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

    ECB Must Shield Periphery From Speculation, Italy's Borghi Says

    This article by Lorenzo Totaro for Bloomberg highlights some of the anxieties the Eurozone’s periphery are experienced as the ECB’s bond purchase program winds down. Here is a section:

    With investors turning against Turkey, the government in Rome is trying to avoid Italy being next in line. Italy has had contacts with the ECB to discuss the risk of a speculative attack on its debt, a person familiar with the situation said earlier on Monday.

    Deputy Prime Minister Luigi Di Maio sought to tamp down concerns of a selloff. “I don’t see a real risk that this government will be attacked, it’s more a wish of the opposition,” Di Maio said in an interview with newspaper Corriere della Sera.

    “All know the fence that protects the prey will soon be lifted and the financial speculation easily sees the periphery’s debt as an easy target and is positioning itself ahead of the next developments,” lawmaker Borghi said. "It is significant that an external event like Turkey that has nothing to do with Italy unleashes such an effect.”

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    Erdogan Is Refusing to Accept Economic Reality

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

    Policy makers left Turkey's key interest rate unchanged at 17.75 percent when they met last month, compared with economists' forecasts for an increase to 18.75 percent.

    With inflation running at 15.85 percent, that leaves the real interest rate below 2 percent -- an inadequate response to consumer prices accelerating at three times the central bank's target rate.

    The stakes are high. Turkey's domestic institutions have more than $40 billion of dollar- and euro-denominated bonds and loans maturing by 2020, according to data compiled by Bloomberg Intelligence. Every lurch lower in the lira makes servicing those debts more expensive.

    Meantime, foreign banks have exposure to Turkey worth about $224 billion, according to data from the Bank for International Settlements. If the U.S. imposes economic sanctions in retaliation for Turkey's refusal to free American pastor Andrew Brunson, arrested almost two years ago and accused of supporting terrorism, they may be forced to cut those exposures.

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    Credit Market "Eyeball Valuations" Raise Investors' Eyebrows

    This article by Lisa Lee and Claire Boston for Bloomberg may be of interest to subscribers. Here is a section:

    There are key differences between the dot-com era and now. Anastasia, for example, generates profits, and investors’ fear is more that its sky-high profit margins will start to narrow as it tries to grow. And companies like Netflix Inc. can probably generate positive cash flow from their operations by investing less in expansion. A representative for Netflix didn’t return an email seeking comment.

    “You can get comfortable with cash burn if it’s contributing to increases in earnings or building an asset base that that significantly covers the company’s debt," said John Yovanovic, global head of high-yield at Pinebridge Investments, which manages $87 billion.

    Historically, companies struggled to borrow in the bond or institutional loan markets if their Ebitda wasn’t positive. That’s changing, as leveraged finance investors become open to less mature companies. Tesla, for example, sold $1.8 billion of junk bonds last year even though its Ebitda had been positive for only four of the last 11 quarters, according to data compiled by Bloomberg. The company has since posted another four quarters of losses by that measure, and Chief Executive Elon Musk is talking about taking the company private.

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    China, Russia prepare for strategic security talks in Moscow as pressure from United States grows

    This article from the South China Morning Post may be of interest to subscribers. Here is a section:

    After Chinese President Xi Jinping consolidated his leadership position with the removal of a two-term limit on the presidency and Putin won re-election in March, “the basic building blocks for future cooperation on security issues are somewhat more solid”, said Elina Sinkkonen, a senior research fellow at the Finnish Institute of International Affairs.

    “Such language, together with the US sanctions on Russia and trade issues with China certainly influence top level calculations in Moscow and Beijing,” she said.

    Alex Gabuev, a senior fellow at the Carnegie Moscow Centre, said the two neighbours had also seen their interests becoming increasingly overlapped in areas ranging from security in Central Asia to the future of Afghanistan, Africa and North Korea.

    “Both countries want to keep each other in the loop, explain their intentions and cooperate when possible”, he said.

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    U.S. Oil Vanishing From Chinese Tariffs Reveals America's Clout

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

    The removal of U.S. crude from goods targeted by Chinese tariffs is a sign that America has become too big to ignore in the oil market.

    Less than two months after threatening to impose levies on imports of U.S. crude, the world’s biggest oil buyer has now spared the commodity. Only fuels such as diesel, gasoline, propane will be hit with duties on Aug. 23, according to China’s commerce ministry. That’s after the nation’s buyers, including top refiner Sinopec, began shunning American supplies to avoid the risk of tariffs.

    China’s original plan to target U.S. crude came at an inopportune time for the country’s buyers. Sinopec’s trading unit, Unipec, was embroiled in a dispute with Saudi Arabia, saying the producer’s prices were costly and cutting purchases just as it was boosting American imports. Two months on, refiners were faced with the risk of supply disruptions from Iran to Venezuela and paying more to take advantage of booming U.S. output.

    “The U.S. has been and will remain the main source of incremental crude production globally,” said Den Syahril, an analyst at industry consultant FGE. “With several new refineries starting up over the next couple of years, China would thus be wary of taking a decision that could end up severely hurting its domestic refining industry.”

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    Mazda, Suzuki, Yamaha Motor apologise for improper vehicle tests

    This article by Maki Shiraki for Reuters may be of interest to subscribers. Here is a section:

    Mazda Motor Corp, Suzuki Motor Corp and Yamaha Motor Co improperly tested vehicles for fuel economy and emissions, the Japanese government said on Thursday, revealing fresh cases of compliance failures by manufacturers.

    The results came to light after the government had ordered the automakers to check their operations after revelations of improper testing at Subaru Corp and Nissan Motor Co last year.

    The conduct of automakers globally has come under intense scrutiny after Germany’s Volkswagen AG (VOWG_p.DE) admitted in 2015 to installing secret software in hundreds of thousands of U.S. diesel cars to cheat exhaust emissions tests, and that as many as 11 million vehicles could have similar software installed worldwide.

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    Some Mutual Funds Have Avoided the Recent Tech Pain

    This article by Danielle Chemtob for the Wall Street Journal may be of interest to subscribers. Here is a section:

    The average large-cap mutual fund holds 1.3% of its portfolio in Facebook, 0.2 percentage points less than its benchmark; 2% in Amazon, compared with the benchmark’s 2.4%; and 0.3% in Netflix, versus the benchmark’s 0.5%. The funds are overweight only in Alphabet, by 0.19 percentage points.

    Those slim allocations helped shield the funds from the recent losses suffered by Facebook and Netflix that bled over into the broader tech sector and S&P 500. Large-cap growth funds have outperformed the broad stock market index over the past month and year to date, rising 3.9% and 11% over those periods, according to Morningstar. That’s versus gains of 3.3% and 6.6%, respectively, for the S&P 500.

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