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February 07 2020

Commentary by Eoin Treacy

Email of the day - errata

I would just like to correct an error you made in today’s commentary. Ebola is not in the coronavirus family. Ebola is an RNA filovirus virus in the family Filoviridae, their natural carrier hosts in the animal world are African fruit bats.

Eoin Treacy's view -

Thank you for this informative email which certainly helped improve my knowledge. 



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February 07 2020

Commentary by Eoin Treacy

Email of the day on currency transfers

The question about money transfer services was interesting to me because I went through the same investigation back in 20215. My experience may be useful to other subscribers.

Although I was, of course, keen to avoid exorbitant Bank charges, the key issue for me ended up being the ability to do what I wanted. I looked at TransferWise and also tried CurrencyFair, but none quite did the job. I live in the UK but I have financial assets generating annual income in Canada. I have a simple deposit account there with CIBC, where that income is accumulated. From time to time I need to transfer cash from Canada to the UK. My requirement was to initiate from the UK but have the funds deducted automatically from the Canadian CIBC account and transferred to my account in the UK. Once set-up, I wanted this to be automatic from the point where I initiated.

I eventually found a service called OFX https://www.ofx.com/. 

Part of the transfer costs can arise from fees at the receiving bank when funds are from overseas. OFX gets around this by having 115 local bank accounts. There are no fees to retrieve the cash (in Canada) or to deposit in the UK.  Exchange rates are determined by spot prices when you initiate. Rates are locked once initiated and you can do forward pricing. Some other useful  facts about pricing at https://www.ofx.com/en-gb/faqs/whats-the-cheapest-way-to-send-money/

The setup is a bit more stringent and time-consuming because of the need to set up a Direct Debit facility (in Canada, a Pre-Authorised Debit) so OFX can access your account. The security checks are inevitable.

https://en.wikipedia.org/wiki/Direct_debit#Canada

However, once it's all done, I can say it works very well, and the OFX people are very helpful on the phone if there are questions. They have even been forgiving when I mistakenly tried to send more than the $50K per-transaction amount.

Eoin Treacy's view -

Thank you for this informative email. 



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February 06 2020

Commentary by Eoin Treacy

Video commentary for February 6th 2020

February 06 2020

Commentary by Eoin Treacy

Wall Street Warnings Grow Louder for Investors Defying Virus

This article by Cecile Gutscher and Anchalee Worrachate for Bloomberg may be of interest to subscribers. Here is a section:

“Pretty much every client we talk to wants to buy the dip,” wrote Tobias Levkovich, Citigroup Inc.‘s chief U.S. equity strategist in a note. “And that is not comforting.”

The S&P 500 edged higher Thursday, extending the week’s gains to more than 3.5%, as the Stoxx Europe 600 Index climbed to a record and stocks soared in Asia. A gauge of European credit risk hit its lowest since 2007.

Yet the battle against the virus could suffer a setback as factories reopen in China in the coming days and more people come into contact with each other. On the other hand, if factories fail to reopen, the economic impact could prove much more severe.

At Robeco, money manager Jeroen Blokland is eyeing the rally warily. The head of multi-asset funds at the Rotterdam-based firm recently cut an overweight allocation to stocks to neutral because of the spread of coronavirus. He says it’s not yet time to dive back in.

“Every investor is looking for the bottom and wants to find it a little bit earlier than his neighbor,” he said. “We need a little bit more confirmation that the outbreak will be contained before moving again.”

Eoin Treacy's view -

The stock market responds to liquidity because that has an influence on all asset prices and regardless of other short-term factors the Treasury yield is below that of the S&P500 which is generally supportive of the buy the dip strategy. Nevertheless, the stresses coming to bear as a result of the Wuhan Acute Respiratory Syndrome (WARS) are significant and need to be taken seriously.



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February 06 2020

Commentary by Eoin Treacy

Japan Seen Needing U.S. Help to Check China's Digital Yuan

This article by Yuko Takeo, Emi Urabe and Toru Fujioka for Bloomberg may be of interest to subscribers. Here is a section

“We sense the digital yuan is a challenge to the existing global reserve currency system and currency hegemony,” said Nakayama, a top member of the ruling party group that drafted the proposals. “Without the U.S., we cannot counter China’s efforts to challenge the existing reserve currency and international settlement system.”

The comments indicate the heightened concern among policy makers in Japan over the likely impact of a digitized yuan expected for later this year. China’s plan and Facebook’s efforts to launch its own Libra currency have sparked central banks around the world to get up to speed on how digital currencies would function and what their impact could be.

“There are 1.4 billion people in China, so within the one belt, one road digital economic framework, the digital yuan has a high likelihood of becoming the standard within that digital economy,” 

Eoin Treacy's view -

There is no telling just yet how serious China is about setting up a digital currency system but the security and supply elasticity in how it is set up, together with how much it is used on the mainland will be determining factors is whether it is ultimately a success.



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February 06 2020

Commentary by Eoin Treacy

Goldman's Currie Likes Palladium on Potential Deficit in China

This article by Elena Mazneva, Francine Lacqua and Tom Keene for Bloomberg may be of interest to subscribers. Here is a section:

Palladium could be an interesting trade given potential supply disruptions to China because of the coronavirus, Jeffrey Currie, head of global commodities research at Goldman Sachs, told Bloomberg TV.

“The one I like right now that we are watching in the commodity market is palladium -- when palladium gets so tight that you actually start to shut down auto manufacturing.”

Yet, “you don’t know when you hit one of these physical shortages until you actually hit them.”

NOTE: Spot palladium traded near $2,412/oz Thursday, heading for a ~5% weekly gain after dropping a week earlier from record highs.

Currie said last month he sees the potential for palladium to test $3,000/oz, then slide.

Eoin Treacy's view -

With auto manufacturers shutting down production because of a lack of Chinese manufactured intermediate parts, the most bullish forecasts for palladium are being questioned.



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February 06 2020

Commentary by Eoin Treacy

Email of the day on currency exchange sites:

Can you please add Trade Desk, TTD NAS, to the Chart Library? Any ideas on good economical services to use for transferring money (from AUD to GBP & the reverse)? (I suspect some sectors of the UK post Brexit economy to do well. Also, I've a son studying in Cambridge.)

Eoin Treacy's view -

- Congratulations on your son at Cambridge. Our family have spent the last few months applying and interviewing at high schools for my eldest daughter. The range of offerings and the difference in ethos between the schools is dizzying. It has occupied more time that I bargained for but thankfully we had our last interview today.

Our family’s income comes from both British Pound and US Dollar sources. Managing exchange rates is therefore something we are more than familiar with. One of the primary reasons Mrs. Treacy set up her online business was so she could recycle Pounds into inventory and sell it for Dollars which was a handy way to earn a return on devalued Pounds following the Brexit referendum.

The service I use to transfer money is CurrencyFair.com. It is a peer to peer matching service and has the tightest spreads for the quantities I deal in, I have been able to find. 



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February 05 2020

Commentary by Eoin Treacy

February 05 2020

Commentary by Eoin Treacy

Why Tesla could become world''s first 10 trillion dollar company

This article from The Driven may be of interest. Since it was released yesterday the title has been edited to "Why Tesla could soon become world’s most valuable company"; reflecting a quick moderation of sentiment. Here is a section:

“There’s a lot of growth opportunities from that plant going forward,” Baron said on CNBC. “[Tesla] could be one of the largest companies in the whole world.”

A day earlier, Ark Invest suggested the stock could be worth $US7,000 a share within five years. That equates to a market value of around $US1.5 trillion – making it more valuable than the current top stocks, Apple and Saudi Aramco. (And there’s a lot of Apple in the way Tesla proposes to managed its EV and batteries).

Ark Invest’s reasons for this are worth repeating.

“Based on our updated expectations for electric vehicle (EV) cost declines and demand, as well as our estimates for the potential profitability of robotaxis, our 2024 expected value per share for TSLA is $7,000,” it wrote in a note to investors over the weekend.

This, essentially, is a massive bet on the success of Tesla’s Full Self Driving, and Musk’s dream of potentially turning every Tesla with the appropriate software into a robotaxi, and his own dreams of building a huge fleet of robo-taxis that will revolutionize the way we do road travel.

Stanford University’s Tony Seba has been talking about the arrival of self-driving for a few years now.

Eoin Treacy's view -

Analyst estimates for Tesla’s future potential upside have been significantly upgraded over the last couple of weeks. This might be tongue-in-cheek but some analyst expectations are now even above where the price is currently trading. In June there was a consensus the company was going broke and today there are some floating the idea it will be worth more than ten times what Amazon is currently trading at. I think it is safe to say the truth is somewhere in between.



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February 05 2020

Commentary by Eoin Treacy

Trump's Farmer Base Will Make More Money Thanks to Trade Deal

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

Still, a last taste of aid is creating a temporary buffer. Payments of the final tranche started in January, contributing to the gains for this year’s profit projection. The USDA forecasts farmers will receive $15 billion in direct government payments in 2020, down from $23.7 billion in 2019 but still above the $11.5 billion received in 2017, before the trade war started.

While the USDA’s estimates take into account the trade pact, they may not reflect the true scope of the impact, according to Carrie Litkowski, a senior economist with the USDA’s Economic Research Service.

The projected gain for income also doesn’t reflect any potential blow-back from the outbreak of the deadly coronavrius in China, the world’s biggest food importer. The health crisis has in recent days called into question whether the Asian nation will meet the purchase targets established in the trade deal.

Eoin Treacy's view -

Soybeans has been ranging mostly above 850¢ since 2018 and returned over the last month to test the lower side of its range. This area represents the lower side of the volatile trading pattern which has evolved since the breakout in 2007. Bull markets in commodities are defined by an increase in the marginal cost of production and prior to 2007 the price failed to hold moves above 850c. That suggests we are seeing a long-term example of past resistance offering future support.



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February 05 2020

Commentary by Eoin Treacy

China's Drug Patent Grab Makes Coronavirus Scary for Pharma

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

The coronavirus outbreak in China is already threatening to undermine the global economy. It may soon create a similar shake-up in the drug industry.

I’m not talking about pharmaceutical companies’ attempts to develop a vaccine, but about intellectual property. Chinese researchers have applied for a patent on an antiviral drug candidate called remdesevir owned by Gilead Sciences Inc. The drug is being tested in clinical trials in short order, but the company could eventually be cut out. 

If the patent is granted, it will confirm long-standing drugmaker fears about China’s commitment to IP protection, raising concern about the industry’s future in a crucial market. It also could further erode the already weak incentives for pharma to invest in drugs to combat emerging infectious diseases. The risks of seizing the patent may outweigh any benefit.

Eoin Treacy's view -

The world is racing to help find a cure for the Wuhan virus with both pharmaceutical companies and philanthropists committing significant resources to finding a cure. That’s as much about helping China as it is about helping to contain the infection and creating the potential to be compensated for coming up with a solution.



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February 04 2020

Commentary by Eoin Treacy

February 04 2020

Commentary by Eoin Treacy

Email of the day - on inverted yield curves

how is the Yield Curve inversion? The famous inverted US yield curve - only when measured by 3mth/10y (NOT 2y/10y) - has been a reliable predictor of US recession 12-24 months ahead when measured from start point and provided inversion lasted more than 3mths. So somewhere between May 2020-May 2021 we should expect recession. History suggests that this inversion always reverses well before recession arrives. Mainly because Fed eases short rates to avoid recession. So, déjà vu?? Regards

Eoin Treacy's view -

Thank you for this question which may be of interest to other subscribers. The question of the yield curve and how good a lead indicator it is tends to be discussed and dismissed before every recession. This occasion has been no different and it would be foolhardy to think boom and bust have been banished just because some Davos attendees have proclaimed it so.



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February 04 2020

Commentary by Eoin Treacy

Where a Brexit Trade Deal Matters Most to Boris Johnson

This article by Joe Mayes and Sam Dodge for Bloomberg may be of interest to subscribers. Here is a section:

“The government is going to have to make sure these voters are looked after,” said Seamus Nevin, chief economist at MakeUK, the U.K.’s largest manufacturing organization. “Investment in our sector is going to be key.”

Britain’s business groups are already drawing up maps like these, hoping to gain leverage in the coming negotiations by showing the U.K. government how the lack of a deal, or one with only a limited scope, would cost jobs in what are now marginal Conservative seats, according to two people familiar with the matter.

Johnson hopes to secure a zero-tariff, zero-quota deal with the EU, similar to the bloc’s existing agreement with Canada. It would mean extra customs paperwork for importers and exporters—but it would avoid tariffs on goods. The problem is that Johnson has ruled out meeting the EU’s condition that the U.K. plays by its rules on state aid, workers’ rights and the environment.

Eoin Treacy's view -

Negotiating with the EU is in no way easy. Right now, Boris Johnson has both a strong mandate and a long runway until the next election. He has every incentive to play hardball now so that any potential drawdown will be smoothed out by the time he needs to go back to the people for another election.



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February 04 2020

Commentary by Eoin Treacy

Tech in 2020: Standing on the Shoulders of Giants

This presentation by Benedict Evans may be of interest to subscribers. Here is a slide on where he thinks the next big thing is:

Eoin Treacy's view -

Structural layers are the foundations of new technologies so 5G which is being rolled out everywhere this year is a major event. In the just the same way that 4G delivered instant connectivity, social media, app-based banking, travel, gaming etc, 5G will build on top of that layer to deliver edge computing. That means data centre access to massive computing power at the touch of a finger.



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February 03 2020

Commentary by Eoin Treacy

Video commentary for February 3rd 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Tesla clearly accelerating, oil prices break downwards, copper fails to hold intrady rally, CSI300 drops to mirror the decline in H-Shares last week, China ramps up liquidity, Wall Street steadies, Gold eases. 



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February 03 2020

Commentary by Eoin Treacy

China Cuts Rates, Injects Liquidity as Mainland Markets Sink

This article by Tian Chen, Yinan Zhao and Miao Han for Bloomberg may be of interest to subscribers. Here is a section:

“We are fully capable and confident to minimize the impact of the epidemic on the economy.”

Lian also said that while the government would work to ensure the coronavirus didn’t spread further, it would encourage major projects and enterprises in good condition to resume work and production. Policy makers will also roll out measures to soften the impact of the epidemic on a case-by-case basis, especially to try to help industries that have been hit hard, Lian said.

Vice Commerce Minister Wang Bingnan said at the same press conference that many exporters in China have been resuming production, and local governments have been issuing policies to help small and medium-sized companies.

Authorities have pledged to provide abundant liquidity and there seems to be more easing measures in the pipeline. In an interview with the PBOC’s Financial News newspaper, central bank adviser Ma Jun said he expects the PBOC to push the interest rate for new loans lower and to also cut the rate for medium-term funding in February if it uses that facility mid-month, as it usually does.

If that were to happen, it would be a change to a “rather strong” easing bias for the central bank, according to Peiqian Liu, China economist at Natwest Markets Plc in Singapore.

Eoin Treacy's view -

The Chinese CSI300 Index opened down 9.1% today with the majority of issues down the 10% limit. While this is a headline grabbing phenomenon, which draws parallels with the pullback in 2015 and also in 2007, the reality is the mainland market is just catching up with the H-Shares in Hong Kong following an extended break to trading.



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February 03 2020

Commentary by Eoin Treacy

Saut Strategy February 4th 2020

Thanks to a subscriber for this report which may be of interest to subscribers. Here is a section:

Eoin Treacy's view -

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

The impeachment argument was indeed a source of worry for the media but the market never seemed to pay it much attention for the simple reason the Republicans have a solid majority in the Senate. Therefore, the entire spectacle was nothing more than crowd pleasing electioneering which did little more than to further emphasise the trend of political polarisation



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February 03 2020

Commentary by Eoin Treacy

Gas Rout Puts 60% of Output at Risk, Tudor Pickering Says

This article by Sayer Devlin for Bloomberg may be of interest to subscribers. Here it is in full:

Almost two-thirds of U.S. natural gas production is at risk of being cut as prices tumble, according to Tudor, Pickering, Holt & Co.

About 55 billion cubic feet a day of gas in basins from Texas to Appalachia could be curtailed, analysts at Tudor Pickering wrote Monday in a note to clients. That’s roughly 60% of current dry gas output, based on BloombergNEF estimates.

Mounting debt, a lack of access to capital markets and a drop in hedging will lead to a decline in drilling starting in the second half of this year, Tudor Pickering said. The energy-focused investment bank says only two or three companies, including Cabot Oil & Gas Corp., can afford to keep output flat with prices below $2.25 per thousand cubic feet, or about $2.17 per million Btu.

“We do expect to see a significant number of bankruptcies if gas prices stay this low,” Matthew Portillo, managing director of upstream research at Tudor Pickering, said by phone. Producers have no gas hedges in place beyond 2021, he said.

Gas has lost about a third of its value since early November, sinking below $2 per million British thermal units for the first time in almost four years as production from shale basins overwhelms demand amid a mild winter.

“What you’re starting to see is the forward curve not only in 2020 but in 2021-plus has moved to such a low price that companies are not able to drill within cash flow to hold drilling steady,” Portillo said.

Drilling in the Haynesville shale in Louisiana is set for a “significant collapse” if prices remain low, he said.

Eoin Treacy's view -

Unconventional supply is prolific but expensive. The vast majority of companies rely on continued high prices to support their drilling activities. That ensures the cyclicality of prices. The higher prices are the more oil and gas can be produced but declines in prices mean drillers can no long source funding and some will inevitably go bankrupt. That will temporarily withdraw supply from the market which will support prices and open the way for new drilling to take place.



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January 31 2020

Commentary by Eoin Treacy

January 31 2020

Commentary by Eoin Treacy

China Says U.S. Response Harmful; Flights Halted: Virus Update

This summary of today’s news from Bloomberg may be of interest. Here is a section:

Chinese officials took issue with U.S. comments about the country’s response to the coronavirus outbreak, and promised they would bring the infection under control.

“U.S. comments are inconsistent with the facts and inappropriate.” Chinese Ministry of Foreign Affairs Spokeswoman Hua Chunying said in statement posted online Friday. The World Health Organization “called on countries to avoid adopting travel bans. Yet shortly afterward, the U.S. went in the opposite direction, and started a very bad turn. It is so unkind.”

U.S. officials said this week that they had difficulty getting specialists from the Centers for Disease Control and Prevention to the front lines of the outbreak in China, and late Thursday the State Department advised Americans traveling in China to come home. Commerce Secretary Wilbur Ross on Thursday also said the outbreak may help bring jobs back to the U.S.

China’s ambassador to the United Nations, Chen Xu, said during a press conference in Geneva that the country had been transparent about the disease.

“We have conducted our business in an open and transparent manner with the outside world,” he said.

Xu said that China would work with the World Health Organization to bring the disease under control, following a declaration by the WHO that the outbreak was an international emergency. The declaration will “not only coordinate global prevention control measures but enables us to mobilize international resources to respond to the epidemic,” he said.

Eoin Treacy's view -

“Official” figures are just below 10,000. This Lancet article suggests 76000 infections. The death toll is reported at around 200 but if that is the case why are crematoria running 24/7? The biggest challenge the Chinese administration has is their claims of full disclosure are being met with doubt because they have such a poor record of reporting accurate facts about any part of the economy. Little wonder that other countries are taking more forceful measures to isolate the country until the infection rate peaks and begins to decline.  



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January 31 2020

Commentary by Eoin Treacy

Seven Market Gurus Answer the Seven Big Post-Brexit Questions

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

What will the U.K. look like after Brexit? Stephen Jen, CEO of Eurizon Slj Capital:

Britain will probably face a “J Curve” effect after Brexit, with challenges ahead before taking off.

The world is experiencing disruptive shocks that require countries to re-invent themselves and stay competitive. There is a big scope for the U.K. to achieve that outside the EU given that it will have a greater degree of freedom. It’s already number three next to the U.S. and China in terms of technology innovations such as AI, biomedicine and robotics. There is a good opportunity that it could leap-frog its competitors. I don’t think it’s a stretch of the imagination that it’s a very exciting future that the U.K. is facing.

As an investor, I would not focus on the negotiation status of various parties or quarter-by-quarter developments, but on the long-term vision of the U.K. government. We are now talking about a different set of considerations -- structural, strategic, forward-looking, institutional. Think Abenomics. Think Singapore-type vision. The government will have to put the country on a very different path than before.

Eoin Treacy's view -

I believe David would have been chuffed to see the UK leave the EU and today marks a momentous occasion for all Britons. Regardless of how one feels about the exit from the EU the real work is only about to get started. The UK needs a clear growth strategy and is going to require visionary thinking on energy, regulation, taxation, immigration and trade.



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January 31 2020

Commentary by Eoin Treacy

Amazon Set to Break Record for One-Day Gain in Market Cap

This article by Brandon Kochkodin for Bloomberg may be of interest to subscribers. Here it is in full:

If its pre-market trading holds up, Amazon Inc. is about to break a bigger record than just its own peak share price.

The largest U.S. e-commerce company saw its shares jump by more than 10% after Thursday’s earnings report crushed Wall Street estimates. If that gain stands through Friday’s close of trading, the company could see its market capitalization surge by more than $90 billion, and push the total value above $1 trillion -- a level the stock has flirted with intraday, but never held through the market close. The company’s market capitalization gain stood at $91.7 billion as of 9:30 a.m. in New York when trading began.

That’d be the biggest single-day gain on record for a U.S. company, according to data compiled by Bloomberg. The previous record was $78 billion, set by Alphabet Inc. on July 26, after its shares surged on its own strong results and a $25 billion share-buyback program.

To be sure, with markets near all-time highs, marks such as this are bound to be challenged. But it’s also not every day that one of the largest companies in the world gains 10% or more in a single session. Over the last five years, the six companies in the S&P 500 Index with current market caps exceeding $500 billion have had just 10 such days combined. Today would be the 11th such occurrence, and the fourth time Amazon has done so, the most of any company in the group.

Even if it doesn’t break the market value record today, the company has already set another new high-water mark for itself. Shares opened trading $181 above Thursday’s closing price, its biggest ever gain in dollars per share.

Eoin Treacy's view -

Amazon has been a notable laggard as both mega-caps and the equal weight S&P500 have broken on the upside over the course of the last month. Last night’s surprisingly good results highlight the robust position of the US consumer in the 4th quarter and Amazon’s success in implementing 1-day delivery.



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January 30 2020

Commentary by Eoin Treacy

Video commentary for January 30th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: stock markets rebound following WHO announcement, Hong Kong shares extend pullback ahead of the mainland markets reopening Monday, Negative yielding debt total increases to $13 trillion, high yield spreads pop on the upside. oil and gold steady.



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January 30 2020

Commentary by Eoin Treacy

Carnival Ship in Italy Lockdown as Suspect Virus Traps 7,000

This article by Alberto Brambilla and Jonathan Levin for Bloomberg may be of interest to subscribers. Here is a section:

The ship was bound for La Spezia in the Liguria region, with 1,000 crew and 6,000 passengers, 750 of whom came from China, a port spokesman said.

Eoin Treacy's view -

It is looking like the ill person did not in fact have the coronavirus but the fact that 1/8th of the passengers are from China highlights just how influential Chinese tourists are for the global sector. The cancelling of flights both to and from China is going to have a material effect on all tourist destinations and the longer it lasts the greater the impact will be.



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January 30 2020

Commentary by Eoin Treacy

World's First Sub-Zero 10-Year Sovereign Syndication Is Popular

This article by James Hirai and Hannah Benjamin for Bloomberg may be of interest to subscribers. Here is a section:

The order deluge meant Austria joined the likes of Spain and Italy in setting demand records this month as investors chase the safety of bonds. Fears that the spread of the coronavirus will derail an economic recovery have sent yields tumbling, fueling a huge jump in the world’s stockpile of
negative-yielding bonds.

Austria’s Treasury ended up placing 3 billion euros of the 10-year bonds Wednesday with a yield of minus 0.111%. For investors, that’s still more appealing than equivalent German debt trading at around minus 0.40%. The European Central Bank has a minus 0.50% deposit facility rate.

“Despite the negative interest rate, the issue was met with very strong demand and the transaction was 10-times oversubscribed,” Markus Stix, managing director of Austria’s Treasury, said in a statement.

Eoin Treacy's view -

The total of negative yielding debt continues to rebound, led by a surge in demand for Eurozone sovereign bonds. The total now sits above $13 trillion and has clearly broken the downtrend evident since August. 



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January 30 2020

Commentary by Eoin Treacy

Shell Dives With Scaled Down Buyback Program a Key Concern

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

Morgan Stanley (equal-weight, PT 2,270p) says 4Q results should trigger “a negative response,” as both earnings and cash flow were lower than consensus expectations and gearing increased on a quarterly basis

Analysts Martijn Rats and Sasikanth Chilukuru say that while integrated gas was largely hit by lower trading profits, margins within chemicals appear to have been hit more than expected by the weaker macro

Oil products and upstream seen benefiting from strong marketing results and higher production volumes, respectively

RBC (sector perform, PT 2,600p) says the decision to reduce the quarterly run rate for its buyback to $1b from $2.75b into 2020 was largely factored into the stock’s recent performance and the new rate “looks well covered,”

Given gearing is 29%, analyst Biraj Borkhataria says that “Shell is right to be more cautious”

Eoin Treacy's view -

Royal Dutch Shell took a big bet on natural gas and has succeeded in getting the product to market from its massive Australian offshore facility. The challenge is there is no intense competition in the LNG market as major producers vie for market share. Meanwhile Shell is also looking at lower oil prices and increasingly aggressive emissions regulations all over the world.



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January 29 2020

Commentary by Eoin Treacy

Video commentary for January 29th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Wall Street eases, Hong Kong pulls back, gold pause, Bitcoin holds breakout, risk of further consolidation from slowing virus related economic activity but that also boosts the prospect of additional stimulus. 
 



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January 29 2020

Commentary by Eoin Treacy

Part 2: Fiat Money vs. Cryptocurrencies Private vs. Public digital currencies

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

5. Electronic money (E-MONEY) and cryptocurrencies (C-MONEY) vs. central bank money (CB-MONEY): the death knell for paper money? Credit cards or electronic money in general are being used for an increasing number of ever smaller payments due to better, quicker, easier and more widespread infrastructure. The dissemination of electronic payments, and of cryptocurrencies to a lesser extent has reduced the use of notes and coins, i.e. central bank money. Central banks accompany this trend, by removing high-denomination notes from circulation and / or by taking steps to limit payments in cash. With new forms of E-MONEY and C-MONEY, it is evident that payments are currently seeing another period of rapid innovation and transformation. The use of e-payments is booming, while technology companies and financial institutions are investing heavily to be the payment providers of tomorrow. However, despite the continuing digitalisation of the financial system, cash in circulation is not dropping for most countries. The demand for cash still increase in several advanced economies since the Great Financial Crisis, driven by store-of-value motives. Negative rates represent another factor for accumulation of cash. The total elimination of paper money is nevertheless being seriously discussed, for at least two reasons: • The rapid expansion of e-payments, it would help fight the black market and organised crime, • It would free central banks from any constraints on how deeply they can cut interest.

Eoin Treacy's view -

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

The war on cash is a well understood theme. Governments have a clear incentive to ensure all transactions are recorded on a digital ledger so they can be taxed and the wealth of individuals monitored.

The motivation for that level of oversight is only exacerbated by the need to pay for all of the unfunded liabilities built up over decades of social democratic crowd-pleasing budgets. Meanwhile the ease of doing business online and the competitive advantage online retail has over physical stores.



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January 29 2020

Commentary by Eoin Treacy

January 29 2020

Commentary by Eoin Treacy

Byron Wien and Joe Zidle: No Recession or Bear Market in Sight

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

The bond market has confounded investors for the past several years as rates have declined or stayed low when almost everyone expected them to rise. The consensus now is that there won’t be much change in intermediate rates this year, with the 10-year U.S. Treasury yield remaining about 2% because the economy is sluggish and inflation continues to be low. While we agree that traditional economic factors will not drive rates higher, we believe supply and demand will play an important role. The big buyers at the Treasury auctions are the Social Security Administration, the Federal Reserve, Japan and China. The Federal Reserve will probably do some buying, but we should realize that their bond ownership has climbed recently from $3.8 trillion to $4.2 trillion, even as the Fed’s stated objective has been to shrink its balance sheet. China and Japan have been upset with Trump’s trade policy and have been less-than-enthusiastic buyers at recent auctions. The Social Security Administration, which has been a perennial buyer of Treasuries, may pull back since its benefits payments will exceed its inflows in 2020. These conditions suggest to us that the yield on the 10-year U.S. Treasury will move somewhat higher to 2.5% during the year, and that is the ninth Surprise.

Eoin Treacy's view -

Funding social security as the total sum set aside for future liabilities is drawn down is going to represent a significant drag on government finances in the USA for the foreseeable future.



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January 28 2020

Commentary by Eoin Treacy

Video commentary for January 28th 2020

January 28 2020

Commentary by Eoin Treacy

China Pledges Liquidity, Asks for Rational Investor Reaction

This article by Christopher Anstey and Claire Che for Bloomberg may be of interest to subscribers. Here is a section:

China pledged to provide abundant liquidity for money markets and urged investors to evaluate the impact of the coronavirus objectively, as the nation prepared for a potentially tumultuous resumption of trading next Monday.

Along with a potential sell-off in Chinese stocks, which haven’t traded onshore since Jan. 23, there’s a “large amount of funds” coming due Feb. 3, the People’s Bank of China said in a statement. It will conduct operations “to provide abundant liquidity in a timely manner to maintain reasonable and sufficient liquidity in the banking system,” it said.

China’s top securities regulator separately told brokerages to prepare for off-site trading as the country’s market infrastructure girds for strained conditions as a result of measures aimed at containing the coronavirus epidemic.

Eoin Treacy's view -

The question of what would be required for China to kickstart meaningful stimulus again now appears to have been answered. The coronavirus and the economic shutdown it has necessitated are going to result in a meaningful hit to growth in the first quarter. With the extension of its holiday season into early February, China is taking advantage of the break to announce market calming measures aimed at averting a crash once the market opens up again. That means a significant stimulus infusion to allay growth fears.



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January 28 2020

Commentary by Eoin Treacy

Email of the day - on the size of the Fed's balance sheet:

Midst all the alarm regarding corona virus, I was surprised that the financial media has paid so little attention to the following:  https://thesoundingline.com/feds-balance-sheet-has-shrunk-20-billion-since-the-start-of-january/

If an over-extended was looking for an excuse to correct, surely this was it!

Your comment would be appreciated.

Eoin Treacy's view -

Thank you for this question which may be of interest to subscribers. I covered the topic of balance sheet expansion in the Big Picture Friday audio but I’m happy to revisit the question here.

The Fed has added $400 billion to its balance sheet over the last four months by purchasing short-dated Treasuries. That has the same effect on the stock market as the liquidity infusions back in 2017 had. We have just had one of the most inert advances in years where volatility remained low for a prolonged period, just like in 2017.



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January 28 2020

Commentary by Eoin Treacy

Gold down, silver hammered as U.S. equities see solid rebound

This article by Jim Wychoff for Kitco may be of interest to subscribers. Here is a section:

March silver futures hit a four-week low. The silver bears have gained the overall near-term technical advantage as a downtrend has been restarted on the daily bar chart. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $18.00 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $17.00. First resistance is seen at $17.75 and then at $18.00. Next support is seen at $17.42 and then at $17.25.

Eoin Treacy's view -

Buying the dip on the promise of Chinese stimulus has been the primary story in today’s market. It helped to support stock markets and removed some of the impetus from safe havens.



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January 27 2020

Commentary by Eoin Treacy

Video commentary for January 27th 2020

Eoin Treacy's view -

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

Some of the topics covered include: coronavirus news likely to get worse before it gets better. demand for safe havens jumps but stock markets down less than they could have been which suggests hedging. oil short-term oversold, Treasuries firm



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January 27 2020

Commentary by Eoin Treacy

Email of the day on corona virus outbreak.

Two aspects of the current outbreak I find especially concerning, speaking as a retired veterinarian of some fifty years’ experience. I understand the symptoms can vary from barely perceptible with no fever to severe and fatal Some. people with the virus may be unaware they have it but may be very infectious to others, acting as symptomless carriers. My experience with animals which are subject to lockdown on account of infectious disease is that they tend to become very stressed and anxious, this in turn tends to make them more liable to spread infection on account of diminished resistance. I would suggest bottling up millions of Chinese in these cities has its own hazards regarding virus spread.

Eoin Treacy's view -

Thank you for this insight which I believe will be of interest to other subscribers. The reaction of the Chinese administration to the speed of the outbreak has been panicky. The long gestation period where no symptoms are evident but where transmission is possible represents a significant challenge to containment. That was the reason for the quarantine but it is impossible to corral that many people. On top of that 5 million left the city before the quarantine and very little comment has been made on how migrant workers are counted.



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January 27 2020

Commentary by Eoin Treacy

Amazon Has Long Ruled the Cloud. Now It Must Fend Off Rivals

This article by Dana Mattioli and Aaron Tilley for the Wall Street Journal may be of interest to subscribers. Here is a section:

Some of the sharpest barbs are now coming from Amazon, long the dominant provider of data storage to large multinationals. Andy Jassy, chief executive of Amazon Web Services, targeted Microsoft in remarks last month to attendees of the company’s annual cloud-computing gathering in Las Vegas.

“They are not prioritizing what matters to you guys as a customer,” said Mr. Jassy of Microsoft. Rivals, he said, were often mere copycats. “There are a lot of companies that have become pretty good at being checkbox heroes, where they kind of look at something we have and they rush to have it out there and say we have it too.”

Some of Mr. Jassy’s customers took note. In a private dinner involving some CEOs of companies that use Amazon’s cloud services, attendees discussed Amazon’s apparent anxiety about rivals, particularly crosstown rival Microsoft. Now No. 2 in the cloud, Microsoft last year won a giant Pentagon cloud-computing contract for which Amazon was favored. The deal is valued at up to $10 billion over the coming decade. Amazon is contesting the outcome in court.

Eoin Treacy's view -

Competition in supplying cloud and support services has been one of the primary factors in why Amazon’s share price has not broken out while Microsoft, Apple and Google have surged of late. The message here is it appears a lot less difficult for big companies to compete in data warehousing than in the online retail business and it also tends to be a higher margin business than ruthlessly competitive retail.



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January 27 2020

Commentary by Eoin Treacy

Bernie Can Win. So Can His Revolution

This article by Ramesh Ponnuru for Bloomberg may be of interest to subscriber’s Here is a section:

Here’s what this way of thinking misses: If Sanders wins, it will mark a huge change in American politics. Self-described socialists have been elected in other developed countries; never in this one. Here, “socialism” has been an accusation, not a boast. Politicians on the left wing of the Democratic Party have considered the label, and the associations that come with it, deadly to their electoral chances. Republicans hope it still is. If Sanders beats them, the taboo will be broken.

It’s not just a matter of the label. The limits of what’s politically possible will shift left as the political world adjusts to the new reality. Politicians, strategists, journalists, activists and voters who thought that certain ideas were too far left to make it in America would revise their sense of the country, and of what counts as extreme or as realistic within it. The ground on which future races for president, governor and Congress are contested would move left. That doesn’t mean the U.S. would be Venezuela, or even Denmark, by the start of 2022. But it is reasonable to expect that government policy 10 or 20 years from now would be considerably more socialistic than it would be if Trump were re-elected — or if Biden were elected.

In that sense, Sanders’s election really would live up to the billing. Just by taking office, he would have delivered his political revolution.

Eoin Treacy's view -

During the 2016 election no one knocked on my door ahead of the election, but a Bernie Sanders electioneer paid us a visit on Saturday and was full of revolutionary zeal. The promise of free health care and free tuition, while leaving responsibility for paying for it to someone else, has a siren quality for many young people.



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January 24 2020

Commentary by Eoin Treacy

January 24 2020

Commentary by Eoin Treacy

January 24 2020

Commentary by Eoin Treacy

Fed Seen Holding Rates Steady, Ending Bill Purchases by June

This article by Christopher Condon and Sarina Yoo for Bloomberg may be of interest to subscribers. Here is a section:

Economists had a broad range of forecasts for when the Fed would stop buying Treasury bills, though June 2020 received the highest response at 43%. Respondents overwhelmingly expected officials will taper the monthly purchases rather than stop them suddenly. The Fed has been buying $60 billion in T-bills each month since October.

A scarcity of bank reserves was blamed for an unexpected spike in overnight funding rates in September. This led the fed funds rate to stray briefly out of its target range. The new cash created by the Fed’s T-bill purchases has since relieved that scarcity. The Fed, intent on ensuring an ample supply of reserves, has said it will continue the purchases at least into the second quarter.

Eoin Treacy's view -

The news headlines are full of news about the coronavirus and the number of countries where it has been found continues to rise every day. That injected a degree of caution in the markets that was not present a week ago. The clearest effects are evident in safe haven assets where Treasuries, precious metals and the Dollar have steadied.



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January 24 2020

Commentary by Eoin Treacy

The Last Straw? China Tries to Trash Single-Use Plastic

This article by Stephanie Yang for the Wall Street Journal may be of interest to subscribers. Here is a section

China will introduce new measures to aggressively cut back on its use of plastic, its first such move in more than a decade as booming e-commerce and food deliveries dramatically increase the country’s production of plastic waste.

In recent years, Beijing has stepped up efforts to reduce waste and pollution, introducing measures such as trash sorting and halting imports of recycling.

“China has used too much plastic,” said William Liu, senior consultant at energy consulting firm Wood Mackenzie. “Everyone is calling for more environment-friendly development.”

By the end of this year, nonbiodegradable plastic bags will be largely banned from major cities, and single-use straws will be prohibited in restaurants across the country, Beijing’s top economic-planning office and its Environment Ministry said on Sunday. The ban will extend to all cities and towns by 2022 and to markets selling fresh produce by 2025.

Eoin Treacy's view -

The spectacle of business titans fawning over Greta Thunberg and feigning concern at the issues she champions while simultaneously giving a warm welcome to President Trump is yet another example of the virtue signalling designed to impress electorates all over the world.



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January 24 2020

Commentary by Eoin Treacy

Vaccine makers tap into virus-driven rally to raise money

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

“We don’t expect Novavax will run human trials without non-dilutive government funding,” Ladenburg Thalmann’s Michael Higgens wrote in a note. “The timing for such support in our view depends on how severe and uncontrolled the 2019-nCoV becomes.”

Moderna Inc. MRNA, -0.95%  said it is working with the National Institutes of Health on a potential vaccine response, saying its “vaccine technology could serve as a rapid and flexible platform that may be useful in responding to newly emerging viral threats.” Moderna’s stock was up 10%.

NanoViricides Inc. NNVC, +75.32%  said it has raised $7.5 million in an offering of 2.5 million shares at a price of $3 per share. Its stock was down 55% in morning trading, after gaining 153% on Monday.

The company had also worked on treatments for MERS and the Ebola virus. NanoViricides president Anil Diwan said in an email that the company believes that the drugs “we had previously developed are worth testing against the Wuhan virus and are likely to work against it.”

Eoin Treacy's view -

There isn’t a lot of money in cures because you don’t get repeat customers. The whole point of the business is to ensure you run out of customers. That’s not a great business model which is why conventional pharmaceutical companies generally eschew developed vaccines. The small companies that do concentrate on this field generally rely on fear of a global pandemic to generate the investment capital to continue working on their research. That was certainly the case with Ebola and this week saw a significant uptick in share issuance.



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January 24 2020

Commentary by Eoin Treacy

January 23 2020

Commentary by Eoin Treacy

January 23 2020

Commentary by Eoin Treacy

January 23 2020

Commentary by Eoin Treacy

Federal Reserve's Repo Market Fix Is No Fix at All

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

Unfortunately, the Fed made a critical design error in its daily interventions. They are offering to supply repo to the dealers at prevailing market rates. In other words, they are giving the dealers every incentive to take repo from the Fed as opposed to the market. In essence, the Fed has become the lender of first resort when it should be the lender of last resort and offer repo at a penalty rate. The Fed should be willing to help a dealer in need, but it should come at a price.

So, after four months of these Fed repo operations, new problems are emerging. More specifically, the Fed might be going too far and oversupplying this market. The effective federal funds rate is signaling there are enough reserves in the banking system. This month it traded at 1.54%, breaking below the interest on excess reserves (IOER) floor of 1.55% for the first time in 14 months. This is happening as the Fed announces it will continue to plow ahead with Treasury bill purchases and supplying hundreds of billions of dollars of repo supply until April, if not later.

What should the Fed do? It has already telegraphed it will raise the IOER rate by five basis points to 1.60% at the Federal Open Market Committee meeting next week. Presumably, it will also raise the repo offered rate by five basis points to 1.60%. Policy makers should raise the repo rate even higher. Stand ready to offer liquidity, but at a penalty rate.

This won’t fix the problems in the repo market; only rule changes can do that. But at least this will allow the Fed to identify how much supply is needed to get the market back in balance rather than risking a loss of control of the federal funds rate altogether.

The Fed should not be looking to permanently insert itself into the repo market via a standing repo facility. Repo is still a credit market, and, in times of stress, it requires a credit decision when deciding who gets a collateralized loan and at what terms. Central banks are not equipped to make these decisions, and their involvement could create a moral hazard, making things worse.

Eoin Treacy's view -

The Fed panicked with their response to the repo market freeze in September. The “short-term” fix introduced had the desired effect and the monetary markets are once again flowing freely. However, the cost has been prohibitive and the big question today is whether this action is an example of what we can expect from the future or is it a once-off deal.



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January 23 2020

Commentary by Eoin Treacy

Email of the day - on liquidity and markets

you wrote "liquidity remains the fuel on which the advance depends". my question is as follows. Could the benefits of the refinancing of the US home mortgages give consumer spending a boost and thus the stock market and secondly will investors take capital out of bonds into the stock market to fuel this market even further. It looks key to be able to measure the importance and condition of all the different fuels and knowing when we run out of fuel. looking forward to your long-term analyses.

Eoin Treacy's view -

Thank you for this question which may also be of interest to subscribers. The impetus to refund mortgages picked up pace last quarter with the 30-year Freddie Mac rate bottoming in September around 3.5%. It generally takes a few months for the refinancing to be approved and then a few more months for personal savings to accrue enough to boost spending. That does suggest we should begin to see growth picking up by the beginning of the 2nd quarter.



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January 22 2020

Commentary by Eoin Treacy

Video commentary for January 22nd 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Acceleration as a trend ending, the evolution of a mania, the progression of markets following an inverted yield curve. palladium's acceleratoin, Wall Street steady, bonds stable, Dollar eases, China steadies, India weak.



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January 22 2020

Commentary by Eoin Treacy

Bridgewater Co-CIO Bob Prince Says Boom-Bust Cycle Is Over

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

The tightening of central banks all around the world “wasn’t intended to cause the downturn, wasn’t intended to cause what it did,” Prince, the co-chief investment officer of Bridgewater, said in an interview with Bloomberg TV at the Swiss resort of Davos. “But I think lessons were learned from that and I think it was really a marker that we’ve probably seen the end of the boom-bust cycle.”

Eoin Treacy's view -

The realization of how sensitive the financial markets now are to interest rates during the freezing up of the high yield market in December 2018 and the repo market in September 2019 is leading to a range of conclusions among policy makers and investors.



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January 22 2020

Commentary by Eoin Treacy

Netflix's Decline Emphasizes Limited Value of Users Overseas

This article by Joe Easton, Kit Rees and Kamaron Leach for Bloomberg may be of interest to subscribers. Here is a section:

Netflix Inc.’s latest earnings report spurred mixed feelings across Wall Street as growth overseas was offset by a slowdown in the U.S. amid rising competition from Walt Disney Co., Apple Inc. and more forthcoming launches. Needham Co. believes the spike in streaming rivals will increase Netflix’s churn and customer acquisition costs, most likely lowering the lifetime value per subscriber as growth overseas isn’t equivalent to that domestically. Netflix would need to “add four $3-per-month subscriptions in India to offset each U.S. subscriber lost,” Laura Martin, TMT analyst at Needham, wrote in a note.

Eoin Treacy's view -

The clear conclusion from Netflix’s earnings is it is still growing where it has little to no streaming competition. Where it has competition, it is losing market share. The big question then is how quickly its competitors are going to expand abroad or how long will it take alternative streaming services to arise in Europe and India. Either would be a significant challenge as it continues to pump out mediocre content.



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January 22 2020

Commentary by Eoin Treacy

Citi Says Palladium in Total Disconnect, Jump In After Slump

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

The raw material used in autocatalysts has soared in the opening weeks of 2020 amid a sustained global deficit, with the extraordinary rally seeing prices hit records day after day before a pullback on Tuesday. Over the past 15 years, mine supply of palladium has shrunk by 1 million ounces, or 12%, while demand has risen 4 million ounces, or 57%, according to estimates from UBS Group AG. Palladium’s sister metal, rhodium, has jumped too.

“Commodity prices can completely disconnect from their marginal cost of production when inventories run down to critical levels, and this is precisely what is occurring in palladium and rhodium at present,” Citi said. “Palladium has for some time now presented the hallmarks of a genuinely tight market, including an extreme backwardation.”

Eoin Treacy's view -

Another day, another $100+ advance in palladium. This speed of the acceleration since the announcement of the trade deal is nothing short of historic. There has been a lack of a supply response to date not least because of the uncertainty about the trajectory of global growth. If the continued supply of liquidity has the desired effect of confirming the trough in global growth, it will both be a boon for palladium demand but will also encourage additional supply into the market.



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January 21 2020

Commentary by Eoin Treacy

Video commentary for January 21st 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Boeing trading halted, Hang Seng pulls back sharply, Wall Street and global markets steady, gold holds the $1550 area, Treasuries firm, Dollar and Yen steady, risk of some consolidation on Wall Street is rising but no sign of its yet amid continued monetary largesse. 



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January 21 2020

Commentary by Eoin Treacy

Boeing Sees 737 Max Approval Slipping to Mid-2020 in New Delay

This article by Alan Levin and Julie Johnsson for Bloomberg may be of interest to subscribers. Here is a section:

Boeing Co. is telling 737 Max customers that the grounded jet won’t be approved to fly until June or July, months later than previously anticipated, said people familiar with the matter.

The new delay comes after two recent discoveries, a software flaw that will require more work than expected and an audit that found that some wiring on the plane needs to be rerouted. The timetable also includes a buffer for unanticipated complications, said one of the people, who asked not to be named because the discussions are private.

The new expectations mean that Boeing’s best-selling jet would miss the busy summer travel season for the second straight year, adding to the compensation that the U.S. planemaker is likely to pay airlines. The Max was grounded in March 2019 after two deadly crashes that killed 346 people.

Eoin Treacy's view -

Trading was halted on Boeing’s shares ahead of the above announcement. The retort from the FAA that no timetable for the recertification of the aircraft has been set and that safety remains the top priority represents an additional blow.



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January 21 2020

Commentary by Eoin Treacy

China Virus Spreads to U.S. With Health Officials on High Alert

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

The new virus “could be No. 2 or 3, that’s the concern,” Heymann said in an interview. “We need enough information to make a proper risk assessment.”

Despite the worries, the new virus is likely less deadly than SARS, said University of Sydney associate professor Adam Kamradt-Scott.

“It’s important to stress that this virus at the moment has been causing mild illness in the vast majority of people that have been affected,” he said in an interview on Bloomberg TV. “There’s around 10% of cases that have ended up in critical condition and there’s been deaths, but the vast majority of the 200-plus people infected have resulted in mild illness.”

Eoin Treacy's view -

The Chinese New Year Holiday begins Friday evening and lasts about a week. Internally, it is a time for families to get together but the length of the break affords many people the opportunity to travel abroad which is why there is so much concern being expressed at present. The reality however is that there are probably about 300 confirmed cases and perhaps triple that which have gone unreported, but there will be hundreds of thousands of people travelling abroad over the next couple of weeks. There is obviously risk of further contagion but it is unlikely to represent the pandemic many fear.



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January 21 2020

Commentary by Eoin Treacy

Davos 2020: Sanjiv Bajaj Sees 'Some Uptick' In Consumer Lending Business

This article from Bloomberg quoting the CEO of Bajaj Finserv may be of interest to subscribers. Here is a section:

For the non-bank financial sector as a whole to turn around, the government needs to put aside fiscal discipline for around two years and jump-start the economy, said Bajaj.

“We need the tailwind from the government to rebuild the sector.” Sanjiv Bajaj, MD, Bajaj Finserv
India’s non-bank lenders have been reeling since the latter half of 2018, when IL&FS Ltd. group companies defaulted on debt and triggered an industry-wide credit squeeze, raising borrowing costs for small lenders. The government and the RBI stepped in to support by assuring increased liquidity and a provision for a partial guarantee to help these firms sell loans.

Bajaj said midsize players which aren’t perceived as being “pristine” have had trouble raising funds, especially from banks. “The only answer is either economy to pick up or more equity to come in or the liquidity problem will become a solvency problem in their case.”

“If the government help doesn’t come, we’ll see some deterioration or stagnation,” said Bajaj.

Eoin Treacy's view -

The big question for India watchers in the aftermath of the IMF downgrading growth yesterday is how long it will take for measures taken in the third and fourth quarters of last year to transmit into economic growth.



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January 20 2020

Commentary by Eoin Treacy

January 20 2020

Commentary by Eoin Treacy

Amazon Is Left Out of Mega-Cap Tech Surge to Records

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

Because of its long-term prospects, Amazon is about as close as a stock can be to a consensus choice among Wall Street firms. Over the near term, though, it is “the most hotly debated among investors” as “debates persist on both AWS and next day shipping efforts,” according to UBS analyst Eric Sheridan, referring to its Amazon Web Services cloud-computing business.

Since the start of 2019, Amazon shares are up about 24%, below the 32% rise of the S&P 500, as well as the much larger gains seen in other bellwethers. Microsoft and Facebook are both up more than 60% since the start of last year, while Apple has doubled. The rally resulted in trillion-dollar valuations for Apple, Microsoft and Google-parent Alphabet, a milestone that Amazon briefly eclipsed in 2018.

The underperformance reflects concerns over Amazon’s earnings trends, even as it has continued to grow revenue at a double-digit clip. Major investments into initiatives like one-day shipping are seen as headwinds, and shares “may be range bound ‘tactically’” given the impact of this spending, Morgan Stanley wrote on Thursday. The firm added that “near-term profitability is likely to still disappoint” because of these investments, even as it sees the effect as temporary and one-day shipping deepening Amazon’s competitive moat within e-commerce.

Another key issue is the waning dominance of Amazon Web Services, which has long been a major driver for earnings and margins, but has faced growing competition from rivals like Alphabet and especially Microsoft. According to Bloomberg Intelligence, which cited IDC data, Amazon Web Services was 12 times larger than Microsoft’s cloud business in 2014. By 2018, the most recent year for which data is available, it was just four times larger.
 

Eoin Treacy's view -

Amazon is dependent on both the dominance of its cloud business and the online retail sector. There are not many real competitors for the online market because of the high barrier to entry. The cloud business is a different story. It depends on server farms and internet connections and is easier for well-funded large companies to build a position in. Microsoft and Alphabet in particular are competing heavily with Amazon in this sector.



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January 20 2020

Commentary by Eoin Treacy

January 20 2020

Commentary by Eoin Treacy

Why palladium prices keep hitting new highs and rhodium has already rallied by over 40% this year

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

Kavalis of Metals Focus, meanwhile, says original equipment manufacturers “will be wary to make such dramatic changes to their after-treatment systems and risk failing regulatory compliance for a saving which, while significant, is only a small part of their overall costs.”

Still, if the gap between platinum and palladium prices continues to widen, Kavalis says he wouldn’t rule it out, but it’s unlikely to happen in the near term.

Palladium is likely to continue to make new highs this year, and probably beyond, even though “short-term and short-lived corrections are also in the cards,” says Kavalis. Rhodium may reach a new high this year, he says, with the metal’s fundamentals so strong that he struggles to pick a top for the market. Rhodium peaked at more than $10,000 an ounce in 2008.

Eoin Treacy's view -

The continued surge in palladium pricing is picking up pace. The global economic recovery supports demand for vehicles even as tighter environmental regulations ensure more palladium is required for each catalytic converter. 



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January 17 2020

Commentary by Eoin Treacy

January 17 2020

Commentary by Eoin Treacy

DoubleLine Round Table Prima 1-6-20 - Segment 2: Markets

This video which is the second in the three-part series highlights some of the differences between economists’ perspective on growth and the forward-looking perspective offered by the stock market. I commend it to subscribers.

Eoin Treacy's view -

The one point that jumps out to me is how eager the majority of participants are to point out the potential problems in the market. Even allowing for the fact that DoubleLine is a bond house, and therefore more predisposed to the bearish case because of the benefit that provides to bonds, the extent of the bearishness is interesting.



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January 17 2020

Commentary by Eoin Treacy

Fiat Chrysler and Foxconn plan Chinese electric vehicle joint venture

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

Fiat Chrysler and Foxconn plan Chinese electric vehicle joint venture - This article from Reuters may be of interest to subscribers. Here is a section:

FCA last month reached a binding agreement for a $50 billion tie-up with France’s PSA (PEUP.PA) that will create the world’s No. 4 carmaker. FCA said that the proposed cooperation was initially focused on the Chinese market.

It “would enable the parties to bring together the capabilities of two established global leaders across the spectrum of automobile design, engineering and manufacturing and mobile software technology to focus on the growing battery electric vehicle market,” it said.

FCA said it was in the process of signing a preliminary agreement with Hon Hai, aiming to reach final binding agreements in the next few months.

However, it added there was no assurance that final binding agreements would be reached or would be completed in that timeframe.

Foxconn has been investing heavily in a variety of future transport ventures for several years, including Didi Chuxing, the Chinese ride services giant, and Chinese electric vehicle start-ups Byton and Xpeng.

Foxconn also has invested in Chinese battery giant CATL and a variety of other mostly Chinese transportation tech start-ups.

Eoin Treacy's view -

This is an example of the most profound change batteries are bringing to the automotive sector. They are rapidly commoditizing the car. The difference between an Apple, Samsung or Google phone is less about what is on the inside than familiarity with the brand, ease of operation. software, the app ecosystem and the camera. Other than that, they all have pretty much the same internal composition with some minor differences in the design of the chips while manufacturing is outsourced to a third party.  



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January 17 2020

Commentary by Eoin Treacy

Precious Metals 2020 Outlook

Thanks to a subscriber for this report Credit Suisse which may be of interest. Here is a section:

Eoin Treacy's view -

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

Gold miners are more interested in M&A activity at present than borrowing a pile of money to plough into the uncertain prospect of exploration and development. Even if they were eager, banks are in no mood to lend them the requisite capital considering how fresh the memory of malinvestment is. That’s good news from the perspective of investors because it allows miners to accrue profits so they can pay down debt, raise dividends and buy back shares.



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January 16 2020

Commentary by Eoin Treacy

Video commentary for January 16th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: Wall Street extends its breakout to new all-time highs, supporting by the pause in the trade war, hydrogen stocks breaking out supporting platinum, gold steady, oil weak, liquidity remains the fuel on which the advance depends. 



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January 16 2020

Commentary by Eoin Treacy

Hydrogen May Start Replacing Natural Gas Before 2050, Snam Says

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

 

“There is already a transition going from coal to gas, which is very beneficial for the environment,” Alvera said. “The next step of the transition is getting away from oil and replacing to gas. After we do that phase one, we can ramp up electrolyzers and have green gas.”

The executive’s view about hydrogen reflects concern within the gas industry that governments are moving to limit fossil-fuel emissions and will hit gas soon. That raises the risk that the investments they’ve made in pipelines, compressors and storage tanks could become stranded assets.

In Italy, Snam decided to double the amount of hydrogen it blends into the grid to 10%. Alvera believes hydrogen could supply a quarter of Italy’s energy demand by 2050 and announced in November a new round of investments to boost transition toward clean energy.

Eoin Treacy's view -

Hydrogen stocks are having a moment. In any bull market there needs to be a demand narrative which encourages a supply response. The element’s energy density and clean burning characteristics are burnishing the argument for using more hydrogen as the desire to promote a zero carbon energy sector gains ground. The future of air travel is probably going to include cryogenic hydrogen but that is still a ways off. Meanwhile the low price of natural gas encourages experimentation because the cost of producing hydrogen is compressing.



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January 16 2020

Commentary by Eoin Treacy

Boeing Lost Its Way by Going on a Wall Street Detour

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

By the time Boeing decided to cobble together the 737 Max, its engineering culture was completely broken. Here’s how Aboulafia described it to Useem in the Atlantic:

It was the ability to comfortably interact with an engineer who in turn feels comfortable telling you their reservations, versus calling a manager [more than] 1,500 miles away who you know has a reputation for wanting to take your pension away. It’s a very different dynamic. As a recipe for disempowering engineers in particular, you couldn’t come up with a better format.

You can see that disempowerment — and its consequences — in the recently released emails. Instead of bringing their fears and complaints to superiors, the engineers grouse to themselves about the problems they see with the plane. They are bitter about management’s unwillingness to slow things down, to build the plane properly, to take the care that’s required to prevent tragedy from striking.

There is one email in particular from an unidentified Boeing engineer that I can’t get out of my head. It was written in June 2018, about a year after the company had begun shipping the 737 Max to customers:

Everyone has it in their head that meeting schedule is most important because that’s what Leadership pressures and messages. All the messages are about meeting schedule, not delivering
quality…

We put ourselves in this position by picking the lowest cost supplier and signing up to impossible schedules. Why did the lowest ranking and most unproven supplier receive the contract? Solely based on bottom dollar…. Supplier management drives all these decisions — yet we can’t even keep one person doing the same job in SM for more than 6 months to a year. They don’t know this business and those that do don’t have the appropriate level of input… .

I don’t know how to fix these things … it’s systemic. It’s culture. It’s the fact that we have a senior leadership team that understand very little about the business and yet are driving us to certain objectives. It’s lots of individual groups that aren’t working closely and being accountable …. Sometimes
you have to let things fail big so that everyone can identify a problem … maybe that’s what needs to happen instead of continuing to just scrape by.

Of course that’s exactly what happened: the 737 Max failed big — at a cost of 346 lives. Shareholder value has caused much harm in the three decades since it became the core value of American capitalism: diabetics who can’t afford insulin; students ripped off by for-profit universities; patients gouged by hospital chains; and so much else. But none worse than this.
 

Eoin Treacy's view -

General Electric basically invented financial engineering and built a massive business based on moving money around while its industrial core withered. That resulted in unique exposure, for an industrial company, to the credit crisis. The erasing of goodwill, forced sell-off of prime income producing assets and failure to reinvent a business model, resulted in the complete collapse of the share down to the low in late 2018.



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January 16 2020

Commentary by Eoin Treacy

Germans Rush to Buy Gold as Draft Bill Threatens to Restrict Purchases

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

In a tweet posted Wednesday, precious metals consultant and analyst Dan Popescu shared a picture of a long line of people waiting in front of “Degussa store to buy gold in Köln.” Popescu described, “From Jan. 1, 2020, the limit to buy gold anonymously drops from €10,000 down to €2,000. Only two years ago the limit was €15,000.” One user posted his own photo and replied “This is me line at Degussa in 23rd. The employees said they haven’t seen anything like it before.” To give an idea of the relatively small amount of gold €2,000 (~$2,224) can buy, even a 50g gold bar is currently too expensive.

Eoin Treacy's view -

Negative rates are currently only being imposed on depositors with more than €300,000 because the authorities believe wealthier people are less likely to put cash under the mattress. What they fail to understand is many people choose to hold their cash in gold when the risk of debasement is running high.



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January 15 2020

Commentary by Eoin Treacy

January 15 2020

Commentary by Eoin Treacy

U.S. and China Sign Phase One of Trade Deal

This article by Shawn Donnan, Josh Wingrove, and Saleha Mohsin for Bloomberg may be of interest to subscribers. Here is a section:

The U.S. and China signed what they’re billing as the first phase of a broader trade pact on Wednesday amid persistent questions over whether President Donald Trump’s efforts to rewrite the economic relationship with Beijing will ever go any further.

The deal commits China to do more to crack down on the theft of American technology and corporate secrets by its companies and state entities, while outlining a $200 billion spending spree to try to close its trade imbalance with the U.S. It also binds Beijing to avoiding currency manipulation to gain an advantage and includes an enforcement system to ensure promises are kept.

Eoin Treacy's view -

The most important point about the trade deal is the stock market did not sell off immediately following the signing. Considering the rally that has been underway for the last three and half months there is clear risk of some consolidation on a buy the rumour to sell the news, but no evidence it has started just yet.



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January 15 2020

Commentary by Eoin Treacy

Decisions, decisions

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

In the next 10 years, demographic changes will have major effects. Millennials, the largest US generation, will be approaching age 50, while the last of the baby boomers will all be at retirement age. Artificial intelligence and virtual reality are expected to be mainstream. Automation will impact the labor force. Environmental disruption will likely continue, and sustainable investing will be mainstream.

Investors see these “mega-trends”— an aging population, technology and automation, diminishing resources— creating opportunities for the future.  In fact, seven in 10 want to take advantage of these trends to seek better returns.

As they look ahead, investors have an opportunity to ensure they are well positioned for the future—a future that will be here before we know it.

…In today’s challenging environment, investors seek various strategies to cope

To cope with this environment, 64% of investors are considering adding high quality stocks to their portfolios, while others would increase diversification and raise cash. Already, investors are holding 25% of their assets, on average, in cash. There is a clear connection between investor confidence and planning. Two-thirds of investors with a long-term plan in place are highly confident they will achieve their goals, compared to only 51% of investors without a plan. In addition, eight in 10 plan to discuss the impact of the US Presidential election with their advisors.

Eoin Treacy's view -

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

The “challenging environment” rhetoric, that has permeated just about all of the 2020 forecasts I have seen, is more a reflection of what people have in their portfolios rather than the background of markets.



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January 15 2020

Commentary by Eoin Treacy

Pound Struggles After Inflation, Saunders Spur BOE Rate-Cut Bets

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

The pound faltered and gilts rallied after inflation data backed up Bank of England policy maker Michael Saunders’ call for urgent stimulus to boost the U.K. economy.

Sterling weakened against the euro and 10-year government bond yields dropped to the lowest in seven weeks after the data fueled bets that the central bank will lower interest rates this year. Money markets are now fully pricing in a full 25-basis-point rate cut for May, compared to November a day ago, and see a 65% chance of a move this month.

Saunders’ view on the need for more accommodative policy comes just days after BOE Governor Mark Carney said Britain’s economic growth had slowed below potential and that the Monetary Policy Committee had discussed the merits of near-term stimulus.

“There is more room for easing expectations to rise should incoming data disappoint and that could keep short-term sterling downside risks intact,” said Manuel Oliveri, a currency strategist at Credit Agricole AG.

Eoin Treacy's view -

The UK is determined to avoid the deflationary environment that has seen negative rates prevail in the Eurozone. That entails a willingness to let inflation run hot. Cutting interest rates now can be justified based on Brexit uncertainty as the end of the transition agreement is clearly within sight on December 1st.



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January 14 2020

Commentary by Eoin Treacy

Video commentary for January 14th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: risk-on environment supported by global liquidity is spurring demand for high yield bonds, some of last year's worst performing tech ventures, gold remains steady and accelerating trends in the stock market persist at least for now. 



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January 14 2020

Commentary by Eoin Treacy

Hedge Funds Could Make One Potential Fed Repo-Market Fix Hard to Stomach

This article by Daniel Kruger for the Wall Street Journal may be of interest to subscribers. Here is a section:

The political backlash that followed crisis-era bank rescues hangs over policy makers’ approach to the current problem, analysts said, even as officials work to ensure the smooth functioning of a key piece of the infrastructure underpinning financial markets. Some fear that lending directly to hedge funds could lead to the perception the Fed is fueling risky bets.

“There’s a strong aversion to fat cat bailouts,” said Glenn Havlicek, chief executive of GLMX, which provides technology to repo trading desks.

Many hedge funds trade in the cash market through sponsored repos. The clearinghouse sits between buyers and sellers to ensure that neither party backs out of the transaction. Records of cleared trades also are publicly available, improving the market’s transparency.

The idea of using the clearinghouse appeals to some investors and analysts because the Fed has had trouble getting cash into the hands of the smaller banks, securities dealers and investors who need it the most.

That is because the Fed trades exclusively with a small group of large banks and securities firms, known as primary dealers. Even among these firms, activity is tightly concentrated. A study recently published by the Bank for International Settlements said that liquidity in the repo market rests in the hands of the four largest banks in the U.S. system.

Eoin Treacy's view -

Every time a central bank reduces interest rates, holds them down for a prolonged period and increases the size of its balance sheet, part of the rationale is to support the kind of speculative activity which can get the growth multiplier moving again. The side effect is to encourage simultaneous financial market speculative activity in both public and private assets.



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January 14 2020

Commentary by Eoin Treacy

ARK Invest Big Ideas 2020

Thanks to a subscriber for this bluesky report focusing on technological innovation. Here is a section:

1. Deep Learning — From Vision to Language
2. Streaming Media — The Primary Technology Behind Content Distribution
3. Electric Vehicles — Faster Adoption Than Most Think
4. Automation — Increased Productivity and More Jobs
5. 3D Printing — An Underestimated Technology
6. Autonomous Ridehailing — The Future of Transportation
7. Aerial Drones — A Cost Saver and Potential Life Saver
8. Next Generation DNA Sequencing — The Transformation of Oncology
9. Biotech R&D Efficiency — The Convergence of Technologies in Healthcare
10.Digital Wallets — The Transformation of Banking
11.Bitcoin — An Evolution of Monetary Systems

Eoin Treacy's view -

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

Technology and the accelerating pace of innovation has been the driving theme behind the bull market for more than a decade. The first commercial reality of the secular trend has been the monetisation of social media, the introduction of 4G, streaming, the adoption of subscription business models, control of the cloud and a for a brief period a cryptocurrency mania.



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January 14 2020

Commentary by Eoin Treacy

China Iron Ore Imports Surge to Near Record as Shipments Swell

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

Iron ore imports by China surged in December to the second-highest volume on record as mills boosted purchases ahead of the earlier Lunar New Year and Australian supply picked up.

Inbound shipments totaled 101.3 million tons last month, just shy of the record 102.8 million tons in September 2017, according to customs data. The end-of-year surge saw full-year imports increase 0.5% to 1.07 billion tons.

Eoin Treacy's view -

The ramping up of the Chinese steel production sector is a positive development for the argument supporting the global reflation theme.

This report from Bloomberg highlights the capacity buildout for industrial robot, semiconductor and increasing demand for 5G enabled products is potentially one of the primary drivers behind renewed demand for Chinese steel.



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January 13 2020

Commentary by Eoin Treacy

Video commentary for January 13th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: momentum remains a significant force with stock markets almost universally breaking on the upside and led by large cap tech, global reflation trade gaining traction with Dollar weak, gold and Treasuries easing. 



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January 13 2020

Commentary by Eoin Treacy

South Korea's Chip Exports Headed for Rebound as Trade War Eases

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

Semiconductor shipments, South Korea’s biggest source of income, rose 12% in the first 10 days of January from a year earlier, data from the Customs Service showed Monday. That’s the first time the preliminary figure posted growth since October 2018.

While the expansion benefits from a base effect of poor performance last year, it suggests global tech demand is improving after being battered by the U.S.-China trade war. The two countries entering a phase-one trade deal later this week should further support demand.

“It’s definitely a positive signal,” said Lim Hye-youn, an economist at KTB Investment & Securities, referring to the chip shipment in South Korea’s preliminary trade data. “But it’s still difficult to see the growth big enough to be leading Korea’s strong economic recovery. The base effect played a large role.”

Eoin Treacy's view -

The global semiconductor sector is a lead indicator for corporate spending and tends to suffer when expectations for future economic potential are weak. All we hear right now is about the negative expectations for future growth among CEOs. If that were the full story then chips sales would not be turning higher.



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January 13 2020

Commentary by Eoin Treacy

Concentration Should Lead to Opportunities

Thanks to a subscriber for this report from Morgan Stanley which may be of interest. Here is a section:

January 13 2020

Commentary by Eoin Treacy

China's Strengthening Yuan Is Smashing Every Key Level in Sight

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

While analysts say the exchange rate is being driven by improving market sentiment as China’s economy steadies and trade tensions ease, the recent bout of strength comes at a pivotal time for U.S.-China negotiations. Chinese Vice Premier Liu He is expected to sign the long-awaited phase one agreement in Washington Wednesday.

Some now predict the currency will touch 6.8 per dollar within three months -- a level not seen since May last year.

“Having a stronger currency is one way to show good will,” said Mitul Kotecha, a senior emerging-markets strategist at Toronto-Dominion Bank in Singapore. “Signs of a gradual, as opposed to rapid, slowdown in China’s economy and limited decline in China rates will provide support to the currency.”

Eoin Treacy's view -

I did not think we were going to see the Renminbi trade stronger than the trend mean but it is now clearly breaking out. That is as much about the willingness of China to tolerate a stronger currency as it is about the supply of Dollars resulting from the ongoing repo operations.



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January 10 2020

Commentary by Eoin Treacy

January 10 2020

Commentary by Eoin Treacy

January 10 2020

Commentary by Eoin Treacy

Gilts Leave Bunds Behind After Policy Makers Signal Easing Bias

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

Gilts outperformed German bonds as money markets ramped up bets the Bank of England will ease monetary policy.

The yield premium of benchmark U.K. government bonds over their German peers fell to the narrowest since December 2018 after BOE policy maker Silvana Tenreyro said Friday she may support an interest-rate cut if the economy doesn’t strengthen. This came a day after Governor Mark Carney said economic growth in the U.K. had slowed below potential and that the Monetary Policy Committee had discussed the merits of near-term stimulus.

While the BOE was likely to keep rates on hold “Carney’s comments highlight the risk that the MPC may cut if data is weak or take its time before hiking,” said Morgan Stanley analysts including Jacob Nell, in a client note dated Jan. 10.

Money markets on Friday were pricing in a 24% probability of a quarter-point interest-rate cut from the U.K. central bank as early as the upcoming Jan. 30 meeting. That compared to a negligible chance on Wednesday before the policy makers’ comments. The probability of a rate cut by May 2020 doubled to 56% in the same period.

Eoin Treacy's view -

The Bank of England’s statements to the effect that they are willing to cut rates if necessary was a clear signal to traders they are worried about the speed with which the Pound has rallied since the General Election.



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January 10 2020

Commentary by Eoin Treacy

Gilead Tops List of Drugmakers That Need to Make M&A Splash

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

Gilead Sciences Inc. has so far been silent on plans to diversify its pipeline as investors clamor for a repeat of last year’s biotech deal boom.

The drug developer leads a group of biopharmaceutical companies that Wall Street expects to join in the sector’s acquisition spree. Earlier on Friday, Eli Lilly & Co. snatched up Dermira Inc. and its skin disorder drug for $1.1 billion.

That news comes as investors and management flock to San Francisco for the JPMorgan Healthcare Conference, which kicks off on Monday. The meeting is viewed as the crown jewel of sell-side events and is a hotbed for companies to announce deals and provide product updates.
 

Eoin Treacy's view -

The biotech sector is busy commercialising a range of novel therapies to treat cancers and chronic conditions like diabetes, Alzheimer’s and arthritis. The road to full approval and the scope for failure along the way means it is a high-risk strategy to invest in start-ups. Therefore, the bigger companies wait for some verifiable proof a nascent product works and then investigate buying it. 



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January 09 2020

Commentary by Eoin Treacy

January 09 2020

Commentary by Eoin Treacy

China's Steadying Inflation Leaves Door Open for Monetary Easing

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

“The PBOC is likely to continue to use interest rate and liquidity tools to loosen monetary conditions in 2020, though the easing will probably be less pronounced than last year,” David Qu, a China economist at Bloomberg Economics in Hong Kong, wrote in a note. “We expect the PBOC to stick to a stance of measured easing to counter the economic slowdown.”

For the year, consumer inflation for 2019 stood at 2.9%, in line with the government-set target of 3%, while producer prices declined 0.3%. Core inflation, which removes the more volatile food and energy prices, stabilized at 1.4% in December, signaling ongoing weakness in the broader economy.

China’s economy has shown signs of recovery in recent months as global demand steadies and trade tensions ease. As commodity prices rise and factories start restocking, PPI deflation is set to continue to moderate and some see it turning positive as soon as January.

Eoin Treacy's view -

The outlook for the Chinese economy represents the lynchpin for the global reflation trade and the prospects of steadying growth and continued stimulus are helping aid in the positivity surrounding the hiatus in the trade war.



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January 09 2020

Commentary by Eoin Treacy

Deloitte-Ballard Joint White Paper Assesses Hydrogen & Fuel Cell Solutions for Transportation

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

Randy MacEwen, Ballard President and CEO said, "In less than 10 years, it will become cheaper to run a fuel cell electric vehicle (FCEV) than it is to run a battery electric vehicle (BEV) or an internal combustion engine (ICE) vehicle for certain commercial applications."

Although FCEVs are currently more expensive to run per 100 kilometers (km) than BEVs and ICE commercial vehicles, they are set to become much cheaper as manufacturing technology matures, economies of scale improve, hydrogen fuel costs decline and infrastructure develops. Indeed, the white paper conservatively estimates the Total Cost of Ownership (TCO) for commercial hydrogen vehicles will fall by more than 50% in the next 10 years.

Eoin Treacy's view -

Economics 101 dictates that when the price of a vital commodity falls precipitously industrious people find a way to use more of it and particularly as a substitute for higher priced commodities. Natural gas is the primary feedstock for creating hydrogen. The price is back testing the $2 level which is close to the lows of the last decade and approximately levels seen ahead of the commodity bull market.



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January 09 2020

Commentary by Eoin Treacy

Fiat Will Effectively Fund Tesla's German Factory, Baird Says

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

Chief Executive Officer Elon Musk announced in November that Tesla planned to build a plant outside Berlin. The facility is expected to produce Model 3 sedans and Model Y crossovers starting in 2021.

Fiat Chrysler is going to launch a new version of its Fiat 500 battery-powered vehicle in Europe this year, along with plug-in hybrid versions of its Jeep Compass, Renegade and Wrangler models. That, combined with the Tesla credits, should make the company compliant with Europe’s emissions rules, CEO Mike Manley told analysts in July.

While Fiat Chrysler would otherwise struggle to meet new carbon-dioxide emissions standards in Europe, the so-called open-pool option available in the European Union allows automakers to group their fleets together to meet targets.

Compliance has gotten harder for automakers as consumers have shifted toward gasoline cars, which emit comparatively more CO2, following Volkswagen AG’s diesel-emissions scandal that first erupted in 2015.

Eoin Treacy's view -

Getting your competitors to pay for a factory, which you will then use to produce cars aimed at putting them out of business is a narrative that is so farfetched it would be unlikely to ever pass muster as a movie script. Yet, it is reality in the growth killing market designed by the bureaucrats ruling the EU. Is it any wonder the UK voted to leave?



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January 08 2020

Commentary by Eoin Treacy

Video commentary for January 8th 2020

Eoin Treacy's view -

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

Some of the topics discussed include: geopolitcal tensions easing leads to all change in safe have assets, key reversals in oil and US Treasuries, stock markets breakout, changing geopolitical calculations suggest a more beligerent US is inevitable. 



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January 08 2020

Commentary by Eoin Treacy

Trump Backs Away From Conflict With Iran After Harmless Attack

This article by Josh Wingrove and Jennifer Jacobs may be of interest to subscribers. Here is a section:

Iran fired more than a dozen guided missiles at two U.S. bases in Iraq in retaliation for the killing of Qassem Soleimani. But a Pentagon analysis of the attack suggested the missiles were aimed at unpopulated parts of the bases, according to people familiar with the matter.

Satellite imagery of the bases provided by Planet Labs showed damaged aircraft hangers and other structures at the Al Asad airbase in western Iraq following the strike.

“Iran appears to be standing down,” Trump said. “Which is a good thing for all parties concerned and a very good thing for the world.”

Iran’s restraint and Trump’s measured remarks in response suggest a path toward easing tensions with Tehran, which surged after Soleimani’s killing in a U.S. drone strike near the Baghdad airport last week.

Iranian Foreign Minister Javad Zarif said on Twitter earlier Wednesday that the missile attack “concluded” Iran’s retaliation for Soleimani’s killing. Even if Tehran refrains from further direct attacks, it might still seek reprisals through more covert means, such as attacks by proxy militias or in cyberspace.

Eoin Treacy's view -

The de-escalation of the tensions with Iran resulted in a reversal of a number of short-term overbought conditions overnight. Attention will now likely turn to the conclusion of the first phase of the trade deal next week and the continued actions of the Federal Reserve in addressing the liquidity constraints of the repo market.



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January 08 2020

Commentary by Eoin Treacy

Byron Wien and Joe Zidle Announce the Ten Surprises of 2020

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

1. The economy disappoints the consensus forecast, but a recession is avoided. Federal Reserve Chair Powell lowers the Fed funds rate to 1%. Without a comprehensive trade deal in hand, President Trump exercises every executive authority he has to stimulate growth and ward off recession. He cuts payroll taxes to put more money in the hands of consumers.

Eoin Treacy's view -

This year I was struck by how close to consensus the majority of the forecasts are, but the first one is certainly headline grabbing. The consensus in the bond market suggests one additional rate cut this year, not three. If the 9th surprise of Treasury yields at 2.5% were to come to fruition it would represent a massive steepening of the yield curve.



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January 08 2020

Commentary by Eoin Treacy

Eoin's personal portfolio - profits taken in commodity longs

Eoin Treacy's view -

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.



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January 08 2020

Commentary by Eoin Treacy

Pandora Soars as Investors Get Early Glimpse of Results

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

The world’s biggest maker of jewelry added roughly a tenth to its market value on Monday after reassuring investors it would reach the upper end of its profit forecast for 2019.

Shares in Pandora A/S rose as much as 12%, as the Copenhagen-based company released some preliminary figures ahead of its Feb. 4 annual results. It now expects its profit margin for 2019 to be in the higher end of the previously guided range of 26-27%.

The update was “definitely good news,” said Per Fogh, an analyst at Sydbank. “Many people had expected Pandora to miss that guidance altogether, so a margin in the upper end of the range shows that Pandora has been able to get its costs under control under its turnaround plan.”

Eoin Treacy's view -

This video has been following me around the internet for much of the last month and its touching sentiment may have been enough to help boost sales in the critical fourth quarter for jewelry sales.



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January 08 2020

Commentary by Eoin Treacy

Email of the day - on gold's fair value

Thank you for the interesting article about golds "fair" value. I remember many many years ago David once mentioned that somebody he respects mentioned that the fair value of a certain British gold coin is a dinner for two at Claridges in London. Unfortunately, I do not remember which coin it was.

Eoin Treacy's view -

Thank you for this reminder. I believe the coin in question is a gold sovereign which currently retails for £294. By that measure it would difficult to conclude gold is overvalued, particularly if the diners wish to have a glass of wine with their dinner.   



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January 07 2020

Commentary by Eoin Treacy

January 07 2020

Commentary by Eoin Treacy

Gold's Next Big Bull Market May Be Upon Us

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

If gold’s implicit prediction is right, it has two implications. The first and most important one is a belief that inflation is at last due to return, after many false alarms. The second is that gold is now settled in a bull market. 

So, is gold good value? The metal doesn’t throw off any income streams, and has very few industrial uses, so it is very hard to come up with a measure of fair value. But the following chart, using data drawn up by Charlie Morris of Catley, Lakewood and May in London, is a heroic attempt to arrive at one. Morris devised a formula for fair value using the consumer price index and the average of 10- and 30-year inflation expectations. This indicator briefly showed that gold was wildly overpriced during the worst of the 2008 crisis, a phenomenon that may have been driven by the illiquid markets of the time, that created an unrealistic inflation forecast. Exclude this incident, and we see a steady bull market for gold from 2005 to 2011, followed by a steady bear market, where it moved to a discount. In the last two years, it looks as though it may have started another bull market. By Morris’ calculations, gold is now about 11% over fair value. 

Gold is still far from the confident prediction of runaway inflation that it briefly produced for a few years after the crisis, even though it is buoyed by safe haven demand at present, along with seasonal interest in gold jewelry, notably from China where the lunar new year is almost here, and by resumed interest from central banks.

On the supply side, gold-mining groups are merging, creating a reasonable hope of avoiding over-supply in the near future. So, if this move in gold prices is confirmed by a move down in real yields, followed even by an increase in inflation, then this could be part of a bull market to match the one from 2005 to 2011. The critical question is whether the gold market proves to be right this time in its forecast of inflation.

Eoin Treacy's view -

Gold is often viewed as a hedge against inflation but that is a largely a corollary to its prime position as a monetary barometer. The foreign markets are relative value oriented. One can’t really say a currency is strong or weak unless it is compared to whatever it can be converted into. All fiat currencies are subject to the tendency of governments to print with abandon at the first sign of trouble. Gold does best in periods when competitive devaluation becomes a factor, which is exactly what we have today; with a growing trend of synchronised monetary and fiscal stimulus. Inflation is a side effect of that profligacy.



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January 07 2020

Commentary by Eoin Treacy

Iron Ore Set for 'Major Surplus' as Inventories Build, Citi Says

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

The global iron ore market “is expected to shift into a major surplus with inventories expected to recover to pre-Brumadinho levels by early 2021,” Citigroup Inc. says in note, referring to the Vale SA operation that experienced a dam burst last year.

“We maintain our directional convictions on iron ore and coking coal, while acknowledging that big price moves might not happen until post-Chinese New Year,” bank says in note, which in part recaps analysis on bulks market issued last month

“Most market participants agree that iron ore prices will likely drift lower during 2020, with the primary debate being about the timing and extent of any sell-off,” bank says

“Concerns about 1Q Australian supply-disruption risks and weak Brazilian exports are already reflected in iron ore prices,” it says

After Lunar New Year, “we see iron ore supply recovering and potential profit-taking by Chinese steel longs,” Citi adds

Eoin Treacy's view -

Vale believes it will return to full production next year so market participants are beginning to position for that outcome. The clear outperformance of iron-ore last year was certainly due to supply constraints but the question for 2020 will be in how much demand for industrial resources picks up with global growth improving.



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January 07 2020

Commentary by Eoin Treacy

Sony Shocks CES 2020 With Unveiling of Electric Car

This article by Michael Cogley for the Telegraph may be of interest to subscribers. Here is a section: 

Tech giant Sony shocked attendees at this year’s CES by unveiling a new electric car.

The Japanese company, which is best known for its PlayStation games consoles and high-end televisions, revealed the Vision S concept saloon.

The prototype boasts 33 sensors to monitor inside and outside of the car, as well as an ultra-wide monitor which will be used for entertainment and information purposes.

Sony chief executive Kenichiro Yoshida said that cars will be redefined as a “new entertainment space”.

“To deepen our understanding of cars in terms of their design and technologies we gave a shape to our vision,” Mr Yoshida told the tech conference in Las Vegas.

“This prototype embodies our commitment to the future of mobility and contains an array of Sony technologies.”

The new concept car also features “360 reality audio”, which Mr Yoshida says will give users an “immersive experience”.

Eoin Treacy's view -

The Consumer Electronics Show is where companies go to showcase their most aspirational vision of what they hope to bring to market in coming years. Electric cars started popping up a few years ago but this year electric vehicles dominated the product line. Sony, Mercedes Benz and Fisker debuted electric vehicles, with the latter production ready.



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January 07 2020

Commentary by Eoin Treacy

Eoin's personal portfolio: precious metals long increased December 11th

Eoin Treacy's view -

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.



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