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

    Gold in correction mode

    Thanks to a subscriber for this report from Commerzbank which may be of interest. Here is a section:

    Precious metals: Gold has dropped to a 2½-week low of $1,315 per troy ounce this morning amid increased risk appetite among market participants. Gold in euro terms is trading at only around €1,100 per troy ounce. The Dow Jones Industrial Average and S&P 500 indices in the US had both climbed to new record highs on Friday. The rise in stock markets is continuing in the Asian region today. What is more, bond yields in the US have increased significantly of late, which makes gold less attractive as an alternative investment.

    Presumably this is also why Friday saw the second consecutive daily outflow from gold ETFs. Portugal’s credit rating was upgraded on Friday evening by the ratings agency S&P, achieving an investment grade rating again for the first time since January 2012. Ireland was also upgraded, this time by the ratings agency Moody’s. Wednesday could see further volatility on the gold market, as this is when the US Federal Reserve meeting will take place.

    If the market’s currently low rate hike expectations increase as a result of the meeting, this is likely to weigh on the gold price. According to the CFTC’s statistics, speculative financial investors further expanded their net long positions in gold in the week to 12 September, putting them at 253,500 contracts now. This was already the ninth weekly increase in a row.
    The price rise to a 13-month high of just shy of $1,360 was thus driven largely by speculation. Given that the gold price is now trading considerably lower, positions have presumably been squared in the meantime


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    Superpower India to Replace China as Growth Engine

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

    ``India will account for more than half of the increase in Asia’s workforce in the coming decade, but this isn’t just a story of more workers: these new workers will be much better trained and educated than the existing Indian workforce,’’ said Anis Chakravarty, economist at Deloitte India. ``There will be rising economic potential coming alongside that, thanks to an increased share of women in the workforce, as well as an increased ability and interest in working for longer. The consequences for businesses are huge.’’

    While the looming ‘Indian summer’ will last decades, it isn’t the only Asian economy set to surge. Indonesia and the Philippines also have relatively young populations, suggesting they’ll experience similar growth, says Deloitte. But the rise of India isn’t set in stone: if the right frameworks are not in place to sustain and promote growth, the burgeoning population could be faced with unemployment and become ripe for social unrest.


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    China Is Said to Draft Plans for Financial Sector Opening

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

    As part of an early package of reforms agreed between the two leaders, Beijing agreed in May to allow U.S.-owned card payment services to begin the process of obtaining local licenses, in a move that would erode the near-monopoly held by China UnionPay Co.

    China will open up its insurance market further, mainly by encouraging foreign insurers already operating locally to enter the health, pension and catastrophe insurance sectors, China Insurance Regulatory Commission Vice Chairman Chen Wenhui said earlier this month.

    Chinese regulators last year decided to open up the nation’s fund market, allowing investment firms in China to be 100 percent owned by foreign managers. At least a dozen global money managers such as Man Group Plc, Bridgewater Associates and Fidelity International have announced plans since then to start private securities funds. Before the rule change, foreign firms were restricted from running such private funds in China but could take stakes in mutual fund companies and provide advice to onshore funds.


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    Toys R Us hires law firm as it explores possible bankruptcy filing

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

    Toys R Us has hired a law firm to help restructure its roughly $400 million in debt due in 2018, a move that could include the marquee toy store filing for bankruptcy protection, sources familiar with the situation said Wednesday.

    Addressing the retailer's debt load prior to the crucial holiday season could give its major vendors such as Mattel and Hasbro clarity into the company's long-term viability to help ensure the toymakers continue to stock its shelves throughout the holidays.

    Toys R Us has hired restructuring lawyers at Kirkland & Ellis to help address the looming payments, the people said.
    Hiring a law firm like Kirkland is not indicative of a bankruptcy filing, and many companies work with law firms to successfully refinance or restructure their debt without filing for protection. 


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    Electric Vehicle Boom: ICE-ing The Combustion Engine

    Thanks to a subscriber for this report from Morgan Stanley which may be of interest to subscribers. Here is a section: 

    Many manufacturers undertaking all-solid-state battery R&D Manufacturers that aim to make all-solid-state batteries commercially available in 20202025 include Toyota, Sekisui Chemical, Hitachi Zosen, and Ohara. There have been announcements also from Panasonic, Samsung Electronics, Daimler, Sony, and Hyundai Motor about R&D efforts, but it is not clear when these companies aim to start mass production. BYD says it has set up a research team that is focused on all-solid-state batteries. Bosch, which is the largest auto parts maker, has acquired the all-solid-state battery startup Seeo, while household appliance maker Dyson entered the battery industry with its acquisition of Sakti3. This suggests there are growing expectations for the potential use of all-solid-state batteries not only in automobiles, but also in household appliances. 

    Advantages of all-solid-state batteries 
    An all-solid-state battery has the potential to offer not only greater energy density, but also greater safety as well as flexibility in terms of operating temperatures. The advantage of these batteries is that they do not contain electrolyte solution, which is flammable and can react to temperature changes. The batteries also do not require separators, which eliminates the risk of damaged separators causing the battery to short-circuit. Moreover, sulfur-based solid electrolytes have the potential to substantially reduce recharging times as they demonstrate greater ion conductivity than electrolyte solution. 

    Disadvantages of all-solid-state batteries 
    We think the technological hurdles hampering mass production are the main drawback for all-solid-state batteries. Manufacturing all-solid-state batteries will require new production processes including pressing (in the case of sulfur-based batteries) and sintering (oxide-based batteries). In the case of sulfur-based batteries, which appear to be a strong candidate for automobiles, there is a risk that the sulfur-based solid electrolyte will react with moisture to create hydrogen sulfide. Companies are considering ways around this issue, which include housing the battery in a solid case to reduce the risk of it being damaged, or incorporating a hydrogen sulfide gas detector that would raise the alarm early. On the production side, it has been suggested that all-solid-state battery factories should have a super-dry room with a dew point of -100 degrees. There are also concerns that when all-solid-state batteries are used in automobiles, the vehicle’s vibration may reduce interface stability. It would appear that Toyota therefore faces a number of hurdles to overcome if it is to be ready to commercialize such batteries in 2022.   


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    Portugal Regains Investment Grade Rating From S&P on Growth

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

    Portugal’s credit rating was restored to investment grade by S&P Global Ratings as the country’s economic growth accelerates.

    The rating was revised to BBB- from BB+, which was one level below investment grade, S&P said in a statement on Friday.

    The outlook is stable. Portugal had been rated junk by S&P since January 2012, when the country was going through a bailout program provided by the European Union and the International Monetary Fund.

    “The upgrade reflects our improved forecast for Portugal’s growth during 2017-2020, as well as the solid progress it has made in reducing its budget deficit and the receded risk of a marked deterioration in external financing conditions,” S&P said. The company raised its forecast for the country’s economic growth through 2020 to an average of about 2.2 percent a year. 

    Tourism and exports have been boosting the economy, with the Bank of Portugal forecasting growth will accelerate to 2.5 percent this year. The faster growth is helping the country’s minority Socialist government manage the budget deficit, which last year was the narrowest as a percentage of gross domestic product in four decades of Portuguese democracy.


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    Pound Sentiment Is Now the Most Bullish in More Than Three Years

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

    Currency traders haven’t been this upbeat on the pound in more than three years. 

    The cost of owning one-month call options on sterling relative to puts reached six basis points, the steepest since February 2014, as the Bank of England said the market is underpricing the prospect of rate increases.

    The premium on calls shows the market’s conviction that the currency’s more than 3 percent rally against the dollar this month has legs.

    The key question on investors’ minds at the moment is: where does the pound go from here? To some extent, the currency’s fortunes against the dollar will be influenced by what the Federal Reserve does, and in this context next week’s FOMC meeting will take on added significance. Witness also that stronger-than-estimated consumer-price inflation data out of the U.S. on Thursday failed to damp bullish sentiment for the pound.


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