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

    Is there a bubble in financial markets?

    Thanks to a subscriber for this chartbook from Deutsche Bank which may be of interest.

    Soybeans Buoyed as China Turns to U.S. for Nearby Supplies

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

    China is looking for more U.S. soybeans after top exporter Brazil suffered from a drought that delayed planting and now downpours that slowed harvesting. The Asian nation needs so much of the oilseed to feed a growing pig herd that it already bought supplies for delivery in August, at the end of the U.S. season, and for 2021-2022.

    China’s interest in nearby U.S. supplies comes after Chicago soybean futures slumped more than 7% last week, or over $1 a bushel, the worst performance in more than six years. Crop prices recouped some of their losses on Monday, but remain well down on their multiyear highs earlier in January.

    Corn futures in China are also down from record highs this month, tracking Chicago prices and pressured by sales from state wheat stockpiles. In terms of South American supplies, Brazil is heading for a record soybean crop after rains, while dryness is still threatening the production outlook in Argentina.

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    China Asset-Bubble Warning Threatens Stock Frenzy in Hong Kong

    This article Richard Frost for Bloomberg may be of interest to subscribers. Here is a section: 

    In mainland markets, a gauge of interbank borrowing costs jumped 36 basis points to 2.78% on Tuesday, the highest level in a year. Futures on Chinese government bonds due in a decade were poised for the biggest decline since September, while the CSI 300 Index of shares in Shanghai and Shenzhen, which has been approaching 2007’s record high, fell 2%.

    “The PBOC wants to bring investors out of the euphoria caused by abundant liquidity in December,” says Xing Zhaopeng, an economist at Australia & New Zealand Banking Group. “The PBOC is unlikely to loosen its purse strings at least this week, which will make cross-month liquidity very tight.”

    PBOC Governor Yi Gang on Monday said the central bank will seek to support economic growth while limiting risks to the financial system -- a continuation of its existing policy stance. Yi said China’s total debt-to-output ratio climbed to around 280% at the end of last year.

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    Email of the day on gold as a Tier 1 asset under Basel III

    You mentioned that gold should be higher. I understand that there is effectively a "put" on gold, die to shorts being able to be placed - using unallocated gold - which are naked. But that the Basel 3 Accord which should be in place in June will reduce unallocated gold to a tier3 asset.

    Gold I understand being elevated to a tier 1 asset (as for cash).

    This surely means that the demand for physical gold (already in demand with orders not being filled) will surely surge.

    Are we therefore positioned to make a killing on gold between now and June?

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    Signaling No Change in China's Course, Xi Warns Against Cold War

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

    “To build small circles and start a new Cold War, to reject, threaten or intimate others, to willfully impose decoupling, supply disruptions, or sanctions, or to create isolation or estrangement, will only push the world into division and even confrontation,” he said.

    Xi’s speech had been widely anticipated for the tone it would set for relations between the world’s biggest economies over the next four years. Though Xi did not name Biden by name, many of his comments were clearly targeted at the new U.S. administration.

    Xi repeated many of the same talking points about multilateralism and “win-win” outcomes that he deployed in his last address to Davos four years ago, days before Donald Trump’s inauguration, but he also signaled that he does not intend to change course in the face of U.S. pressure.

    “Each country is unique with its own history, culture and social system, and none is superior to the other,” Xi said, warning against imposing a “hierarchy on human civilization” or forcing one’s own systems onto others.

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    Moderna Says Shot Works Against Variants, Developing Booster

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

    Moderna Inc. said its vaccine will protect against two known variants of the Covid-19 virus, but it plans to start human studies of a booster shot for a strain from South Africa that may cause immunity to wane more quickly.

    In laboratory tests, Moderna’s vaccine produced antibody protection against the B.1.1.7 strain first identified in the U.K. at levels comparable with older forms of the virus. But against the South Africa variant, known as B.1.351, the neutralizing antibodies produced were six-fold lower, the company said in a statement.

    Despite that gap, Moderna’s shot should protect against either strain, according to the company. While the South Africa variant hasn’t been seen in the U.S., the U.K. mutation -- which British officials said last week may be deadlier -- is spreading rapidly among Americans. Both strains are thought to be more transmissible than the original virus.

    “We expect that whatever immunity you get over time will wane. The question is will it wane faster if you have lower levels to begin with,” said Tal Zaks, Moderna’s chief medical officer, in an interview.

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    Sunak's Tax Choices to Fix U.K. Debt Range From Wealth to Fuel

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

     

    A more innovative and potentially hugely controversial option that could seek to address growing U.K. inequality would be a wealth tax. Last year, the independent Wealth Tax Commission said the
    U.K. could raise more than 260 billion pounds with an annual charge of 1% lasting five years on individual assets above 500,000 pounds. About 8 million residents would be affected.

    Wait and See
    Sunak could also decide that it’s too early to raise taxes, choosing to tolerate a higher debt load until the U.K.’s recovery is assured. That tactic was mooted last week by a Treasury minister who suggested hikes could be avoided should the economy stage a strong rebound.

    “It’s not absolutely obvious therefore that there may be any future need for consolidation, depending on the view you take for taxes,” Financial Secretary to the Treasury Jesse Norman told the House of Commons Treasury Committee. That approach, which removes the risk of premature tightening that could choke off growth, could be achievable after Bank of England bond purchases to stimulate the economy drove U.K. debt-servicing costs below pre-pandemic levels, despite the borrowing splurge.

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