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

    Volatility Markets Brace for Election Drama Like Never Before

    This article by Katherine Greifeld and Liz Capo McCormick for Bloomberg may be of interest to subscribers. Here is a section:

    Traders across major asset classes are sending the same message: Prepare for what could be the most-contentious U.S. presidential elections in decades.

    One measure of hedging in the stock market is higher than at any point in the past three presidential elections. In the interest-rates market, implied volatility is well above levels reached in 2016 or 2012. And three-month implied volatility in the dollar-yen pair -- a classic haven trade -- has risen above the two-month tenor by the most in two decades, signaling demand for protection from turbulence near Election Day.

    Trades protecting against election-induced volatility have been around all year, with “unprecedented” levels of hedging seen as early as January. Yet the potential for drama has only grown since then as the coronavirus leaves the U.S. mired in a recession and President Donald Trump rages against mail-in voting, raising concerns about a prolonged dispute over vote tallies. That uncertainty is complicating more conventional topics, such as how the results will affect tax policy and the trade war with China.

    “You have a global pandemic as your backdrop, which speaks for itself, and then you have a president that’s in a term, volatile, and you have the things going on with the Postal Service,” said Zachary Griffiths, a rates strategist at Wells Fargo. “All these factors that don’t typically play into an election are impacting things now and that’s clearly got people concerned. And vol has bid up tremendously in rates and equities.”

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    U.S. soy rises for 5th day; profit taking pressures corn, wheat

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

    “The lack of rain in August - plus extended heat - clipped the top end of soybean production for many areas,” Bob Linneman, broker at Kluis Commodity Advisors said in a research note. “There are many operations that watched a potentially record crop turn to a hopeful average crop.”

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    Powell Fed Shift Allows for Higher Employment and Inflation

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

    The new strategy is being undertaken to tackle years of too-low inflation. It hands the central bank flexibility to let the job market run hotter and price pressures float higher before taking action as it may previously have done.

    “They really, really, really are not going to be raising interest rates any time soon,” said James Knightley, chief international economist at ING Financial Markets. “The Fed is saying rates will be lower for longer, but don’t worry inflation is not going to be picking up.”

    While it doesn’t target a specific rate of unemployment broadly or for certain demographic groups, the approach may help address other weaknesses in the economy.

    During the longest U.S. economic expansion on record until the pandemic hit earlier this year, many groups benefited -- including minorities and women. With millions out of work and unrest flaring up across the U.S. over racial inequality, questions about how the Fed’s policy helps diverse communities have been raised.

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    No One Wants to Buy Ships as Virus, IMO Rules Hit Demand Hard

    This article by Krystal Chia and Annie Lee for Bloomberg may be of interest to Subscriber’s Area. Here is a section:

    Shipowners are also lacking the finances to make purchases, according to Ralph Leszczynski, head of research at shipbroker Banchero Costa & Co.

    “Most shipping markets are coming from a relatively poor decade, 2009 to 2019, in terms of earnings so most shipowners do not have that much cash in their pockets,” he said. “External finance is also in short supply as banks are now largely steering clear off shipping after the defaults they suffered after 2008.”

    Still, fewer orders and slower fleet growth will likely bolster shipping rates. Lines are likely to continue to keep capacity in check into 2021 to minimize the impact from slowing global trade, said IHS Markit’s Kapoor.

    That’s already translating to increasing costs for transporting goods by ocean liner, with one benchmark of trans-Pacific container rates more than doubling since late-May to a record. Bulk-carrier costs have also rebounded from a four-year low. Maersk, which idled about 20% of its capacity in April before gradually reinstating it in subsequent months, saw earnings beat estimates in part due to improved freight rates.

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    Equity Insights: EU's 'Hamilton Light' Recovery Plan Marks a Paradigm Shift, and Markets Cheered

    This article by Anik Sen for PineBridge Investments may be of interest to subscribers. Here is a section:

    The EC’s paradigm shift

    By becoming the borrower through its issuance of €750 billion of debt, the EC sets a new precedent while becoming a major new force in the sovereign debt markets. It is also expected to demonstrate maximum flexibility in managing its debt to achieve the most favorable terms for the member states. The bonds are expected to be repaid through the EU budget through the end of 2058. New tax revenues have been proposed, such as a plastic levy, a digital tax, and a review of the EU Emissions Trading System.  

    The recovery plan marks a significant moment in which EU Leaders recognized the need to create a new structure for raising funds under the auspices of the EC and funded by the EU budget. This structure has a strong likelihood of becoming a permanent funding mechanism at the EU level for emergency programs and other funding needs for the fiscally weak member states. They have also acted swiftly to stem the risks to the eurozone’s stability from alarmingly high fiscal deficits, and to front-load the raising of funds in order to plug the enormous fiscal gaps into the future. They have recognized the need to move away from the failed austerity approach of the past and to adopt a pro-growth policy through grants and loans on attractive terms with light conditionality – a major departure from the past.

    ‘Hamilton light’ plan is an auspicious beginning

    The recovery plan could well become a permanent feature for the EU, serving to underpin the debt issued by the periphery member states. This has enormous significance for the EU banking industry, which has become reliant on the ECB’s QE programs for its stability and capital adequacy. If the fear of default is truly removed for any eurozone sovereign debt, without assuming intervention by the ECB, there could be broader implications for financial system integration within Europe, with cross-border mergers and acquisitions within the EU finally taking place. This is sorely needed to drive greater scale in a banking system that has poor profitability compared to that of the US.

    The recovery fund may not be quite as far-reaching as Alexander Hamilton’s re-ordering of the financial system in the newly born United States. However, the progress made by EU leaders this summer points to a measured yet pivotal step toward very similar ends. 

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    Barnier Planning a Brexit Book After Four Years of Negotiations

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

    In his speech, Barnier also hinted that negotiations over the EU and U.K.’s future relationship may stretch beyond a meeting of the bloc’s leaders scheduled for mid-October as the two sides struggle to reach an agreement.

    “If we want to ensure the ratification of this new treaty at the end of the year, we need an agreement around Oct. 31,” Barnier said. “The clock is ticking.”

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    Facebook Hits Record as Analysts See Opportunity From Shop

    This article by Ryan Vlastelica for Bloomberg may be of interest. Here is a section:

    Facebook analysts were positive after the social-media company added a new shopping section, called Facebook Shop, to its main app, seeing strong e-commerce growth potential.

    JMP Securities (market outperform, PT $305)

    There are “multiple catalysts” for Facebook, and e-commerce “can be a significant opportunity”
    There is “a clear line of sight to monetizing Shop”
    While advertising should remain Facebook’s focus, the growth in e-commerce means Facebook “can generate greater product discovery” for small and mid-sized businesses relative to other channels

    Stifel (buy, PT $290)

    The accelerated roll-out of the service “suggests the benefits to growth could be evident as early as 2021,” and Facebook waiving selling fees in 2020 “could accelerate the adoption of these tools”
    Over the long term, Facebook’s e-commerce opportunity “should come more from increased adoption of digital ads” by small and mid-sized businesses than transaction fees

    Shares up as much as 2.86%, the stock has nearly doubled off a March low, and it is trading at a record

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    Email of the day on electric vehicles.

    I really love your audio comments every day and I think they are very useful. Commenting on the EV mania that is on lately...I don't understand why people are so crazy about tesla enc... at the moment the batteries don't last for a long time and when an EV car catches fire, this fire is unstoppable, a safety problem where nobody ever talks about. On top of that, the power grid of older city centers are not equipped to charge an EV... so where is the point in buying one?

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