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

    U.S. Strike Ordered by Trump Kills Key Iranian Military Leader in Baghdad

    This article from the Wall Street Journal may be of interest to subscribers. Here is a section:

    Iraqi Prime Minister Adel Abdul-Mahdi condemned the targeted killing as a violation of the terms underpinning the U.S. troop presence in the country.

    Mr. Abdul-Mahdi said he had submitted a formal request for parliament to convene in order to adopt necessary measures “to protect Iraq’s dignity and sovereignty.” He didn’t say what those measures would be.

    The killing of the two men is likely to mark the beginning of a dangerous new chapter in the rivalry between the U.S. and Iran, which escalated after supporters of an Iran-backed Shiite militia attempted to storm the U.S. Embassy in Baghdad earlier this week. Mr. Mohandes was deputy leader of the Popular Mobilization Forces, an umbrella group that led the embassy attack.

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    Global Bonds Rally After Tensions Flare Between U.S., Iran

    This article by James Hirai and Vivien Lou Chen for Bloomberg may be of interest to subscribers. Here is a section:

    “The data will probably prove to be an anomaly, but the initial market reaction is that it’s bad enough to at least consider the possibility of a Fed rate cut,” said Chris Low, chief economist at FHN Financial. “The combination of geopolitical tensions on top of unexpectedly weak data increases the likelihood of a 2020 Fed rate cut.”

    Yields on 10-year Treasuries dropped as much as 8 basis points to 1.79% and remain within 2 basis points of that level. Rates on their German counterparts were down 6 basis points at minus 0.28%. Yields tumbled in most major markets around the world.

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    Tesla Cuts Price on Model 3 Cars Built at New Shanghai Plant

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

    Tesla plans to increase local sourcing to 100% in Shanghai by the end of the year, from about 30% now, Song said. That should help lower costs as Tesla and other ambitious EV makers face a challenging market in China, where auto sales have been slowing.

    Last month, people familiar with the matter said localization would help Tesla cut prices by 20% or more in 2020. The company has been exempted from a 10% purchase tax for its locally built sedans, posing more of a threat to the likes of NIO, Xpeng and BYD Co.

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    Gold Rally Not Over Yet and May Reach $1,700 in 2021, RBC Says

    This article by Aoyon Ashraf for Bloomberg may be of interest to subscribers. Here it is in full:

    The price of gold could rally another 11% over the next two years, tacking on to last year’s 19% gain, according to RBC Capital Markets.

    Gold prices have historically been volatile and may see some fluctuations in 2020 and 2021 on quarterly basis. On a yearly basis, however, the trajectory is likely higher, the bank’s strategists led by Christopher Louney wrote in a note.

    RBC is expecting an average gold price of $1,552 per ounce in 2020, with a bear-case of $1,437 per ounce and bull-case of $1,613 per ounce. By 2021, they forecast the average price to reach $1,625 per ounce with a bull-case of as much as $1,700 per ounce.

    Meanwhile, the Street is forecasting a much dimmer outlook. The median estimate for 2020 is $1,532 per ounce and $1,561 per ounce for 2021, according to data compiled by Bloomberg. Spot
    gold is currently at $1,528 per ounce.

    The bullion, last year, was able to seal its best year since 2010 due to loose global monetary policy, a buying spree from central banks, the U.S.-China trade dispute and other geopolitical unrest. The rally marked a positive shift in investor attitude toward gold, which is among the main reasons why RBC is bullish on the precious metal. “Sentiment almost always plays an outsized role for gold compared to other asset classes given its unique nature,” the strategists wrote.
     

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    China Approves New GMO Soybeans in Positive Sign Amid U.S. Talks

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

    China approved a new strain of genetically modified soybeans developed by a U.S. company, a move that could bolster looming trade talks.

    The variety approved for import is an insect-resistant soybean from Dow AgroSciences LLC, according to a list published by China’s agriculture ministry on Monday. The nation also approved a new type of GMO papaya and renewed permits for 10 crop varieties, including corn and canola.

    China and the U.S. are gearing up to sign the first phase of a trade deal, with the South China Morning Post reporting Chinese Vice Premier Liu He is set to lead a delegation to Washington on Jan. 4. The countries agreed to speed up the approval process for imports of GMO crops as part of efforts to boost bilateral trade.

    “The news helps confirm China’s opening of its market to U.S. GMO products and dropping additional non-tariff barriers,“ said John Payne, senior futures and options broker at Daniels Trading in Chicago.

    GMO crops have been a source of tension with the U.S. arguing China’s stance isn’t based on science and has been used as a non-tariff barrier. In 2013, China rejected several cargoes of corn and distillers dried grain from the U.S. due to the presence of a GMO variety that took the Asia nation almost five years to approve, said Darin Friedrichs, a senior analyst at INTL FCStone in China.
     

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    Oilfield Services Ends 2019 With a Bang, Whimper

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

    “When does it end?” is a perfectly reasonable question for New Year’s Eve. And in the case of anyone still holding onto oilfield services stocks, it is more than rhetorical.

    Core Laboratories NV, which offers services to enhance output from oilfields, dropped the ball early on Monday evening, or New Year’s Eve Eve if you will. It cut guidance for the quarter just about to end, issued underwhelming guidance for the quarter about to begin and, to cap it off, slashed its dividend by more than half. The latter was declared “sacrosanct” by management only two months ago — which, in hindsight, is one of those overwrought words that should set alarm bells ringing.

    Throw in Tuesday’s pre-drinking trading volumes, and the stock looks set to see out 2019 with a bang (not the good kind). The ostensible reason for the sudden about-face is sluggish activity in international markets, which were hoped to offset the drag from the slowdown in U.S. fracking. The underlying reason is one that blends the oil business with New Year’s Eve seamlessly: the triumph of hope over experience.

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    The Economy Is Getting Harder to Forecast

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

    Disinflation has reigned since 1980, but real interest rates were positive until the last decade.  But for 10 years now, real 10-year Treasury note yields have been flat at zero (see my Nov. 19, 2018 column, “Zero Real Yields Are Tripping Up Investors”).  This and the flat yield curve have pushed state pension funds and other investors far out on the risk curve in search of real returns, bidding up stocks to vulnerable levels.
     
    Earlier, the Fed was run by Ph.D. economists who clung to widely-held theories even though they didn’t work. Fed Chairman Jerome Powell is proving to be much more practical, backing away from rigid Fed policies such as the 2% inflation target and a zero-bound policy rate as well as unsuccessful forward guidance.

    In this different economic climate, it’s hard to time the end of the current recovery. Still, it will end, due either to Fed overtightening or a financial crisis, like the 2000 dot-com blow-off or the 2007-2009 subprime mortgage collapse. In the current excess supply-savings glut-deflationary world, it’s likely a recession will unfold due to a shock before the Fed overtightens.

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    Hong Kong Imports of Gold Coins From China Jump on Haven Demand

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

    Hong Kong’s purchases of gold coins from China surged last month as demand for haven assets soared amid the ongoing social unrest.

    Imports of coins jumped to 3,246.5 kilograms in November from 14 kilograms a month earlier, according to data from the city’s Census and Statistics Department obtained by email.

    “The import of gold coins by Hong Kong shows that its citizens are worried about the situation in Hong Kong and prefer to have gold coins as safe haven,” said Georgette Boele, senior FX and precious metals strategist at ABN Amro Bank NV.

    The increasingly violent pro-democracy protests have undermined Hong Kong’s economy, discouraging tourists from visiting and slashing retail sales. Gold demand typically strengthens ahead of the Lunar New Year, which will fall in late January.

    Data from the department also showed that total exports of gold from Hong Kong to China continued their decline from a peak in 2013. Figures for November showed shipments dropped to 5,717 kilograms from 14,896 kilograms in October. Hong Kong’s total imports from China were 5,824.5 kilograms, bolstered by the surge in gold coin purchases, which meant Hong Kong had net imports of gold from China for the first time since January 2011.

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