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

    Worst China Stocks Selloff Since February Caps Brutal Reversal

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

    The impact showed in Wednesday’s smallest increase in stock leverage since late June. The CSI 300, which was up almost 17% for the month on Monday, has now given up half those gains.

    An attack from the People’s Daily newspaper on Moutai was taken as another sign of Beijing’s desire to slow the recent run-up, after government-backed funds sold shares or announced plans to so in the past few days. Increasing tensions with the U.S., the central bank’s clampdown on easy money and a drop in retail sales are also adding up as reasons to start selling.

    Data Thursday showed the Chinese economy returned to growth in the second quarter, expanding a better-than-expected 3.2%. While industrial output rose 4.8% from a year earlier, retail sales shrank 1.8%, weaker than a projected 0.5% increase. That suggests the recovery is still largely industry-driven, with consumer sentiment remaining fragile.

    “Retail sales came worse than expected, which hurts sentiment towards some consumer stocks,” said Daniel So, a strategist at CMB International Securities Ltd. “A stabilizing economy means the scale of monetary easing may be smaller than expected. Ample liquidity was one of the key reasons for markets to jump.”

    Overseas investors continued to trim their holdings of mainland-listed shares, selling nearly $4 billion worth of the stocks through exchange links in the past three days.

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    U.K. Says Russians Seek to Steal Virus Vaccine Research

    This article by Kitty Donaldson, Ryan Gallagher and Chris Strohm for Bloomberg may be of interest to subscribers. Here is a section:

    In a dramatic statement on Thursday, Britain’s National Cyber Security Centre (NCSC) said vaccine and therapeutic sectors in multiple countries have been targeted by a group known as APT29, which it said is “almost certainly” part of Russian state intelligence. Security agencies in the U.S. and Canada later issued their own statements backing up the findings.

    “It is completely unacceptable that the Russian intelligence services are targeting those working to combat the coronavirus pandemic,” British Foreign Secretary Dominic Raab said. “While others pursue their selfish interests with reckless behavior, the U.K. and its allies are getting on with the hard work of finding a vaccine and protecting global health.”

    The intelligence bombshell came at a delicate time in geopolitics with a combative U.S. election looming in November and the pandemic plunging the world economy into recession. Coronavirus has launched a global race for a vaccine, in which researchers in the U.K. have made progress recently.

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    Musings From the Oil Patch July 15th 2020

    Thanks to a subscriber for this report by Allen Brooks for PPHB. This issue includes a comprehensive discussion on the viability of a hydrogen economy. Here is a section:

    The conclusion that comes from our examination of hydrogen is that without some major technological breakthrough that reduces the cost of producing it substantially, the economic hurdle will not be overcome.  That means the only way hydrogen could become an important energy source is with government intervention in the energy market and assigning a price to carbon, or subsidizing the hydrogen fuel.  At this point in time, as governments around the world struggle to reopen their economies and repair the financial damage done to their citizens and businesses by the response to the pandemic, it is difficult to see them embracing carbon prices, which raises energy costs for their people and companies.  This is why the strong push, especially in Europe, for tying net-zero carbon emission policies in government stimulus efforts to rebuild their economies following Covid-19.  We suggest energy executives, analysts and investors worry more about the debates over the economic rebuilding efforts than the short-term moves in oil prices, demand and supply.  The long-term future of the oil market will be impacted by the success of governments instituting carbon prices.

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    As US Seeks Sourcing, Sole US Rare Earth Miner Goes Public

    This article from the Associated Press may be of interest to subscribers. Here it is in full:

    The sole miner of rare earths in the U.S. is becoming a public company amid elevated trade tensions with China, the dominant global supplier of the material used in everything from computers to cars.
    MP Materials, which runs a mine and processing facility in Mountain Pass, Calif., near the border of Nevada, will be listed on the New York Stock Exchange in a deal with the blank-check company Fortress Value Acquisition Corp.

    “This business combination and becoming a public company is a key milestone in MP Materials’ mission to restore the full rare earth supply chain to the United States of America," said James Litinsky, a co-chairman who will become chairman and CEO. MP Materials can produce refined neodymium-praseodymium, a rare earth material used in magnets that help power electric vehicles, wind turbines, robotics, drones and defense systems. China currently controls more than 80% of that market. MP Materials Corp. will be listed under the ticker symbol “MP."

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    Aphria-Aurora Combo Would Post Over C$1 Billion in Sales

    This note by Michael Bellusci for Bloomberg may be of interest to subscribers.

    A combined Aphria and Aurora Cannabis entity would suggest a company with over C$1 billion in sales in 2021, with over C$600 million in net cannabis sales, Stifel analyst W. Andrew Carter wrote in note.

    * Stifel says “headset market share data suggests” a combination would produce a leader in Canada’s adult-use market, with 30% share
    * Stifel questions whether a potential deal would garner regulatory scrutiny
    * Separately, Scotiabank analyst Adam Buckham wrote in note a potential deal makes sense
    ** Positives for Aurora holders would be annual cost savings and improved credit position
    ** Could spark pot sector M&A
    * Aurora shares in Toronto rose as much as 6.3% intraday; Aphria rose 7.7%
    * NOTE: Earlier, Aurora-Aphria Merger Talks Are Not Just Smoke: React (BI)
    * NOTE: July 14, Aphria and Aurora Explored Merger, Talks Failed: BNN Bloomberg

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    Global Macro Outlook: Virus curve flattening, markets stabilizing, slow recovery

    Thanks to a subscriber for this report from Deutsch Bank by Torsten Slok. It is loaded with thought provoking charts which may be of interest.