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August 15 2022

Commentary by Eoin Treacy

Video commentary for August 15th 2022

Eoin Treacy's view -

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: China recession risk rising, Renminbi, copper, oil, nickel lower, Dollar firms and weighs on gold and silver, European natural gas surges to new high, Brazil has relative strength and Wall Street extends rebound. 



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August 15 2022

Commentary by Eoin Treacy

Beijing Faces 'Liquidity Trap' as Lending Collapses

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

Three things we learned last week: 

1. Shockingly weak Chinese credit growth shows that monetary policy is pushing on a string. Friday’s data showed aggregate financing, a broad measure of credit, was almost half of what economists expected. Bank loan growth slowed to 11%, near the historical low. That’s occurring at a time when the financial markets are flush with cash and interbank interest rates are falling well below the central bank’s benchmark.

In other words, money is aplenty, but no one wants it. It reflects weak confidence among businesses and households amid the housing slump and the Covid restrictions. It’s “a classic sign of a liquidity trap,” Craig Botham at Pantheon Macroeconomics remarked.

What’s more, Beijing is facing a fiscal cliff as the local governments have pretty much used up their special bond-issuance quota for the year. Unless Beijing makes more funding available, the fiscal support may be waning.

Eoin Treacy's view -

China’s exporters are feeling the pain from slowing demand in Europe and North America. That’s adding to the downward pressure on the economy from the emerging real estate crisis. The PBoC signaled last week they are keen to avoid the inflationary problems other major economies are dealing with. Over the weekend, political priorities led to the Medium-Term Lending rate being shaved by 10 basis points while the central bank withdrew liquidity to sanitise it.



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August 15 2022

Commentary by Eoin Treacy

Germany Slaps Levy on Households to Spread Pain of Gas Surge

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

“The levy is a consequence of Putin’s illegal war of aggression against Ukraine and the artificial energy shortage caused by Russia,” Economy Minister Robert Habeck told reporters in Berlin. The government is working on a compensation package for consumers, because the levy presents a “challenge“ to them, Chancellor Olaf Scholz said in Oslo after a meeting with Nordic counterparts. 

The levy comes as Europe shifts its focus to curbing consumption in the face of a worsening energy crisis. German power prices climbed to a record amid mounting concerns the region may struggle to generate enough electricity this winter. That has pushed up inflation rates and threatened the industry.

Habeck said the levy -- which runs through April 1, 2024 -- would cost an average single household about 97 euros a year, a couple would pay about 194 euros more and a 4-person household would bear extra costs of about 290 euros.

Eoin Treacy's view -

The Netherlands natural gas future was up another €10 today as it extends the acceleration. The measures underway to ensure Europe has enough gas for the winter are totally dependent on Russia continuing to supply the region. It is in their interests to pick the most inconvenient time possible to turn off the tap. With the war in Ukraine finely balanced, Russia will be keen to gain whatever benefit they can from asymmetric tools.



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August 15 2022

Commentary by Eoin Treacy

Brazil's Economy Grows More Than Forecast Before Relief Plan

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

Brazil’s economy has shown signs of dynamism, with the labor market performing better than expected, even after the central bank increased its key interest rates by 11.75 percentage points since March 2021, to 13.75%. Recently-implemented measures to ease the pain of inflation are expected to further support domestic demand. 

Permanent Aid
Ahead of October’s presidential election, President Jair Bolsonaro got the green light for a multibillion social program that raised monthly cash handouts to the poor by 200 reais until the end of the year. He has promised to maintain that extra payment if re-elected, and so has his main challenger, former President Luiz Inacio Lula da Silva. 

Central bank chief Roberto Campos Neto expressed concern about the possible extension of emergency social measures for an indefinite amount of time. 

“There’s a well-known saying: nothing is more permanent than a temporary government program,” he said at an event organized by Millennium Institute, a local think tank, after the data was released. “That certainly worries us.”

Eoin Treacy's view -

Bolsonaro is behind in the polls and Lula is promising a raft of goodies if he is re-elected. That’s a recipe for an attempt by Bolsonaro to “buy” the election and improving economic activity will certainly aid his aspirations.



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August 15 2022

Commentary by Eoin Treacy

August 15 2022

Commentary by Eoin Treacy

The Chart Seminar London November 21st and 22nd 2022

Eoin Treacy's view -

We are living through fast moving markets so I am gauging interest for The Chart Seminar on November 21st and 22nd this year in London.

In the meantime, if you have any questions, would like to attend, or have a suggestion for another venue please feel to reach out to Sarah at [email protected] 

The full rate for The Chart Seminar is £1799 + VAT. (Please note US, Australian and Asian delegates, as non-EU residents are not liable for VAT). Annual subscribers are offered a discounted rate of £850. Anyone booking more than one place can also avail of the £850 rate for the second and subsequent delegates.



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August 12 2022

Commentary by Eoin Treacy

August 12 2022

Commentary by Eoin Treacy

Email of the day on the big question

Q: Are we in a bear or a bull?

Eoin Treacy's view -

Thank you for voicing the question I believe everyone is asking. The short answer is yes, the long answer is more nuanced. Let’s frame this discussion in terms of the yield curve spread. The 10-year – 2-year is sharply negative. The 10-year – 3-month and the 10-year – Fed Funds Rate have both accelerated lower but are not yet negative. All three point toward significant monetary tightening. That is before the impending acceleration in the contraction of the Fed’s balance sheet is 



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August 12 2022

Commentary by Eoin Treacy

How Normal Am I?

This exercise created by the EU may be of interest. It purports to show you how attractive you are from an AI’s perspective but then concludes by sharing some insights about you. (I won’t spoil the surprise).

August 12 2022

Commentary by Eoin Treacy

Illumina Falls Most Since May on Outlook for Demand, Grail Costs

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

Illumina has been embroiled in a costly prolonged battle over its acquisition of Grail. In an unusual move, Illumina finalized the Grail purchase in August 2021 despite complaints from regulators in both the US and Europe. Illumina and Grail were warned last month that they risk “hefty fines.” In its earnings report, Illumina said it recognized $609 million in legal contingencies, including an accrual of $453 million during the second quarter for a potential fine.

“The $8 billion Grail purchase has shifted the story, with multiple antitrust challenges that will play out in 2022,” Bloomberg Intelligence analyst Jonathan Palmer wrote. “These have raised the stakes and shaken confidence.”

On a call with investors, Chief Executive Officer Francis deSouza gave no indication of backing down from the purchase. Meanwhile, the company expects reduced revenue growth from its core business in the second half of the year. 

Piper Sandler analyst David Westenberg said the most concerning factor behind Illumina’s guidance cut was deferred lab investments by some users of the company’s DNA sequencing machines, and customers holding less inventory.

“Some customers experienced supply chain pressures that delayed their lab expansions,” deSouza said on the call. Those who planned to launch new labs or expand existing ones were stymied by supply chain issues, while others are managing capital “more conservatively,” he said. 

Eoin Treacy's view -

Illumina is the dominant supplier of genetic sequencing machines. The purchase of Grail was about gaining entry to the blood diagnostics market with a particular focus on early cancer diagnosis. It’s a potentially high growth and complimentary market. If the purchase remains intact, it should deliver a dominant position in both markets.



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August 11 2022

Commentary by Eoin Treacy

Video commentary for August 11th 2022

Eoin Treacy's view -

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: copper continues to rebound but China beginning to restrict liquidity, UK electricity prices close to breaking higher, bond yields rebound everywhere, stocks begin to feel the effects of higher borrowing costs. 



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August 11 2022

Commentary by Eoin Treacy

Bond Traders Dismiss Stock-Market Rally as Misguided Euphoria

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

Strategists at Citigroup Inc., using a mix of spot and forward curves to help construct a predictive model, now say that there’s a greater than 50% chance of a recession over the next year. 

“It’s a perfect storm now with both sides of the curve causing the inversion, and making it likely to continue,” said Jason Williams, a strategist at the New York-based bank. “Given the strength of the labor market and still high inflation, there’s no reason for the Fed to slow down it’s hiking.”

Eoin Treacy's view -

Investors have been conditioned to expect the “Fed put” because they have underwritten the stock market following every significant decline since the 1987 crash. The challenge today is inflation is way above the Fed Funds rate and also outstripping wage growth. Providing the normal liquidity surge into that environment is counterproductive to ensuring stable prices.



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August 11 2022

Commentary by Eoin Treacy

Email of the day on surging electricity prices

I know you have consistently highlighted the challenges that UK households will experience in relation to their energy bills, and just today they are saying that "typical" households could be paying nearly £600 in January, money that most just can't find. Already consumers are a collective £1.3 billion in arrears on their bills, with an expected 86% hike in the energy cap expected on 1 October.

But far less is said of the impact on businesses, and on this I can shed some very specific light. I own a small business, an indoor children's play centre. On 1 December last year I renewed my energy supply contract, and faced with an increase then from 15p/kwH to 20p/KwH I opted to take just a 1 year renewal, with gas prices fairly stagnant until then as you know.

I have been informed today that when I come to renew once more on 1 December, I am going to staring at a tariff of anywhere between 50p/kwh to as much as 89p/kwh. I was also told in no uncertain terms by the 'sales' person at my current supplier, that they are trying to migrate away from small and medium business in this environment, and are deliberately pricing us away. the daily fixed standing charge will move from £83 per month, to potentially as much as £1,000.

For context, my own energy bill is going to shift from £20k per year to closer to 60k-£70k. This is going to be catastrophic for U.K. businesses, as many will be left in dire straits, unable to keep the lights on, and customers cool (in summer) or sufficiently warm in the winter. So many businesses in the hospitality sector especially are saddled with the burden of Covid "bounce back loans", delayed VAT repayments, and of course huge inflation on input costs with a consumer at breaking point. Business closures = higher unemployment...it is looking particularly dire here in the U.K.

Eoin Treacy's view -

Thank you for sharing this visceral experience of price increases business owners are experiencing. The challenges are significant and options to raise prices are inhibited so many businesses will close. The strike action in the UK which has been building for months and will escalate further. They are a symptom of how much living standards are being impacted by the rising cost of living.



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August 11 2022

Commentary by Eoin Treacy

BHP talk offtakes with OZ Minerals, returns with $8.4b bid

This article from the Australian Financial Review may be of interest. Here it is in full:

The companies' top brass only spoke last Friday, when BHP shot across its non-binding and indicative bid to OZ's Adelaide offices, and asked for six-weeks' due diligence and a friendly board recommended deal.

Instead of being flattered by the attention, OZ Minerals' board is playing it cool and defensive.

OZ Minerals' board, advised by Macquarie Capital and Greenhill, is understood to be staunchly against giving BHP a look at its books at a $25 a share offer, reckoning it's both invasive and disruptive to the business. It has said as much to investors in recent days.

Analysts who have spent the past few days canvassing the OZ Minerals register said the shareholders were on the same page as the board.

But at what price OZ would be willing to grant BHP due diligence, is pretty much anyone's guess at this point. Citi and Barrenjoey are in BHP's corner.

What's OZ Minerals worth

The approach and the retreat were so swift that investors haven't had time to think what the company's worth to a bidder.

But they are taking heart from three things: that OZ smacked the $25 a share bid really hard (so BHP must be way off mark) and that the two had been talking about offtakes (so BHP's interest isn't just tyrekicking).

Investors reckon they still need a week or so to come up with a number they reckon would be fair, and OZ's half-year results are due about the same time. But early talk is any suitor wanting to unlock OZ's data room would have to present it with a low-thirties bid.

The offtake revelations have also revived investors' early read of the approach: that BHP's after better performance for Olympic Dam and its copper operations, but is also thinking strategically about securing nickel concentrate for its WA smelters.

Eoin Treacy's view -

Building new mines is expensive and time consuming. Those challenges are becoming more burdensome as regulations tighten. OZ Minerals has the benefit of producing resources in a politically stable area, in relatively close proximity to existing mines so additional infrastructure requirements are minimal. That should command a premium and if BHP can get away with paying less than peak values it’s a good buy.



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August 10 2022

Commentary by Eoin Treacy

Video commentary for August 10th 2022

It came to my attention today that the August 9th video was not available for European users but seemed to work fine for me. I believe this was due to system maintenance at our server provider which is now complete.  

August 10 2022

Commentary by Eoin Treacy

Cooler Inflation Takes Fed's Rate-Hike Size "Down to the Wire"

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

“This is a necessary print for the Fed, but it’s not sufficient,” Pond said. “We need to see a lot more. You can think about this print as sort of like the weather -- it’s better today than it has been over the past few days. But it’s still summer. There’s still a lot of humidity out there. It’s not great. So it’s in the right direction. But we’re certainly not there yet.” 

For Diane Swonk, the chief economist at KPMG LLP, the Fed is now hedging against risk of future supply shocks as well as combating current inflation and will likely favor a 75 basis-point increase.

“The Fed is no longer willing to rest on their laurels on a one-month move,” she said. “The greater risk for the Fed is to stop too soon than stop too late. It will take a lot more cooling than this for the Fed to shift its decision rule, although in this economy, September seems an eternity away.”

Eoin Treacy's view -

The big question for investors is whether the Federal Reserve will focus on core or non-core items in how much they decide to raise rates in September. Commodity price inflation is less urgent today than earlier this year. Lumber prices have made a full round trip. Wheat has fully unwound the Ukraine invasion surge. Palm Oil is steadying in the region of the 2008, but the price has almost halved from the peak level. 



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August 10 2022

Commentary by Eoin Treacy

China Orders Surprise Audit of $3 Trillion Trust Industry

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

These investors have joined homebuyers and bond fund managers in feeling the pain of a liquidity crisis that’s driven dozens of developer defaults and frozen construction of hundreds of projects across the country.

China’s trust industry, after at least six rounds of restructuring since its inception in 1979, combines characteristics of commercial and investment banking, private equity and wealth management. Firms in the sector pool household savings to offer loans and invest in real estate, stocks, bonds, commodities, and even bottles of sorghum liquor. No other firms in the financial industry operate across all these asset classes.

Trusts were once a popular avenue of funding for the property sector. Until recently, trust products were seen by wealthy Chinese individuals and institutions as a safe place to park their money.

Eoin Treacy's view -

The trust sector in China is dominated by wealthy families which benefitted enormously from the growth of the economy over the last forty years. In many cases that was achieved through relationships with government officials that ensured preferential access to markets or property ventures. The fact many trust clients are members of the establishment themselves can be taken for granted. Therefore it is particularly noteworthy that it is not the subject of investigation.



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August 10 2022

Commentary by Eoin Treacy

Global Supply Chains of EV Batteries

This report from the IEA may be of interest. Here is a section:

Pressure on the supply of critical materials will continue to mount as road transport electrification expands to meet net zero ambitions. Demand for EV batteries will increase from around 340 GWh today, to over 3500 GWh by 2030 in the Announced Pledges Scenario (APS). Cell components and their supply will also have to expand by the same amount. Additional investments are needed in the short term, particularly in mining, where lead times are much longer than for other parts of the supply chain – in some cases requiring more than a decade from initial feasibility studies to production, and then several more years to reach nominal production capacity. Projected mineral supply until the end of the 2020s is in line with the demand for EV batteries in the Stated Policies Scenario (STEPS). But the supply of some minerals such as lithium would need to rise by up to one-third by 2030 to satisfy the pledges and announcements for EV batteries in the APS. For example, demand for lithium – the commodity with the largest projected demand-supply gap – is projected to increase sixfold to 500 kilo tonnes by 2030 in the APS, requiring the equivalent of 50 new average-sized mines.

Eoin Treacy's view -

If the quantity of metal required from mining operations needs to increase 10-fold to meet projected demand there is going to have to be a serious reckoning between expectations and reality. Either we are going to have a mining boom larger than anything seen since the days of the California gold rush or expectations for the energy transition and decarbonisation will need to be scaled back/adapted in a very big way.



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August 10 2022

Commentary by Eoin Treacy

August 09 2022

Commentary by Eoin Treacy

August 09 2022

Commentary by Eoin Treacy

Europe Energy Supply Takes Another Hit as Russia Oil Pipe Halts

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

In the first days of August, before the halt, Russia sent just over 24,000 barrels a day to the Czech Republic and the same volume to Slovakia through the Druzhba, according to industry data seen by Bloomberg. Flows toward Hungary zero due to planned maintenance at the country’s processing facilities, the data showed.

Ukrtransnafta JSC, which operates Ukraine’s oil pipeline network and oversees the transit of crude via the southern leg of the Druzhba link, “stopped providing oil-transportation services” through its territory on Aug. 4, Transneft said in a statement on Tuesday. There was no immediate comment from Ukrtransnafta.

The contract between Transneft and Ukrtransnafta requires 100% prepayment for transit flows. While the Russian pipeline operator paid the August transit fee on July 22, it received the money back on July 28, Transneft said. Slovak crude-pipeline operator Transpetrol, in a separate statement, confirmed Transneft’s payment failed to go through and was returned to the company by the bank.

The European banks involved in the transaction are not authorized to make their own decisions on cross-border payments from Russia due to sanctions and need approvals from their national regulators, according to Transneft. 

The Russian oil-pipeline operator said it has appealed “to an authorized bank for further transfer of information to the European regulator in order to obtain permission to conduct settlements under an agreement with Ukrtransnafta.” It is also looking at alternative ways to transfer funds. 

Eoin Treacy's view -

There is a lot of commentary in the media about how successfully the HIMARs artillery have offset Russia’s offensive capability in Ukraine. Time will tell how true that is, but Russia has every reason to exercise its influence over the European energy sector. Choking off supply of oil and gas to Europe is all part of Russia’s playbook to ensure Europe has a very uncomfortable winter.



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August 09 2022

Commentary by Eoin Treacy

Micron's Warning Adds to Evidence of Collapsing Chip Demand

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

The Boise, Idaho-based company is the latest to reveal just how quickly demand for electronic components is declining, following a warning by Nvidia Corp. on Monday and weak reports by Intel Corp. and other chipmakers this earnings season. The majority of the pain is being felt by companies that make chips for personal computers. Consumer demand for those devices is drying up rapidly as pandemic lockdowns end and household budgets are hammered by inflation.

Highlighting the speed with which demand is evaporating, Micron said orders deteriorated since the company last gave an update just over a month ago. Crucially, it’s not just PC makers that are cutting back.

“Compared to our last earnings call, we see further weakening in demand because of adjustments broadening outside of just consumers to other parts of the market including data centers, industrial and automotive,” Chief Executive Officer Sanjay Mehrotra said in an interview with Bloomberg Television.

The prospects for the chip industry are dimming on a day that was supposed to herald a renaissance in semiconductor manufacturing in the US with President Joe Biden signing the Chips and Science Act. That $52 billion stimulus package is designed to make it cheaper for companies to build domestic factories and help counteract the loss of the crucial skill set to Asia. Shortages during the pandemic inspired US and European politicians to prioritize the creation of additional plants locally to create a more robust supply chain.

Eoin Treacy's view -

The chip sector has always been highly cyclical and nothing has happened to change that fact. The pattern of behaviour has repeated in several cycles. The cyclicality is driven by how capital intensive the sector is.



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August 09 2022

Commentary by Eoin Treacy

Recession Watch Spreads as Global Curves Follow Treasuries Trend

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

Bond investors in New Zealand are not as sanguine. Yields on two-year debt are just two basis points below 10-year rates, the narrowest gap since 2015 when the curve last inverted. The difference between Australia’s 10- and three-year bond futures stands around 17 basis points.

Much of the fears in Australia and New Zealand are centered on concerns about the housing market, which experienced a post-pandemic boom when borrowers piled in to take advantage of record-low interest rates. The two central banks have indicated that borrowing costs will continue to rise.

“The Australian economy is already showing some cracks -- weak consumer sentiment, falling dwelling prices, cooling consumer spending -- and New Zealand’s economy is showing more,” said Andrew Ticehurst, a rates strategist at Nomura Holdings Inc. in Sydney. “Australia will slide into recession in the second quarter of next year under the weight of recent and prospective RBA rate hikes, which will expose Australia’s Achilles’ heel, an extended housing market and highly leveraged consumers.”

Australian consumer confidence dropped for a ninth straight month in August to reach a two-year low, according to a report released Tuesday by Westpac Banking Corp.

Eoin Treacy's view -

The yield curve spread (10-year – 2-year) is a reliable lead indicator for US recessions. It does not have nearly the same strong record of predicting recessions for other countries. That is probably because other countries do not rely so heavily on their banks for credit creation. 



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August 08 2022

Commentary by Eoin Treacy

Video commentary for August 8th 2022

Eoin Treacy's view -

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: stocks fail to rally on passing of new energy/medicare bill in US, NVidia surprises on the downside, major indices at first area of resistance, gold steady, dollar eases, oil firms, natural gas weak, 



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August 08 2022

Commentary by Eoin Treacy

Ambani Says Green Push to Outshine Other Reliance Businesses

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

Reliance Industries Ltd., which pledged to spend $76 billion on green energy, will scale up investments in the area as its billionaire owner, Mukesh Ambani, seeks a strong foothold in the sector where competition is heating up.

“Over the next 12 months, our investments across the green energy value chain will gradually start going live, scaling up over the next couple of years,” Ambani, Reliance’s chairman, said in the annual report for the financial year that ended March 31. “This new growth engine holds great promise to outshine all our existing growth engines in just 5-7 years.”

Ambani is steering Reliance’s pivot toward renewable energy and diversifying away from its traditional crude oil refining and petrochemicals businesses. The tycoon has a track record of implementing business transformations and has morphed Reliance from being an energy giant to a consumer services behemoth in the last decade.

Ambani and another Indian billionaire, Gautam Adani -- Asia’s richest person who also has ambitious plans for the renewable sector -- have announced plans to invest more than $140 billion in green projects. India, the world’s third-biggest polluter, is relying on the two billionaires as it chases the pledge to be net carbon zero by 2070. 

“India and Reliance will aim to play a leading role in the world’s transition to clean energy,” Ambani said. Reliance’s share price jumped as much as 1.5% on Monday after the annual report was published.

Eoin Treacy's view -

Reliance’s investments in green energy are primarily focused on developing offshore gas resources (KG-D6), developing syngas production from its existing refineries, and then investing in solar and fuel cells.



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August 08 2022

Commentary by Eoin Treacy

Assessing the Macroeconomic Consequences of the Inflation Reduction Act of 2022

Thanks to a subscriber for this report from Moody’s. Here is a section:

Lawmakers appear close to passing into law the Inflation Reduction Act of 2022. The legislation is born out of the Build Back Better agenda that President Biden proposed more than a year ago. It raises nearly $750 billion over the next decade through higher taxes on large corporations and wealthy individuals and lower Medicare prescription drug costs, to pay for nearly $450 billion in tax breaks and additional government spending to address climate change and pay for lower health insurance premiums for Americans benefiting from the Affordable Care Act (see Table 1). The remaining more than $300 billion goes to reducing the federal government’s future budget deficits (see Chart 1). Broadly, the legislation will nudge the economy and inflation in the right direction, while meaningfully addressing climate change and reducing the government’s budget deficits.

Eoin Treacy's view -

The renewable energy sector rebounded emphatically on the prospect of additional subsidies last week. Removing the limitation on EV rebates so every buyer gets a $7500 discount and reinstating the 30% tax credit for solar installations are both stimulative for their respective sectors.



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August 08 2022

Commentary by Eoin Treacy

Gold Edges Higher With Lower Yields as Traders Eye US Rate Path

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

Gold inched higher as Treasury yields pared their recent surge, with traders temporarily looking beyond the Federal Reserve’s aggressive interest-rate hike path. 

Bullion rose as much as 0.8%, rebounding from the worst daily loss in two weeks in the previous session. On Friday, a stronger-than-expected US jobs report added to the case for more Fed monetary tightening, pushing up the dollar and bond yields while crushing gold since it pays no interest and is priced in the greenback. 

Still, a bigger rate hike isn’t a done deal, and investors are now waiting for a US inflation report later this week to gauge how hawkish the Fed may be at its September meeting. That allowed a pause for Treasury yields and the dollar, lifting gold prices on Monday.

A hike of 75 basis points at next month’s Fed policy meeting “is far from locked in,” TD Securities commodity strategists led by Bart Melek said in a note. For now, “the yellow metal has been able to hold firm.”

The precious metal has rallied for the last three weeks, as concerns over a global recession and heightened US-China tensions boosted demand for the haven asset.

Holdings of bullion in exchange-traded funds have remained under pressure, however, falling for an eighth straight week.

Spot gold rose 0.7% to $1,788.34 an ounce as of 10:49 a.m. in New York. The Bloomberg Dollar Spot Index and the 10-year Treasury yield edged lower. Silver, palladium and platinum all advanced. 

Eoin Treacy's view -

I spent a lot of time thinking about gold over the weekend. I’m not happy with how my trading of the metal has gone over the last year. Despite significantly offsetting my loss with success in other trades, I still feel the pang of failure in gold more acutely than with other instruments. This is the 2nd time in four years I have sold at the wrong time, so I am resolved to do better in future.



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August 08 2022

Commentary by Eoin Treacy

August 05 2022

Commentary by Eoin Treacy

August 05 2022

Commentary by Eoin Treacy

Treasury Yields Leap as Jobs Data Spur Bets on Bigger Fed Hikes

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

Yields on two-year Treasuries surged in response to the jobs report, a reflection of the expected Fed rates over that period. Market pricing indicated a 75 basis-point increase to the Fed’s key rate is now seen as a more likely outcome in at the central bank’s September meeting than 50 basis points.

Powell has described the labor market as “tight to an unhealthy level,” and has been seeking a moderation to help bring demand for products and services more in line with supplies that have been constrained by Covid-19 disruptions. He and other Fed leaders are worried about the potential for a wage-price spiral, with higher wages feeding into inflation in a cycle that is hard to break.

“This number is so comprehensively strong with a pretty significant uptick in wages,” said Mark Spindel, chief investment officer at MBB Capital Partners LLC in Chicago. “Companies are paying up for labor. Income matters most. When you look at the breadth of the employment report, and the earnings, this is an enormous tailwind for income.” 

Eoin Treacy's view -

It has been widely reported that the USA has missed out on 2 million immigrants following the isolationist policies adopted by President Trump’s administration. At least 1 million of those would have been highly educated/skilled individuals.



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August 05 2022

Commentary by Eoin Treacy

Moller-Maersk delivers 'exceptional' profits and ups share buyback despite weaker demand

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

AP Møller-Mærsk has posted record profits for Q2 2022. According to Mærsk, revenue increased by 52% and earnings more than doubled compared to the same quarter in 2021

The Danish containership giant netted revenue of US$21.7Bn and said the financial performance was above its prior expectations.

CEO Søren Skou attributed the profits to “strong contract rates in ocean, rapid profitable growth in logistics and continued solid performance in terminals".

"Volumes in ocean were softer as congestion continued and the war in Ukraine weighed on consumer confidence, particularly in Europe,” Mr Skou said.

In the box shipping segment, revenue grew to US$17.4Bn and EBIT increased to US$8.5Bn over the second quarter. Higher freight rates were partly offset by 7.4% lower volumes and by higher fuel, handling, and network costs. Total EBITDA and EBIT sat at US$10.3Bn and US$8.9Bn, respectively, while free cash flow rose to US$6.8Bn.

Maersk noted that although spot rates have softened from their peak earlier in 2022, contracts have continued to be agreed at rates above previous annual averages, given the strong demand and continuing global supply chain congestion.

In its logistics segment, Mr Skou said AP Møller-Maersk “grew volumes above the market”, resulting in revenue growth of 36%, notching up the sixth quarter in a row of more than 30% growth.

Strong import demand from the United States and above market growth in Asia has helped drive revenue from the company’s terminals segment to US$1.1Bn with EBIT rising to US$316M.

Eoin Treacy's view -

I was at one of the Dallas customs warehouses this morning picking up Mrs.Treacy’s container of inventory for the holiday season. 



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August 05 2022

Commentary by Eoin Treacy

Email of the day on the difference between spot and futures prices

I hope you are well. Please add the “NYMEX GOLD CHART “TO THE London Gold chart. The price difference sometimes is significant like yesterday. The Nymex close was approx.. US$ 20 higher.

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. The London Gold fixing reflects spot prices whereas the futures prices are traded on NYMEX. The current on the run futures point at December so it is not unreasonable to expect a difference in pricing.



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August 04 2022

Commentary by Eoin Treacy

Video commentary for August 4th 2022

Eoin Treacy's view -

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: gold rebounds, stocks steady, bonds pause, oil weak, copper steady, investors price in scope for a hiking peak sooner than later without considering the implication for lower earnings as a resutl of a recession. 



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August 04 2022

Commentary by Eoin Treacy

BOE Gives a Lesson in Honest Central Banking

This article by Mohamed El-Erian for Bloomberg may be of interest to subscribers. Here is a section:

The Bank of England is reminding the world what a politically independent central bank can and should do: act as a “trusted adviser,” willing to share analytically honest views that other more politically sensitive institutions are either unable or unwilling to do.

Of course, this is not a risk-free approach. Such honesty — rather than catalyzing appropriate responses from policy-making agencies that lead to better economic and social outcomes — can provoke household and corporate behaviors that accelerate the bad outcomes. Yet the risks involved are worth taking, especially when the alternative is a central bank that loses institutional credibility, sees the effectiveness of its forward policy guidance erode and becomes even more vulnerable to political interference.

It should also be noted that the UK’s situation differs in some important way from those of other countries. The country’s economic challenges are complicated not only by the energy price catch-up but also by the political transition and the changing nature of the country’s relations with its trading partners.

Eoin Treacy's view -

In the last six weeks gilt yields have pulled back aggressively from 2.75% to test the region of the trend mean around 1.75%. This is the first area of potential resistance and is the point at which traders will begin to question how likely a long-term low interest rate environment is.  



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August 04 2022

Commentary by Eoin Treacy

Oil Falls Below $90 for First Time Since War as Demand Slows

This article from Bloomberg may be of interest to subscribers. Here is a section:https://www.livemint.com/news/world/oil-falls-below-90-for-first-time-since-war-as-demand-slows-11659629203283.html

Prices falling below $90 a barrel “is quite remarkable given how tight the market remains and how little scope there is to relieve that,” said Craig Erlam, senior market analyst at Oanda. “But recession talk is getting louder and should it become reality, it will likely address some of the imbalance. Just not in the way we’d like.”

Crude has now given up all the gains triggered by Russia’s invasion of Ukraine in February. Since peaking at more than $130 a barrel in March, the US benchmark has been dragged lower by signs that Moscow is still getting its cargoes onto the global market and escalating investor concerns that a global slowdown will erode energy consumption. 

Despite the recent price weaknesses, Saudi Arabia raised its oil prices for buyers in Asia to a record level, a sign the world’s largest exporter sees the region’s market remaining tight. OPEC+ agreed to boost supply by a meager 100,000 barrels a day in September, while issuing a stark warning on “severely limited” spare capacity. 

Eoin Treacy's view -

I have been at pains to highlight the fact analysts often make the mistake of treating demand as a constant. That conclusion works most of the time. Oil demand has tended to rise with living standards, so it is reasonable to predict a constant growth rate in demand. The challenge is demand is much more volatile at major market peaks. That’s when the adage the cure for high prices is high prices becomes most relevant.



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August 04 2022

Commentary by Eoin Treacy

Hermes Leathers Issue Less Worrying as Other Units Bounce

This note from Bloomberg may be of interest.

RECENT EVENT REACTION: Hermes 1H sales and earnings beat raises our confidence for sales growth ahead of the 10% expected by consensus for 2023-25, driven by outperformance in all regions and most categories, where pace of demand appears an ample offset to production capacity constraints at Leather Goods (43% of sales.) A 42.1% operating margin, up 140bps, suggests margin strengthening is widespread. (07/29/22)

1. Hermes Demand Is Stronger as Supply Poses Test: Company Outlook

THESIS: Demand for Hermes' exclusive products and categories is gaining momentum globally and seems unlikely to be held back by an inflation-fueled consumer spending squeeze. Sales and profit growth are pinned to new production sites for Leather Goods, its highest margin contributor, while building its volume-restricted brand across other categories, and that's proving a success. A new leather production facility is due each year in 2022-26, adding 4-5% in volume capacity annually. Solid investment supports accelerated growth in other categories.

A burgeoning cash balance adds to Hermes' ability to pay dividends, buy back shares, expand store size and explore new categories. (07/29/22)

Eoin Treacy's view -

I thought this was a particularly interesting development because there are widespread reports of the luxury watch market peaking. Possible reasons for the divergence is there are a lot more watches in circulation than Hermes bags, the second hand market is more mature and watches tend to last longer than leather goods.



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August 03 2022

Commentary by Eoin Treacy

Video commentary for August 3rd 2022

August 03 2022

Commentary by Eoin Treacy

Remember QT? It's About to Get a Lot More Interesting

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

Based on $47.5 billion of QT this month and a monthly rate of $95 billion thereafter, the Fed’s balance sheet is slated to shrink by some $475 billion through the rest of the year. Here’s the thing,
though: the Treasury expects to rebuild its cash balances by some $85 billion through year-end.

In other words, instead of more than offsetting the impact of QT on bank reserves and the RRP, the TGA will start amplifying it. That in turn raises the question of where the brunt of what will effectively be $560 billion of QT will be felt. The Treasury’s latest quarterly refunding announcement offered up the prospect of only modest increases in bill issuance, which suggests that balances in the RRP facility will remain elevated. That in turn implies that there will be a sharp drop in bank reserve balances.
 

All of this is fairly well-understood by money market specialists, though perhaps it’s not appreciated quite as much by QT tourists. Thus far, bank liabilities have remained fairly steady -- there hasn’t been a significant drop in deposits. This is important because as the column linked above notes, it is when bank reserves as a percentage of liabilities drop below 11% or so that we should expect to see non-linear upward pressure on funding rates -- and thus calls for QT to end.
 

Eoin Treacy's view -

Banks shares have not been performing particularly well. The sector has been assailed by multiple issues such as inverted yield curves, the evaporation of refinancing demand for mortgages, and the need to set aside more reserves to allow for the possibility of a recession. Quantitative tightening will accelerate that process. In turn that will increase the chances of an issue developing in the money markets, similar to the repo surge in 2019.



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August 03 2022

Commentary by Eoin Treacy

An Update from Our CIOs: Transitioning to Stagflation

This blog post from Bridgewater may be of interest to subscribers. Here is a section:

Today, our indicators suggest an imminent and significant weakening of real growth and a persistently high level of inflation (with some near-term slowing from a very high level). Combining this with what is discounted, the difference between what is likely to transpire in the near term and what is discounted is the strongest near-term stagflationary signal in 100 years, shown below. Longer term, as we play it out in our minds, we doubt that policy makers will be willing to tolerate the degree of economic weakness required to bring the monetary inflation under control quickly. More likely, we see good odds that they pause or reverse course at some point, causing stagflation to be sustained for longer, requiring at least a second tightening cycle to achieve the desired level of inflation. A second tightening cycle is not discounted at all and presents the greatest risk of massive wealth destruction.

Eoin Treacy's view -

The pendulum analogy gels rather well with the above view. The current effort to unwind inflationary forces, arising from excessive money supply growth, is going to result in a growth shock.



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August 03 2022

Commentary by Eoin Treacy

Here Are All the Ways China's Hitting Back Against Pelosi's Trip

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

Before Pelosi landed, China banned food imports from more than 100 Taiwanese suppliers. On Wednesday morning, China’s Ministry of Commerce halted natural sand exports to Taiwan, without elaborating, and customs officials added boycotts to some fish and fruit imports.

Separately, Chinese organizations, companies and individuals were banned Wednesday from dealing with Taiwan companies including Speedtech Energy and Hyweb Technology, China’s state-run CCTV reported.

China is Taiwan’s largest trading partner, with bilateral trade of $328.3 billion last year, giving Beijing a strategic advantage. Still, China must tread carefully as it needs Taiwan for semiconductors. 

Eoin Treacy's view -

The military actions expected around Taiwan over the next few days will grab headlines but are unlikely to do much more than that. The impending economic countermeasures are more likely to have an effect on stock prices.

Apple and Tesla are two obvious subjects of consumer boycotts. Neither of their shares exhibit any recognition that this is a possible threat. That’s because these issues have not generally lasted very long in the past. The issues Japanese companies have had in China have made a lot of headlines, but did prove to be the causal factor in either long-term success or failure for their shares.  



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August 02 2022

Commentary by Eoin Treacy

August 02 2022

Commentary by Eoin Treacy

Treasury Yields Surge as Fed Officials Quash Policy Pivot Talk

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

Bond yields rebounded after San Francisco Fed President Mary Daly said the central bank is “nowhere near” being almost done in fighting the hottest inflation in four decades. Chicago Fed President Charles Evans signaled that the central bank needs to keep raising rates next year to contain price pressures. Over the weekend, Minneapolis Fed President Neel Kashkari said that there’s “a long way away from” achieving the central bank’s target.

Eoin Treacy's view -

PMI figures were surprisingly firm and that suggests the slowdown in the economy is not as pronounced as feared. That’s a signal to the Fed that the lagged effect of tightening policy has not yet been felt. They have no reason to stop tightening until they have clear evidence of an impact on growth and employment.



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August 02 2022

Commentary by Eoin Treacy

Fertilizer Giants Say Supplies Will Remain Tight Amid War

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

Fertilizer exports from Russia have largely returned to normal as trade flows have adapted, Bert Frost, CF’s senior vice president of sales, said in a quarterly call Tuesday. But there’s one exception: ammonia.

“The global nitrogen market is likely to be short the fertilizer it needs if product prices do not incentivize greater production in high-cost regions,” Frost said.

CF’s cost of natural gas used for production has more than doubled from last year, according to the statement. The company expects its own production to be down in the third quarter due to scheduled maintenance.

Mosaic Co., a major phosphate and potash company, sees both nutrients staying in short supply. Sanctions on Belarus, a top potash producer, have wreaked havoc on the market. And China has been restricting phosphate exports to keep supply in country.

The company expects Belarusian potash exports to be down 8 million tons this year, Chief Executive Officer Joc O’Rourke said in a quarterly call Tuesday. Belarus normally exports about 10-12 million tons annually, according to Green Markets data.

Eoin Treacy's view -

The natural gas crisis in Europe highlights just how vital the commodity is to all manner of industries as well as how spoiled we were by a decade of depressed prices. The creation of a globally fungible market for the commodity, as LNG export/import capacity is built out, suggests an active trading environment in the commodity over the next decade. That will last as long as it takes for wide arbitrages to be eventually ironed out.



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August 02 2022

Commentary by Eoin Treacy

Pelosi's Roundabout Flight to Taiwan Shows China's Long Reach

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

Instead of traveling northeast from Kuala Lumpur directly across the South China Sea -- a journey that might have brought her jet close to Chinese military facilities built on reclaimed land on islets and reefs including in the Spratly Islands -- Pelosi’s plane flew southeast over the Indonesia part of Kalimantan, or Borneo, before turning north and then to the east of the Philippines, according to imagery provided by Flightradar24. 

Eoin Treacy's view -

Accidents happen when an abundance of care is abandoned. As great power politics unfolds and gels with domestic priorities in both China and the USA, there is potential for a crisis inducing accident. The heavily choreographed travel plans of politicians are less likely to provide a catalyst because of the size of the potential repercussions.  



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August 02 2022

Commentary by Eoin Treacy

August 01 2022

Commentary by Eoin Treacy

Video Commentary for August 1st 2022

Eoin Treacy's view -

A link to today's video is posted in the Subscriber's Area. 

Some of the topics discussed include: crude oil backwardation contracts, natural gas remains strong, Dollar at first support, stocks and gold at the first resistance, yield curve continues to extend inversion, short-term lows for stocks could easily be retested on geopolitical stress. 



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August 01 2022

Commentary by Eoin Treacy

Shale Profits Finally Blossoming After Decade of Steep Losses

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

US shale drillers are expected to post record second-quarter profits in coming days, reversing nearly a decade of debt-fueled losses. 

The top 28 publicly traded US independent oil producers generated $25.5 billion in free cash flow in the three months to June 30, according to estimates compiled by Bloomberg. In that space of time they’ll have made enough cash to erase one-fourth of what they lost over the previous decade. 

Fracking revolutionized global energy markets by enabling American drillers to harvest shale resources that had previously been untouchable. In the space of just over 10 years, the US went from a declining crude producer to the world’s dominant oil and gas source, but at an astronomical cost: the 28 companies lost about $115 billion in the decade leading up to the Covid-19 pandemic.

Eoin Treacy's view -

Nothing about unconventional supply is cheap but it is a lot more cost effective than it used to be. The continual need for drilling and the quick abundant payback initially led to excessive enthusiasm. The business model has more recently evolved to be more sensitive to the cost of production, oil prices and economies of scale. That has finally translated into profits for the sector.



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August 01 2022

Commentary by Eoin Treacy

From Profits to Pay, JPMorgan's Gold Secrets Spill Out in Court

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

JPMorgan holds tens of billions of dollars in gold in vaults in London, New York and Singapore. It is one of four clearing members of the London market, where global gold prices are set by buying and selling metal held in a few London vaults -- including JPMorgan’s and the Bank of England’s.

JPMorgan is the biggest player among a small group of “bullion banks” that dominate the precious metals markets, and internal documents presented by prosecutors provided a glimpse of just how dominant a role the bank has played. 

In 2010, for example, 40% of all transactions in the gold market were cleared by JPMorgan. 

And

Another set of important clients were central banks, which trade gold for their reserves and are among the biggest players in the bullion market. At least ten central banks held their metal in vaults run by JPMorgan in 2010, according to documents disclosed in court. 

Eoin Treacy's view -

With such a large position in the gold market, JPMorgan has both significant information and motive to swing prices in the interests of its trading desks on an intraday basis. That’s not quite the same as saying they have the capability to depress pricing over a prolonged period. That kind of overt manipulation would quickly attract the attention of other market participants and opposing positions aimed at pressuring the bank would be taken.



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August 01 2022

Commentary by Eoin Treacy

India's GDP can grow to $40 trillion if working-age population gets employment: CII report

This article from The Hindu.com may be of interest to subscribers. Here is a section:

“The golden period of 30 years between 2020-50 where our working age population will bulge can be an important horizontal enabler to bolster growth, even as the developed world including China ages,” the report notes.

The report adds that over the years, India has experienced rising literacy rates, but level of vocational training/skilling is low, which gets reflected in the high unemployment rate among the educated. “Closing the skill gaps of its qualified workforce will be critical, as India depends more on human capital than its peer countries that have a similar level of economic development,” it said, adding that skilling and reskilling require a coordinated response from the government, industry, academia even as COVID continues to cause structural changes to the workplace.

“The reversal in India’s structural transformation back toward agriculture is a sign of fall back to subsistence employment. Enhanced safety nets through PM-KISAN and the MGNREGA will be critical investments needed to ensure that incomes of small and marginal farmers are protected and their basic needs are met… But manufacturing and services will still have to be the two key growth engines going forward,” it said.

Eoin Treacy's view -

Given the trajectory of emerging market development over the decades, it is stating the obvious that India needs to do whatever is necessary to improve employment opportunities for its millions of young people. The fact the conversation is taking place is at least a good starting point.



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July 29 2022

Commentary by Eoin Treacy

July 29 2022

Commentary by Eoin Treacy

Europe's Stellar Growth Is Already Unraveling as Inflation Jumps

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

Europe’s bumper economic growth is already buckling under the weight of record-breaking inflation and the increasing likelihood of a Russian energy cutoff.

Second-quarter output in the 19-member euro zone surged by more than three times the amount analysts expected, with Italy, Spain and France topping estimates by some distance.

But Friday’s data also underlined the challenges: There were contractions for Portugal and the Baltic region, while Germany, the continent’s No. 1 economy, unexpectedly stagnated and may be headed for a recession. Euro-area consumer prices hit a fresh all-time high.

Eoin Treacy's view -

Surging energy costs cause recessions because they are a tax on consumption. That’s particularly relevant for Europe, where dependence on Russian gas is a major medium-term issue. The continued uncertainty about Chinese demand for European exports is an additional challenge for the region and suggests the risk of a deep recession is the base case. 



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July 29 2022

Commentary by Eoin Treacy

Truss Sets 2.5% Growth Target for UK, Vows to Review BOE Mandate

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

Speaking to Conservative Home, she said the mandate “was set in 1997 in completely different times, and one of the issues round controlling inflation is around monetary policy, and that’s not just about interest rates, it’s also about quantitative easing.”

“I haven’t made any decisions … but I think it’s important that we review our monetary policy settings and make sure it is delivering for the times we’re in now. And of course inflation is a major concern for people.”

She stressed that a mandate review would not impinge on the BOE’s independence to set policy. The BOE itself was planning to look at options in early 2020 before the pandemic, and both the US Federal reserve and the European Central Bank made remit changes in 2020.

“Are we really saying that the mandate Gordon Brown set in 1997 is fixed in stone forever? I mean that seems an extraordinary claim,” Truss said.

“It’s always been the case that the Bank of England operate within the mandate set by the chancellor. And what I’m saying is that should be reviewed.”

Eoin Treacy's view -

The most basic lesson successful politicians learn is to give the people what they want. That generally means more perks, spending and social programs. That’s especially true when inflationary pressures are high, and many people are worried about paying for basic necessities. Rishi Sunak is behind in the race for Prime Minister, and it is no coincidence he is running on a program aimed at responsible spending. Liz Truss has the benefit of being a relative outsider. She is opining on a wide array of topics, but the primary theme is more spending.



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July 29 2022

Commentary by Eoin Treacy

New US Climate Deal Could Make EVs, Energy Bills Cheaper

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

“This bill is going to open up a lot of avenues for Americans to contribute to the fight against climate change on an individual level,” said Senator Sheldon Whitehouse, a Democrat from Rhode Island, in an emailed statement. “Through a mix of rebates for electric appliances and efficiency retrofits and tax credits for technologies like heat pumps … it’s going to become a lot more affordable to do your part.” 

Eoin Treacy's view -

The prospect of hundreds of billions in support for renewable energy solutions is a clear positive for that sector. However, the big near-term challenge is nothing in this bill will incentivize companies to invest in additional new oil and gas supply.



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July 29 2022

Commentary by Eoin Treacy

China Mulls Seizing Builders' Idle Land to Fund Frozen Projects

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

The proposal, which is still under discussion and could change, would take advantage of Chinese laws allowing local governments to wrest back control of land sold to real estate companies if it remains undeveloped after two years, without compensation. That would give authorities more leeway to direct funds toward uncompleted homes, potentially to the detriment of creditors who would lose claims on some of developers’ most valuable assets.

While officials would have bandwidth to adjust the process to suit local conditions, a typical scenario would involve seizing land from a distressed developer and giving it to a healthier rival, which would in turn provide funding to complete the distressed developer’s stalled projects, the people said. The government could also rezone the seized land in some cases to increase its value, the people added, asking not to be named discussing private information. 

The proposal is one of several measures under consideration as Xi Jinping’s government tries to prevent turmoil in the housing market from fueling social unrest and derailing the broader economy. The focus on completing projects is the latest sign that policy makers are prioritizing homeowners over bondholders, who have been burned by a record number of defaults by real estate giants including China Evergrande Group.

Eoin Treacy's view -

Placating the people who have paid deposits and have not taken delivery of their apartments is a national priority as protests spread. Funding property development has been a challenge of the last decade as the government has closed off routes to speculation. Worries about overvaluation have been present for years but the government has not found a way to deflate the bubble with toppling the economy.



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July 28 2022

Commentary by Eoin Treacy

July 28 2022

Commentary by Eoin Treacy

US Economy Shrinks for a Second Quarter, Fueling Recession Fears

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

The drumbeat of recession grew louder after the US economy shrank for a second straight quarter, as decades-high inflation undercut consumer spending and Federal Reserve interest-rate hikes stymied businesses and housing.

Gross domestic product fell at a 0.9% annualized rate after a 1.6% decline in the first three months of the year, the Commerce Department’s preliminary estimate showed Thursday. Personal consumption, the biggest part of the economy, rose at a 1% pace, a deceleration from the prior period.

“The more important point is that the economy has quickly lost steam in the face of four-decade high inflation, rapidly rising borrowing costs, and a general tightening in financial conditions,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note. “The economy is highly vulnerable to slipping into a recession.”

Eoin Treacy's view -

It is always dangerous to say this time is different in markets. However, on this occasion there really is some justification that claim. Two consecutive quarters of negative growth meets the technical definition of a recession. However, there are some important mitigating circumstances. For one, unemployment has not risen significantly. There has also never been a recession when the PMI was among 50. That suggests muddier perspective than we might be accustomed to.



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July 28 2022

Commentary by Eoin Treacy

Yen Roars Back as Hedge Funds Cut and Run From Big Macro Short

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

Speculators had been paring some of their bearish yen bets with net-short non-commercial positions falling to the lowest this year at the end of June, according to data from the Commodity Futures Trading Commission. But sizable shorts remain and hedging costs have continued to push higher amid a debate whether the yen could fall through the closely-watched 140 level.

Some strategists see the yen strength -- and the recent pause in the dollar’s rally -- as temporary.

“At the moment the dollar-yen looks like it could remain under further pressure in the very short term,” said Laura Fitzsimmons, executive director of macro rates and FX sales at JPMorgan’s Australian unit. But “unless you see a shift in the BOJ’s tone,” the short-yen macro trade is still on.

Eoin Treacy's view -

The short covering rally in the Yen is coincident with short covering in stock markets  and is a further sign the risk-on trade is gaining traction. The assumption this interest rate hiking cycle will be finished by the end of the year is a base case for this bullishness.



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July 28 2022

Commentary by Eoin Treacy

Lucapa announces discovery of largest pink diamond in 300 years

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

Lucapa Diamond Company has announced the discovery of what is believed to be the largest pink diamond in 300 years, Associated Press reported on July 27. Named the 'Lulo Rose', the 170-carat gemstone was found in the Lulo alluvial diamond mine in the central African country of Angola, according to a statement on the company’s website.

“Only one in 10,000 diamonds is coloured pink. So you're certainly looking at a very rare article when you find a very large pink diamond,” Lucapa chief executive Stephen Wetherall told the Associated Press. It is expected to fetch a high value when auctioned, but Wetherall suggested its colour could give it an even higher premium.

Lulo is a 3,000km2 concession in Angola’s Lunda Norte diamond heartland, approximately 630km east of the Angolan capital of Luanda. Over the past decade, exploration by Lucapa and its partners Endiama (Angola’s national diamond company) and Rosas & Petalas has been successful in proving up one of the world’s most prolific alluvial diamond fields at Lulo, along with >100 kimberlite pipes, says Lucapa’s website. 

Eoin Treacy's view -

Pink diamonds are highly prized by both consumers and investors and a stone of this size is a very rare commodity. It could fetch a price in excess of the miner’s current market cap.



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July 28 2022

Commentary by Eoin Treacy

Email of the day on energy prices

Fyi, have finally bit the bullet and fixed energy price with EDF for 2 years until July 2024.

The Nord Stream pipeline 1 issue over the last few days made me make the final decision.

Would welcome Mr Treacy comment about the recent events with Russia cutting supplies and short and medium-term implications. Will we ever see the energy prices normalize? His comments are always very insightful.

Eoin Treacy's view -

Thank you for sharing your experience and this question which may be of interest to the Collective. Russia has a clear interest in Europeans being uncomfortable this winter. Wars are expensive. Quick victories are always desirable. That’s not always how things work out but eventually every war ends with some form of negotiation or withdrawal.



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July 28 2022

Commentary by Eoin Treacy

Email of the day on fishing

Good to see a personal story, and a stunning photograph. How was the fish caught?  How come an amateur could land such a catch? I used to enjoy David's opera reviews and reports of his epic cycle trips from Land's End to John O'Groats.  Livens up all the financial stuff.  We have to watch the market if we have money at stake, but it can get a bit heavy at times.

Eoin Treacy's view -

Thank you for your kind email and I am glad you liked the photo. David was an impressive athlete but had chronic arterial blockages. His doctors credited his survival for so long on his long-term commitment to his fitness regime.

For decades it was a reasonable bet the market would be quiet during July and August, so it was safe to take a month off for cycling. That ended in around 2004 as algorithmic trading took off and markets became more active all year. Our service also went from a monthly letter with a couple of short trading updates, to a daily service. 

I grew up fishing with my father and uncles on the Lakes of Killarney. I also paid my way through college by running a tour boat on the lakes during the summers.

Fishing in salt water is quite a bit easier than in freshwater. Salmon don’t eat in fresh water. That means you have to annoy one, so they swipe at your lure. It’s common to get only a few bites in a day on the lakes. Then playing a salmon takes time, effort and no small amount of skill.

In saltwater, salmon have voracious appetites. Many of the salmon we caught in Alaska had five or six small herring in their stomachs. We were using much bigger hooks, so once they are on, it’s not all that difficult to just reel them in. Size is just about luck at that point.

Fishing for halibut is about resisting the urge to jerk the rod at the first bite. They tend to munch their way along the lure so it’s better to wait until they have swallowed it before you start dragging them up; from a depth of around 200 ft. The fun part is you only get to keep halibut under certain limits, the bigger ones are breeders, so you have to let them go.

My biggest brown trout ever was just over 10lbs. I had him stuffed because he was dead on arrival, and thought I was unlikely to see another one of that size. We were fishing for salmon and a boat about a half mile away was playing him and lost him. He floated down the lake with a ball of line in his mouth, so I stuck the net out the side and pulled him in.



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July 28 2022

Commentary by Eoin Treacy

July 27 2022

Commentary by Eoin Treacy

July 27 2022

Commentary by Eoin Treacy

Morgan Stanley's Slimmon Recommends Bargain Hunting in August

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

For Slimmon, the beat-down in consumer sentiment has gone far enough to warrant betting on a turnaround.

“There’s a very low expectations in those stocks right now. What if the direction of change is actually higher for consumer sentiment?” he said. He views the risk-reward as attractive.

“Those stocks might recover dramatically because they’re down so much.” He plans to snap up shares “well into the weakness” in August, which is among historically the worst months for equities as volumes are thin and workers are on vacation.  

Stock market moves during this period are usually dominated by macro events. “The macro story this year is not very good,” he said, citing a global geopolitical crisis and the lack of an August meeting among Fed officials.

“The focus of the market shifts from what ultimately long-term drives stocks, which is earnings. And when the shift goes to other things like macro events that creates volatility.”

As for those areas he will likely stay away from, he offered two sectors. “If you think about what’s worked year-to-date on a relative performance basis, there are two groups that have really done well: energy and defensives,” he said. “It’s a little late to be selling the energy stocks. They’ve been so creamed. I wouldn’t be aggressively buying those stocks.”
 

Eoin Treacy's view -

Many investors are anticipating the Jackson Hole conference in August will be a time for central bankers to declare the peak for inflation is in. The most risk tolerant traders are initiating long positions today to ensure they have the cushion of rebound ahead of that event. There is clear scope it will be a buy the rumour and sell the news event if central bankers fail to deliver.



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July 27 2022

Commentary by Eoin Treacy

The incredible plan for a 170-km-long skyscraper in the Saudi desert

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

The Line was unveiled by HRH Crown Prince Mohammed bin Salman and no construction date or expected completion date has been announced. Indeed, given the size of complexity of such an undertaking, it would be more than fair to be a little skeptical about it ever being realized, even just the basics like transporting enough building materials and pouring the foundations seems like it would be a considerable undertaking.

But if anyone could make it happen it’s someone with the deep pockets and capability of the Saudi Crown Prince, who with an eye to a fossil fuel-free future is very keen to transform his country’s oil-dependent economy into a tourist-friendly one. With this in mind he has already unveiled a slew of ambitious projects including BIG's so-called Giga Project.

Eoin Treacy's view -

Breaking ground on the tallest building in the world has generally coincided with major market tops. It’s often referred to as the skyscraper effect by analysts of past cycles. The logic is clear. It takes an historically high sense of optimism to engage in building the tallest building a country or the world has ever seen. That peak of optimism is generally coincident with the peak of the global real estate cycle where prices have been rising for long enough to dispel any doubt they will continue to do so. 



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July 27 2022

Commentary by Eoin Treacy

Rio Tinto Says Simandou Deal Close After Wrangles Over Railway

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

Simandou offers a potentially huge new source of supply for Rio, the world’s largest iron ore producer, while China sees the project as key to easing its steel industry’s dependence on Australian output. The world’s top steel-producing nation recently embarked on one of the biggest shake-ups of the global iron ore market in more than a decade by setting up a new state-owned group, designed to be a hub for huge overseas mine investments and buying the steelmaking material from international suppliers.

Eoin Treacy's view -

Simandou might be a big deal of Rio Tinto but it is much more strategically important to China who chaff at their dependence on Australian exports. If the Guinea project comes online they will have greater control over iron-ore supply and will no longer be held hostage to the oligopoly of Rio Tinto, BHP and Vale.



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July 27 2022

Commentary by Eoin Treacy

Email of the day on fishing and mosquitoes

What a catch! How did you get it back home to Dallas? I hope you didn't suffer from the notorious Alaskan mosquitoes, so ravenous at this time of year.

Eoin Treacy's view -

Thank you. It’s a 18lb beautiful king salmon. The boatman said it would have won a prize at the local fishing competition a few weeks from now. Thankfully, the processing facility was right next to the dock, so they filet and flash freeze the catch immediately. The price was reasonable and the Fedex overnight rate was only $45. Believe it or not, we did not encounter a single mosquito. It might have been too rainy/windy for them to fly.



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July 26 2022

Commentary by Eoin Treacy

July 26 2022

Commentary by Eoin Treacy

Alaska Trip Report July 2022

Eoin Treacy's view -

I haven’t had so much fun on a business trip in years. It was an absolute pleasure to visit with some clients of Nevada Trust Company in Juneau, to participate in carving of a totem pole due to be erected in the centre of town, munch on king crab, spot prawns, salmon and halibut and get in a day of fishing with my family.



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July 26 2022

Commentary by Eoin Treacy

Morgan Stanley Sees More Fed Hikes While JPMorgan Expects Pivot

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

While Morgan Stanley strategists say it’s too early to expect the Fed to stop tightening its policy even as fears of a recession grow -- suggesting stocks have more room to fall before finding a bottom, JPMorgan Chase & Co. strategists say bets that inflation has peaked will lead to a Fed pivot and improve the picture for equities in the second half.

Sticky inflation is what will keep the Fed hawkish for longer this time around, according to Morgan Stanley’s Michael J. Wilson. While during the past four cycles the US central bank had stopped tightening its policy before the start of an economic contraction, triggering a bullish signal for stocks, current historic levels of inflation mean the Fed will likely still be tightening when a recession arrives, Wilson wrote in a note.

Equity markets “may be trying to get ahead of the eventual pause by the Fed that is always a bullish signal,” Wilson said. “The problem this time is that the pause is likely to come too late.”

Over at JPMorgan, Mislav Matejka said in a note on Monday that challenging activity momentum and softer labor markets could open doors to a more balanced Fed policy, leading to a peak in the US dollar and inflation.

Eoin Treacy's view -

Inflation may well have peaked or be close to a peak because the consensus is that it is entrenched. What we do not know is how quickly inflationary figures will come down and where they will subsequently stabilise.



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July 26 2022

Commentary by Eoin Treacy

Diabetes breakthrough restores insulin production using existing drug

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

The team says that the new potential treatment has a few advantages over other techniques currently in use or under development. Pancreas transplants are effective, but subject to organ donor shortages and other complications like rejection. Other teams have converted skin cells into stem cells and used those to produce new beta cells, and although results have been promising in mice, immune-suppressing drugs need to be given to prevent rejection.

The new treatment would work much faster, within a matter of days, and without the need for surgery. But perhaps the biggest advantage is that GSK126 is already approved by the US FDA and elsewhere in the world as a treatment for cancer. Its safety profile is already being assessed in clinical trials, which could reduce hurdles down the road for its use against diabetes.

That said, the scientists caution that it is still very early days. These experiments were conducted on cells in culture – not even in animals yet – so there’s still plenty of work to do. Nevertheless, it remains an intriguing new possible tool.

Eoin Treacy's view -

Diabetes is the ultimate money-spinning chronic disease. It is manageable for Type-2 patients if they have the personal discipline to abide by a low sugar diet. The problem is most people who end up with diabetes suffer from poor impulse control or are happy to take the drug regime prescribed to live as they please. The number of patients continues to trend higher as living standards rise and every day provides a bounty that would once have been reserved for festivals.



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July 25 2022

Commentary by Eoin Treacy

July 25 2022

Commentary by Eoin Treacy

Weaker ad landscape, higher regulatory risk expected to weigh on Alphabet's Q2

This article from S&P Global may be of interest. Here is a section:
 

Alphabet Inc. is expected to report another quarter of slowing growth as macroeconomic headwinds and intensifying regulatory scrutiny weigh on its core advertising business.

Fears regarding a potential recession are driving many companies to scale back ad budgets, directly impacting Alphabet's growth prospects. The Google LLC parent company faces headwinds from difficult comparisons to 2021 when its revenue growth skyrocketed partly due to a rebound off early pandemic lows.

Alphabet is expected to report second-quarter revenue of $70.10 billion, up 13.3% from the prior year, according to S&P Capital IQ estimates as of July 20. The projected growth rate is down from 23% growth in the first quarter and significantly below Alphabet's performance through 2021.

"A challenging macro landscape and tougher comparisons will lead to a sharp deceleration in growth into the early parts of next year," said Angelo Zino, a senior equity analyst at CFRA Research.

Eoin Treacy's view -

Most companies understand that marketing/advertising are integral to both boosting and sustaining sales. Therefore, if revenue growth is falling at major advertising sellers, that’s a clear reflection of slowing demand within the wider economy. The disappointing manufacturing data last week’s sends the same message.



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July 25 2022

Commentary by Eoin Treacy

Amazon to Use Rivian Vans as EV Maker Works Toward Delivery Goal

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

Amazon.com Inc. is starting delivery of packages to US customers using the first of as many as 100,000
electric vans built by Rivian Automotive Inc., which aims to hand over thousands of the vehicles this year.

Vehicle roll-out starts Thursday in Chicago, Dallas, Kansas City, PhoENix, San Diego, Seattle and St. Louis

Amazon expects to have Rivian vans deployed across more than 100 cities by year-ENd

Amazon has delivered 430,000 packages and drivEN 90,000 miles using Rivian pre-production battery-powered vans since 2021

Rivian CEO RJ Scaringe tells Bloomberg Television his company is working “as hard we can” to hit initial delivery target of 10,000 vans to Amazon by year-ENd
 “We’ll certainly have many thousands of vehicles on the road by the ENd of this year, but not providing a specific number,” Scaringe says in interview to air Thursday

Scaringe says forthcoming layoffs to help company “more efficiENtly structure parts of the team”

Rivian is “trying to be as intENtional and thoughtful in terms of what that means for the business, what that means for the individuals, as we work through that process”

Rivian has made “remarkable progress” since partnership betweEN with Amazon was announced in 2019, Udit Madan, a transportation executive with Amazon, says in Bloomberg
Television interview

Rivian shares pared an early gain of as much as 6.1% to trade up 3.3% at 3:11 p.m. in New York

Eoin Treacy's view -

There are more new automotive companies active today than at any time since the invention of the internal combustion engine. EVs have fewer moving parts and most of the value is in the battery. That significantly lowers barriers to entry. Those with sufficient capital have been able to start brands and those with continuing access to capital are likely to survive.

 



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July 25 2022

Commentary by Eoin Treacy

The Tension in Japan's Dialed-Up Defense Ambitions

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

DM: The government has begun a comprehensive review of Japan’s defense strategy. Why is that important and what are the likely outcomes?

SS: A new national security strategy document is going to be issued. The first leader to issue was Shinzo Abe, in 2013. So this will be only the second statement by Japan, ever. It’s significant this is all together in one place, not just bombs and bullets. It’s about what Japan needs to do to achieve its interests in the world and how to proceed? In 2013, the language on China was pretty benign compared with what I think we will see in the next one. Russia will be near the top of concerns after the Ukraine invasion. North Korea continues to be a problem, given its missiles and the ability to launch them undetected.

There will also be a cabinet decision in December on the next 10-year defense plan. This is where we will see how serious Kishida is about defense. Within the 10-year plan will be a five-year plan on how much Japan spends and on what. The other issue that needs to be handled deftly is that of counterstrike capability.

DM: Japan is one of the most indebted economies. How does all this get financed? 

SS: I don’t know how they pay for it. Debt servicing is somewhere near 23% of Japan’s budget. Social security is about a third. The budget doesn’t have a lot of latitude. I’m not convinced about 2% of GDP, but let’s use that as a reference point. Last year, Japan spent about 1.3% of GDP on defense. You get to 2%, you are basically doubling it. That’s big.

Eoin Treacy's view -

Japan’s re-armament is unlikely to be derailed by Abe’s assassination. They look around Asia and don’t like what the geopolitical landscape is promising for the Japanese economy. That’s especially true as the USA is less reliable as a guarantor of security globally. 



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July 22 2022

Commentary by Eoin Treacy

July 22 2022

Commentary by Eoin Treacy

Confidential: Global Pessimism

Thanks to Iain Little for this short chartbook depicting various measures of how pessimistic investors are.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area.

I have to admit I have a sense of caution in holding short positions when so many people have already sold, and many shares are down in excess of 70%. However, in order for a decline to reverse we need to see some evidence that hopes for better outcomes are in fact realizable.



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July 22 2022

Commentary by Eoin Treacy

Gold Gains as Investors Weigh Growth Concerns; Palladium Jumps

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

“We are finally starting to see some weakness in the US dollar index, as gold bounces off an oversold level, recovering above $1,700 for now,” said John Feeney, business development manager at Sydney-based bullion dealer Guardian Gold Australia. “We now expect this initial flight to the US dollar to start rotating back into gold as investors search for a true and reliable hedge against inflation.”

Eoin Treacy's view -

The Federal Reserve’s willingness to increase rates has been the standout event this year. Their attempts to regain investor confidence following the failure to anticipate sticky inflation has resulted in a rare confluence of weak bond, stock and commodity markets at the same time. That has played havoc with returns for institutional investors.



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July 22 2022

Commentary by Eoin Treacy

Capital Outflows From China Sovereign Bonds Just Hit $30 Billion

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

The publication of the June bond figures by China Central Depository & Clearing Co. took place about a week later than in previous months. Interbank-bond-market figures released by the central bank’s Shanghai head office on Friday were also delayed, as they are typically sent out in the first half of each month. In May, China’s bond-trading platform for foreign investors quietly stopped providing data on its transactions.

Foreign investors still held 2.32 trillion yuan of Chinese debt at the end of June, well above the 221 billion yuan they owned in 2014. The opening up of China’s capital markets and the inclusion of the nation’s debt in more global bond indexes has attracted central banks and global investors eager to tap its higher yields.

“The bulk of the remaining foreign holdings of Chinese fixed-income assets reflects reserve manager, sovereign wealth fund and index tracking demand,” said Lemon Zhang, a strategist at Barclays Plc in Singapore. Looking ahead, large inflows are unlikely as investors aren’t optimistic on duration or China’s currency, while higher global yields provide alternatives, she said.

Demand for Chinese bonds has waned in recent months as US 10-year yields surged above 3%, while similar-maturity yields in China remained stuck in a range of 2.7% to 2.85% due to the People’s Bank of China’s accommodative monetary policy.

Eoin Treacy's view -

There has been a popular belief among institutional investors that China was for bonds and the US was for equities. The logic is that China is a creditor nation with vast reserves, strong growth and low debt/GDP ratios while the US is encumbered with massive debts and seems incapable of correcting the gaping deficit.



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July 21 2022

Commentary by Eoin Treacy

July 21 2022

Commentary by Eoin Treacy

July 21 2022

Commentary by Eoin Treacy

'The US Is Not Prepared': Hot Temperatures Stress Rail Systems

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

"The US is not prepared,” said Paul Chinowsky, a professor of civil engineering at the University of Colorado Boulder. “While the rail system is incrementally being improved, there is significant work to do and what is being done is not being done fast enough.”

In Concord, California last month, triple-digit temperatures were the culprit behind a curve that emerged in a rail line that ultimately derailed a train, according to the Bay Area Rapid Transit Authority. And in Portland, Oregon, last year, temperatures that reached over 100°F wreaked havoc on the city’s public transport, MAX Light Rail, melting the overhead cables that power its trains. City officials had to suspend all train services for almost two days.

Eoin Treacy's view -

UK consumers are familiar with services coming to a halt because of leaves on the track or more recently heat related issues. Covering Hammersmith bridge in London with foil insulation and installing air conditioning units for the cast iron stretches the argument for preserving industrial revolution era infrastructure to the point of incredulity. At some point, it’s time to put utility ahead of sentimentality. One way or another there is going to have to be infrastructure development.



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July 21 2022

Commentary by Eoin Treacy

Tesla's Rally Creates $1 Billion Headache for Its Army of Shorts

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

The 10% surge in Tesla Inc. shares Thursday after the electric-vehicle maker reported strong earnings is creating one notable group of losers: The pile of traders betting against the stock. 

Tesla is the most shorted stock in the world, with almost 3% of its float held in short-selling positions. S3 Partners estimates that these investors are taking in more than $1 billion in mark-to-market losses just on Thursday’s surge. That drives their losses this month to $2.67 billion, according to S3.

“Tesla short sellers were actively trimming their exposure ahead of the earnings release, covering 2.09 million shares, worth $1.55 billion, over the last 30 days,” S3’s managing director of predictive analytics Ihor Dusaniwsky wrote in a note. Short sellers could continue to get squeezed out of their positions due to such “large and sudden losses,” he wrote.

Eoin Treacy's view -

Tesla is very dependent on the recent uptick in Chinese sales persisting. That’s not something anyone has had to worry about for a long time, but it is a subject everyone will be familiar with over the coming year. Meanwhile the correction in copper and other battery metals is a positive.



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July 21 2022

Commentary by Eoin Treacy

Lagarde Bids for ECB to Defy History With Third-Time-Lucky Hik

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

The European Central Bank reckons it can defy a record of aborted interest-rate hikes as it raises borrowing costs while confronting a recession threat and Italian political turmoil.

The half-point increase delivered on Thursday allows President Christine Lagarde and her colleagues to join the global fight against inflation with a larger-than-expected initial salvo -- carrying the risk of doubling down on another policy error.

This is the third time in the near quarter-century of the ECB’s history that it’s raised rates with a crisis of some sort blazing in the background. On each occasion it did so in July -- and both prior hikes were reversed within months.

Eoin Treacy's view -

The big background question for bond markets is whether countries with a high median age population can also have high bond yields. Until now there has been a clear correlation between the aging populations of Japan, Germany and Switzerland and their low yields. The USA has a higher median age but that is not a permanent condition. The reluctance to increase immigration is not going to improve that trend.



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July 20 2022

Commentary by Eoin Treacy

Video commentary for July 20th 2022

Eoin Treacy's view -

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: specualtive interest in crypto and cannabis jumps, Nasdaq jumps to new recovery high, Dollar steady, oil firm, China weak on growing property issues, Europe gas firms on less supply expected from Russia. yield curve invertions remain lead indicators for future trouble.



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July 20 2022

Commentary by Eoin Treacy

Tech Surge Lifts Stocks Back Into the Green

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

Stocks are advancing for a third day in four amid optimism over the earnings season and growing speculation markets may have bottomed out. While that debate continues, with Sanford C. Bernstein strategists saying markets have yet to see full capitulation, rates markets have discarded bets the Federal Reserve will hike rates by a full percentage point next week, bolstering optimism the central bank will take a more measured approach to policy tightening.

“The fact that companies are showing a certain resilience to the current environment is reassuring market operators who have now started betting on a less aggressive monetary tightening than initially expected,” said Pierre Veyret, a technical analyst at ActivTrades. “Even if we’re not out of the woods yet, more and more traders now tend to believe the worst is behind for equity markets this year.”

Eoin Treacy's view -

Recession fear is now a consensus among investors. Therefore it is reasonable to question how the market can continue to rebound. Netflix is a good example to examine. The share collapsed because subscriber growth was unrealizable. The share rebounded this week because its loss of million subscribers was less bad than had been priced in.



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July 20 2022

Commentary by Eoin Treacy

The 'Merge Trade' Has Begun, Experts Say, as Ether Surges and stETH Discount Narrows

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

Several observers consider Ethereum's impending transition equivalent to three Bitcoin halvings – a programmed code that halves the per block bitcoin (BTC) currency supply every four years – that will lead to a 90% reduction in ether's annual issuance. Simply put, the transition is likely to bring a store of value or deflationary appeal to ether. The upgrade has been long pending.

Like other market participants, ether investors tend to factor in bullish developments in advance. For instance, ether rallied over 60% to $2,800 in the three weeks leading up to the London hard fork implemented on Aug. 5, 2021. The hard fork activated a mechanism to burn the portion of fees paid to miners.

The Ethereum 2.0 upgrade has been long overdue and has seen several delays. However, the recent successful merges of the Ropsten and Sepolia testnets and the Goerli testnet's planned transition to proof-of-stake on for Aug. 11 has raised hopes for the mainnet merge in September.

The foundation's strongest hint of the tentative date of the Merge on record came as the crypto market looked for reasons to bounce, having priced in much of the bad news over the past two months.

Ether tanked 60% to less than $1,000 from $2,700 in the past two months as fears of faster liquidity withdrawal by the Federal Reserve, Terra's collapse and eventual bankruptcies of crypto hedge fund Three Arrows Capital, several crypto lenders saw investors dump crypto holdings.

Eoin Treacy's view -

Predictable dates tend to magnify trader interest. That’s especially true in markets where there are no hard fundamentals, like crypto. The one thing that amplifies interest in the crypto sector better than anything else is supply inelasticity.



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July 20 2022

Commentary by Eoin Treacy

Canopy Growth Leads Pot Stocks Up Amid Decriminalization Hearing

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

Canopy Growth jumps as much as 16% to a three-week high ahead of a US Senate committee meeting to explore decriminalizing marijuana next Tuesday.

The Subcommittee on Criminal Justice and Counterterrorism scheduled a hearing to “examine decriminalizing cannabis at the Federal level, focusing on necessary steps to address past harms,” set for July 26

Shares of cannabis companies jumped, including; Tilray Brands Inc. up as much as +8.8%, Cresco Labs +9.2%. Aurora Cannabis Inc. +8.2%, Curaleaf +4.5%, Green Thumb Industries Inc. +6.2%, Sundial Growers Inc. +7.2%

The ETFMG Alternative Harvest ETF rose as much as 5% to its highest point in three weeks

Pot stocks have rallied on news that Senate Democrats plan to introduce a bill to decriminalize marijuana, known as the Cannabis Administration and Opportunity Act, as early as this week

Eoin Treacy's view -

I have mixed emotions about cannabis. My libertarian instincts lead me to favour supplying people with all the information they might need and letting them do as they please. Any trouble they get into is at their own risk and personal responsibility should imbibe individuals with a sense of risk aversion.



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July 19 2022

Commentary by Eoin Treacy

July 19 2022

Commentary by Eoin Treacy

As Farnborough Air Show Sizzles, Airbus Makes Expo a Slow Burner

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

“Boeing has been the biggest beneficiary at Farnborough to date,” said Sheila Kahyaoglu, an aviation analyst at Jefferies LLC.

Airbus Chief Executive Officer Guillaume Faury acknowledged in an interview Monday that business was “probably a bit less now than it used to be in the past because we are constrained by the supply chain.”

The Toulouse-based company has had to grapple with so-called gliders -- fully built aircraft sitting on the ground without engines that can’t be completed amid a shortage of components, from engines to computer chips The planemaker now has 26 planes without engines, six more than at the end of May, according to Faury, who said he’s optimistic the issue will be resolved by the end of the year.

Besides, the company came into the show with some major orders under its belt, including a deal from China for 292 airliners worth more than $37 billion just this month.

Even if Airbus has to cede the commercial bragging rights to Boeing this year, the European company can take solace in the fact that it has an order backlog stretching out years, giving it little reason to hunt for fresh deals. The company’s best-selling A320 family is sold out until 2027. Faury said his priority now is to serve existing customers and get the supply chain sorted.

Eoin Treacy's view -

Airlines are still buying planes with the expectation business will return to normal in due course. Of course, with the backlog of orders at Airbus and Boeing they are not under any pressure to take delivery in the short term. Meanwhile the most pressing issue is the oil price and staffing levels.



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July 19 2022

Commentary by Eoin Treacy

Stuart Kirk tells FT investors need not worry about climate risk

This presentation by Stuart Kirk at a Financial Times conference in May is a notable discussion on subject of ESG and climate. 

Eoin Treacy's view -

Kirk was afforded the opportunity to share his frank views and resigned from his position at HSBC less than a month later.

That helps to highlight how polarized the discussion on climate is. There is no room for a dissenting public voice. That’s despite the fact he did not deny climate change but instead suggested we need to adapt.



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July 19 2022

Commentary by Eoin Treacy

Nancy Pelosi to Visit Taiwan Despite China Warnings, FT Reports

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

On Tuesday, European Parliament Vice President Nicola Beer began a three-day visit to Taipei -- leading the most senior EU legislative delegation to visit Taiwan. Beer told reporters after her arrival that the “family of democracies” need to support Taiwan after China’s crackdown on Hong Kong’s opposition and Russia’s invasion of Ukraine. 

No ‘Blind Eye’
“We won’t have a blind eye on China’s threat to Taiwan,” Beer said. “Europe was late for Hong Kong. We won’t be late for Taiwan. There is no room for Chinese aggression in democratic Taiwan. For the moment, we witness war in Europe. We do not want to witness war in Asia. And so now it’s the moment to stand firm on the side of Taiwan.” 

China’s refusal to condemn Russia’s invasion of Ukraine has complicated its efforts to shore up relations with the Europe Union. Top European leaders haven’t responded to an invitation from Xi to meet him later this year in Beijing, the South China Morning Post reported, citing a person familiar with the matter. 

Eoin Treacy's view -

This is a major escalation of rhetoric from Europe and the USA. China will bristle at what they consider direct interference in a domestic matter. The One China policy is the biggest red line the Communist Party has.



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July 18 2022

Commentary by Eoin Treacy

July 18 2022

Commentary by Eoin Treacy

The Colorado River Compact

This article form Pennsylvania State University may be of interest to subscribers. Here is a section:

Of course, the specification of an absolute amount of water to each of the states and Mexico has raised a few serious problems that remain contentious. First, the river is over-allocated. The 1920’s – coincidentally the time that the Compact was negotiated was an anomalously wet period with annual flows as high as ~20 million acre-feet (Figures17-18). In contrast, the long-term mean discharge of the river is about 15 million acre-feet, yet 16.5 million are allocated. Furthermore, the river flow is highly variable and based on historical data and tree ring reconstructions, it seems that decades-long dry periods with flows less than 13-14 million acre-feet may be common. Second, climate projections indicate that the region will become drier in the long-term, and some have suggested that we have already entered an era of steadily declining river flows along the Colorado. Fourth, improved understanding and renewed interest in the environmental impact of decades of dramatically reduced flow have spurred new pressures to allocate some discharge for the natural system. Finally, demand is likely to increase as populations in the region continue to grow, further stressing the already over-allocated river (Figure 18).

Eoin Treacy's view -

This article from Ceres may also be of interest. Here is a section:

Agriculture uses approximately 80% of the Colorado River’s water, using it to irrigate 15% of the nation’s farmland, and produce 90% of the winter vegetables. Wheat, corn, berries, and fresh produce are likely to be particularly strained by supply rationing to manage water-stress, as well as the crops, including alfalfa and hay, used by farmers to feed cattle. A recent study found that the largest consumer of river water in the Western U.S. is irrigation for cattle-feed crops. 



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July 18 2022

Commentary by Eoin Treacy

Wall Street Set for New ETF Gold Rush as Single-Stock Era Begins

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

A new ETF-for-everything era may have just begun on Wall Street, swelling an industry that already boasts nearly 3,000 products and $6.2 trillion in assets.

The booming world of exchange-traded funds is about to get even more crowded after the very first single-equity ETFs launched Thursday -- despite a torrent of regulatory warnings over their risks while retail investors are still reeling from the crash in speculative trades from crypto to meme stocks.

The eight products from AXS Investments look like the start of a coming invasion of amped-up strategies that will seek to enhance or invert the performance of volatile companies, including Tesla Inc., Nvidia Corp. and PayPal Holdings Inc.

Another proposed lineup from Toroso Investments offers to layer on a bullish options strategy in order to boost returns. All told, at least 85 more such ETFs are currently planned, according to filings tracked by Bloomberg, covering some 37 companies.

That’s just the start. With a never-ending fee war taking costs on index-tracking ETFs to rock-bottom levels, the arrival of single-stock products opens up a lucrative avenue for issuers, with leveraged or inverse trades tracking major companies up for grabs. 

All told, the Securities and Exchange Commission may have inadvertently put new investing tools in the hands of day traders at a dangerous time with recession risk sparking bear markets. 

Eoin Treacy's view -

The rational investor is going to question the wisdom of setting up single stock ETFs. Afterall can’t you simply buy the share? The reason for setting up single stock ETFs for shares like Nvidia and Tesla is because their options are expensive. Options sell in minimum sizes of 10 contracts for retail traders. If the underlying has a lower nominal value, the options will be cheaper to buy for smaller investors.



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July 18 2022

Commentary by Eoin Treacy

Email of the day on REITs and homebuilders

What you were saying about the huge migration to Texas makes me wonder if this isn't the right time to buy home builders who are active in that area? Or REITs?  What about NXRT, an old favourite of mine which has now come right done (fortunately I got out)? It specialises in refurbishing multi-family properties in the sunbelt. Is it too early to buy again do you think?

Eoin Treacy's view -

Thank for this question which may be of interest to the Collective. A realtor friend of mine shared his rationale. If a buyer is worried about interest rates rising, then buy now before they go higher. If they are worried about rates falling buy now because that will inflate prices and you can always refinance. I think it is safe to say a realtor will always have a convincing rationale to buy



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July 15 2022

Commentary by Eoin Treacy

July 15 2022

Commentary by Eoin Treacy

Summers Says Fed 'Let Us Down Quite Badly' and Still Unrealistic

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

Former Treasury Secretary Lawrence Summers issued one of his harshest criticisms yet of the Federal Reserve’s slowness in moving to raise interest rates, and warned that policy makers are still presenting forecasts that are unrealistic.

“In 2021, our central bank let us down quite badly,” hurting policy makers’ credibility, Summers said on Bloomberg Television’s “Wall Street Week.” “It made mistakes in the core functioning of a central bank,” including in its failure to lean in against fiscal stimulus last year, he said.

Among the errors has been a “repeated poor forecasting record -- and I have to say that it’s not something that’s been fully fixed,” Summers said. The June median Fed official predictions showed inflation coming back toward the 2% target but unemployment only reaching a high of 4.1% by 2024 -- a “highly implausible” result, he said.

“Frankly I think in 2021 our central bank lost its way. It was talking about the environment, talking about social justice in a range of things,” Summers, a Harvard University professor and paid contributor to Bloomberg TV, said. “It was confidently dismissing concerns about inflation as transitory.”

Turning to Japan, which has seen its currency tumble to the weakest since 1998 as the Bank of Japan declines to join its peers in tightening policy, Summers said it’s likely to be a challenge to exit the current zero-yield targeting regime.

Dollar’s Impact
“Sooner or later they’re going to leave the yield curve control strategy and I’m not entirely sure what’s going to happen when they do,” Summers said. “In the meantime, the pressures are likely to build,” with the potential for “an even weaker yen,” he said.

While some emerging markets are also suffering from a strengthening dollar, Summers said that he didn’t see a “systemic” crisis along the lines of 1998. Still, countries with “particularly unsound policies” including Turkey and Argentina are a concern, he said.

Eoin Treacy's view -

The world as it is, the reactions of traders to evolving stimuli, and the world as we would like it to be, are three very different places.

The reality of massive money supply growth in 2020/21, and the subsequent decline in supply growth represent the background for market. The absence of clear sources of new liquidity suggest it is unproductive to expect sharp rebounds on par with those seen in 2021.



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July 15 2022

Commentary by Eoin Treacy

Gold: Dividing up our forecast

Thanks to a subscriber for this note from UBS which may be of interest. Here is a section:

Historically, gold prices have often come under pressure in the early stages of a slowdown as central bank policy is still tightening or is tight and real interest rates are rising. Of course, this dynamic reverses when policy rates are cut. We expect a further lift to real interest rates this year, particularly as inflationary risk fades in 2H22. As such, additional liquidation of exchange-traded funds can be expected. We advise protecting the downside to longer-term holdings in the yellow metal into year-end. However, we see opportunities to be more positive though 2023 as the Federal Reserve pivots to an easier stance and the US dollar weakens.  

Eoin Treacy's view -

Gold is often regarded a perpetual zero coupon bond. It therefore thrives in an increasingly negative real interest rate environment and struggles when a rates trend towards positive real rates.



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July 15 2022

Commentary by Eoin Treacy

India's Forex Reserves Fall to 15-Month Low as RBI Defends Rupee

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

India’s foreign exchange reserves dropped to their lowest in 15 months as the central bank probably stepped up its intervention to support the rupee that is testing new lows amid foreign capital outflows.

The reserves fell by $8.06 billion to $580.3 billion as of July 8, data released by the central bank showed Friday. This is the second straight week of decline and comes as the rupee nears the psychologically-important level of 80 per dollar.

While most emerging markets are seeing a sell-off on the US Federal Reserve’s rate-hike outlook, the Indian currency has lost about 7% this year, staying in the middle of the regional pack where the South Korean won has weakened by over 10% and the Philippine peso has shed over 9.5%.

A bigger import bill due to high commodity prices is also boosting demand for dollars, putting pressure on the local currency.

Monetary authorities in Singapore and Philippines on Thursday responded to the situation by going for emergency tightening. Some economists in India are factoring in the possibility of an unscheduled announcement by the Reserve Bank of India too. The central bank, which is due to announce its rate decision Aug. 4, had surprised with an off-cycle move in May.

At the current level, the reserves will cover less than 10 months of imports. Investors are worried that the drop in reserves leaves the rupee vulnerable to speculators, but even now these are much larger than they were during the taper tantrum of 2013, Bloomberg’s economist Abhishek Gupta wrote on Friday ahead of the data release. 

Eoin Treacy's view -

India is in a better position to defend against surprises than at any time in its history. In 2008, reserves of $300 billion were considered healthy. Today they hold $580 billion which is down from a peak of $640 billion in August 2021. That has not done much to arrest the decline of the currency but it does provide the RBI some options.



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July 14 2022

Commentary by Eoin Treacy

Video commentary for July 14th 2022

Eoin Treacy's view -

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Dollar pause supports asset prices, Nasdaq-100 up, oil rebounds, European natural gas firm, central bank total assets trending lower, joblessness trending higher, picking ultimate winners in tech. 



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