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

    Brexit Stalemate Deepens as U.K. Fails to Agree on a Way Forward

    This article by Robert Hutton, Alex Morales and Tim Ross for Bloomberg may be of interest to subscribers. Here is a section:

    The U.K. has two weeks to go to the EU with a plan for its next steps or face the prospect of leaving without a deal, something Parliament also opposes. The likeliest outcome is that May will ask for a longer delay to Brexit, but she will have to convince European leaders that Britain is on a path to solving its apparently intractable problems.

    Hours after May promised her Conservative members of Parliament on Wednesday that she’d step down if they back her Brexit deal, she still looked short of having the numbers needed to win. It’s already been overwhelmingly defeated twice.

    Meanwhile, votes in the House of Commons intended to break the deadlock by finding a consensus also saw every proposal rejected. The pound fell.

    May must decide on Thursday if she is going to bring her deal back for another vote and meet the EU’s Friday deadline for getting it passed. The government declared that it was still the only option in play. Yet it too appears to be doomed despite the capitulation of some Brexit hard liners.

    Liz Truss, a member of Theresa May’s cabinet, told ITV television that Wednesday’s votes show there are no other “serious options” than the one already negotiated with the EU, and that has “focused minds.”

    “There has been a significant shift now of people recognizing the reality of the options,” she said. “What we have seen today is Parliament does not have an option apart from the prime minister’s deal that is really a viable option for the future.”

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    Indian anti-satellite missile test meets with success

    This article by NewAtlas may be of interest to subscribers. Here is a section:

    Anti-satellite weapons aren't new. Systems capable of destroying orbital spacecraft have been around since the 1960s and include everything from specialized anti-satellite satellites packed with explosives, to repurposed shipborne anti-missile missile systems that can take out space targets without any special modifications.

    However, for various technological and diplomatic reasons, very few spacefaring nations have actually developed anti-satellite weapons. Today's test makes India the fourth to do so after the United States, Russia, and China.

    The Indian government says that the test was conducted by India's Defence Research and Development Organisation (DRDO) and was fully successful, demonstrating the country's ability to knock out a satellite with a high degree of precision using indigenous technology. The missile was a DRDO Ballistic Missile Defence interceptor developed as part of India's general missile defence program. It operated as expected, but carried no explosive warhead. Instead, it was what is known as a "kinetic kill," where the hypersonic velocity of the interceptor is enough to destroy the target.

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    Have Yield Curve Inversions Become More Likely?

    Thanks to a subscriber for this note by Renee Haltom, Elaine Wissuchek, and Alexander L. Wolman for the Federal Reserve Bank of Richmond may be of interest to subscribers. Here is a section.

    The flip side of the previous point is that if the term premium narrows, yield curve inversions will become more likely even if there is no increased risk of recession. And, indeed, there is reason to believe the term premium has fallen. Recently, the ACM model’s estimates of the term premium have moved persistently lower. The average values since 2006 and 2012 are 0.77 and 0.20, respectively. (See Figure 2).3

    Two authors of this Economic Brief (Wissuchek and Wolman) recently evaluated how changes in the term premium affect the likely frequency of yield curve inversions.4 In principle, one could do this by conducting a statistical analysis of historical data to assess the relationship between the level of the term premium and the frequency of yield curve inversions. However, the number of inversions is too small to produce a reliable estimate using this method. Instead, Wissuchek and Wolman’s exercise involved simulating data for the short-term interest rate and then measuring how the frequency of yield curve inversions in the simulated data varies with the behavior of the term premium.

    To build intuition for this simulation exercise, Figure 3 illustrates the qualitative relationship that would arise between the frequency of yield curve inversions and the level of the term premium if the term premium were fixed at different levels. For very high values of the term premium, the yield curve would never be inverted because the expected decrease in short-term rates would never be large enough to outweigh the term premium. Conversely, for very low (negative) values of the term premium, the yield curve would always be inverted because the expected increase in short-term rates would never be large enough to outweigh the term premium. And, if the term premium were fixed at zero, then over long periods the yield curve would be inverted roughly half the time. In reality, the term premium is not constant, so the simulation involves looking at how the frequency of yield curve inversion varies as the distribution of the term premium changes.

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    Lynas looks to WA, not Wesfarmers, for its Malay solution

    This article by Hamish Hastie, Colin Kruger and Darren Gray for the Sydney Morning Herald may be of interest to subscribers. Here is a section:

    "These discussions are preliminary in nature and no formal submission for any change has been presented to the EPA," a spokeswoman for the agency said.

    The discussions could help solve the problems in Malaysia which threaten the company's future, and made it vulnerable to what analysts and investors described as a low-ball bid from Wesfarmers on Tuesday.

    Lynas faces an uncertain future after the Malaysian  government imposed strict new conditions on its billion-dollar Malaysian operation which could force it to shut down in
    September.

    This includes the permanent removal of a residue with naturally occurring radiation, Water Leached Purification Residue (WLP), from Malaysia.

    According to institutional investors, Lynas discussed plans last month to relocate some of its rare earths processing  back to Western Australia. All processing is currently handled
    in Malaysia.

    Lynas chief executive Amanda Lacaze denied there was any plan to extract and retain the controversial WLP residue in WA - the state where it is mined - but did confirm it planned to expand its processing operations outside of Malaysia.

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    Aramco to Buy $69 Billion Sabic Stake in Record Mideast Deal

    This article by Matthew Martin, Dinesh Nair, and Archana Narayanan for Bloomberg may be of interest to subscribers. Here it is in full:

    Saudi Aramco, the world’s biggest oil producer, will buy a majority stake in local chemical giant Sabic from the kingdom’s sovereign wealth fund for $69.1 billion.

    The Middle East’s biggest deal will transfer a big slug of cash into the Public Investment Fund, helping Crown Prince Mohammed bin Salman finance his economic agenda. It also weights Aramco away from its core oil production business, pumping 10 percent of the world’s crude, and more toward the production of fuels and chemicals.

    “This transaction is a major step in accelerating Saudi Aramco’s transformative downstream growth strategy of integrated refining and petrochemicals," Amin Nasser, chief executive officer of Aramco, said in the statement.

    The deal, first mooted last year, values the Public Investment Fund’s 70 percent stake at 123.4 riyals per share according to a statement. The remaining shares, traded on the Saudi stock market, aren’t part of the transaction.

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    Frontier Markets

    Thanks to a subscriber for Meketa Group’s end of year report which contains some educative data I believe will be of interest to the Collective. Here is a section:

    The opportunities that an investment in Frontier Markets offers can be summarized as a growth story at a good price. To get a sense of how the growth expectations within frontier markets compare with growth across the world, we examine the World Bank’s growth expectations for different countries and groups.

    The chart above highlights that all but one of the Frontier Market countries have higher growth expectations than the U.S. and other advanced economies. We can also see that many are higher than the world average, which indicates that these economies tend to be a positive influence on the global average.

    Frontier Market equity returns since inception have been less efficient when compared to U.S. equity market returns, but have still seen periods of very strong growth.

    Closely tied to the growth opportunity in Frontier Markets are the demographics, which have been shown to be a driving factor in GDP growth across many studies. 2 Much of the growth story in these markets is driven by their relative youth.

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    Palladium hit by 'Barrage of Selling'

    This note by Justina Vasquez for Bloomberg may be of interest to subscribers. Here it is in full:

    The rally in the U.S. dollar triggered an investor exodus from precious metals on Wednesday. Spot palladium led declines as mounting concerns over global growth threaten the outlook for demand for the commodity used mostly in auto catalysts. The slump accelerated as the price of the least-liquid asset among its peers broke below the $1,500-an-ounce level, triggering “a barrage of selling,” Miguel Perez-Santalla, a sales and marketing manager at refiner Heraeus Metals New York LLC, said.

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