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

    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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    Brazil Seen as More Corrupt Than Argentina in Global Ranking

    This article by David Biller and Charlie Devereux for Bloomberg may be of interest to subscribers. Here is a section: 

    Brazil is now seen as more corrupt than Argentina for the first time in over two decades after suffering last year one of the biggest plunges among the nations tracked by a global transparency ranking.

    Latin America’s largest economy fell 17 positions in the2017 index released by graft watchdog Transparency International on Thursday. It now ranks 96th among 180 nations, tied in the region with Colombia and Peru. Only two other countries in the whole index -- Bahrain and Liberia -- slid more than Brazil last year. Argentina meantime rose 10 spots, to 85th place and now ranks better than Brazil for the first time since 1996.

    A series of corruption scandals have rocked Brazil over the past few years as the so-called Carwash probe uncovered a massive kickback scheme involving the country’s political and business elite. Former President Luiz Inacio Lula da Silva was convicted for graft last year while allegations against President Michel Temer are still being investigated. In Argentina, meanwhile, President Mauricio Macri has worked to make public tenders more transparent and successfully pushed for a law allowing plea bargain testimonies to resolve corruption cases.

    Among key Latin American countries, the least transparent are still Venezuela (169th position) and Mexico (135th spot).

    Transparency International’s ranking is based on surveys and assessments from 12 institutions and has become a benchmark gauge of corruption perception used by analysts and investors.

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    Email of the day on the potential for downtrends

    Your recent assessments of the markets appear to be that a period of ranging is likely to be followed by markets going up again. Of course, whilst no one knows what the future will be, I wonder why you don't see the greater likelihood of markets turning down after some consolidation. With the amount of US debt increasing, interest rates increasing, and stock market levels already high by historical standards, are you not more concerned that markets, being forwards looking, might be more likely to head down than up? Esp. since markets struggle when interest rates go above 3%? I appreciate your talk of share rotation, but a rising tide lifts all boats and surely the opposite is true when markets tank?

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    Email of the day on the Dow/Gold miners ratio

    You have cited the Gold/Dow relationship and how if this ratio was to do what it has in the past, Dow has lots of upside versus gold. However, Jesse Felder sees it just the opposite. Not sure why your tow ratio charts would be opposite. Here is a link to the public post

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    Musings from the Oil Patch February 20th 2018

    Thanks to a subscriber for this edition of Allen Brooks’ ever informative report for PPHB. Here is a section on methane hydrates:

    The attacks on the oil and gas industry in the U.S. for its methane emissions have been based on reports and estimates of the volume of leaks from its drilling and transportation activities.  Fighting these leaks is in the companies’ best interests because it will help the bottom lines as less natural gas will be lost to the atmosphere and income will be enhanced.  Fixing the leaks on their own is also a way the oil and gas industry can hope to stave off further debilitating regulations.  Now, however, the industry is hopeful of an easing of the methane containment rules for companies drilling and producing natural gas from federal lands by the Trump administration.  


    While the discussion about methane leak control for the oil and gas industry is dominating the headlines, there remains a huge untapped source of natural gas in the form of methane hydrates under the ocean that some governments are working to exploit.  These hydrates are where molecules of methane gas are entrapped within an ice lattice.  They form under very low temperatures or high pressures, or a combination of the two.  They are usually found on the outer continental shelves around the world.  (They have been found in the pink areas of the global map in Exhibit 18.)  The challenge is that they have been difficult (risky) to mine, as well as costly.  They have the potential to blow up any vessel attempting to extract the hydrates from the sea floor.  The U.S. Bureau of Ocean Energy Management (BOEM) estimates that the U.S. has 51,338 trillion cubic feet of methane hydrate gas resources.  If only half of BOEM’s estimate is realized, there are 1,000 years of supply based on the current consumption rate of natural gas in the United States.


    Last year, China, a country with significant needs for more natural gas but lacking success in finding and developing meaningful reserves, has been experimenting with tapping methane hydrates.  The country’s focus is on hydrates situated in the South China Sea, which helps explain China’s attempt to claim territorial rights to that area of the Pacific Ocean.  At the same time, Japan, another nation lacking adequate energy resources, has successfully extracted methane hydrates from an area offshore the Shima Peninsula.  The implications of successful development of methane hydrate mining by either or both countries would be significant for the future of the global liquefied natural gas (LNG) business.

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    Brexiteer Tory MPs back European Research Group demands in letter to Theresa May

    This article by Aubrey Allegretti for Sky.com may be of interest to subscribers. Here is a section: 

    In it, the MPs say Mrs May "must" ensure Britain can change its laws without authorisation from Brussels from the moment it leaves the bloc in March 2019.

    And they demand the UK be "free to start its own trade negotiations" from day one of the transition period.

    Ministers have also been urged to fight back harder against the EU setting a timetable for negotiations and to "take control" of tariff schedules - in other words the customs union.

    The letter was signed off by MP John Penrose "on behalf of ERG officers" and sent to Mrs May on Friday, with a copy leaked to Sky News on Tuesday.

    The requests do not necessarily defy Government policy on Brexit but come at a crucial time in negotiations within the Conservative Party about what type of divorce to pursue.

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