Fuller and Eoin Treacy's Comment of the Day
Category - Japan

    Trafigura Seeks PE Funding as Commodity Surge Triggers Margin Calls

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Trafigura Group, one of the world’s top oil and metals traders, has been holding talks with private equity groups to secure additional financing as soaring prices trigger giant margin calls across the commodities industry.

    Trafigura has in recent weeks stepped up efforts to seek new funding from beyond its traditional group of bank lenders, according to people familiar with the matter.

    The trader held talks with Blackstone Inc. for an investment of around $2 billion to $3 billion in preference shares or a similar hybrid instrument, but those talks ended without a deal, said the people, who asked not to be identified as the discussions were private. Trafigura has also approached Apollo Global Management Inc., BlackRock Inc. and KKR & Co., the people said.

    The discussions with private equity firms have been broad-based, ranging from financing for specific projects to raising funding at a company level, the people said. There’s no certainty any of the discussions will progress to a deal, they said.

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    Ukraine Open to Neutrality But Won't Yield Territory, Aide Says

    This article from Bloomberg may be of interest. Here is a section:

    Ukraine is open to discussing Russia’s demand of neutrality as long as it’s given security guarantees, though it won’t surrender a “single inch” of territory, a top foreign policy aide to President Volodymyr Zelenskiy said.

    “Surely, we are ready for a diplomatic solution,” Ihor Zhovkva, Zelenskiy’s deputy chief of staff, said in an interview with Bloomberg Television on Wednesday. 

    The aide reinforced Ukraine’s demand for security guarantees “from the U.S., from Great Britain, from Germany” and others -- “only security guarantees from Russia will not be enough,” though he declined to spell out what those measures would entail. 

    Preconditions for talks with Russian President Vladimir Putin would be a cease-fire and the withdrawal of Russian troops, Zhovka said.

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    Currency Speculators Shun Usual Havens Despite Ukraine Tensions

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    Leveraged funds’ net short positioning in the yen has increased in seven out of the last nine weeks and sits at its most bearish since November, according to Commodity Futures Trading Commission data released Friday. Net positioning in the Swiss franc, another preferred haven asset for currency traders, has been short since September, though it did grow less bearish in last week’s CFTC data. 

    The pullback from havens was evident in the spot market on Tuesday, when the Japanese and Swiss currencies retreated while other major counterparts gained against the U.S. dollar. The moves signal that the market is comfortable with where the Russia situation is going, Brad Bechtel, a strategist at Jefferies LLC in New York, said in a Tuesday note. 

    “No real downside momentum in the JPY crosses on any of these recent Russia headlines the past few weeks,” he wrote. 

    “Even now, as we are on the brink of the conflict, we still do not see JPY perform. Same with the USD and CHF,” he wrote, referring to the Swiss franc.

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    Weaker Yen, Stronger Japanese Stocks Seen Ahead: BofA

    This note appeared in Bloomberg may be of interest to subscribers. Here is a section.

    A mix of Federal Reserve tightening and spring investment flows from Japanese funds should result in a weaker yen but support the country’s government bonds and equities, strategists at Bank of America wrote.

    Bank expects pronounced Fed and BOJ divergence as latter stays on hold; that will be exasserbated by spring investment flows, led by the newly established university fund and life insurance funds’ seasonal activity, strategists Shusuke Yamada, Tomonobu Yamashita and Tony Lin wrote

    Sees BOJ maintaining yield curve control despite rumors of tightening

    “For Japanese fixed-income investors, implications of policy divergence are relative stability of JGB over foreign bonds, higher FX-hedge cost, rising FX carry, and a stronger USD,” they said

    Forecast USD/JPY will fall to 118 by mid-year despite cheap valuation

    “We believe pressure to keep JPY undervalued will prove more significant especially in the spring when the Fed-BoJ policy divergence would be pronounced and institutional money may flow into foreign assets without FX hedge,” they said

    Tougher U.S. rates typically favor Japanese equities

    As market volatility increases, flows from Japanese funds and light positioning among global investors should also support the market, they wrote.

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    Gundlach Sees 'Rough Waters' for Market as Fed Pursues Taper

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    Gundlach, 62, said the reason why Fed Chair Jerome Powell characterizes the economy as strong, but not strong enough to allow for a rate hike at this point, is that the underlying condition is in fact weak -- artificially propped up by an unprecedented degree of stimulus.

    Here are some other takeaways from Gundlach’s remarks:
    He focused heavily on inflation, saying the annual pace of gains in the consumer price index could hit 7% in the next month or two. He ran through numerous inflation measures and pointed out that shelter costs have climbed significantly. He also said it’s possible that the CPI inflation gauge won’t drop below 4% throughout 2022.

    Markets could face more volatility now that the Fed has said it might quicken its tapering program.

    Gundlach reiterated that he bought European stocks for the first time in 12 years, which he disclosed a few months ago. He still owns some of those and they’ve done just OK until recently. He didn’t own emerging-markets equities, though he envisioned a scenario when they might outperform U.S. firms. “We’re looking for major opportunities” and emerging markets could be one over the next few years, he said.

    The dollar has been in structural decline since 1985, he said, reiterating that the twin-deficit problem (that’s the current-account gap and the federal budget deficit) will cause the greenback to fall over time, which bodes well for emerging markets.

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    This Company is Reinventing the Wheel and Ditching the Rubber Tire

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    While GACW is initially targeting the OTR sector, which includes mining, the global tire market is much bigger, and the company has plans to enter that too. That said, the initial focus on mining could raise in excess of $20 million in revenue per mine site given the significant numbers of vehicles involved in each mining project.

    And while the company may have competitors in the mid-sized market, it does not have any competitors in the global OTR sector.

    In addition to this market, the ASW technology can be applied to all vehicles currently using traditional rubber tires, a $322 billion estimated value in 2022.

    So far, the company has raised $3 million and has 4 patents with 13 others pending. It is also currently testing its ASW products with mining partners with an evaluation period of between 6 and 12 months. From 2022, it intends to ramp up its production of the ASW product with full commercialization expected in 2023.

    “At this point, our plan is to expand our distribution network and really start taking the tire industry by storm,” the company said.

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    Soaring Costs Squeeze Japan Inc. as Firms Hold Their Prices Flat

    This article from Bloomberg may be of interest to subscribers. Here is a section: 

    Costs that Japanese businesses pay for supplies surged last month at the fastest pace in 13 years.
    Meanwhile, the prices that consumers pay are basically flat, a recipe for pinched profit margins and corporate pain. 

    A Bank of Japan report on Tuesday showed the country’s producer prices rose in September 6.3% from a year earlier, with the gap between those costs and the prices consumers pay at its widest since 1980.

    Even as profit margins fall, Japanese businesses have been reluctant to pass their costs on to the country’s shoppers, who are known for being extremely sensitive to price increases after years of deflation and stagnant wages. 

    Forecasts from the BOJ, showing consumer price gains rising no higher than 1% next year, suggest businesses aren’t likely to get very aggressive in pricing even if they get stressed by
    added cost pressure. 

    That bind shows one reason why Japan’s new Prime Minister Fumio Kishida is so keen to get businesses to raise pay, a mostly unmet goal held by the two premiers before him including Shinzo Abe, who also made it a major policy plank.

    Japan’s Kishida Vows Progress Where Abenomics Fell Short:

    On Pay
    Without bigger paychecks in consumers’ pockets, Japan’s policy makers have found it difficult to stoke inflation, which is not forecast to reach the BOJ’s 2% target for years. The bank is seen keeping its easing program for the foreseeable future, even as global peers unwind stimulus.
     

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