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

    US Business Activity Contracts for a Fifth-Straight Month

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    The manufacturing PMI sank nearly 3 points to 47.6 this month. And when excluding the early months of the pandemic, the production and orders measures both retreated at the steepest rates since 2009.

    On a more comforting note, the composite measure of input prices eased for a sixth-straight month, though it remains historically elevated. The prices-received gauge fell for a seventh month.

    Output expectations over the next year picked up, the report showed, in part reflecting more stability in supply chains. The index, however, remains softer than it was a year ago.

    “November even saw increasing numbers of suppliers, factories and service providers offering discounts to help boost flagging sales,” Williamson said. 

    “In this environment, inflationary pressures should continue to cool in the months ahead, potentially markedly, but the economy meanwhile continues to head deeper into a likely recession,” he said.

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    Oil Sinks as EU Discusses a Softer Russian Price Cap at $65-$70

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    Oil stumbled as traders assessed a higher-than-expected price cap on Russian crude between $65 and $70 a barrel and a surprising build in US products.

    The European Union’s proposed range would be well above Russia’s cost of production and higher than some countries have been paying for its oil. As Russia is already selling its crude at discounts of $20 a barrel in recent months, a high cap may have minimal impact on trading, keeping the nation’s supplies flowing into the global market.

    West Texas Intermediate traded around $77 a barrel as investors digested rising US product stockpiles, accelerating a selloff in thin trading. Gasoline stockpiles rose by 3 million barrels, the largest build since July, with demand plunging by the most in nearly two months heading into the Thanksgiving holiday.  

    “The effectiveness of price caps as a mechanism to tighten the screws on Russia remains a big question for the market,” said Michael Tran, an analyst at RBC Capital Markets. “What such policy measures does do is raise the degree of positioning paralysis for oil traders that are already grappling with an anti-risk taking period of low liquidity.”

    Russia has previously said that it won’t sell crude to nations that use the cap, which is designed to punish Moscow for its invasion of Ukraine while keeping the nation’s oil flowing. 

    EU ambassadors are meeting on Wednesday with the aim of approving the cap mechanism and a proposed price level. On Tuesday, the EU already watered down its latest sanctions proposal by delaying its full implementation and softening key shipping provisions.

    Crude prices have suffered several sharp downturns in recent days. Demand in China, the world’s largest importer, remains weak as the country presses on with Covid-Zero curbs. Beijing asked residents not to leave the city unless necessary, to stem the spread of the virus.

    As the oil market has softened in recent days, both Brent and WTI have at times traded in a bearish contango structure for the first time in months. WTI’s nearest timespread flipped back into contango once again. 

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    Violent Protests Erupt at Apple's Main IPhone Plant in China

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    In one video, irate workers surrounded a silent, downcast manager in a conference room to voice grievances and question their Covid test results. It wasn’t clear when the meeting took place.

    “I’m really scared about this place, we all could be Covid positive now,” a male worker said. “You are sending us to death,” another person said.

    The Zhengzhou campus was operating normally as of Wednesday evening, a Foxconn spokesperson said. The violence had erupted after a portion of recently arrived employees raised complaints about “work subsidies” -- bonuses or payments on top of usual wages, Foxconn said in a statement. But the company stressed that it handles all such compensation in strict accordance with its contractual obligations. 

    “With regards to the violence, we are continuing to communicate with workers and the government, to avoid a recurrence,” the company said without elaborating.

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    Feedback on Our Tactical Views and 2023 Outlook

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    Technicals over Fundamentals for now…our tactically bullish call was always more about the technicals than the fundamentals. Today, we provide an update to those factors, some of which no longer justify higher prices although they provide support at current levels. The deciding factor is market breadth, which has improved greatly over the past month and argues for us to remain bullish into year end before the fundamentals take us to lower lows next year. Feedback on our call for the S&P 500 to reach a price trough of 3,000-3,300 in Q1 '23…we've gotten a fair amount of pushback on that our forecast on this front is too aggressive both from a magnitude and timing standpoint. While directionally bearish, many investors struggle to see even a retest of 3,500. In our view, what was priced at the October lows was peak Fed hawkishness, not material earnings downside. If we were forecasting a modest 5% forward EPS decline and a reacceleration off of those levels, we'd concede that the earnings risk is probably priced, but we're modeling a much more significant 15-20% forward earnings downdraft, which should demand a more recessionary type 13.5-15x multiple on materially lower EPS.

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    Inside a Crypto Nemesis' Campaign to Rein In the Industry

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    “There were a lot of entrepreneurs that grew up in this field and chose to be noncompliant,” Mr. Gensler said in an interview last month at the S.E.C. headquarters in Washington. “We will be a cop on the beat.”

    Mr. Gensler’s central claim is simple: For all their novel attributes, most cryptocurrencies are securities, like stocks or other investment products. That means the developers who issue cryptocurrencies must register with the U.S. government and disclose information about their plans. In Mr. Gensler’s view, exchanges like Coinbase and FTX, where customers buy and sell digital coins, should also have to obtain S.E.C. licenses, which come with increased legal scrutiny and disclosure obligations.

    The crypto industry has fought the government’s efforts to classify digital assets as securities, arguing that the legal requirements are overly burdensome. Even before FTX’s collapse, the debate was reaching an inflection point: A federal judge is expected to rule in the coming months in a lawsuit brought by the S.E.C. that charges the cryptocurrency issuer Ripple with offering unregistered securities. A victory for the government would strengthen Mr. Gensler’s hand, establishing a precedent that could pave the way for more lawsuits against crypto companies.

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    Housing Hotbed Offers Rest of World a Correction-or-Crash Test

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    By March, it will be a year since the Bank of Canada began raising interest rates — meaning ever more of the record number of people who took out short-term or floating-rate mortgages at historically low rates will find themselves fully exposed to the roughly fourfold jump in borrowing costs since then, a potentially catastrophic shock to their personal finances.

    The fate of Canada’s housing market will depend on whether or not they can hold on. And just as the country was a leader in the years-long global real estate frenzy, how its downturn plays out — a relatively orderly correction, or a brutal crash — may be a harbinger for what awaits the rest of the world.

    Housing markets around the globe are wobbling under the weight of central bank rate-hike campaigns, with a handful of frothy countries joining Canada in already seeing precipitous price declines. More than a dozen developed economies, from Australia to Sweden to the US, are in the midst of downturns — defined as two consecutive quarters of falling prices — or will be by the beginning of next year, according to Oxford Economics. If those slumps prove worse or more widespread than expected, it would deepen a potential global recession. 


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    Saudis Deny Report of Discussion About OPEC+ Oil-Output Hike

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    Saudi Arabia denied a report that it is discussing an oil-production increase for the OPEC+ meeting next month, and said it stands ready to make further cuts if needed. 

    Crude futures pared earlier losses, trading 1.8% lower at $86.04 a barrel as of 5:18 p.m. in London. 

    “The current cut of 2 million barrels per day by OPEC+ continues until the end of 2023,” Saudi Energy Minister Prince Abdulaziz bin Salman said in a statement via the Saudi Press Agency. “If there is a need to take further measures by reducing production to balance supply and demand, we always remain ready to intervene.”

    Oil futures earlier dropped as much as 6.1%, dipping below $85 a barrel for the first time since September, after the Wall Street Journal reported that the kingdom and other members of the group were considering raising output by as much as 500,000 barrels a day. 

    That would have been a major reversal after the Organization of Petroleum Exporting Countries and its allies decided in October to cut production by 2 million barrels a day. US President Joe Biden has slammed the move, saying it endangers the global economy and aids fellow OPEC+ member Russia in its war in Ukraine.

    After an initial rally following the cuts agreement, crude prices have declined as the economic outlook deteriorates and China continues to grapple with Covid-19 outbreaks. OPEC twice reduced its forecasts for global oil demand, and Prince Abdulaziz has said the group will remain cautious due to “uncertainties” about the health of the global economy. 

    Saudi Arabia has already cut oil exports sharply this month to deliver on the OPEC+ agreement, according to data from energy analytics firm Kpler Ltd. The cartel’s next meeting is scheduled for Dec. 4.

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