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

    Norway Targets Record Gas Sales This Year as Europe Shuns Russia

    This article from Bloomberg may be of interest to subscribers. Here it is in full:

    Norwegian gas sales are on course to test a record high this year as Europe seeks to reduce its dependence on top supplier Russia as soon as possible. 

    Total exports from fields in the Nordic nation are poised to jump about 8% this year to 122 billion cubic meters, the government said in its updated outlook on Wednesday. The country sold similar volumes in 2017, a record year for exports.

    The continent’s second-biggest supplier is pumping at full tilt, benefiting from record prices and higher demand than ever for its fuel. The European Union aims to curb imports from Russia by two thirds this year because of the war in Ukraine.

    European prices spiked after Russia’s invasion in late February, deepening an energy crisis that started last year. Costs have since eased but they remain historically high and traders remain on the edge because of the uncertainty of flows and payment regimes. 

    “High prices give the companies strong incentives to utilize the production capacity on the fields,” Petroleum and Energy Minister Terje Aasland said. “Companies are producing at full, or near full capacity.” 

    Norwegian producers have tweaked operations at some fields, including reducing gas injections for oil recovery. Energy major Equinor ASA will also restart its Hammerfest LNG plant this month. The facility has been shut after a fire in late 2020.  

    The extra volume would amount to an increase of about 9 billion cubic meters this year compared with 2021 sales. While every molecule counts, it’s just a fraction of Russia’s flows to the European Union, which exceeded 155 billion cubic meters last year. That was about 40% of the bloc’s total consumption. 

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    Stable Coin and the SEC

    Thanks to a subscriber for this report from RenMac which may be of interest. Here is a section:

    Current-SEC Chair Gary Gensler cuts this gordian knot by making the obvious remark that asset-backed stable coins are repackaging the securities held in the reserve, and so are derivatives hence themselves securities: ‘Make no mistake: It doesn't matter whether it's a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities ...these platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime.’

    In the way of the Terra/Luna collapse, he reiterated this conviction today: ‘there’s a need to bring greater investor protection to these crypto markets ... central to that are crypto trading and lending platforms, where investors buy, sell and lend around $100 billion of crypto assets a day. The crypto-related events in recent weeks have highlighted yet again how important it is to protect investors in this highly speculative asset class.’

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    UK Inflation at a 40-Year High Engulfs Johnson and BOE in Crisis

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

    The increase is more than double the pace of basic wage growth, squeezing consumer spending power at the sharpest pace on record. The pain is set to intensify, with the Bank of England predicting double-digit inflation by October when energy bills are almost certain to jump again. 

    There was evidence of more generalized inflation, with a 6.7% jump in food and non-alcoholic drink prices. The cost of recreation and culture rose 5.9%, the largest increase since at least 2006, and restaurant and hotel prices were up 8%. Part of that was due to value added tax reverting to the normal rate after the pandemic. Furniture and household equipment rose 10.7%.

    The cost-of-living crisis already has amplified the political debate about how to handle a series of shocks hitting the UK. Prime Minister Boris Johnson’s Conservatives government has targeted relief at those with jobs, while the Labour opposition is calling for an emergency budget to help pensioners and people on benefits. 

    “Countries around the world are dealing with rising inflation,” Chancellor of the Exchequer Rishi Sunak said in a statement. “We cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action.”

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    A Bull Case Is Forming Around Bearishness at Hedge Funds, Quants

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

    The violent selloff has forced many systematic macro strategies, including trend followers and volatility-targeted funds, to slash equity holdings. Last week, their exposure fell to the bottom of a five-year range that even if stocks resume selling, their unwinding would be relatively subdued, according to Morgan Stanley. 

    For instance, should the S&P 500 drop 5% in one day, the cohort would need to offload less than $20 billion of stocks in the follow week, analysts including Christopher Metli estimated. That’s down from an expected disposal of over $100 billion at the start of the year.

    Goldman’s long/short hedge fund clients saw their gross leverage falling 12 percentage points during the week through Wednesday, the largest reduction over comparable periods sine at least 2016, according to data compiled by analysts including Vincent Lin. 

    Light positioning by hedge funds and quants is among indicators watched by Goldman’s Scott Rubner to determine whether investors have capitulated. With cash holdings elevated in mutual funds and day traders retreating, one missing ingredient to call the all-clear is a reduction of stocks in US household holdings and retirement accounts, he says.

    “Tracking this cohort is my single and most important focus from the lows here,” he wrote in a note last week. “We have not capitulated, it is very slow on the way out.” 

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    Pound Jumps Most in 17 Months as Traders Eye Tight Labor Market

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

    “People don’t need too strong an excuse to buy sterling right now,” said Geoffrey Yu, a strategist at BNY Mellon. “Even a modicum of good data or even data that isn’t as bad as previously expected can see them coming back because of valuations.”

    The move accompanies a broader dollar decline, with the greenback underperforming all Group-of-10 currencies bar the Japanese yen as risk sentiment rebounded. The Bloomberg Dollar Spot Index slid 0.5%, a third day of declines and the longest losing streak since March.

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    China Economy Czar Vows Support for Tech Firms After Crackdown

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

    China’s top economic official gave an unusual public show of support for digital platform companies Tuesday, suggesting Beijing may be ready to let up on a year-long clampdown on technology giants as it battles a slowing economy.

    The government will support the development of digital economy companies and their public listings, Vice Premier Liu He, who is President Xi Jinping’s most senior economic aide, said after a symposium with the heads of some of the nation’s largest private firms. Baidu Inc. founder Robin Li, Qihoo 360 Technology Co.’s Zhou Hongyu and NetEase Inc. chief William Ding were among the tech luminaries spotted at the forum, according to a video posted online.

    Liu’s remarks reported by state media were short on detail but signal further easing of the regulatory risk for China’s technology behemoths including Baiduand Tencent Holdings Ltd., as investors await clues on whether a rout in their shares is near an end. The Hang Seng Tech Index rallied as much as 6% Tuesday on optimism the meeting would affirm Beijing’s intention to dial back some of its restrictions.

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    Ride of the 'Volkyries'

    Thanks to a subscriber for this report by Zoltan Pozsar for Credit Suisse. Here is a section:

    As I see it, the risk of recession, whether it is real or merely implied by an inversion of the yield curve, won’t deter the Fed from hiking rates higher faster or from injecting more volatility to build up negative wealth effects, and signs of a recession might not mean immediate rate cuts to ramp demand back up …

    …cuts may have to wait until the Fed is certain that inflation is surely dead.

    Back to the level of the stock market under the Fed call.

    According to President Daly’s comments, the recent stock market correction and the rise in mortgage rates is “great”, but not enough (“want to see more”). Chair Powell also noted in his press conference that he wants to see further tightening in financial conditions still. At face value, that implies that the Fed won’t stop shaping expectations until we see more damage to stocks and bonds.

    Rallies could beget more forceful pushback from the Fed – the new game…

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    Delhi suffers at 49C as heatwave sweeps India

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

    The effects are visible. Farmers say the unexpected temperature spikes have affected their wheat harvest, a development that could potentially have global consequences given supply disruptions due to the Ukraine war.

    The heat has also triggered an increase in power demand, leading to outages in many states and fears of a coal shortage.

    Mr Modi also flagged the increased risk of fires due to rising temperatures.


    D Sivananda Pai, director of the Institute for Climate Change Studies, points to other challenges apart from climate change - such as increasing population and the resulting strain on resources.

    This, in turn, leads to factors that worsen the situation, such as deforestation and increasing use of transport.

    "When you have more concrete roads and buildings, heat is trapped inside without being able to rise to the surface. This warms the air further," Mr Pai says.

    And the cost of such extreme weather events is disproportionately borne by the poor.

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