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

    Email of the day on China's desire to settle in Renminbi

    Thanks, Eoin for all your recent helpful comments. could you please comment now on the new oil market, I believe run by China, due to start on 01 March 2018 which is backed by gold and how this might affect world markets in so many different ways.

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    Naspers CEO Exploring Amsterdam IPO for Some Units, FD Says

    This article by Wout Vergauwen and Loni Prinsloo for Bloomberg may be of interest to subscribers. Here is a section: 

    Van Dijk sees investment in e-commerce businesses as helping to reduce a valuation gap with Naspers’s stake in Chinese Internet giant Tencent Holdings Ltd., which is worth more than the company as a whole. E-commerce units, which include online food delivery in India and educational software in the U.S., have the highest potential for an initial public offering, Het Financieele Dagblad cited the CEO as saying. He didn’t set a timeline.

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    Will Quantitative Tightening (QT), which is deflationary in theory, be inflationary in practice?

    Thanks to a subscriber for this article by Viril's Sokolof for 13d.com which may be of interest. Here is a section: 

    It is equally noteworthy that most of the peaks in M2 velocity shown in the prior chart, with a couple of exceptions, occurred when the U.S. dollar was in protracted bear markets from 1972 to 1980, 1985 to 1995 and 2002 to 2008. Moreover, the first and third of those down-cycles was marked by generally-rising yields on 10-year U.S. Treasuries. In other words, one could argue that rising UST yields were a symptom of capital flowing out of the dollar, which contributed to a higher cost-of-money and higher inflation.

    These relationships shed some insight into the idea that tighter monetary policy — reflected in the slowing growth rate of M2 and the onset of the Fed’s balance-sheet reduction — is likely to be inflationary in practice. When money supply growth slows and the demand for funds increases — such as with the $1 trillion-plus fiscal deficits we wrote about last week — the conditions are ripe for an inflationary surge and a falling dollar. One could also argue that this will be good for real assets (which were hurt by QE during 2010 to 2016) but bad for financial assets (which benefited from QE).

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    ECB to Blame for Surge in U.S. Yields? Timing Is Suggestive

    This article by Christopher Anstey for Bloomberg may be of interest to subscribers. Here is a section: 

    One school of thought says that shifting perceptions about the European Central Bank’s policy outlook had a significant role to play in the surge in U.S. Treasury yields that began in September and picked up speed last month, roiling global stocks.

    Behind the argument is the observation that ECB policy has had much more impact on markets than the Federal Reserve’s. That’s because ECB bond purchases were so large that they exceeded the net issuance of respective government bonds -- unlike the Fed. That pushed European investors into other markets, such as Treasuries. One estimate has them buying more than a trillion euros ($1.2 trillion) of foreign bonds since ECB QE began.

    ECB’s importance popped up on Treasuries traders’ radar screens last June, when President Mario Draghi gave what were perceived to be hawkish remarks at the Sintra confab, sending yields climbing round the world. In the fall, expectations grew that the ECB would announce a taper of its purchases. Yields started jumping in mid-October, when Bloomberg reported the ECB was thinking of halving its QE program.

    And traders may want to set a reminder for the minutes of the ECB’s January meeting. Last month’s release said policy makers were open to tweaking their policy guidance given a strengthening economy. Later in January, news came that ECB policy makers were favoring a short taper to bring an end to QE.

    Those January indications coincided with a surge in yields that’s continuing to affect markets, with 10-year U.S. touching their highest since 2014.

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