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July 31 2023

Commentary by Eoin Treacy

July 28 2023

Commentary by Eoin Treacy

July 28 2023

Commentary by Eoin Treacy

A 'Dangerous' Consensus Has Traders Staking It All on Goldilocks

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

Fast-money quants known as commodity trading advisers have been amassing a big short bet since May. JPMorgan Chase & Co. strategist Nikolaos Panigirtzoglou estimates that they are sitting on a $150 billion short bond position that they may unwind in a rally.

The flip side of the extreme shift is that negative surprises can have an outsize influence. In March, banking turmoil caused equities to sink and Treasuries to rally, forcing commodity trading advisers to unwind $200 billion of bonds in the span of a few days, according to JPMorgan Chase & Co. A growth scare could reprise this episode.

Nevertheless, it will be hard to stop the market momentum. Strategists have revised upwards their S&P 500 targets and economists have softened their dire predictions. Some of the biggest downside risks threatening the economy — inflation rising to a four-decade high, a looming recession — have since faded.

“It would require a massive rally in bonds that would probably only occur with some sort of growth scare from a data shock,” said Charlie McElligott, cross-asset strategist at Nomura Securities International. “We have seen economic growth data hold, labor staying firm, and even US housing recovering.” 

Eoin Treacy's view -

The first half of the year delivered a storming rally on Wall Street, from deep oversold conditions. Despite interest rates ramping higher, long-dated bond yields have been static with the 4% level continuing to hold. Stocks are rallying in anticipation of rates peaking and bond yields are static as inflationary pressures subside. It seems to me that overweighting when trends are already overextended is risky.



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July 28 2023

Commentary by Eoin Treacy

Burning Ship's Operator Says Almost 500 EVs Are on Board

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

The car carrier on fire near the Netherlands coast has almost 500 electric cars on board, according to its operator, more than was previously reported.

The cause of the blaze on the Fremantle Highway is still unknown, according to the Dutch coast guard, which previously said the initial cargo list they received suggested just 25 EVs were on the ship.

Whether EVs had anything to do with precipitating the fire, the number on board is relevant to what’s likely to be a days-long effort to extinguish it. Lithium-ion battery fires burn hotter and last longer than gasoline. They can also be difficult to put out, sometimes reigniting hours or days later.

Eoin Treacy's view -

Anyone who has ever seen the movie Fight Club will be intrigued by what goes into the decision to announce an automotive recall. How that applies when a single car goes on fire and the conflagration spreads to a neighbouring vehicle is probably beyond the scope of the typical calculus.

Perhaps it is something actuaries should be thinking about as the number of EVs on the road increases. It is well understood that lithium burns hot, and not much can be done to stop it. Therefore the safety of technology is something every potential buyer needs to have a view on.



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July 28 2023

Commentary by Eoin Treacy

Most European Banks Fare Better in Key Test for Payouts

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

Despite €496 billion ($547 billion) of combined losses in the test, European banks “remain sufficiently capitalized to continue to support the economy also in times of severe stress,” the EBA said.

Most of Europe’s major banks saw a smaller erosion of their common equity tier 1 ratio than in the last exam. Deutsche Bank AG saw its hit narrow to 5.28 percentage points, from 6.2 percentage points, while the impact at BNP Paribas SA narrowed to 3.92 percentage points from 4.4 percentage points. ING Groep NV of the Netherlands faced a bigger erosion.

The European units of major US banks were included for the first time and faced bigger-than-average hits. 

Eoin Treacy's view -

The ECB gives with one hand is taking with the other from the European banking sector. The majority of banks hope to be able to raise dividends following the successful stress test results.

At the same time, the ECB is no longer paying interest on the minimum reserves banks are required to hold. That’s a slug of capital banks will no longer receive interest on. It amounts to a loss of €200 million for Deutsche Bank alone and €6 billion for the wider sector.



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July 27 2023

Commentary by Eoin Treacy

July 27 2023

Commentary by Eoin Treacy

Oil Rallies to $80 as US Economic Growth Improves Demand Outlook

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

Oil rose to the highest since April as signs of economic strength in the US improved the outlook for demand, outweighing concerns about a price correction based on technical factors.

West Texas Intermediate settled above $80 a barrel as US economic growth exceeded expectations and speculation mounted that the Federal Reserve is nearing the end of its monetary tightening cycle. But crude is trading in overbought territory on its relative strength index for a third day, raising the threat of a pullback. 

“Crude extending the bullish rally, led by ‘risk back on’ sentiment in the equity markets, is keeping the buyers present in the crude space,” said Dennis Kissler, senior vice president for trading at BOK Financial Securities. Yet “the market has gone up too far, too fast with speculative buying, and that is creating the overbought condition, so we should see some erratic corrections soon.”

Eoin Treacy's view -

Crude oil markets remain tightly balanced. Stronger GDP coupled with weaker PCE inflation data helped to boost the perception of demand dominance today. The downside is the higher oil prices go, the greater the likelihood inflation will be slow to moderate. It’s a good news/bad news story.



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July 27 2023

Commentary by Eoin Treacy

Analysis-Investors dumping China load up on other emerging markets

Thanks to a subscriber for this article from Reuters may be of interest. Here is a section:

Some of the money is being diverted into markets directly benefiting from China's economic pain, such as Mexico, India, Vietnam and other locations that are replacing it across global manufacturing supply chains. Other investors are simply moving to markets with better growth prospects, such as Brazil.

"China’s export dominance is ebbing, creating opportunities for other emerging market countries to fill the gap, including Mexico, India, and Southeast Asian nations," said Malcolm Dorson, a New York-based senior portfolio manager at ETF manager Global X.

The scale of change needed in global supply chains could drive such capital flows for the next decade, he said.

Refinitiv data shows China-focused mutual funds suffered a net outflow of $674 million in the second quarter of this year, while, in contrast, nearly $1 billion went into EM ex-China mutual funds.

The iShares MSCI Emerging Markets ex-China ETF, the world's largest emerging market ex-China ETF whose biggest holdings are firms in Taiwan, South Korea and India, attracted a record $1 billion net inflow in the first half of 2023, the data showed.

Eoin Treacy's view -

Investors like to have the currency, yield and market on their side. The Dollar has been steady to rising for much of the last decade so that has acted as a tailwind for investments in the USA and helped to fuel the rise of the mega-cap group of companies. The potential for the Dollar to roll over changes the calculus and raises the question of which are the best ex-US markets to invest in?



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July 27 2023

Commentary by Eoin Treacy

Japanese Population Falls in All 47 Prefectures for First Time

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

“The situation is dire and proves government policies to halt the declining birthrate have fallen short,” said Hideo Kumano, an economist at Dai-Ichi Life Research Institute. “The data shows there’s a limit on what can be achieved by easing the burden of raising kids with subsidies. What’s important is to secure employment opportunities in the regions, too.”

Last year, the number of children born nationwide fell under 800,000 for the first time since records began in 1899. The population of Japanese nationals has been falling continuously for 14 years, and for the first time this included the southern prefecture of Okinawa, historically known for a high birthrate. 

Kishida’s promised to spend about ¥3.5 trillion ($24.8 billion) on measures to increase the birthrate, without fully explaining how this will be funded. Among the policies is an expansion of cash handouts to families with children, regardless of parental income. Experts have warned the policy package fails to tackle the root causes of the declining birthrate, such as a lack of stable job prospects.  

Eoin Treacy's view -

When a country loses 800,000 people in a year it is time to think seriously about the factors which contribute to people wanting to have children. The low birth rate is the result of conscious decisions made by millions of people every year. To have children, one has to have an optimistic view on the future. Decades of economising and taking cuts to living standards are not conducive to the view tomorrow will be better than today.



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July 26 2023

Commentary by Eoin Treacy

Video commentary for July 26th 2023

July 26 2023

Commentary by Eoin Treacy

Fed Raises Rates as Powell Keeps Options Open for Future Hikes

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

Officials will be looking for moderate growth, cooling inflation and supply and demand coming into better balance, particularly in the labor market, as they assess whether and when to raise rates again, Powell said.

“What our eyes are telling us is policy has not been restrictive enough for long enough to have its full desired effects,” he said. “We intend again to keep policy restrictive until we’re confident that inflation is coming down sustainably to our 2% target, and we’re prepared to further tighten if that is appropriate. And we think the process still probably has a long way to go.”

Eoin Treacy's view -

The bond market continues to expect one more hike but nothing more than that. The fact the Fed’s own internal economists no longer expect a recession was welcome news for stock market investors even as the “long and variable lags” of monetary policy tightening have yet to be felt.



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July 26 2023

Commentary by Eoin Treacy

LVMH Drops Most in Year as Results Stoke US Worries

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

Mixed set of results with the stronger-than-expected recovery in China offsetting the decline in cognac, mainly in the US

“Demand for entry-price leather goods, jewelry and cognac from US aspirational customers will not recover immediately and visibility for the rest of the year remains low,” notably due to an uncertain macro-economic environment in China.

Eoin Treacy's view -

Luxury goods were one of the primary avenues for betting on the strength of China’s reopening. A narrowing of breadth within the sector is a sign of declining global appetite for high priced aspirational goods. Declining demand for the less desirable brands spreading to the first tier is a sign of caution among consumers and is now also evident in luxury watches. Second-hand Rolex prices are now also falling.



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July 26 2023

Commentary by Eoin Treacy

Rolls-Royce Stock Surges as Turnaround Under CEO Takes Hold

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

The upbeat outlook is a vindication for Chief Executive Officer Tufan Erginbilgic, who is in the middle of an extensive turnaround after calling the prime UK manufacturer a “burning platform” shortly after taking over at the start of the year.

The company, which primarily makes engines for widebody jets that connect long-haul destinations, saw demand wiped out at the height of the pandemic when airlines were forced to ground fleets amid travel restrictions and quarantines. 

“Better profit and cash generation reflects greater productivity, efficiency and improved commercial outcomes,” Erginbilgic said in the statement. “Despite a challenging external environment, notably supply chain constraints, we are starting to see the early impact of our transformation in all our divisions.”

Eoin Treacy's view -

The reason we see conflicting signs of both economic strength and weakness in the global economy is mostly likely because of changing consumption patterns. Consumers have curtailed everyday spending but are still willing to splurge on special occasions. That helps to explain why see declining used car prices at the same time as fans of Taylor Swift are splurging on tickets and demand for summer travel is high. That’s a reflection of how consumers deal with the reality of inflation. They make cuts where they can but are willing to spoil themselves to ensure they can have a feeling on an undiminished living standard.



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July 25 2023

Commentary by Eoin Treacy

Video commentary for July 25th 2023

July 25 2023

Commentary by Eoin Treacy

Xi's China Markets Lifeline Raises Hope Rally Can Hold This Time

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

They’re betting a more forceful pro-growth tone from the top will be enough to fuel a tradeable rally — and may auger more success in tackling China’s wide array of challenges from mountains of local government debt to a slumping housing market.

“Clearly, markets have been disappointed as they anticipated more rapid improvements, but they are now beginning to rationalize their growth expectations,” said Andrew McCaffery, global chief investment officer at Fidelity International. “Our view is that this somewhat unexciting period will eventually give way to a more positive market tone.”

The big question is whether the follow-through from authorities will sustain the rebound. Brief bursts of optimism as China emerged from strict Covid restrictions have repeatedly turned into losses, making Chinese markets among the region’s worst performers amid a stream of grim economic data.

Eoin Treacy's view -

The Chinese stock market depends on the patronage of the government to instill enough confidence to propel bull runs. So far, the market has been long government platitudes but short on action. That has resulted in several rebounds from deep oversold conditions, only for the rallies to fail as the absence of a big-bang action weighs on confidence.



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July 25 2023

Commentary by Eoin Treacy

Jaguar Land Rover Owner Tata Beats Profit Estimate With Ease

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

Tata Motors Ltd. reported better-than-expected first-quarter income as supply-chain constraints eased, helping to lift sales of luxury cars.

Net income was 32 billion rupees ($391 million) in the three months through June, compared with a loss of 50 billion rupees a year earlier, the Mumbai-based company said in a statement Tuesday. Analyst estimates on average were for net profit of 24.5 billion rupees.

Luxury unit Jaguar Land Rover posted a quarterly profit before tax of £435 million ($559 million), compared with a loss of £524 million the year before. JLR’s quarterly revenue surged 56% to £6.9 billion, Tata Motors said. It reported a free cash flow of £451 million.

Eoin Treacy's view -

Tata Motors is a wonderful Indian success story. The company generates around 29% of revenue from its domestic market. Buying the Jaguar/Land Rover brand was a master stroke and now accounts for two thirds of global revenue. India has plenty of examples of companies that have grown successfully beyond their domestic markets and done so without overt government support. That’s a clear point in favour of capitalism driven ingenuity and helps to explain why India’s capital markets have been so much more rewarding that China’s over the long term.



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July 25 2023

Commentary by Eoin Treacy

Unilever Shares Gain on Resilient Demand as Inflation Cools

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

Investors are scrutinizing the first set of results presented by Chief Executive Officer Hein Schumacher for hints of his strategy to revive Unilever’s sluggish performance. The new CEO, weeks into the job, raised the full-year forecast slightly, predicting revenue growth of more than 5% this year. The guidance may be conservative, as analysts are forecasting 6.1%.

The company chose an external CEO to help fix its bureaucratic culture and deal with critiques that it had become too focused with the so-called “social purpose” of the consumer products it sells. 

Schumacher, the former boss of Dutch dairy cooperative Royal FrieslandCampina, is expected to revisit the debate over splitting food brands like Hellmann’s mayonnaise from the faster-growing personal care, beauty, and wellbeing units.

Eoin Treacy's view -

The job of a corporation is to ensure it looks after its shareholders. When we rely on repeat business that tends to mean ensuring you have happy customers who think well of your company and its products.

The challenge in the age of social media is there is a vocal minority who are motivated by the desire to be as contentious as possible. Companies are finally beginning to realise the loudest part of the mob does not reflect the majority of consumers. In their desire to appeal to the mob on social media they hopefully temporarily forgot who their customers are. It unfortunately has taken some high profile boycotts to get the attention of company boards.



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July 24 2023

Commentary by Eoin Treacy

July 24 2023

Commentary by Eoin Treacy

Ryanair Touts Lower Fares to Fill Planes as Costs Start to Bite

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

Chief Executive Officer Michael O’Leary previously said that ticket prices would remain elevated for the next five years because of higher oil prices and environmental charges. Ryanair, which has built its business model around ultra-cheap flights, said in May the typical €9.99 ($11) fare could double in price as summer demand skyrockets and because of a supply backlog caused by a shortage of planes.

The proposed fare stimulus comes as Ryanair expands its fleet with plans to take on an additional 173 aircraft by the end of March. Ryanair, which had 558 aircraft on June 30, announced a deal this year for as many as 300 Boeing 737 Max jets worth $40 billion. It comes as the Irish firm targets 30% of the European air-travel market by 2034. 

Eoin Treacy's view -

Will post-pandemic demand return to the pre-pandemic norm? Most estimates suggest the triumph of linear thinking is unchallenged. When business is poor, they suggest it will continue lower. When it rebounds, they think higher prices are sustainable indefinitely. The truth is a lot more cyclical.



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July 24 2023

Commentary by Eoin Treacy

Wheat Climbs After Another Russian Missile Attack on Odesa Port

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

The world still has a large buffer of wheat stockpiles, and top shipper Russia continues to export its own bumper crop to world markets. About 33 million tons of crops were shipped to global destinations under the pact, including about 17 million tons of corn and nine million tons of wheat. The top destination was China, followed by Spain, Turkey, Italy and the Netherlands.

Elsewhere, lack of rains and heat are threatening crops in parts of the US and southern Europe, increasing risks to food supplies. Still, wheat futures have fallen by almost half from the record reached in March last year to $7.10 a bushel. That compares with an average of $5.82 over the past 10 years.

Eoin Treacy's view -

We are entering a new phase of the war because both Moscow and Odessa are now targets for missile/drone strikes. The efforts to allow Ukraine export grain were aimed at ensuring buyers would have enough to eat. That has also been a central point in how well Russia has secured support from regional governments. The obvious escalation would be to bomb Russia’s export facilities through the Black Sea to both level the playing field and increase the urgency of negotiations.



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July 24 2023

Commentary by Eoin Treacy

A Bug Exterminator That Trades Like Nvidia

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

None of this bodes particularly well for humanity, of course, and there are signs that the warming climate could increase the demand for pest control even further into new areas. The termite population is getting hungrier. The mosquito season is growing longer. And some bugs, including the German cockroaches, are losing their sensitivity to existing pesticides. One way or another, Americans — led by those newly christened Floridians and Texas that arrived in the past several years — are going to have to learn to live in a world full of unpleasant critters, and that’s likely to add to the extermination industry’s reputation as a recession-proof juggernaut.

Eoin Treacy's view -

It seems inevitable that the next trend in asset management will be in climate survival funds. Many ESG funds were just another way to leverage up on technology bets and displayed high beta to the sector. That’s not quite as compelling following the roller coaster of the last few years.

Meanwhile, investors are much more concerned these days with governance than environmental metrics. The way to get investors on board is to appeal to their desire to boost returns. Expanding markets lead to expanding earnings. If the range and prevalence of insects is growing that’s an investment opportunity.



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July 21 2023

Commentary by Eoin Treacy

July 21 2023

Commentary by Eoin Treacy

Sunak Suffers Twin Election Blows in Effort to Revive Tory Hopes

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

Sunak and his team had downplayed their chances in the three special elections in very different districts, arguing that even winning one would represent a victory given governments are often given a kicking in mid-term votes. The prime minister is eyeing holding the next national vote in November 2024 to allow Britain’s ailing economy as much time as possible to recover, a person familiar with his thinking told Bloomberg. 

Economic data has begun to turn this week with a bigger-than-expected inflation drop, while figures published Friday show government borrowing undershot official forecasts — potentially giving Chancellor of the Exchequer Jeremy Hunt room for tax cuts.

The prime minister told reporters in Uxbridge the Conservatives will take encouragement from the result there, arguing it shows the outcome of the general election “is not a done deal.” 

Eoin Treacy's view -

Byelections are more like referendums on the performance of the government. Holding a staunch conservative seat in the leafy suburbs of London is not a victory compared to the risk of losing the red wall Boris Johnson successfully enticed into the Conservative fold for the first time by appealing to their nationalism.

The Illegal Migration Act of 2023 was announced a couple of days ago and introduced today. It is a bald attempt to court the affections of the converts to the Conservative Party as both parties prepare for an election next year. 



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July 21 2023

Commentary by Eoin Treacy

Chaos, Dysfunction Force South Africa to Lean on Private Sector

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

Like Discovery, which also pays for some of the fire engines in the South African commercial capital, precious metals producer Sibanye-Stillwater Ltd. ensures that water near its mines is safe to drink and roads are maintained and well lit; it upgrades schools and clinics. Food producer Tiger Brands secures water supply for the town that’s home to its fruit-processing business, and Investec Plc powers a traffic light near its offices during blackouts in Johannesburg. Glencore Plc, Anglo American Plc spinoff Thungela Resources Ltd. and other owners of an export terminal spend about $1 million a month to protect trains transporting their coal from cable thieves. 

“It’s not altruism,” said Lungisa Fuzile, chief executive officer of the South African unit of Standard Bank Group Ltd., the continent’s biggest lender. “You can’t run a successful private business in a sea of chaos.”

Government incompetence, corruption and policy paralysis have left critical infrastructure in Africa’s most-industrialized nation in tatters, forcing companies to step into areas that are within the purview of the state in most countries. 

Eoin Treacy's view -

Miners long ago figured out that if they want to be allowed to dig, they also need to have the local community on side. That usually means building roads, schools, hospitals, and community centres.

It’s a sorry reflection of the state of public infrastructure when the services provided by miners are the gold standard. The inability of the state to sustain public infrastructure raises the possibility that private installations will be appropriated and/or that taxes will be raised to close funding gaps.



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July 21 2023

Commentary by Eoin Treacy

Cocoa Factories Slowing Down Spell Trouble for Chocolate Makers

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

“The demand issues are multifold,” said Judy Ganes, president of consultancy J. Ganes Consulting, who has followed the market for more than 30 years. “There’s not just cocoa prices that are high, but sugar prices are also high, and manufacturers always look for ways to meet margins and work to put fewer chocolate chips in a cookie, or they shrink the bar sizes.”

Factories usually process cocoa several months before products are turned into chocolate. That means the slowdown likely signals the industry is expecting less demand ahead. Barry Callebaut AG, the world’s largest maker of bulk chocolate, said earlier this month that its sales volume fell 2.7% in the first nine months of the year, with its gourmet and specialists’ business seeing the biggest drop. 
 

Eoin Treacy's view -

The sweet tooth of the emerging middle class has allowed companies like Nestle, Chocoladefabriken Lindt & Sprungli AG and Hershey thrive, while simultaneously feeding a diabetes epidemic which has created of the most reliable streams of cashflow in any market. It’s truly a sign of consumer pressure when demand for an addictive product like chocolate declines.



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July 20 2023

Commentary by Eoin Treacy

Video commentary for July 20th 2023

Eoin Treacy's view -

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

Some of the topics discussed include: Nasdaq-100 pulls back on reweighting and option expiry, megacap negative RSI divergences, bond yields rally, gold weak, Dollar steady, oil firms, India new high and China close to breaking lower. 



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July 20 2023

Commentary by Eoin Treacy

Dow Jones Industrials/Nasdaq-100 ratio

July 20 2023

Commentary by Eoin Treacy

Startup Cerebras Takes on Nvidia With Chain of AI Supercomputers

This is the second news story I’ve seen in the last day talking about companies developing work arounds for reliance on Nvidia’s chips. Here is a section:

The new supercomputers will be operated by Cerebras and used for G42 projects. Any excess capacity will offered commercially as a service. 

For Cerebras, based in Silicon Valley, the new systems provide a showcase that it hopes will lead to wider adoption. The company’s offerings rely on massive chips that are made out of whole silicon wafers — disks that are normally sliced up to create multiple components.

Feldman argues that his processors have the advantage of being able to deal with large data sets in one go, rather than only working on portions of the information at a time. Compared with Nvidia’s processors, they also require less of the complicated software needed to make chips work in concert, he said. 

This year, cloud computing providers such as Microsoft Corp. and Amazon.com Inc.’s AWS have been stocking up on Nvidia processors to keep up with runaway demand for OpenAI’s ChatGPT and other generative AI tools. Nvidia has about 80% of the market for the so-called accelerators that help handle these workloads. 

With his computing rollout, Feldman aims to demonstrate that the AI explosion won’t just benefit the giant tech companies that can afford big-budget equipment.

Eoin Treacy's view -

Here is the other story, focusing on Tesla’s ambition to solve the autonomous driving problem and to also develop humanoid robots. Limited supply and rising demand will inevitably result in substitution. Meanwhile, the efforts to contain China’s expansion have inflated demand for Nvidia’s chips and that will only last for as long as the window of opportunity remains open.



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July 20 2023

Commentary by Eoin Treacy

Brazil's All-Powerful Sugar Industry Sours the Country on EVs

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

So far, Lula’s government is trying to support both technologies in a precarious balancing act. To appease the sugar industry, it will keep incentives for ethanol in place while simultaneously courting electric-car makers from China scouting new overseas factory sites with a compelling sales pitch: proximity to local battery-metal deposits, a growing domestic middle class and access to other Latin American markets with their own discretionary incomes to spend. It has worked, with at least two of China’s biggest carmakers — BYD Co. and Great Wall Motor Co. — planning to bring their vehicle production to the country’s shores. But even they plan to add some ethanol-fueled hybrids to their Brazilian lineups in what looks like a friendly — and savvy — gesture.

The discussion about electric cars is “very important for Brazil and for the world,” said Renan Filho, Brazil’s transport minister. But ethanol should be part of the conversation, too, he said. “Ethanol emits much less.”

Eoin Treacy's view -

The original reason for promoting ethanol as a transportation fuel was because of the high price of oil. The fact it produces fewer emissions is a modern day bonus that helps to compensate for lower efficiency. The rationale for electrification of the transportation sector depends on abundant cheap electricity. That implies investing in additional supply infrastructure and its safe to assume most of the hydroelectric opportunities have already been exploited.



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July 19 2023

Commentary by Eoin Treacy

Video commentary for July 19th 2023

Eoin Treacy's view -

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

Some of the topics discussed include: Global stock markets extend rebounds on belief in a soft landing and interest rate hiking peak, Sri Lanka, Turkey, Greece, Pakistan rebounding on improving perception of debt management, dollar steadies, gold and oil ease, soft commodities firm, Wall Street extends rebound but doubts emerging around AI engagement. 



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July 19 2023

Commentary by Eoin Treacy

Is ChatGPT Getting 'Dumber'? Usage Drops As Users Complain

This article from Search Engine Journal may be of interest. Here is a section:

ChatGPT, the viral conversational AI chatbot created by OpenAI, appears to be losing some of its initial luster and appeal.

After rocketing to immense popularity following its launch late last year, recent data indicates usage and interest in ChatGPT may be declining.

Some longtime users have complained on social media and developer forums that the AI seems to be producing lower-quality responses than just a few weeks ago.

They describe the bot as “lazier,” “dumber,” and prone to more mistakes or nonsensical answers. However, OpenAI denies intentionally downgrading ChatGPT, tweeting that “we make each new version smarter.”

The company speculates users encountering more flaws reflects increased usage uncovering limitations.

Eoin Treacy's view -

It would be convenient to lay the blame for falling usage on the fact many students are on holiday. However, the accusation of poorer results is more difficult to explain away. The challenge for large language models is getting beyond the novelty factor.

Providing essay answers is a useful if questionable use case. The challenge is if the short form responses required by most people have to be carefully proofread, wouldn’t be easier to write them oneself? The efforts of media organizations to fire their workforces have been publicly outed as being very error prone. Wouldn’t it be better to encourage employees to deploy AI where possible so they can enhance their productivity where possible?



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July 19 2023

Commentary by Eoin Treacy

In London, New York and Paris, a Giant Office Bet Goes Wrong

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

Investors have also been shielded slightly by Europe’s approach to real-estate valuations, which doesn’t take market sentiment into account. With sales largely frozen, there have been few deals to measure the true decline in values. Inflation-linked rent increases have helped as well.

Nonetheless, opportunists are circling, ready to offer expensive new debt to refinance buildings whose owners can’t inject capital. Oaktree and other alternative-finance providers have held talks with Korean asset managers about large loan facilities to let landlords restructure investments, according to a person familiar with the discussions. Oaktree declined to comment.

Funds under pressure to extend the maturity of their borrowings are looking to inject more capital or inviting mezzanine investment rather than dumping assets on the cheap, says Yoon at Savills, who adds that a few have pulled sales. Increasingly, however, owners are following No. 1 Poultry’s path and having another crack at selling after several failed attempts last year — as seen with the rush for the exit in London.

In Seoul, meanwhile, there’s deepening unease about how the endgame will play out for domestic investors. “With overseas commercial real-estate assets declining, there are significant concerns about distress,” says Oh.

Eoin Treacy's view -

In London, a friend signed a seven-year lease for a suite of offices in early 2020 to accommodate 50 people. The rent was £33500 a month. Today half the workforce is gone and the remaining people spend most of their time working from home. Finding a sublet has proven difficult and rents have contracted substantially. Healthy companies can take the hit but those without financial resources will be closer to failure. That’s not good news for the commercial real estate market.



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July 19 2023

Commentary by Eoin Treacy

Email of the day on rough rice

I am curious about the rationale behind taking the rough rice position, beyond the 1000D EMA which shows support in the region of $15. Despite El Niño, according to the FAO latest report July 7 (https://www.fao.org/worldfoodsituation/csdb/en/), there is no supply/demand imbalance in spite of a lower 2022/2023 production. After a slight draw on stocks for the current harvest season, they are due to increase in 2023/2024 as well as worldwide production (same forecasts from the USDA https://www.ers.usda.gov/webdocs/outlooks/106909/rcs-23f.pdf?v=4882.7).

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. India is talking about restricting exports to control inflation. Pakistan’s ability to export was impacted by the floods last year. The heat in Texas this year may damage the crop even if this summer is wetter than the last few years. That suggests to me that predictions of a jump in supply are overly optimistic.



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July 19 2023

Commentary by Eoin Treacy

July 18 2023

Commentary by Eoin Treacy

Video commentary for July 18th 2023

Eoin Treacy's view -

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

Some of the topics discussed include: US banks rebound, Dow Industrials and Transportations Averages hit new recovery highs, Nasdaq-100 extends its advance, China weak, gold and oil firm even with a steadier dollar. Europe steadies. 



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July 18 2023

Commentary by Eoin Treacy

Lilly Applies for Alzheimer's Drug Approval on Trial Data

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

That sets the stage for a potential head-to-head competition between Lilly and Eisai, along with its partner Biogen Inc., for leadership in a market expected to rise to billions of dollars as more patients with early Alzheimer’s gravitate to the idea of preventing the loss of memories and brain function. While both drugs’ use may be held back by cost,  side effects and moderate effectiveness, experts hope they’ll
pave the way to more powerful successors.

Eoin Treacy's view -

I spent every chance I got in my 20s diving with sharks, so I don’t scare easily. The one thing I am afraid of is losing my mental capacity. Several relations on my mother’s side of the family have suffered from the disease.

My grandmother stopped taking her blood pressure medication, as soon as she felt her mind go. She was a proud woman and decided to let nature take its course rather than be doomed to an uncertain existence as a vegetable.

It stands to reason that anyone who has witnessed how Alzheimer’s steals pieces of the mind in a relentless manner, will be in the market for anything that might slow the disease’s progression.  



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July 18 2023

Commentary by Eoin Treacy

United Airlines, American Airlines Earnings Due. Is The Airlines Rally Over?

This article from Dow Jones may be of interest. Here is a section:

Airline stocks United Airlines and American Airlines report second-quarter financials this week, with analysts expecting booming profits for both air carriers. The reports follow Delta Air Lines' recent Q2 earnings beat and full-year profit guidance increase. UAL and AAL both edged up Monday.

Wall Street predicts quarterly earnings up more than 100% for both United and American Airlines. Delta's financial report on Thursday suggested airline performance was nearing pre-pandemic levels, as air carriers see strong demand for international and domestic air travel.

Delta reported international and domestic sales jumping 61% and 8%, respectively. Delta Chief Executive Ed Bastian declared "consumer demand for air travel remains robust."

Despite the strong financial performance, Delta shares dropped nearly 3% for the week as investors took profits after the earnings report. That marked the stock's first decline in nine weeks. Collectively, the 19 stocks in IBD's Transportation-Airline industry group also slipped for the week -- for only the second time in nine weeks.

Eoin Treacy's view -

Demand for travel is still strong over the summer months but the ability of airlines to meet that demand is much more uncertain. Twice in the last month my family have experienced greater than 24 hour delays with American Airlines.



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July 18 2023

Commentary by Eoin Treacy

Ford Takes $3.6 Billion Hit for Following the Tesla Playbook

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

Tesla Inc.’s script for popularizing electric vehicles — ramp up production, leverage economies of scale to lower costs and make automobiles affordable enough for a mass market — reads a lot like the one Ford Motor Co. first drew up over a century ago.

Following this game plan has paid dividends lately for Tesla. The stock has more than doubled this year, even as the carmaker has slashed prices. For Ford, taking a page out of this playbook just wiped away about $3.6 billion in market value in one day.

The maker of the best-selling F-Series announced it’s going to triple the production rate for its first electric pickup, the F-150 Lightning, which it initially planned to sell for just shy of $40,000. Like Tesla, Ford jacked up prices during a prolonged period of parts shortages and battery raw-material inflation. Now that chips are more plentiful and the cost of battery inputs including lithium and nickel have eased, Ford is lopping thousands of dollars off what it’s charging customers.

“Everyone loved it when Tesla did it,” said David Whiston, an auto analyst at Morningstar. “As long as they’re truly making improvements in production costs and input costs, then giving some of that back to the consumer makes sense.”

Eoin Treacy's view -

The big bet in the auto sector is on when the Tesla cybertruck will be delivered. The company has been taking deposits for several years but with little to show in terms of a marketable product. Rumours are brewing that the first will finally be delivered at the end of this year and large scale production will begin next year.



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July 18 2023

Commentary by Eoin Treacy

July 17 2023

Commentary by Eoin Treacy

July 17 2023

Commentary by Eoin Treacy

European Power Prices Fall Below Zero With Green Power Boom

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

Electricity prices across Europe are set to fall below zero this weekend as the continent experiences a
surge of summer winds combined with the peak season for solar generation.

The sub-zero prices are a preview of what’s to come for European power markets if a flood of planned renewable power production isn’t met with a shift in demand. The hope is that eventually larger electric car fleets, smarter grids and better battery technology will catch up, but for now the mismatch is a headache for policy makers and companies. 

The risk is that a prolonged slump in prices could undermine the case for future investments, add costs for consumers and waste energy that could be used to cut demand for polluting alternatives.

Eoin Treacy's view -

At the same time that record high temperatures are being posted across southern Europe, one would think that record high renewable energy production would be greeted as a serious benefit. Now, if someone could prevail on countries to invest that excess power in air conditioning, they would have a lot less to worry about. Instead people could enjoy the summer heat and regional economies would be more productive.



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July 17 2023

Commentary by Eoin Treacy

Richemont Drops on Signs Luxury Demand Is Weakening in US, China

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

Richemont led luxury-goods stocks lower amid concerns that demand in the US and China, two of the biggest markets for the industry, is starting to sputter.

The Swiss owner of Cartier reported a surprise drop in revenue from the Americas in the three months through June.

While Richemont’s sales from Asia rose sharply, China reported slower-than-expected economic growth Monday, signaling signs of a possible pullback in consumer spending.

Richemont fell as much as 8.2%, the steepest intraday decline in more than year. LVMH dropped as much as 3.7% and Hermes fell as much as 4.2%.

The luxury-goods industry has been counting on a rebound in China after that country’s reopening would make up for weakness in the US market. Now Richemont and its peers are contending with the prospect that its two main growth motors are weakening.

Last week, Burberry Group Plc said the low end of the luxury market in the US softened.

Eoin Treacy's view -

Aspirational spending is heavily dependent on disposable income and availability of credit. The luxury goods sector thrived during the pandemic because consumers were flush with cash and had fewer options to spend it since travel and sports events were shut down. The sector leaped higher again when China’s lockdowns ended because investors were betting the post pandemic celebratory spending would be repeated. That has not been the case.



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July 17 2023

Commentary by Eoin Treacy

Russia Pulls the Plug on Ukraine Grain Export Agreement

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

Moscow had repeatedly threatened to leave the pact, citing obstacles to its own exports. It last agreed to a two-month extension in May, which ends Monday. The corridor’s shutdown will hit key buyers like China, Spain and Egypt.

“Unfortunately, the part concerning Russia in this Black Sea agreement has not been fulfilled so far,” Kremlin spokesman Dmitry Peskov said, according to Russian news agency Tass. “Therefore, it is terminated.” 

The move jeopardizes a key trade route from Ukraine, one of the world’s top grain and vegetable oil shippers, just as its next harvest kicks off. It also comes after Russia on Monday said Ukrainian drones damaged a key bridge to Crimea.

The pact — brokered by the United Nations and Turkey — has ensured the safe passage of almost 33 million tons of crop exports via the Black Sea since it was signed in July 2022, helping world food-commodity prices ease from the record levels reached after Russia’s invasion of Ukraine. However, it has been bogged down by red tape and slow vessel inspections in recent months.

Eoin Treacy's view -

Russia’s munificence in allowing Ukrainian wheat exports only extends as far as its own self interests. With the trend of war not going according to plans, the argument for providing Ukraine with any form of assistance is less and less convincing. There has been a lot of handwringing within NATO at the reluctance of countries to fall into line in sanctioning Russia. That ignores the reliance many countries have on the base commodities it exports.



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July 14 2023

Commentary by Eoin Treacy

July 14 2023

Commentary by Eoin Treacy

Europe Is Pledging Ukraine Weapons It Can't Make

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

How the war unfolds in the coming months depends in part on how effectively NATO arms Ukraine, but also on North Korean, Iranian and Chinese supplies to Russia. Whatever the outcome of the war, say the authors, President Vladimir Putin’s nation will require years to rebuild its prewar capabilities. 

Unfortunately, this view confirms the skepticism of many Western politicians, including the British elder statesman I cited above, about diverting billions to our own rearmament. Yet Russia retains some advantages over the West: Because its economy and industries are subject to direct control from the Kremlin, Putin can focus his nation’s arms production on the munitions he needs most in Ukraine.  

Although many of the right things were said in Vilnius this week, it is essential to acknowledge the seriousness of NATO’s procurement crisis. A study of its European forces published last month, written by former British Army Brigadier Ben Barry and a cluster of other strategy gurus, asserted that “an important question is whether European allies are more serious now” about rearmament “than they were after Ukraine was first invaded in 2014.” The chief of the German Army, Lieutenant General Alfons Mais, has repeatedly asserted that his country has “fallen behind its own ambitions” to rearm. 

We inhabit an era when few Western governments can muster the political support to address meaningfully big, difficult issues, of which climate change is foremost, but defense and the rebuilding of crumbling infrastructure come close behind. In a world full of threats, among which China presents a far graver menace than Russia, we shall be profoundly foolish if we fail to retool our industries and rearm our militaries. Ukraine is a historic test of Western will and staying power. Not for the first time in history, the outcome of the struggle will be determined not only on battlefields, but also in the factories of the West.

Eoin Treacy's view -

China is the factory of the world. It has more steel manufacturing capacity than the rest of the world combined. If they decide to build munitions at scale that is a major competitive advantage in any prolonged conflict. The running down of arsenals in Europe, North America and Russia leaves China’s intact. That fact alone is a recipe for greater geopolitical tension.



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July 14 2023

Commentary by Eoin Treacy

El Nino is threatening rice crops while grain supplies already are squeezed by the war in Ukraine

This article from the Associated Press may be of interest. Here is a section:

An El Nino is a natural, temporary and occasional warming of part of the Pacific that shifts global weather patterns, and climate change is making them stronger. The National Oceanic and Atmospheric Administration announced this one in June, a month or two earlier than it usually does. This gives it time to grow. Scientists say there's a one in four chance it will expand to supersized levels.

That's bad news for rice farmers, particularly in Asia where 90% of the world’s rice is grown and eaten, since a strong El Nino typically means less rainfall for the thirsty crop.

Past El Ninos have resulted in extreme weather, ranging from drought to floods.

There are already “alarm bells,” said Abdullah Mamun, a research analyst at the International Food Policy Research Institute or IFPRI, pointing to rising rice prices due to shortfalls in production. The average price of 5% broken white rice in June in Thailand was about 16% higher than last year's average.

Eoin Treacy's view -

India is talking about restricting rice exports as part of its efforts to get inflation under control. Pakistan’s ability to supplement global supply has been deeply impacted by last year’s floods. With an El Nino confirmed, there is clear potential for Asian supply to be pressured this year.



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July 14 2023

Commentary by Eoin Treacy

Extreme Heat Strains the Mexican Power Grid Earlier in the Summer

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

While it is hard to know for sure what is causing the power shortages, it is common practice for the National Center for Energy Control to disconnect neighborhoods from the electric network to prevent the system from failing, says Flores. They do this to avoid bigger and harder-to-fix problems, Barrios says.

Citizens dealing with power outages are scrambling to adjust to the disruption and danger. Luis Alejandro Calderón, an American citizen who lives in Nuevo Laredo, Tamaulipas, and his wife had to sleep on their balcony because they didn’t have electricity, and the heat inside was unbearable. The power shortage lasted more than 40 hours, so they stayed in a hotel in another area the next night, and a lot of their food went bad.

“We have never had to deal with anything like this,” he said. “When there is a power cut, electricity is usually back in 15 minutes.”

Mexico typically surpasses the peak energy demand from the previous year in July, but this year it already happened, leaving many worried that the coming weeks could hold even worse blackouts. “This is a product of the climate emergency, and that is not the government’s responsibility, but it is their responsibility to build an electric system that is prepared for this,” Barrios said.

Eoin Treacy's view -

Hot summers expose the biggest issue for electricity utilities. Demand is increasing faster than they are building new supply. Population growth, improving economic activity and rising living standards contribute to demand growth. The trend of EV demand growth and air conditioning demand are boosting the need for more electricity generation and transmission infrastructure everywhere.



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July 13 2023

Commentary by Eoin Treacy

July 13 2023

Commentary by Eoin Treacy

Exxon to Buy Denbury for $4.9 Billion in CO2 Pipeline Push

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

Carbon capture is the bedrock of Exxon’s climate strategy, which targets net-zero emissions by 2050 from its operations, and buying Denbury would give the oil giant critical and hard-to-replicate infrastructure as it pursues that goal. Exxon has pledged to spend $17 billion on lower-carbon investments through 2027. Capturing carbon from its own operations and third parties in hard-to-decarbonize sectors is a priority. 

Denbury’s Rocky Mountain assets are connected to Exxon’s Shute Creek gas facility near LaBarge, Wyoming, which has captured more carbon than any other asset in the US.

Eoin Treacy's view -

The only way decarbonization works in oil and gas is if it is profitable. That’s a big ask since capturing it is an additional cost. That’s why carbon trading programs put a premium on the commodity.

Since the disruption of war in Ukraine, most of the large oil and gas companies have walked back their commitments to decarbonize on practical grounds. Instead, they are boosting investment and those are decade-long plans. The fact Shell is talking about selling a stake in its renewable power venture on the same day that Exxon is buying a carbon dioxide pipeline is a clear indication of the direction the energy sector is taking. 



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July 13 2023

Commentary by Eoin Treacy

AI Is Helping Scientists Locate Rare and Useful Minerals

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

The researchers tested their model in October 2020 by requesting locations for rutherfordine, andersonite, schröckingerite, bayleyite, and zippeite. For efficiency, they set parameters in which only predictions with a 70% or higher “confidence” level would be shown. The model returned four predicted localities for rutherfordine, one of which has since been confirmed in Italy; one for andersonite, which has yet to be confirmed; one for schröckingerite, which was confirmed in Colorado; two for bayleyite, both Utah locations of which have been suspected before; and seven for zippeite, one of which has been confirmed in the Czech Republic. (As with bayleyite, four of the predicted zippeite localities had already been suspected.)

Another test run focusing exclusively on raw earth elements (REE) predicted localities for monazite, allanite, and spodumene, which are used for construction, radiation research, and batteries. Out of 15 predictions, 12 monazite localities have been confirmed; 13 out of 19 allanite localities have been confirmed; and one out of 12 spodumene localities have been confirmed.

Eoin Treacy's view -

Innovation in prospecting has been a major driver of resource discoveries over the last couple of decades. Applying deep learning models to abundant data is the most productive use of AI because the data is not in question. Together with better geophysical models there is clear potential for impressive resource discoveries to be made. That’s essential if the ambitions of climate activists are to be attained. 



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July 13 2023

Commentary by Eoin Treacy

Amazon Prime Day Drives Online Sales Up 6.1%, Lags Estimate

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

US shoppers spent $12.7 billion online during Amazon.com Inc.’s 48-hour Prime Day, up 6.1% from a year ago but short of estimates for 9.5% growth, according to Adobe Inc.

An increasing share of customers used “buy now, pay later” services, Adobe said, indicating shoppers are concerned about the economy. 

“For months, consumers have felt the effects of persistent inflation and an uncertain economic environment, and it has pushed shoppers to embrace more flexible ways to manage their spending around the Prime Day event,” said Vivek Pandya, an analyst with the technology company. “The revenue growth attributed to buy now, pay later is a preview of what we can expect in the months ahead, especially as we near the holiday shopping season.” 

Eoin Treacy's view -

Amazon, in common with the other mega-caps, has staged an impressive rally over the last seven months. The basis for the rebound is inherently tied to the expectation inflationary pressures will subside, rates will return to close to zero and consumer spending will remain resilient throughout. 



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July 13 2023

Commentary by Eoin Treacy

July 12 2023

Commentary by Eoin Treacy

July 12 2023

Commentary by Eoin Treacy

Inflation at 3% Flags End of Emergency, Turning Point for Fed

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

None of this means it’s game over in the fight against price pressures — especially for the Fed, which is widely reckoned to be locked-in to another interest-rate increase later this month. Still, there’s now a better-than-even chance that a July 26 hike, which would take the benchmark US rate to 5.5%, could be the last in quite a while. 

That’s the way markets were betting after Wednesday’s data. Yields on short-term Treasury yields plunged, stocks rose, and the dollar was headed to the lowest in more than a year by one measure – all in anticipation that the Fed might ease up.

‘Coming to End’
“The new data could give the Fed reason to debate whether any further rate hikes after this month are needed,” wrote Ryan Sweet, chief US economist at Oxford Economics. “This tightening cycle by the Fed is likely coming to an end.”

Eoin Treacy's view -

CPI is back inside the pre-pandemic range but the core figure is still at elevated levels. That represents a partial win for the  Federal Reserve. The challenge is regular CPI is supposed to be more prone to volatility than the core figure.

Jerome Powell has stated he is focusing on the core services less housing figure. That has been steady around 4.5% since August 2022 and is the primary data point suggesting inflation is sticky. Nevertheless, traders are betting the July hike will be the last in this cycle. 



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July 12 2023

Commentary by Eoin Treacy

CPI Heating Up Now, RBI to Extend Hawkish Hold

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

Cumulative rains since the monsoon season started on June 1 were 30% below their long-term average on June 24. Heavy rainfall over the last few weeks has erased that deficit and cumulative rains now amount to a surplus of 2% as of July 12.

Heavy rains have also resulted in flash floods in northern India and damaged some crops. Overall, we believe rains would be beneficial for the summer crop, but excess rains can also hurt farm output in areas that have been flooded.

It is still early to say how the regional distribution of the rains pans out over the entire monsoon season, which lasts through September. The heightened risk of El Nino this year threatens to weaken the rain clouds over the South Asian subcontinent.

According to our estimates, the damage to farm output from El Nino could boost headline inflation by as much as 0.5 percentage point.

Eoin Treacy's view -

It’s hot in the desert during summer, India gets excessive rain during the monsoon and it rains a lot in Ireland. Bloomberg’s typo today was funny and might be described as taking climate alarmism too far. (The lava flows are currently in Iceland).

For India a normal monsoon is generally considered good news. There will always be some untoward damage from excessive rains but reduced rainfall would be a much bigger issue. India still has a large number of people working on farms and with such a large population the price of food tends to play an important role in driving inflationary trends. 



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July 12 2023

Commentary by Eoin Treacy

Credit Suisse AT1 Fallout Embroils More Japan Brokerages

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

Switzerland’s decision in March to write down the bonds as part of a government-led rescue of Credit Suisse shocked investors in Japan, who bought around 140-billion-yen ($1 billion) worth of the debt. Clients of Mitsubishi UFJ Financial Group Inc.’s securities venture with Morgan Stanley took the lion share of the hit. The debacle in a country that’s trying to push its citizens to invest more has prompted regulators to look into whether the firms properly explained the risks before selling the bonds. 

“In consideration of the product characteristics of AT1 bonds of Credit Suisse Group AG, we have sold those securities to customers to whom we thought the products would be suited, after having sales staff explain about them in person,” an SBI spokesperson said by email, in response to questions about the documents. 

Rakuten Securities Inc. sold the debt through its business partners called independent financial advisers and is “reviewing and inspecting” its sales practices and explanatory materials, a spokesperson said by email. The firm will “continue to follow up” with the buyers and “appropriately respond” should they decide to escalate the issue, she said. 

Eoin Treacy's view -

The prospectus for several of the Swiss AT1 bonds included the provision that holders would be wiped out in the event of default. For institutions the onus is on the relevant departments within a bank or fund to read the prospectus. The reality is that generally only occurs after a crisis. Regular consumers are not expected to understand the intricacies of high finance. For them the onus is on the seller. That ensures there will be some difficult conversations but the broader question is how much damage this episode has done to Switzerland’s reputation among international investors. 



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July 11 2023

Commentary by Eoin Treacy

Video commentary for November 11th 2023

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 stimulus announcements underwhelm, India extends breakout and Rupee firms, Australia steadies, defense sector firming, crypto stocks completing base formations, gold steady ahead of CPI, Pound extends rebound. 



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July 11 2023

Commentary by Eoin Treacy

Cotton Hits Monthly High as Market Sees Demand Pickup From China

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

The US Department of Agriculture will release new numbers for the US and world cotton production on Wednesday. Analysts in a Bloomberg survey expect little change versus the report from the prior month, which already pointed to growing world cotton consumption. 

On the supply side, the cotton futures market is concerned about the condition of the US crop and the yield potential for the new marketing year, said Walter Kunisch, senior commodity market strategist at Hilltop Securities Inc. Heat in US top producer Texas creates challenges for the crop development, he said. 

In other markets, raw sugar gained following the release of data on the declining quality for sugar-cane crops in top exporter Brazil. Arabica coffee fell, narrowing its premium over robusta as the pace of Brazil’s harvest increases and El Niño threatens Vietnam’s production of the cheaper beans.    

Eoin Treacy's view -

The big surprise for my family, in driving the 1100 miles to Phoenix and home again to Dallas, was how green the desert is. When we first completed that drive in May 2021, during our migration out of California, the landscape was barren. The California and Texas droughts had leeched moisture from the landscape. This time, the topography was much more appealing despite high temperatures. 



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July 11 2023

Commentary by Eoin Treacy

Turkey Agrees to Back Sweden's NATO Bid in Boost to Alliance

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

The about-face comes after months of arduous negotiations over Turkey’s demands and on the eve of a critical two-day NATO summit where leaders including US President Joe Biden are eager to show a united front and signal to Vladimir Putin that his war on Ukraine has only strengthened the alliance.

NATO’s northern enlargement heralds one of the most prominent changes in the European security landscape after Russia’s aggression led to shifts including a ramp-up of defense spending in Germany and plans to bring back conscription in France. The early 2022 attack on Ukraine prompted an almost overnight change in public opposition to membership in NATO in Finland and Sweden.

“Completing Sweden’s accession to NATO is a historic step that benefits the security of all NATO allies at this critical time,” Stoltenberg said in Vilnius. “I will not give you the exact dates for that. But this is a clear commitment.”

Eoin Treacy's view -

The big question for defense companies is where will the money come from for countries to meet their NATO spending targets? The need is clear, but the route to additional spending runs through national priorities like pensions and social programs. 



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July 11 2023

Commentary by Eoin Treacy

Coinbase Jumps to Highest Since August on Bitcoin ETF Momentum

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

Coinbase Global Inc. gains as much as 13% on Tuesday, trading at its highest intraday level since August and extending a rally driven by optimism over the potential US approval of a Bitcoin ETF. 

Shares of the biggest US crypto exchange traded at $88.27 a share as of 2:12 p.m. in New York. The stock has more than doubled so far this year amid a broad bounce for cryptocurrency linked stocks despite regulatory challenges from a lawsuit by the US Securities and Exchange Commission. 

On Tuesday, CBOE filed for amendments for five Bitcoin ETF applications, confirming that it reached an agreement with Coinbase on surveillance sharing agreements, a move to address concerns by the SEC over market manipulation. The filings previously had said that the exchange was “expecting” to enter into the agreement with Coinbase. 

Eoin Treacy's view -

All ETFs need to be able to transact effectively. Considering the sums likely to been committed to ETFs in a bull market, the reliability of execution and the need for compliance with anti-money laundering regulations mean Coinbase is the only US exchange large enough to fill the role. 



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July 10 2023

Commentary by Eoin Treacy

July 10 2023

Commentary by Eoin Treacy

Goldman Analysts' Bearish China Bank View Draws Fresh Rebuke

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

At stake was a report published by Goldman analysts including Shuo Yang last Tuesday, which highlighted margin risks and potential credit losses from banks’ exposure to local government debt. Yang, a former official at the China banking regulator, estimated that the “implied loss ratio of credit portfolio in debt investment book” could reach 25% for Merchants Bank, compared with 6% on average for lenders under its coverage.

A representative for Goldman declined to comment.

Shares of Merchants Bank have lost 12% in Hong Kong since Goldman cut its target price for the second time in three months with a neutral rating. The US bank now has one of the lowest target prices for the Chinese lender, according to data compiled by Bloomberg.

Merchants Bank argued that Goldman’s report is “illogical” in the way it calculates the potential losses, “lacks basic common sense,” and also overestimates its exposure to the local government financing vehicles. 

Eoin Treacy's view -

The Chinese banking sector is independent in name only. The government has no qualms about using the sector’s resources to further its long-term development goals. When that means supporting infrastructure development to industrialise the economy, banks were forthcoming with loans and earned strong margins. Now that government priorities have changed, bank liquidity is constrained and asset quality is deteriorating. 



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July 10 2023

Commentary by Eoin Treacy

Nasdaq 100 Plans Special Rebalance To Curb Dominance Of 'Magnificent Seven'

This article from Investor’s Business Daily may be of interest. Here is a section: 

Based on Nasdaq 100 methodology, the combined weight of the five companies with the largest market caps will be set to 38.5%. The five-largest companies, Apple, Microsoft, Google, Amazon and Nvidia had a combined weight of 46.7%. That suggests some notable reduced weightings for these names.

Meanwhile, no component outside the top-five market cap companies can have a Nasdaq 100 exceeding the lesser of 4.4% or the weight of the stock with the fifth-largest market valuation. That points to at least a slight decline in TSLA stock's weight.

The official reweightings should be released on Friday, perhaps after the close. That will also include stocks that will see increased weightings.

Eoin Treacy's view -

The Nasdaq-100 may have less money following it than the S&P500. However, many of the most liquid options are attached to the index and mega-cap stocks. The Invesco QQQ ETF has an NAV of $200 billion. Readjusting weightings away from the largest constituents over the next two weeks represents a clear risk of mean reversion while also favouring the smallest constituents of the Index. 



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July 10 2023

Commentary by Eoin Treacy

Russia confirms BRICS will create a gold-backed currency

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

"Talk of BRICS gold backed currency seems like an echo chamber. They do not have the gold to back a currency meaningfully," said Marc Chandler, managing director of Bannockburn Global Forex. "Have we not learned anything from the EMU experience of monetary union without fiscal union. Color me profoundly skeptical."

Many analysts have been speculating about a new global currency to challenge the U.S. dollar's role as the world's reserve currency. In late March, Former Goldman Sachs chief economist Jim O'Neill wrote in a paper published in the Global Policy Journal that the U.S. dollar's dominance is destabilizing global monetary policies. He added that a BRICS currency, challenging the U.S. dollar's dominance, would bring stability to the global economy.

"Whenever the Federal Reserve Board has embarked on periods of monetary tightening, or the opposite, loosening, the consequences on the value of the dollar and the knock-on effects have been dramatic," he said.

Eoin Treacy's view -

A competing reserve currency group to the US Dollar would act as a competing force and promote responsible monetary and fiscal action over the long term. In the short term, the scrabble to accumulate gold would be enormously disruptive and would result in a devaluation of every other asset relative to the metal’s price. That kind of pain tends to be sprayed around and would not be confined to the financial sector. 



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July 07 2023

Commentary by Eoin Treacy

July 07 2023

Commentary by Eoin Treacy

Under the Surface, Cracks Are Emerging in US Labor Market

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

“It seems clear that the labor market is cooling, and if we are correct about the pending benchmark revisions, the extent to which the labor market has cooled will take many by surprise,” said Richard Moody, chief economist at Regions Financial Corp.

The underemployment rate, a broader measure of labor-market slack than the headline unemployment rate, is at its highest level in almost a year as more Americans report working part-time for economic reasons. That number rose in June by the most since the immediate onset of the pandemic.

While some employers continue to struggle to attract and retain workers — which has helped keep wage growth elevated — higher interest rates and a gloomy outlook may be starting to weigh on labor demand.

Eoin Treacy's view -

As I discussed in the audio/video last night, employment data is unreliable. How it is gathered, and how it reflects reality on the ground is not especially accurate. More importantly employment data is a lagging indicator.

Conditions need to deteriorate before they are reflected in corporate hiring decisions. The job openings report was designed in the hope of creating a leading indicator. The facts on the ground are companies leave job advertisements open even if they have no intention of hiring immediately.



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July 07 2023

Commentary by Eoin Treacy

String of Global Heat Records Raises Alarm on Climate Change

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

Heat this summer has already put millions of people around the world at risk. China is experiencing a scorching new heat wave less than two weeks after temperatures broke records in Beijing. Extreme temperatures in India last month have been linked to deaths in some of its poorest regions, while last week saw a dangerous heat dome cover Texas and northern Mexico.

The extreme weather may put more pressure on global leaders to curb greenhouse gas emissions generated from burning coal, oil and natural gas that trap heat in the atmosphere. The effects of climate change are being exacerbated by the arrival of the first El Niño in almost four years.

It’s likely the world will exceed 1.5C of warming “in the near term,” with efforts on climate action still insufficient, the United Nations’ Intergovernmental Panel on Climate Change said in March in a report summarizing five years of its own research. Global greenhouse gas emissions need to be cut to 60% below 2019 levels by 2035, according to the report, and climate-related risks are rising with every increment of warming.

Eoin Treacy's view -

The “dangerous” heat dome over Texas was a non-event for most people living in the region. Every home has an air conditioner. Singapore’s Lew Kwan Yew was well aware of the benefit gained from air conditioning given their hot humid climate. It was a major contributor to economic productivity. Additionally, air conditioning is a great moderator in the spread of malaria which is a growing concern as average temperatures rise in previously temperate zones. (Europe, USA).

 

 



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July 07 2023

Commentary by Eoin Treacy

Musk Ultimatum to Taiwan Imperils Its Push to War-Proof Internet

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

Starlink’s performance in Ukraine also caught the attention of China’s military analysts.

In April last year, the Beijing Institute of Tracking and Telecommunications published a report acknowledging the satellite system would create “a huge challenge for our current situational awareness and traditional defense capabilities.”

In his comments to the Financial Times published in October, Musk said Beijing had “made clear its disapproval” of the Starlink rollout in Ukraine to help the military circumvent Russia’s severing of internet access. He added Beijing had sought assurances that he wouldn’t sell the service in China.

Those sort of China vagaries worry politicians in Taiwan and beyond.

“If I’m China, I would ask Elon Musk to control all the satellite receivers in Taiwan. If I can control him, in an emergency I can turn it off,” Herming Chiueh, Taiwan’s deputy minister of digital affairs, said. “That’s my perspective, because we know China better than anyone else.”

Lincoln Hines, a China space expert and assistant professor at the US Air War College in Montgomery, Alabama, agrees Taiwan has reason to be concerned.

“Could Taiwan really count on the goodwill of Elon Musk in a crisis? That’s a position not many countries would like to be in,” he said.

Eoin Treacy's view -

Why was Elon Musk allowed to wholly own the Tesla factory in Shanghai? No other industrial company has been afforded that benefit. China has a dominant position in designing and manufacturing next generation batteries, and Tesla competes with domestic companies. They don’t need Tesla, so there must be another reason for agreeing to such beneficial terms.



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July 06 2023

Commentary by Eoin Treacy

July 06 2023

Commentary by Eoin Treacy

China Stocks Sink in Hong Kong on Growth Woes, Fed Concerns

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

The Hang Seng China Enterprises Index closed down 3.4% Thursday, with banks among the biggest drags as they traded ex-dividend. Both China Construction Bank Corp. and Industrial & Commercial Bank of China Ltd. dropped more than 3%. 

The selloff extended the declines on Wednesday, when a key indicator showed a slowdown in China’s services industry, adding to worries about a patchy economic recovery and disappointment with Beijing’s hesitance in rolling out stronger support measures. 

Sentiment weakened further after Bloomberg News reported that Chinese lenders have stopped buying a special type of bond mostly sold by the nation’s debt-laden local government financing vehicles. While the move may disrupt financing plans for some LGFVs, the long-term impact on their access to funding is unclear.

“There are several reasons for the losses today, including short-sell ratio reaching a record high, weakening RMB and the slower-than-expected China economic recovery,” said Sonija Li, head of retail research at MIB Securities. “Till now, there have been no game-changer policies, resulting in market disappointment.”

Eoin Treacy's view -

The banks going ex-div contributed to the decline today but that is not the cause of the broader downtrend. The big question for Chinese stocks remains the willingness of the government to support asset prices with stimulus. Without that, the risk of deflation is nontrivial.



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July 06 2023

Commentary by Eoin Treacy

US Job Market Shows Fresh Strength With ADP and Layoff Data

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

“The labor market isn’t always going to be this strong. Recessions happen,” Nick Bunker, research director at Indeed Hiring Lab, said in a note. “But today’s data and data from the past several months continue to make a soft-landing scenario increasingly likely.”

Treasury yields surged and the S&P 500 slumped following the reports, which will likely further solidify the case for the Federal Reserve to raise interest rates at its meeting later in July, following last month’s tenuous decision to pause after 10 straight increases. The broader question is whether strength in hiring will endure, or if the figures represent a last gasp amid other signs of a cooling economy.

Eoin Treacy's view -

The surprise jump in hiring increases the potential for even more interest rate hikes by giving the impression there is no chance unemployment is going to rise. The rebound in the technology sector has helped improve sentiment amid the belief that AI is both the saviour and scourge of humanity.



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July 06 2023

Commentary by Eoin Treacy

Generative AI: Hype, Or Truly Transformative?

 Thanks to a subscriber for this report from Goldman Sachs. Here is a section:

Sarah Guo: Misjudging the timetable of large technology shifts is a common pitfall in investing. I am all-in on a fundamental bet that this shift will drive substantial value creation, but this is a decade+ transition. In the meantime, areas of mispricing have certainly surfaced. In the private markets, a large cohort of investors is trying to figure out how to gain exposure to this technology, or at least how to think about the risk profile around it. And while they're developing a deeper understanding of the space, the tendency has been to anchor to investments with more obvious heuristics. For example, many investors seem to be assessing startups based on whether the people leading them are former researchers at OpenAI or DeepMind, because that’s a much easier question to answer than whether a particular product or research thesis will be successful. Similarly, because databases are a known and well-understood category of software, vector databases are receiving substantial investor attention.

That said, I am already seeing some investors becoming more skeptical because most enterprises haven’t yet adopted generative AI, but this seems short-sighted. Remember that ChatGPT only launched in November; the average enterprise planning and execution cycle tends to be longer than six months. So, investors will need to be patient. As with the internet, mobile, and cloud, some winners emerged immediately, but others only emerged a decade later; discovering the use cases and building great software takes time and entrepreneurial ingenuity. You wouldn’t have wanted to stop your internet investing with Napster.

Eoin Treacy's view -

The question of cognition and intention, as they relate to AI models, are key to the development of artificial general intelligence. At present large language models can provide answers that have correct context but that does not imply understanding.

Additionally, the question of intentionality in an AI system implies desire in a manner similar to how humans describe that term. Anthropomorphization of computer systems should really be confined to science fiction.



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July 05 2023

Commentary by Eoin Treacy

Video commentary for July 5th 2023

July 05 2023

Commentary by Eoin Treacy

Fed Minutes Reveal Divisions Over Decision to Pause in June

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

Federal Reserve officials struck a tenuous agreement to pause interest-rate increases at their June meeting, all but committing to hike again later this month in a bid to keep fighting stubborn inflation.

The minutes from the Fed’s June 13-14 meeting show that while almost all officials deemed it “appropriate or acceptable” to keep rates unchanged in a 5% to 5.25% target range, some would have supported a quarter-point increase instead. 

“It was a little surprising given that the decision was sold as unanimous from Fed officials,” said Lindsey Piegza, chief economist at Stifel Nicolaus & Co. “It’s pretty clear that there was a divergence of opinions, with some officials pretty clearly giving some reluctance for a one-month pause.”

Eoin Treacy's view -

The likelihood of another hike in July is being priced into the Treasury market. Meanwhile, investors are betting the July hike will be the last because manufacturing data is underwhelming and the tide of higher rates will have a negative effect on consumer behaviour in due course. Student loan debt repayments starting up in October are an additional headwind.



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July 05 2023

Commentary by Eoin Treacy

UK plans to drop flagship �£11.6bn climate pledge

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

To meet the £11.6bn target by 2026, government officials have calculated that it would have to spend 83% of the Foreign Office’s official development assistance budget on the international climate fund. Civil servants said in the leaked document that this “would squeeze out room for other commitments such as humanitarian and women and girls”.

It also claimed that factors such as Ukraine and debt relief could make it even more difficult to meet the target. This is because the government has cut international aid spending to 0.5% of gross national income since the announcement was made, squeezing budgets across the board, and because ministers did not spend most of the money allocated to the climate fund over the past few years, leaving the majority to be spent by 2026.

Eoin Treacy's view -

It seems the number one rule of government is if you do not spend your budget, it will be taken away. The troubling reality for aspirational spending is promises are easy to make when coffers are flush and difficult to sustain when they are not. Climate change is a tomorrow problem, even if the timing of this leak coincided with the highest recorded average global temperature. The second rule of politics is timing is everything.



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July 05 2023

Commentary by Eoin Treacy

Why Meta Is Launching Twitter Rival Threads

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

2. Why is Meta launching a Twitter alternative?

Meta is clear about wanting to poach Twitter’s users. Meta Chief Product Officer Chris Cox described Threads as “our response to Twitter” at a companywide meeting in June reported by The Verge. “We’ve been hearing from creators and public figures who are interested in having a platform that is sanely run,” he said. That’s a pointed reference to how Musk has been running the company since he purchased it for $44 billion in October 2022. 

Eoin Treacy's view -

When a social media company is as large as Meta Platforms, there are only two ways to grow. The first is how they got so big in the first place. That means capturing a demographic and holding on to them. Facebook users tend to be middle aged; Instagram users are millennials and younger, TikTok has generation Z and Roblox purports to have an even younger generation. Predicting which app today’s children will use most prolifically is a near impossible task but the aforementioned have at least demonstrated staying power.



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July 04 2023

Commentary by Eoin Treacy

Video commentary for July 4th 2023

July 04 2023

Commentary by Eoin Treacy

Kiwis Fall Behind in Debt Payments as High Interest Rates Bite

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

New Zealand’s central bank has tightened aggressively in the past year and a half, taking the Official Cash Rate to its highest since 2008 and driving up the costs of home loans, vehicle finance and personal borrowing. The rising cost of repayments is adding to a squeeze on consumer spending, adding to the risk of sluggish economic growth for the remainder of 2023.

“There’s no question some Kiwi households and businesses are walking an economic tightrope,” said Centrix Managing Director Keith McLaughlin. “It’s no secret a recession was the Reserve Bank’s goal to help curb spending. What remains to be seen is how the rest of 2023 plays out for consumers and businesses on the front line.”

New Zealand was in recession earlier this year, and most economists expect another contraction will hit later in 2023, although their view on the timing is mixed. The RBNZ has said a recession was needed to slow demand and bring inflation back to the 1-3% band it targets.

Eoin Treacy's view -

New Zealand has a long record of taking hard medicine when required. It is common sense that demand needs to take a shock if persistent inflationary pressures are to be overcome. That’s especially true when wage demands are rising, and the interest rate sensitive portions of the economy have already been addressed with higher rates. Other central banks are on a similar trajectory but are not as forthcoming in sharing their intentions.



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July 04 2023

Commentary by Eoin Treacy

Petrobras Switches From Asset Seller to Buyer as Debt Slumps

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

“Petrobras has solid financial metrics, and took advantage of a market liquidity window,” Moody’s senior analyst Carolina Chimenti said in an interview. “So far there’s been no drastic change in its financial strategy.” 

While the yield on the firm’s latest bond is above its weighted average rate, there are several US-dollar transactions that were first priced at more expensive terms, according to data compiled by Bloomberg. For instance, the firm has over $710 million of 7.375% bonds due in 2027, which was first priced at par. The securities are quoted at about 104 cents on the dollar.

“With this resource we’ll improve the profile, paying debts that have a higher rate” said Leite, without disclosing the specific securities that could be included in a transaction which may happen later this year. 

The CFO expects investors to be more optimistic about Brazil in the short-term. Talks with bankers suggest the accounting scandal that toppled Brazilian retailer Americanas SA was restricted to the segment, Leite said. “They thought it would be a gunpowder fuse, but it was just a match.”

Eoin Treacy's view -

Petrobras cut its dividend shortly after Lula won the Brazilian election. That was a precautionary measure in response to populist accusation the company was looking after investors better than the interests of the country. The share quickly dropped in response to that decision and that ensured the dividend yield has dropped to a less politically objectionable 12.29% compared the Selic rate of 13.75%.



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July 04 2023

Commentary by Eoin Treacy

Yen's Tumble Ends Up Helping Japan Bonds Outperform Major Peers

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

The fattening up of currency-hedged, volatility-adjusted yields comes as the BOJ’s minus 0.1% policy rate and extra discounts on yen interest rates in the market — the so-called currency basis — make it even more lucrative for investors to short the yen for hedging.

“The yield pickup will remain attractive for foreign investors if the currency basis stays wide as a result of a cheaper yen,” said Shoki Omori, chief desk strategist at Mizuho Securities Co. in Tokyo. That’s the case “despite the risk of yields falling across the curve” as the BOJ may avoid changes to its easy monetary policy, he said.

The combination of holding Japanese debt with hedging against a weaker yen doesn’t come without risks, though.

Should the BOJ lift its 10-year yield cap, it would cause capital losses. An end to the negative-rate policy makes it less lucrative to short yen, though most economists don’t see that coming this year. Hedging may also backfire if Japan intervenes to limit yen weakness, with chief currency official Masato Kanda warning last week of an appropriate response to any excessive moves in the market.

Eoin Treacy's view -

The decline of the Yen was inevitably going to create demand for carry trades. As returns from hedged exposure to the market become better understood, that will encourage additional demand. JGB yields are compressing as the government successfully auctions news supply. That is despite inflation remaining above trend and as the Bank of Japan seems intent on holding true to its yield curve control program.



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July 03 2023

Commentary by Eoin Treacy

July 03 2023

Commentary by Eoin Treacy

Capital Trends Towards Consolidation

Eoin Treacy's view -

The best, most innovative, and flexible companies continue to grow and erode the competitive edge of their less significant rivals. Those that cannot compete go into long relative and eventually absolute declines.

When the FANGMAN acronym was first created it did not include Tesla. Then Tesla became so significant it was added in. Now Netflix has failed to keep pace with the appreciation in the fortunes of the largest companies so the group is back to seven constituents. That reordered group now occupies more than half the Nasdaq-100.  

 A lot has to go right for companies to be granted high valuations. It’s not only a story, but there also has to be a fundamental basis too. For Apple, navigating the Chinese market, where they manufacture and sell without falling foul of the government censor is one of the most significant diplomatic success stories in history. For Microsoft, the embrace of subscriptions was a landmark event. Amazon’s foresight in dominating the datacentre market and disintermediating the reseller market were equally impressive. Tesla has mastered the art of regulatory arbitrage. Carbon taxes its competitors buy, help pay for the company’s factories.



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July 03 2023

Commentary by Eoin Treacy

Bitcoin Bulls Are Testing The Year's High With Liquidity Light

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

“Historically liquidity is definitely lower around holidays and combined with a relatively large increase in leverage recently, prices will be more susceptible to sharp movements,” said Kyle Doane, a trader at Arca. “The market is still leaning bullish and overall sentiment continues to improve.”

BlackRock refiled paperwork with the US Securities and Exchange Commission on Monday through Nasdaq to add new details to its proposal for an ETF. 

A spot Bitcoin ETF has long been seen as the holy grail for the crypto industry, as a way to reach a broader swath of consumers, but the SEC has repeatedly rejected prior filings. Bitcoin reached almost $69,000 in late 2021.

Eoin Treacy's view -

Bitcoin is a supply inelasticity meets rising demand environment at present. Supply cannot easily be increased but demand could surge with the introduction of a spot ETF. That is fuelling speculation about what it will take to get a project over the line.



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July 03 2023

Commentary by Eoin Treacy

Pakistan Stocks Surge Most in 15 Years After IMF Loan Deal

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

Financial support from multilateral lenders has boosted investor confidence — and returns — across troubled emerging and frontier markets in recent months, as funds were approved or disbursed for countries including Kenya, Tanzania, Senegal, Ukraine, Ghana and Ivory Coast. Other sovereigns in Africa, including Egypt and Mozambique, are expected to have their loans approved soon.

Inexpensive valuations are helping Pakistan’s market as well. Concerns related to the slew of negative headlines recently ranging from political turmoil to the risk of a debt default and sinking rupee had sent investors fleeing, with the KSE-100 Index becoming the world’s cheapest equity benchmark.

“Overall, the valuations are dirt-cheap with significant room for rebound,” said Ali Raza, head of international equities trading at BMA Capital, in Karachi. 

Pakistan dollar bonds advanced, with the paper due in 2024 gaining 17 cents in the past week. The 8.25% 2024 bond was indicated 3.1 cents higher to trade at 73.6 cents on the dollar on Monday, a level last seen about a year ago in August. The gains come after dollar bonds notched their best-ever week. Pakistan’s currency market opens Tuesday.

Eoin Treacy's view -

The jump in global interest rates and steady removal of liquidity has weighed heavily on frontier markets. The end of the USA’s war in Afghanistan, last year’s massive floods and slow recovery, as well as political upheaval have added to the negative perception of the Pakistan market’s potential.



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July 01 2023

Commentary by Eoin Treacy

July 01 2023

Commentary by Eoin Treacy

China's Economic Woes Are Multiplying and Xi Has No Easy Fix

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

If the government continues to sit on its hands, things could get worse. In a scenario where property construction crumbles, reduced land sales hit government spending, a US recession weakens global demand and China's markets shift to risk-off mode, Bloomberg's SHOK model shows another 1.2 percentage points shaved off growth.

“We’re caught in a kind of vicious circle in the sense that you need a massive stimulus to create a little moderate impact," said Keyu Jin, an economics professor at the London School of Economics and Political Science who wrote The New China Playbook: Beyond Socialism and Capitalism.

“We have to be prepared for slower growth in the future because China is really in transition right now from industrialization to innovation-based growth," she said. "Innovation-based growth is just not that fast.”

To be sure, China's policymakers have defied the doomsayers before and could do so again. A bigger-than-expected stimulus, proactive moves to resolve bad debts, a commitment to support entrepreneurs and extending an olive branch to the US could dispel some of the pessimism.

Eoin Treacy's view -

This is not the first time that the Chinese government has been faced with debt issues and a domestic slowdown. The massive devaluation of the Yuan over the New Year holiday in 1994 and subsequent fixed exchange rate was aimed at getting inflation under control. In the early 2000s most of the state owned banks had to be recapitalized and bad banks were set up to manage the debts. 



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July 01 2023

Commentary by Eoin Treacy

Apple Attains Historic $3 Trillion Milestone as Tech Stocks Boom

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

Apple Inc. made Wall Street history as the first company with a market value over $3 trillion, the latest sign of big tech’s seemingly unstoppable dominance in equity markets.

The iPhone maker gained 2.3% on Friday, adding to a rally that’s added more than $983 billion to its size this year and leaving it roughly a half-trillion dollars above the next-largest company. Apple’s ascent to the milestone helped the Nasdaq 100 Index to its best-ever first half ever, driving a broader stock rally that underscored the dominance of tech megacaps

Eoin Treacy's view -

$3 trillion is a mind boggling sum but so were $2 and $1 trillion when they were surmounted. It would be encouraging to think this latest feat was achieved with positive revenue growth or blockbuster new product. Unfortunately, that’s not the case. Apple’s revenue has been stagnant to falling over the last couple of years, the new VR headset is possibly a tomorrow story and the company’s AI credentials are not exactly headline-grabbing.



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July 01 2023

Commentary by Eoin Treacy

The Giant Grid Bottleneck Threatening Climate Goals

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

2. What will that entail?
It means building grids dense enough to absorb these renewable sources while still achieving the stable frequency that’s vital for the smooth functioning of electrical equipment and electronics. It will also require more high-voltage lines to carry surpluses from regions where the sun is shining and the wind blowing to meet demand elsewhere. Right now, the lack of long-distance transmission means a lot of recently installed renewable capacity is going to waste. BNEF estimates it will cost around $21.4 trillion to adapt grids to a net zero world and require 152 million kilometers of new cables — enough to stretch from Earth to the Sun if laid end to end. That implies a surge in consumption of copper — more than the mining industry can currently supply. But the biggest obstacle to grid development right now isn’t sourcing the materials or finding the money to pay for it all. 

3. What’s the hold-up?  
Local communities often oppose new wind farms, solar arrays and power lines and projects can face years of consultations involving multiple stakeholders. State regulators impose detailed technical studies and other bureaucratic hurdles. There are almost 1,000 gigawatts of solar projects stuck in the interconnection queue across the US and Europe, close to four times the amount of new solar capacity installed around the world in 2022. If all the wind and solar projects stuck in limbo were completed and connected to the grid, they’d add up to more than the present electricity generation capacity of the US. 

Eoin Treacy's view -

I wonder if copper is going to follow the trajectory of lithium. That market has been characterised by a series of mismatches that have led to massive volatility in the lithium price. Cast your mind back to the period immediately before the credit crisis in 2007. Enthusiasm about the green future was riding higher than it is today. There was a lot of enthusiasm about wind, solar, nuclear and the first EVs were just reaching market.



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June 30 2023

Commentary by Eoin Treacy

June 30 2023

Commentary by Eoin Treacy

Coinbase Is Largest Dollar Bitcoin Exchange

This note from Bloomberg may be of interest.

Coinbase is the largest market globally for trading Bitcoin in US dollars, according to multiple sources including CoinMarketCap, which may make it a market of significant size in the SEC's eyes. The largest Bitcoin trading markets are currently on Binance, but both are stablecoin pairs with Tether (USDT) and TrueUSD (TUSD). Coinbase's USD trading pair is third and at least 3x as large and liquid as No. 2 USD exchange Kraken. Coinbase also has multiple other Bitcoin pairs in the top 50, including USDT, EUR, ETH and GBP.

Combining the assumed Coinbase surveillance sharing agreement (SSA) with the regulated CME Bitcoin futures market might constitute oversight in an aggregate market of significant size. This is before adding potential other SSAs with spot exchanges such as Gemini.

Eoin Treacy's view -

The big question for everyone in the crypto market is whether an ETF will be permissioned. Once the precedent is set, every asset management house will have a product offering within weeks and that will represent a massive new source of demand. That’s the primary reason bitcoin has rebounded to test April peaks around the psychological $30,000 level. If the market is disappointed by the SEC’s decision, the price will come back down.



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June 30 2023

Commentary by Eoin Treacy

London Water Crisis Exposes 'Broken Britain' Danger for Sunak

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

Thames Water sits at the center of decades of struggles over the size of the British state. The water industry was privatized in the late 1980s under then-Prime Minister Margaret Thatcher, who remains idolized by the Tory right-wing for her efforts to shrink the public sector.  

Yet taking utilities out of state hands remains controversial, especially now that people can see the leaking pipes and sewage flows themselves. Complaints have been fanned by dividends paid by service providers alongside reports that underinvestment is contributing to problems.

Voters are “fed up to the back teeth with this company that not only pumps sewage into our precious River Thames, but also we’ve seen sewage flooding our streets in recent times of heavy rainfall,” Munira Wilson, the Liberal Democrat MP for Twickenham in southwest London, told Parliament. “This is indicative of underinvestment by the company in fixing leaks, and being stripped to the bare bones while lining the pockets of executives.”. 

Eoin Treacy's view -

Too often government action swings between outright control and laissez faire deregulation. The Conservatives privatized vast swathes of the economy in the belief government control breeds ineptitude and corruption. The counter argument is public utilities are too important to be left solely in the hands of investors. In between there is seldom room for discussion about what good governance should entail.



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June 30 2023

Commentary by Eoin Treacy

Brazil Central Bank Signals Rate Cut as Lula Piles Pressure

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

Latin America’s largest economy is showing mixed signals, with stronger agriculture production while other sectors grow modestly, policymakers wrote in their minutes. With more resilient activity, central bankers raised their estimates for neutral rates, which neither stimulate nor restrict the economy, to 4.5% from 4% previously. 

“They are opening the door slowly, cautiously, given the uncertainty that remains around inflation targets,” said Cristiano Oliveira, chief economist at Banco Pine. “If current 3% goals are kept unchanged, rate cuts will begin in August.” 

Investors are awaiting a decision on long-term inflation targets later this week, when Campos Neto, Haddad and Tebet will meet to set the goal for 2026. 

“Decisions that induce the reanchoring of expectations and that raise confidence in inflation targets would contribute to a faster and less costly disinflation process, allowing monetary easing,” central bankers wrote in their minutes. 

Lula’s first two picks for the bank’s board are likely to participate in August’s rate decision meeting, with former deputy Finance Minister Gabriel Galipolo seen as an advocate for lower borrowing costs.

Eoin Treacy's view -

Brazil showed the rest of the world what has to be done to get inflation under control. They raised rates by 11.75% in 17 months. That’s double the Fed’s pace of tightening. Brazilian inflation has dropped from a peak of 12.13% in April last year to the latest reading of 3.94%. That level is back in the region of the lows from back in 2006/7 and 2017-2020.



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June 28 2023

Commentary by Eoin Treacy

Video commentary for June 28th 2023

Eoin Treacy's view -

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

Some of the topics discussed include: FANGMANT at new high relative to the total market, oil steadies at the lower side of the range, dollar stable, bond yields compress, broad stock market firms globally. 

Please note - My family and I are driving to Phoenix tomorrow and the day after so my eldest daughter can compete in the fencing national championships. I'll be posting the site and audio/video later than usual as a result. We'll be in the Phoenix area until July 8th before returning home. 



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June 28 2023

Commentary by Eoin Treacy

Australia's Budget Surplus Swells on Jobs, Exports Strength

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

The budget surplus, Australia’s first since just before the 2008 global financial crisis derailed the nation’s finances, comes as Chalmers faces pressure to tighten spending further to slow inflation. 

And

A survey by JWS Research published in the Australian Financial Review on Tuesday found 75% of those surveyed said cost-of-living was a major issue the government needed to address, ranking its performance to date as below par.

Chalmers reiterated that he expects Australia’s economy will slow significantly in the coming year as higher borrowing costs drag on activity. The RBA forecasts inflation will only return to the top of its target in two years’ time.

Eoin Treacy's view -

Year over year inflation has dropped from 8.4% in December to 5.6% today. That’s a meaningful peak. It’s still well above the pre-pandemic norm but the trend is moving in the right direction.  



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June 28 2023

Commentary by Eoin Treacy

Nvidia Leads Chip Selloff After Report on US Tightening AI Curbs

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

Nvidia this year designed less-capable chips that fall under thresholds that require a license from the Commerce Department before export to China or other countries of concern.

Washington is now weighing action as soon as next month to expand the curbs to include those lower-powered semiconductors, the Wall Street Journal reported, citing anonymous sources.

Such a move underscores the Biden administration’s determination to contain China’s technological rise and could stoke tensions between the two countries. The US is increasingly concerned about Beijing’s technological ambitions, including around the use of AI in military and scientific advances that could tilt the geopolitical balance. 

While that’s likely to hurt Nvidia’s and AMD’s business with the world’s No. 2 economy, the two chipmakers remain at the forefront of a surge in AI development that’s driving investment from the US to Europe and China. From Microsoft Corp. to Baidu Inc. and ChatGPT developer OpenAI, companies around the world are buying their products to train the next generation of artificial intelligence services.

Eoin Treacy's view -

Nvidia got around the ban on selling A100 chips to China by creating a custom underpowered powered version; the A800. They can achieve the same goal, but significantly more units are required. That’s great for sales, but it does not comply with the spirit of the USA efforts to maintain a competitive edge in AI relative to China. Sales of these altered chips exploded in the first half of the year because Chinese buyers understand the window of opportunity is unlikely to stay open indefinitely. 



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June 28 2023

Commentary by Eoin Treacy

Brookfield Trumps Buyout Titans With $50 Billion Deal Spree

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

The investment firm also isn’t shying away from putting some of its assets on the block. It’s seeking more than £4 billion in a sale of UK holiday resort chain Center Parcs, according to people familiar with the matter. Brookfield is also exploring the sale of a stake in an iconic office tower in the heart of Dubai’s financial district, Bloomberg News reported this month. 

Brookfield has been hunting for bigger deals after bringing in around $100 billion of fresh money across its various businesses over the past 12 months. It’s been actively raising money for property, infrastructure, private equity and credit strategies in a bid to boost its fee-bearing assets under management to $1 trillion. 

Large investors are becoming more selective on which private equity funds they’ll back, and buyout firms can’t count just on cheap financing or revenue growth to deliver returns any more, according to Brookfield’s Ranjan. 

“You have to generate those returns and create growth through operational improvements,” he said. “As an industry as a whole, we’re back to ‘roll up your sleeves’ private equity.”

Eoin Treacy's view -

Brookfield is alternative investment royalty. It is spoken of in reverential terms among institutional investors and the group’s approach to long-life income producing assets is well respected. That has not helped performance over the last year but it has aided in securing fresh funds for investments. 



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June 27 2023

Commentary by Eoin Treacy

June 27 2023

Commentary by Eoin Treacy

Is It Time to Cancel the Recession Altogether?

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

Yet the forecasting consensus still sees a 64% probability of recession in the next 12 months. They’re not giving up on the downturn thesis, just pushing it back.

At some point during a long streak of consistently underestimating month-to-month data, shouldn’t we all reconsider whether economists’ overarching narrative may simply be wrong, not just early? For the past 15 months or so, economists and strategists have been obsessed with Federal Reserve history and the yield curve. The historical record, of course, showed that Fed increases and inverted yield curves tend to signal a recession not so far down the road, and that may have blinded some analysts to the signs of strength that were right in right in front of them.  

Households and businesses emerged from the pandemic with strong cash balances and modest debt burdens that have made them extremely resilient to higher interest rates. The jump in mortgage rates cooled housing activity, but it didn’t sink prices because homeowners — many with mortgages below 3% that they were in a fine position to keep servicing — were in no rush to sell. Meanwhile, the job market remained strong thanks to a pent-up demand for labor that has continued to buoy US consumption. 

Can this continue?
If the pessimists have one thing working in their favor, it’s resilient core inflation and a Fed that’s determined — perhaps overly so — to bring it back to its 2% target. If you believe that demand is keeping inflation high (and there’s some evidence to that effect), then all of this economic strength will simply poke the bear (in this case Fed Chair Jerome Powell). Powell has the tools to break the economy’s back if he decides he wants to. But at the moment, the outlook looks remarkably sunny. And recent history has shown we should pay attention to the economic reality before us and not get overly fixated on history and hypotheticals.

Eoin Treacy's view -

The Inversion of the yield curve is the most reliable lead indicator for a US recession. However, it is worth reminding ourselves, that the initial inversion starts the countdown for a recession, but the lead can be anything from six to eighteen months into the future. By the time a recession is actually confirmed most people have forgotten about the initial signal. 



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June 27 2023

Commentary by Eoin Treacy

Email of the day on AI and trading

Now that AI is playing a major part in investment and trading plans, do you subscribe to this way of trading

Eoin Treacy's view -

Thank you for this topical question. The advent of large language models has ignited a mania in speculation about the capabilities of artificial intelligence. Amid guesses about what will be possible in future, let’s first nail down what is possible in the present.

AI can compose music, compile art and write academic papers. It can also write business emails and respond convincingly to subjective questions. These are inspiring qualities and form the basis for the expected productivity gains being priced into the stock market. 



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June 27 2023

Commentary by Eoin Treacy

Eli Lilly's New Weight-Loss Drug Is the Best Yet

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

Retatrutide’s performance seems to come from its unique way of tinkering with the hormones that control our appetite. Like Wegovy, retatrutide mimics a hormone called GLP-1, which helps to control blood sugar levels by signaling the secretion of insulin after eating. And like tirzepatide, the drug also potently mimics a second hormone involved with insulin secretion called GIP. But retatrutide also stimulates a third hormone, the glucagon receptor, which unlike GLP-1 and GIP is found in the liver — an addition that could be driving some of the drug’s benefits.

Indeed, significant weight loss isn’t the only reason people are excited about the drug’s early data. As I’ve written in the past, obesity medicines still need to prove they can have a positive impact on patients’ health. On that front, Lilly’s drug is already hitting some key metrics. For example, treatment with retatrutide led to a 20% reduction in LDL, or “bad” cholesterol, double the improvement typically seen with other GLP-1 drugs.

And higher doses of retatrutide lowered levels of fat in the liver by over 80%. Liver disease is so common in people with Type 2 diabetes that the American Diabetes Association recently recommended that all Type 2 diabetics be screened for it. And a small portion of people with nonalcoholic fatty liver disease go on to develop a more serious condition called NASH, where accumulation of scar tissue eventually prevents the liver from properly functioning.

The hope is that the right weight-loss drug could tackle obesity, diabetes and liver disease all at once. While larger studies still need to be run, it’s looking a lot like retatrutide might be the one to take on that triple threat.

Eoin Treacy's view -

This article from the Nature may be also be of interest. 

Obesity is a major productivity inhibitor as well as a major cost centre of the health care sector. Moreover, the promise of a pill that can help one lose 25% of body weight in a year is going to be a hit with anyone who has ever struggled keeping off the pounds.



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