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

    Roubini Lives Up to Dr. Doom Alias With Global Recession Call

    This article by Gregor Stuart Hunter for Bloomberg may be of interest to subscribers. Here is a section:

    On the trade front, deglobalization looms as countries around the world have to choose which country to align with -- the U.S. or China -- once the bilateral negotiations collapse, Roubini said. “This divorce is going to get ugly compared to the divorce between the U.S. and the Soviet Union.”

    On top of that, an oil-price shock coming from Iran tensions would raise the prospect of 1970s-style stagflation as a rise in crude prices coincides with slower growth, Roubini said.

    Speaking at a blockchain summit in Taipei, Roubini reiterated his skepticism toward cryptocurrencies such as Bitcoin.

    “There’s massive, massive amounts of price manipulation” in cryptocurrency trading, he said in remarks at the conference. As for blockchain, “it’s the most overhyped technology ever, it’s nothing better than a glorified spreadsheet,” Roubini said. “Nobody’s using it, and nobody’s ever going to use it.”

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    Lagarde to Succeed Draghi as ECB Chief As Economy Weakens

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

    In moving from Washington to Frankfurt, Lagarde will be tasked with driving monetary policy in a 19-nation economy which Draghi has already signaled will need more help, likely in the form of lower interest rates and possibly with the resumption of quantitative easing. Inflation is running at barely half the ECB’s goal of just under 2% despite years of negative rates and 2.6 trillion euros ($3 trillion) of bond purchases.

    Investors will likely bet that as a seasoned crisis-fighter, Lagarde will share Draghi’s taste for aggressive and innovative monetary policy, especially as her appointment means the more hawkish Bundesbank President Jens Weidmann misses out.

    Financial markets are already pricing an ECB rate cut by September, in line with predictions by ECB watchers at Bloomberg Economics and Goldman Sachs Group Inc.

    Lagarde last week described the world economy as hitting a “rough patch” and advised central banks to continue to adjust their policies in response. In June 2014, she said she would “certainly hope” the ECB would conduct QE if inflation stayed sluggish -- months before it announced it would do so.

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    Musings From The Oil Patch July 1st 2019

    Thanks to a subscriber for this edition of Allen Brooks ever interesting report. Here is a section:

    Growing gas production has also allowed buyers to worry less about having substantial volumes in storage to meet winter demand.  Therefore, buyers see little need to lift gas prices to encourage storage injections.  That dynamic has been demonstrated by the low level of storage we reached last year, and now how quickly we are rebuilding storage, while also meeting increased gas consumption from the power and export markets.  

    The recent gas production growth, which accelerated starting in 2016, appears to be slowing.  To some degree, it is a function of the Permian Basin crude oil pipeline capacity shortage, which has restricted associated natural gas output.  Will that change when the new oil pipelines begin operating later this year?  Only time will tell, but official forecasts call for a slowdown in the growth of gas production.  That means the bigger question for the natural gas market will be demand.

    A recent webinar on the natural gas market and outlook through 2020 had two charts we found very interesting.  The first dealt with the significantly different gas storage picture in Europe.  Today, storage is well ahead of last year, which may have an impact on the amount of future liquefied natural gas (LNG) shipments.  So far, it appears to have had little impact, but the lack of clarity about output levels from the Dutch gas fields could also impact the market for U.S. LNG shipments to Europe.  

    The most interesting chart was explaining the firm’s gas price forecast compared to the NYMEX futures strip price.  The forecasters were able to frame their perspective about the upside and downside to their forecast by listing and quantifying the positive and negative factors for gas demand and supply.  We are not endorsing the forecast, but rather pointing out that there are a number of plusses and minuses that need to be considered when making a gas price forecast.  

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    Why India's Troubled Shadow Banks Spook the Market

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

    4. Is the crisis spreading?
    Mortgage lender Dewan Housing Finance Corp Ltd. missed debt payments in June and Care Ratings Ltd. slashed its AAA credit rating to D this year. A news site alleged in January that the company diverted funds to shell companies, a claim Dewan Housing has denied. Other companies including Reliance Capital Ltd. and Piramal Capital & Housing Finance Ltd. have also had their credit ratings cut on liquidity concerns. Access to funding has gotten tougher for many non-bank financing lenders in credit markets, and they have a record 1.1 trillion rupees ($15.9 billion) of debt due in the third quarter of 2019.

    5. Where is this heading?
    The worst is probably still to come. Observers warn the credit crunch may hit the property sector next. It is heavily dependent on funds from shadow banks, and concerns are already being reflected in some realtor bonds. The nation’s conventional banks may also see more pain, as about 7% of their loans are extended to non-bank financing companies.

    6. How are shadow lenders coping?
    As access to funds in onshore debt markets has dwindled, shadow lenders are tapping overseas markets where they have to pay 25 to 50 basis points more than onshore rates to get cash.

    7. What’s the economic impact?
    India’s consumption engine is sputtering because the shadow-banking sector plays a key role in the nation’s financial system, particularly in delivering credit at the grassroots. A prolonged slowdown in lending from the sector poses a significant challenge to the Indian economy, where consumer spending growth has cooled on everything from toothpaste to air tickets. It expanded just 5.8% in the quarter ended March -- the slowest pace in five years and lagging behind China.

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    BIS Says It's Time to Fire Up All Engines to Boost World Growth

    This article by Catherine Bosley and Anna Andrianova for Bloomberg may be of interest to subscribers. Here is a section:

    The Switzerland-based BIS, which promotes cooperation among the world’s monetary officials, used its annual economic report to urge politicians to “ignite all engines” to overcome a global soft patch. They should make structural reforms and strengthen fiscal and macroprudential measures, instead of relying on ever-lower interest rates in a debt-fueled growth model that risks turbulence ahead.

    “The continuation of easy monetary conditions can support the economy, but make normalization more difficult, in particular through the impact on debt and the financial system,” the BIS said. “The narrow normalization path has become narrower.”

    U.S.-led protectionism has dented economic confidence and slowed growth, forcing central banks to prepare to ease policy again even if they haven’t yet returned to their pre-crisis settings. The Federal Reserve and the European Central Bank are expected to cut interest rates this year, while nations including Australia, Russia, India and Chile have already started.

    Economists at Citigroup Inc. estimate that while fiscal policy in the major industrial countries will be expansionary this year it will be less so in 2020 as past measures in the U.S. wear off.

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    Bitcoin Tumbles as Cryptocurrency's 2019 Surge Starts to Waver

    This article by Adam Haigh and Vildana Hajric for Bloomberg may be of interest to subscribers. Here is a section:

    Bitcoin slumped, undoing some of this year’s epic rally and amplifying a recent trend of outsized weekend moves.

    The largest cryptocurrency fell more than 18% from Friday to trade at $10,294 as of 11:58 a.m. in New York, according to prices compiled by Bloomberg. It’s still up almost 200% since the start of the year. Most other large coins also dropped, with Bitcoin Cash and Dash declining at least 7.6%. Litecoin erased an earlier gain.

    Optimism surrounding a potential increase in adoption of cryptocurrencies helped fuel price increases on Bitcoin last month. That took prices back to levels last seen at the start of 2018. The slide over the weekend is at odds with recent moves higher on Saturday and Sunday: surges in weekend activity since the start of May accounted for about 40% of Bitcoin’s price gains this year, according to data compiled by Bloomberg.

    Raising the possibility that central banks may feel the need to create tokens, Bank for International Settlements General Manager Agustin Carstens said in an interview with the Financial Times that it may be “sooner than we think that there is a market and we have to create our own digital currencies.”

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    Gold Sinks Most in a Year as Trade Truce Deals Blow to the Bulls

    This article by Ranjeetha Pakiam and Elena Mazneva for Bloomberg may be of interest to subscribers. Here is a section: 

    Gold tumbled back below $1,400 an ounce after the U.S. and China reached a truce in their trade war, dealing a blow to havens.

    Prices fell the most in a year after Donald Trump and Xi Jinping agreed to resume negotiations in a bid to resolve differences between the world’s top-two economies. Still, the setback may be temporary as investors now train their focus on U.S. jobs data due Friday for clues on the Federal Reserve’s next move on policy.

    “Gold was well overdue a period of consolidation and gold bulls should welcome it,” said Ross Norman, chief executive officer of gold brokerage Sharps Pixley Ltd. “This provides a welcome entry point.”

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