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

    Germany's Whole Yield Curve Dives Below 0% for the First Time

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

    The move will add to fears that the region’s economic slowdown is being driven by more structural factors akin to Japan’s “lost decade.” Germany’s bond market is widely perceived as being one of the world’s safest, with investors lured in by the liquidity and credit quality offered. Funds still looking to extract a positive return from European sovereign assets have been forced further out the yield curve or into riskier debt markets such as Italy.

    “It underlines that the hunt for yield, or rather hunt to avoid negative yields, is accelerating day by day,” said Arne Lohmann Rasmussen, head of fixed-income research at Danske Bank A/S. “It just makes things more complicated.”

    Yields on 30-year bunds fell almost 10 basis points to -0.002%. Those on 10-year securities dropped five basis points to -0.50%, also a record low and below the European Central Bank’s -0.40% deposit rate.

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    Japan-South Korea Feud Boils Over Amid Trade Actions, Protests

    This article by Isabel Reynolds and Sam Kim for Bloomberg may be of interest to subscribers. Here is a section:

    South Korean President Moon Jae-in called Japan “reckless” in a national address Friday and his country planned to cross its neighbor off a preferred-trade list. The move came hours after Japanese Prime Minister Shinzo Abe’s cabinet removed South Korea from its list of trusted export destinations.

    U.S. Secretary of State Michael Pompeo met his counterparts from both countries Friday, but the dispute, which simmered for months as the Trump administration sat on the sidelines, looks set to worsen amid protests, boycotts and economic warnings. “By bringing economic sanctions, they’ve really escalated it to another level,” said Robert Dujarric, director of the Institute of Contemporary Asian Studies, Temple University, Japan. “This isn’t going to make South Korea cave in. If anything, it heightens South Korean nationalism. It makes it harder to de-escalate and harder to have a ‘united front’
    against China.”

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    Trump Ratchets Up Trade War With New China Tariffs

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

    President Donald Trump abruptly escalated his trade war with China, announcing that he would impose a 10% tariff on $300 billion in Chinese imports that aren’t yet subject to U.S. duties.

    The new tariff will be imposed beginning Sept. 1, Trump said in a tweet Thursday that broke a tentative trade cease-fire between the world’s two biggest economies. The 25% tariff already imposed on $250 billion in Chinese goods will remain in place, he said.

    A draft list of $300 billion worth of targets published by the Trump administration in May included a raft of consumer and technology goods, including most of Apple Inc.’s major products such the IPhone, along with toys, footwear and clothing. The final list hasn’t yet been released.

    “These are the tariffs on many of the consumer goods that were spared in the previous tariff rounds,” said Neil Dutta, head of economics at Renaissance Macro Research in New York, in a note. “This is a small hit to growth but will likely be more obvious to consumers. Keep in mind that margins have come in somewhat already, not sure firms can simply eat the cost.”

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    Negative-Yield World Lures Central Bankers to Canada Muni Market

    This article by Esteban Duarte and Paula Sambo for Bloomberg may be of interest to subscribers. Here is a section:

    The fact that foreign money managers are delving into Canadian municipal bonds -- which account for just 1% of trading in the country’s C$2 trillion public sector fixed-income market -- is a testament to how hungry they’ve become for high quality, higher-paying assets in a world where at least $13.8 trillion of debt is now in negative-yield territory. Throw in the fact Canada has given little indication it will follow the global move toward easier monetary policy, and the market is fast becoming a magnet for sophisticated investors seeking to boost returns.

    “If you’re sitting in the Middle East, Asia or Europe and you’ve got all this negative yielding debt, it makes a lot of sense to look for the hidden gems such as these excellent quality municipals,” said Avi Hooper, a portfolio manager at Invesco, which has $1.2 trillion under management, including bonds issued by the city of Montreal. “One has always to be careful with the liquidity of course. Big institutional investors are not going to get involved with $50 million deals.”

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    Your Next iPhone Might Be Made in Vietnam. Thank the Trade War

    This article by Raymond Zhong for the New York Times may be of interest to subscribers. Here is a section:

    Samsung has since closed all but one of its smartphone plants in China. It now assembles around half of the handsets it sells worldwide in Vietnam. Samsung’s subsidiaries in the country, which employ around 100,000 people, accounted for nearly a third of the company’s $220 billion in sales last year.

    A Samsung spokeswoman said about 90 percent of those sales involved goods shipped from Vietnam to other countries. That implies Samsung alone accounted for a quarter of Vietnam’s exports in 2018, although even that might not fully capture the company’s effect on the wider economy. Samsung’s success in Vietnam helped convince many of its South Korean suppliers that they needed to be here, too.

    “When you are a big company and you move to a place, everything follows you,” said Filippo Bortoletti, the deputy manager in Hanoi at the business advisory firm Dezan Shira.

    Some Vietnamese business owners say the blessings are mixed, though. Foreign giants, they say, come to Vietnam and work largely with vendors they already use elsewhere, leaving little room in their supply chains for local upstarts.

    Samsung has 35 Vietnamese suppliers, the spokeswoman said. Apple declined to comment.

    When Samsung first set up in the country, it bought some of the metal fixtures used on its assembly lines from a local firm, Vietnam Precision Mechanical Service & Trading, or VPMS. But then more of Samsung’s South Korean partners started coming into the country, and after a year, Samsung and VPMS stopped working together, said Nguyen Xuan Hoang, one of the Vietnamese company’s founders.

    Price and quality were not the issue, Mr. Hoang said, over the hissing and clanging of machinery at his factory near Bac Ninh. The problem was scale: Samsung needed many more fixtures than VPMS could deliver.

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    Email of the day - on lead indicators in this cycle:

    Hope all is well.

     I had a question about the comment you made at the end of your video today. You mentioned that the indicator that we should focus on which will lead to this current cycle unwinding is Private equity and the success of their investments, plus on government debt and the deficits they are building.

    Are you able to expand on what we can track (tangibly) for these 2 issues?

    Thanks v much

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