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

    May's Brexit Agreement Is a Betrayal of Britain

    This article by former Bank of England governor, Mervyn King, may be of interest to subscribers. Here is a section:

     

    Leaving the EU is not the end of the world, any more than it will deliver the promised land. Nonetheless the country is entitled to expect something better than a muddled commitment to perpetual subordination from which the U.K. cannot withdraw without the agreement of the EU. 

    Many MPs will argue that “we are where we are,” that it’s too late to change course, and that May’s deal is the only deal available. But remember, this is a political not an economic crisis. If Blair and Johnson, from opposing political viewpoints, can see the fatal weaknesses of this proposed deal, politicians of all hues should try to do the same. This deal will not end the divisiveness of the debate about Britain’s relationship with the EU. The Remain camp will continue to argue, correctly, that to align the country indefinitely with laws over which it has no influence is madness, and a second referendum is vital to escape from this continuing nightmare.

    And the Leave camp will argue, also correctly, that it is intolerable for the fifth largest economy in the world to continue indefinitely as a fiefdom.

    If this deal is not abandoned, I believe that the U.K. will end up abrogating it unilaterally — regardless of the grave damage that would do to Britain’s reputation and standing. Vassal states do not go gently into that good night. They rage. If this parliament bequeaths to its successors the choice between a humiliating submission and the abrogation of a binding international treaty, it will not be forgiven — and will not deserve to be.

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    Palladium Sets Fresh Record as Metal Clashes With Gold

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

    Palladium jumped for a second day as it tussled with gold for designation as the most valuable metal.
    Parity between the two last happened in 2002. Palladium has surged in the past four months on speculation there isn’t sufficient supply to meet increasing demand for the metal used in vehicle pollution-control devices.

    Drivers

    Holdings of exchange-traded products backed by palladium are at their lowest since February 2009 as investors pull the metal and offer the commodity for lease to users scrambling for supply. The cost to borrow palladium for a month surged to a record 22%, more than seven times higher than the 10-year Treasury yield.

    While palladium keeps rising, it’s a different story for platinum. Palladium’s premium to its sister metal is at the biggest since 2001. Platinum is used mostly in autocatalysts for diesel vehicles, where demand has slipped. The outlook for gold remains positive with Goldman Sachs expecting inflows to gold ETFs next year as investors seek an alternative portfolio diversifier.

    Prices

    Palladium futures for March delivery +1.3% to settle at $1,180.20/oz at 1:01pm on Nymex in N.Y. Spot palladium +2.4% to $1,234.29/oz; earlier climbed as high as $1,240.01/oz, a fresh record. Gold rises as much as 0.9% to $1,241.97/oz, highest price intraday since Oct. 26

    Market Commentary

    “Palladium continues to steal the show from all other precious metals,” say Commerzbank analysts including Daniel Briesemann“ The high price premium on palladium is not justified in our opinion because car sales have been fairly weak on all key markets of late” Gold prices are supported “as the U.S. dollar index has backed off,” Jim Wyckoff, senior analyst at Kitco Metals, says in note to clients.

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    G-20 Gives Markets a Short-Term Respite

    This article by Mohamed A. El-Erian for Bloomberg may be of interest to subscribers. Here is a section:

    For the economic reasons discussed here, the most likely outcome was in the middle of that range: a cease-fire with a pathway to a more decisive de-escalation of tensions – or, to use a recent historical parallel, an agreement similar to the one that followed the White House visit of EU President Jean-Claude Juncker in July. And that is what materialized, with the important addition of a three-month deadline for progress.

    At the end of almost three hours of what the White House called “highly successful” discussions, the U.S. agreed to refrain for 90 days from implementing additional tariffs on $200 billion of imports from China. In return, China promised to use the time to make progress in three areas of concern to the U.S. and other countries: relaxing an array of nontariff barriers, including joint-venture requirements, that result in forced transfers of technology, operational models and other proprietary information and business practices; combatting intellectual property theft and other cyber interferences; and reducing the bilateral trade surplus by importing “very substantial” quantities of certain goods from the U.S.

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    Email of the day on my central bank total assets chart:

    You have mentioned that the graph showing central bank assets is one of the most important. Consequently, I wondered how the fact that they are reducing this tied in with your moderately optimistic views on the stock market. Do you think the US Fed Reserve will continue to reduce its balance sheet given recent market turmoil?

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    Oil Jumps Most Since June on Saudi-Russian Pact, Trade War

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

    “There’s going to be a cut, I think it’s going to be more than people expected, and I think the market realized that today,” said Bob Iaccino, chief market strategist at Chicago-based Path Trading Partners.

    For a time, oil pared gains on Monday after an OPEC advisory panel was said to make no recommendation for action and people familiar with negotiations said Russia and the Saudis still haven’t agreed on details of a cut. Iranian OPEC Governor Hossein Kazempour Ardebili, meanwhile, raised doubts about whether producers can reach unanimity in Vienna.

     

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    One Section of the U.S. Yield Curve May Invert as Soon as Today

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

    While a December rate increase is still seen as a done-deal, Fed Chairman Jerome Powell’s comments that interest rates are “just below” the so-called neutral range changed the 2019 outlook. The spread between December 2018 and December 2019 eurodollar futures -- a measure of how much tightening traders expect next year -- is currently just 23 basis points, the equivalent of less than one Fed hike.

    The 3-year to 5-year spread is not the only one nearing inversion. The gap between 2-year and 5-year Treasury yields fell to an 11-year low of 1.9 basis points on Friday as 5-year Treasuries added to their weekly gain.

    To be sure, the richness of the 5-year sector on the curve has enticed sellers, who Thursday carried out a series of futures block trades betting the sector will cheapen relative to the 10- and 30-year points.

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    India Seeks to Ease Biggest Hurdle for Factories With New Policy

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

    Under the new plan, a company need not purchase land or equipment but could lease them on long-contract basis helping lower costs and cut down time on setting up operations, secretary to the Department of Industrial Policy and Promotion Ramesh Abhishek said in an interview. Units located in
    industrial clusters may be able to share infrastructure.

    “We have to be competitive,” said Abhishek, who’s ministry has been working on the plan for over a year. “For this we need to upgrade our technology, lower costs, improve logistics, skill our labor. The industrial policy will bring all things together and will come out with recommendations on what needs to be done.”

    Prime Minister Modi’s administration has been struggling to fulfill one of his key campaign pledge -- creating 10 million jobs a year-- that propelled him to power in 2014 elections. As the country heads to poll due early 2019, the main opposition Congress party is moving to cash in on the disenchantment over unemployment and rising social tensions.

    The reform measure, likely to be one of the last few before the Modi seeks re-election, attempts to attract over $100 billion in investments into the country and kick start the economy. Quarterly growth is expected to have slowed in the three months ended September even as a liquidity crunch at its banks hurts business sentiment before state elections.

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