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

    Treasuries Slide Pushes 10-Year U.S. Yield to Highest Since 2011

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

    The yield on 10-year Treasuries, a benchmark for global borrowing, rose to the highest level since 2011 amid growing optimism about the U.S. economy. The rate on 30-year securities reached a four-year high and the dollar gained.

    Improved investor appetite for riskier assets drove the leap in yields, with stocks rising toward records on upbeat news about American jobs and ebbing concern about the fiscal situation in Italy. The jump in yields Wednesday, which pushed them above previous 2018 highs set in May, followed stronger-than-anticipated reports on U.S. services and private payrolls and came after the Federal Reserve lifted interest rates last week.

    The government reports payroll figures for September on Friday, and economists forecast a decline in the jobless rate to 3.8 percent. It hasn’t been lower since 1969.

    Treasuries are extending a September swoon that was triggered in part by quicker-than-forecast wage growth in employment data released early last month.

    “This started overnight with the Italian risk-on trade and the U.S. data today was definitely stronger” than forecast, said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald in New York. “After last month’s payroll, the market started to catch up to the Fed and it’s a continuation of that. There is reason to be believe we can continue to trickle to higher yields.”

    The yield on the 10-year borrowing benchmark climbed as much as 7 basis points Wednesday to 3.1343 percent, surpassing the May intraday high of 3.1261 percent. The yield on the 30-year increased as much as 7 basis points to 3.29 percent.

    Money-market traders are now pricing in more than two Fed hikes in 2019, seeing about 0.54 percentage point of tightening, approaching policy makers’ projections for three rate increases next year. About two months ago, the market saw just slightly
    more than one increase.

    The yield curve, which has been on a flattening trend for much of this year, steepened sharply amid Wednesday’s break-out in long-term yields.

    The gap between 2- and 10-year yields surged more than 3 basis points to about 28 basis points, reaching its steepest since August.

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    IPO Market Has Never Been This Forgiving to Money-Losing Firms

    This article by Corrie Driebusch and Maureen Farrell for the Wall Street Journal may be of interest to subscribers. Here is a section:

    The euphoria has powered a surge in new listings. More than 180 companies raised over $50 billion in IPOs in the U.S. in the first three quarters, putting 2018 on track to be the busiest year for new issuance by both measures since 2014, according to Dealogic. That year, IPOs jumped thanks in part to Alibaba Group Holding Ltd.’s $25 billion offering as well as a surge in biotech companies going public.

    This past Wednesday, online-survey provider SurveyMonkey’s parent SVMK Inc., which hasn’t had a profitable year and posted a $24 million net loss in 2017, jumped more than 40% in its debut after pricing above its targeted range. Shares of Tilray Inc. an unprofitable Canadian cannabis retailer that is one of the few pot companies listed in the U.S., soared more than 800% since its Nasdaq debut this summer.

    Meanwhile, biotechnology company Solid Biosciences Inc., which hadn’t yet generated revenue—let alone earnings—informed the market ahead of its January IPO that one of its clinical trials was put on hold. Investors ignored that potential red flag and the company raised $144 million. Its stock has nearly tripled since then.

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    Email of the day on half the world is now middle class

    This article in today's Times of London gives statistical baking to your theory of rising real living standards in the developing world. It also backs up Stephen Pinker's arguments in Enlightenment Now

    Half the world now middle class as living standards rise in East by Greg Hurst

    With more consumers having money for white goods and entertainment, the number of people regarded as middle class has outstripped other demographic groups for the first time With more consumers having money for white goods and entertainment, the number of people regarded as middle class has outstripped other demographic groups for the first time

    More than half the world’s population is now middle class, researchers have calculated. The tipping point was reached when the number of people who qualify as middle class nudged to just short of 3.6 billion, presenting vast new markets for businesses but creating rising expectations of public services.

    The proportion is higher than the 3.1 billion considered to be economically vulnerable and the 630 million who live in poverty. A further 200 million people were classed as rich. The analysis was done by World Data Lab, a social enterprise based in Austria that provides economic and demographic forecasts.

    It classified people as middle class if they had discretionary income to spend on large consumer items such as refrigerators, washing machines or motorcycles, if they paid to go to the cinema or for other forms of entertainment, and if they went on family holidays.

    Researchers assumed that this group had accrued enough resources to be reasonably confident that they could withstand an economic shock, such as illness or a period of unemployment, without slipping into financial insecurity.

    Researchers used information about income and spending surveys from 188 countries to classify all households as rich, middle class, financially vulnerable or poor. They argued that too little attention has been given to the global phenomenon of the rise of the middle classes.

    While rising living standards mean that one person escapes extreme poverty every second, the analysts calculated that five people a second were entering the middle classes. By 2030, the researchers forecast that the number classed as rich will have grown to 300 million, but the middle classes will have expanded by 1.7 billion to 5.3 billion people.

    The number who are financially insecure or vulnerable will have shrunk to 2.3 billion and those living in extreme poverty to 450 million, they predict. They categorised the poor as those living on or below $1.90 (£1.50) a person a day; the financially vulnerable are those living on $1.90 to $11 a day, using figures on purchasing power from 2011. Middle-class spending could go up to $110 a day, above which level people were classified as rich.

    Rising incomes in Asia account for the march of the middle classes, with nine in ten of the new middle-class consumers predicted to be in China, India and south and east Asia. Kristofer Hamel, chief operating officer of World Data Lab, said: “We are living through a landmark moment in human history: the first time since agricultural civilisation began when the majority of the world’s population does not live in considerable poverty. “While spending $11 a day or more may not seem like much to those who live in developed economies, crossing this threshold often constitutes the beginning of basic middle-class behavior and lifestyle; having a basic standard of sanitation and healthcare, decent housing and the possibility of improved educational outcomes.”

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    May Tells U.K. Conservatives End of Austerity Is in Sight

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

    “A decade after the financial crash, people need to know that the austerity it led to is over and that their hard work has paid off,” May told the Conservative Party conference in her keynote speech in Birmingham Wednesday.

    Chancellor of the Exchequer Philip Hammond has faced months of calls to end the squeeze after a backlash cost the Conservatives their parliamentary majority last year. The government has already relaxed a 1 percent cap on pay increases in place since 2010 and promised extra funding for the National Health Service, a response to the electoral threat from the opposition Labour Party led by socialist Jeremy Corbyn, who has pledged to increase spending.

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    Beijing axes coal and steel production curbs as economy slows

    This article by Emily Feng for the Financial Times may be of interest to subscribers. Here is a section:

    However, experts said that even the lower targets were ambitious because last year’s air pollution levels had already dropped significantly. 

    “Both a 3 per cent or 5 per cent reduction from last winter’s PM2.5 levels would be a tough target to reach because levels already fell 25 per cent last winter thanks to very strict policies and very favourable weather conditions,” said Lauri Myllyvirta, a campaigner at Greenpeace, the environmental group. 

    The easing may have been prompted by a public outcry. Winter curbs on coal, including on heaters used by many residents in smaller cities and villages, left millions freezing as local governments scrambled to provide gas heating. 

    By imposing emissions targets rather than specific production cuts, China shifted responsibility to local rather than central officials which could also weaken enforcement. “Notably, policies and enforcement this year is left largely to local governments, leaving them to choose between the risk of missing pollution targets or disrupting the newest construction splurge,” said Mr Myllyvirta.

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    Italy Contagion Fears Bubbling Beneath Surface of Apparent Calm

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

    For others, Italy’s euroskeptic government is just the embodiment of the populist sentiment taking root across Europe, which could threaten the bloc’s future and weigh on the euro for the months or even years to come.

    Borghi, head of Italy’s lower house budget committee and a well-known euroskeptic, said in an interview on Radio Anch’io that “Italy, with its own currency, would be able to resolve its problems.”

    “The comments about Italy having its own currency have touched a sore point,” said Jane Foley, head of foreign-exchange strategy at Rabobank International. “While the return of the lira would be almost impossible and hugely inflationary even if it could happen, the fact that the remarks can be read as anti-EMU sentiment are worrisome.”

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    Brazil Coffee Supplies Swell After Ships for Exports Dwindle

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

    Brazil’s coffee growers just can’t catch a break.

    In May, a national strike by truckers stranded beans on the farm, and prices last month tumbled to a 12-year low amid a global glut. Now, a dearth of container ships at Brazil’s top ports is stalling exports of a bumper coffee crop.

    For the world’s top exporter, a shift in the global freight market means container ships arrive at ports less frequently, limiting space for less-appealing commodity cargoes including coffee, and warehouses are bulging with bean inventory.

    “Shipments have been postponed for days or weeks,” Nelson Carvalhaes, the president of export group CeCafe in Sao Paulo, said in a telephone interview.

    Luiz Alberto Azevedo Levy Jr., the superintendent director at Minas Gerais-based Dinamo, one of the largest warehouse operators, said, “If shipments won’t flow faster, we’ll see storage issues escalating in the next 30 days” at terminals scattered across the country, he said. “The harvest has been finished, but most of the beans are still being dried and prepared,” leaving a “huge volume” heading for depots in the coming months, he said in a phone interview.


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