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

    Johnson;s Acerbic Brexit Mastermind Wants a Political Revolution

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

    Since the referendum, he has retreated from public politics, offering only the occasional blog post, often thousands of words long, setting out his views about government, technology and educational systems, but especially on why he believed the government was making a mess of Brexit.

    His tone was often contemptuous: Brexit Secretary David Davis was “thick as mince, lazy as a toad and vain as Narcissus.” Pro-Brexit MPs were “useful idiots” who spent their time “spouting gibberish.”

    In 2018 he described Theresa May’s approach to Brexit as a “surrender” and said that Article 50 -- the divorce process with the EU -- was triggered too early, akin to “putting a gun in your mouth and pulling the trigger.’’ He said the success of Brexit won’t be known for decades, and tweeted in 2017 that there are “possible branches of the future’’ where leaving will have been an error.

    Cummings’s main thesis is that Britain’s system of government is “systematically dysfunctional” and designed to keep the U.K. as closely tied to the EU as possible. He’s called for a radical shake-up of Whitehall, saying Brexit cannot be delivered without it.

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    Record $100 Billion Buyback Proves Strategy to Beat U.S. Stocks

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

    European companies’ equity buybacks have surged to a record $100 billion over the past 12 months, with the strategy of betting on those firms beating returns from U.S. counterparts over the past five years, according to Morgan Stanley. The strategy is also rewarding company stocks more than the payment of high dividends, according to the bank.

    “This is the first time we have seen strong buyback performance outside of bear markets or recessions,” strategists led by Graham Secker wrote in a note Tuesday. “More striking, our net buyback factor has shown much greater efficacy in Europe than the U.S. over all time frames.”

    One of the reasons European stock repurchasers are faring better is that the practice is less common in the region than among American firms, said the strategists. Buying back equity can provide a much-needed boost to the world’s most-shorted equities, which have been seeing almost non-stop outflows for more than a year amid sluggish economic growth and political uncertainty. Doing so should boost earnings growth, trading liquidity and demand for shares, Morgan Stanley wrote.

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    Email of the day on the trend mean:

    Is 'trend mean' one static measurement tool like 200-day moving average or does it depend on the chart? I often see you use a 200-week moving average when referencing trend mean but often times it is another time frame. Can you clarify?

    And

    You have been spot on, on the direction of gold bullion. Well done. Have been enjoying the service.

    Just one question, if you will: What is the rationale behind the ‘’trend mean’’ which you use on your weekly charts?

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    Europe Bank Earnings to Offer Peek Into Negative-Rate Abyss

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

    The second quarter will probably provide more evidence how damaging zero or negative rates are for an industry that at its core depends on clients paying to borrow money. Revenue at eight of Europe’s top lenders is set to decline 2.7% on average from a year earlier, according to filings and analyst estimates. That compares with a 0.5% gain for the top U.S. peers, many of which still managed to post record earnings after nine interest rate increases by the Federal Reserve since late 2015.

    “The focus for European banks is really on revenue,” said Jonathan Tyce, an analyst at Bloomberg Intelligence. “Rates are set to go down, which means lower loan loss provisions, but that doesn’t make up for the loss in revenue. All this keeps bringing you back to costs.”

    And here is a section on Deutsche Bank

    Deutsche Bank (July 24) unveiled its biggest overhaul in decades this month, including a plan to exit its underperforming stock trading business. The move was partly driven by low interest rates and the company now assumes that European short-term rates will rise to just 0% in 2021. Deutsche Bank also offered insight into second-quarter earnings with a 5.9% slide in revenue. Costs and profit figures fell short of expectations, even before the bank said it expects 3 billion euros of restructuring charges in the period. Deutsche Bank says about 75% of the investment banking businesses it wants to keep will have a top five market position, and the release this week will 

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    The enduring link between demography and inflation

    This report by Mikael Juselius and Előd Takáts for the Bank of International Settlements may be of interest to subscribers. Here is a section:

    Our paper builds on recent empirical work. Focusing exclusively on ageing, Anderson et al (2014), Yoon et al (2014) and Bobeica et al (2017) find significant deflationary effects from an increasing share of older population cohorts. Juselius and Takáts (2015) and Aksoy et al (2015) take the age structure more fully into account and find that an increase in the number of dependants, young and old, is generally inflationary. Juselius and Takáts (2015) also show that the deflationary effects of ageing found in previous studies are driven primarily by the very old (80+ year old) cohort. A common feature of these studies, as noted above, is that they rely exclusively on post-war data, which makes it difficult to separate the age structure effect in inflation from other global secular factors that may be related to trend inflation.

    The uncovered link is policy-relevant, because global ageing will substantially increase the share of the old-age population in almost all countries (eg Goodhart et al (2015)). Increased longevity and stagnant or declining birth rates will affect both advanced and emerging economies. While slow, such large-scale demographic shifts have the potential to materially affect trend inflation. For instance, we find that accounting for the age structure leads to substantially lower estimates of endogenous inflation persistence. Hence, past historical periods of high inflation persistence might have reflected, in part, persistent demographic changes. This implies that the role of conventional endogenous drivers, such as inflation expectations, may have been overstated. If so, this could account for the current conundrum with well-anchored long-term inflation expectations and persistently low inflation rates. The stability of the relationship furthermore suggests that this may help us forecast longer-term inflation trends, as previously noted by McMillan and Baesel (1990) and Lindh and Malmberg (2000). Our estimates indicate that inflationary pressures are likely to rise in future due to the increasing share of older population cohorts and a declining share of younger ones, which has not been emphasized in the literature.

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    Email of the day on global growth

    Trading Frenzy Grips China's New Stock Venue After Big IPO Gains

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

    The board is also a testing ground for regulators, who have waived rules on valuations and debut-day price limits for the first time since 2014. The venue is the only one in China to welcome companies that have yet to make a profit, as well as shares with unequal voting rights. The Shanghai stock exchange will create an index tracking the firms about two weeks after the 30th listing starts trading.

    Shares on the Star board have no daily price limits for the first five trading days, followed by a 20% cap in either direction. To limit volatility, the venue suspends activity for 10 minutes if a stock moves by 30% and then 60% from the opening price in the first five trading days, a wider band than the rest of the stock market. Only certain qualified foreign investors can buy the stocks directly, as there’s no access through trading links with Hong Kong.

    The first batch of listings included China Railway Signal & Communication Corporation Ltd., whose Hong Kong shares sank on huge volume as traders switched into the A shares. Advanced Micro-Fabrication Equipment Inc., which was the most expensive listing of the batch, jumped as much as 331%. Its 171 multiple compared with an average of 53 times for the group, and 33 for similar stocks on other Chinese venues.

    Despite the hype, there are questions about whether the excitement will give way to the lukewarm sentiment that’s blanketing the world’s second-largest equity market. On the other hand, a sustained period of ultra-high demand risks draining funds from other exchanges, where volumes are shrinking. The Shanghai Composite Index fell 1.3% on Monday, while the ChiNext Index was down 1.7%.

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