A mountain of developer debt — equal to about 12% of China’s GDP — is at risk of default and poses a threat to financial stability, according to Bloomberg Economics. That’s despite a slew of existing support measures for the industry, which include: 

Lower mortgage rates for first-home buyers if newly constructed house prices drop for three consecutive months
A nationwide cap on real estate commissions to boost demand
Allowing private equity funds to raise money for residential property developments
Pledging 200 billion yuan ($28 billion) in special loans to ensure stalled housing projects are delivered
A 16-point plan unveiled in November that ranged from addressing the liquidity crisis to loosening down-payment requirements for homebuyers

Speculation about further policy support helped propel a gauge of Chinese property developers to a more than 6% gain on Friday before the Bloomberg report, the most since December. In the coastal city of Qingdao, the government this week lowered the down payment ratio for first- and second-time home buyers in areas not subject to purchase restrictions, local media reported earlier on Friday.

Everyone can agree that moral hazard is a problem for economists. Create an incentive and resisting regulation ensure it will be exploited to the greatest extent possible by any and all means possible. Unbridled debt issuance is a hallmark of speculative activity in China. That’s been a clear feature of the housing/infrastructure boom. It was equally evident in the pace with which loans were made to foreign governments and projects as part of the Belt and Road Initiative. 

India’s GDP growth increased to 6.1% year on year in January-March, from an upwardly revised 4.5% in the final quarter of last year. The reading exceeded even our forecast of 5.7% — the highest in a Bloomberg News survey — and was 1.1 percentage points higher than the consensus estimate.

For fiscal 2022, which ended March 31, that translates into GDP growth of 7.2%, higher than the government’s second advance estimate of 7%. This was in line with our forecast, but 0.2 ppt higher than the consensus estimate.

Key drivers behind the positive data surprise included government subsidies that are energizing the electronics sector, multinationals shifting back-office business to India to reduce costs, and stronger real credit growth.

The Reserve Bank of India’s cumulative 250 basis points of repo rate increases in this cycle didn’t appear to have any meaningful impact. The construction sector, which is most sensitive to interest rates, also recorded higher growth in 1Q.

India’s Manufacturing PMI is in expansion territory and continues to trend higher. That is in sharp contrast to the negative readings in both China and the USA. Manufacturing capacity has been migrating for much of the last decade as China’s wage bill trended higher. The low end garment industry is now well established in places like Bangladesh, Pakistan, and Ethiopia for example. 

By 2050, the UK’s Environment Agency expects the gap between available water and what’s needed by homes and businesses to reach 4 billion liters per day in England — enough to fill 1,600 Olympic size swimming pools. Leaks are part of the picture, but so is a neglected network, some of which was built more than 150 years ago, that doesn’t store enough for times of drought, and water consumption that outstrips many other parts of Europe.

The crisis has become a national obsession. The public is furious with a privatized English water industry that has paid out millions to executives and shareholders while failing to keep pace with population growth and climate pressures, and the government and regulators that have allowed it to happen. As well as the threat of water shortages, underdeveloped pipes and treatment plants mean raw sewage is frequently dumped in rivers and the sea, causing environmental damage.

Now, after years of delays, the UK is racing to fix its broken water system before it’s too late. “The worst risk has not materialized yet,” says Jim Hall, a professor of climate and environmental risk at Oxford University and a member of the government’s official infrastructure adviser. “There is some sense until now that we’ve got away with it,” he says, but “a severe and prolonged drought could materialize at any time.”

The population of Greater London declined between the 1950s and early 1980s but then jumped around 50% over the last forty years. There was no incentive to invest in water infrastructure during a time of declining population growth and it takes a long time for institutional mindsets to change. Today, there is urgency to the investment case because urgent remedial action in both storage and usage are necessary. 

Anheuser-Busch InBev ADRs fall as much as 2.5% ahead of the bell after the latest Nielsen data shows accelerating volume and sales declines for its Bud Light beer. Shares dropped as much as 1.9% in Europe.

Nielsen data through May 20 show that Bud Light volume declines accelerated to -27.2% vs -25.0% in the week ended May 13, while sales worsened to down 24.3% from down 21.6%, writes Citi analyst Simon Hales

The broader InBev beer portfolio also continues to see weakness, while Molson Coors’ Coors Light beer continues to see market share gains accelerate, he says.

The culture wars are ramping up a year ahead of the US Presidential election. “Protect the children” is developing as the counter point to the rollback of abortion rights earlier this year. It is reasonable to expect continued efforts to deepen the gulf between the parties as centrists are increasingly forced to pick a side. Taking the bi-partisan agreement to raise the debt ceiling as a sign that partisanship is ebbing would seem to be rather naive. 

But the latest swing higher in real yields shows that in spite of fraught debt-ceiling negotiations, the world’s biggest bond market senses another jolt of policy tightening and an extended period of staying on hold may be warranted. A similar outlook is being echoed in the swaps market, with traders almost fully pricing in a quarter-point hike within the next two policy meetings.

That view has found support in recent data pointing to a resilient US economy and sticky inflation. A report on Friday showed the inflation rate for US personal spending on items excluding food and energy running firmer than forecast at an annual pace of 4.7% in April. That comes amid upside surprises in UK and European inflation numbers, reminders that central banks may have more work to do and bond yields may keep climbing. 
 

PCE inflation, the trimmed kind followed by economists who don’t like volatile real life data, surprised on the upside today. That is a mirror of the UK result earlier this week. It suggests the primary sources of inflation are now services and shelter. The sources of inflation which can be influenced by interest rates are already subsiding. For example food prices are now contracting. 

Delivery companies as publicly listed entities are under pressure to churn out profits. And there’s very little competition. Consolidation, particularly since that start of the pandemic, has left three dominant players in the US. DoorDash had 65% of food delivery sales as of April, including those from its Caviar unit, according to Bloomberg Second Measure, a provider of transaction data analytics. Uber Eats has a 25% share, aided by its 2020 acquisition of Postmates. Grubhub Inc. — which has over the years absorbed Seamless, Eat24, and Tapingo before being acquired by Just Eat Takeaway.com — has 9%. 

Delivery apps are a vestige of the success stories that characterised the pandemic living experience. The market is not big enough to accommodate all the companies vying for dominance so the best capitalised are most likely to gain markets share as the weaker companies disappear. 

“The health of the local economy is now the primary concern,” said Brendan McKenna, an emerging-markets strategist at Wells Fargo Securities in New York. “It’s difficult to make a really compelling case to deploy capital toward South Africa and the rand at the moment. The rand has been an EM currency that has underperformed for most of this year, and given the commentary from the SARB today, that underperformance is likely to continue.”

Bloomberg’s forecast model based on prices of options to buy and sell the rand shows a 53% chance of the currency breaching 20 per dollar within the next week. That compares with a probability of just 6.8% before Thursday’s rate decision.

All of the monetary policy committee’s five members voted for the half-point increase, the first such unanimous decision since September 2021. There have been a cumulative 475 basis points of interest-rate hikes since November 2021, the most aggressive tightening cycle in at least two decades.

“The rand should strengthen after an interest rate hike, but given the poor reaction in the currency, the market seems to think that this is a potential policy mistake,” said Michelle Wohlberg, a fixed-income analyst at Rand Merchant Bank in Johannesburg. “The yield curve has steepened aggressively post the rate hike as fiscal fears start playing in investors’ minds on the back of poor growth prospects.”

When the former CEO of Eskom writes a book called Truth to Power and refers to the company as South Africa’s largest organised crime network, it is not exactly good for the country’s international reputation. The cholera outbreak north of Pretoria, which has killed 17 people so far, is an additional sign that South Africa’s water infrastructure is also in need to remedial care. 

Aside from the capital, no state received more money than Nuevo Leon’s $2.3 billion. Jalisco received $1.2 billion, while Puebla and Mexico State followed with $0.9 billion each. The majority of the investment growth came from companies that expanded existing operations in Mexico.

“The greatest part of the foreign direct investment was reinvestment in utilities, which is related to the increase in the capacity of plants already installed by companies, and explained by the long-term perspective on export growth,” said Gabriela Siller, director of economic analysis at Banco Base.

The movement of companies from other parts of the world to just south of the US — a practice known as nearshoring — has generated buzz around Mexico’s production possibilities. Nearly $10 billion of the investment went to the manufacturing sector, while $6 billion went into financial services.

If the current pace continues, total investment for the year could reach $43 billion, Siller said. That would represent a 51% gain in total foreign direct investment from 2022 after $6.9 billion from the media merger and Aeromexico restructuring is excluded.

https://en.wikipedia.org/wiki/Isthmus_of_TehuantepecMexico’s GDP is around $1.27 trillion so inward investment approaching $100 billion in a year moves the needle for economic growth. At present Mexico is growing at around the pre-pandemic trend rate of 4%, and inflation (6.25%) continues to trend lower. Fiscal constraint has been a hallmark of AMLO’s presidency and that has helped to support the peso. In turn that has improved the perception of upside potential for foreign investors in the stock market.  

Confidence in that view has now been dented, however, with attendees at a luxury conference in Paris organized by Morgan Stanley flagging a “relatively more subdued” performance in the US, according to Edouard Aubin, an analyst at the investment bank. That reflects “weakness in the aspirational consumer in particular.”

That was counterbalanced by more buoyant demand elsewhere, according to Morgan Stanley. “Overall, we found corporate commentary resilient, pointing to an ongoing soft landing in the US largely offset by strength in other markets.”

Both Asia and the US are important markets for European luxury companies. Asia excluding Japan accounted for 30% of LVMH’s sales in 2022, while the US made up 27%, according to the company’s annual report. 

Deutsche Bank AG analysts have also said that a slowdown in the US is now a growing concern. While the rebound in Chinese demand has been among the key drivers of strong sales, investors are likely to be picky from here on, they added.

Hermes doubled in less than a year. For a “limited supply” champion that’s an impressive performance. The share’s trend has been supported by the low float and its status as a vehicle for playing China’s post pandemic consumer rebound, without in fact investing in China.  

At first, the insurance pricing process -- heavily reliant on algorithms and mathematical modeling -- seemed ripe for upending, thanks to advances in the sheer amount and variety of data digitally-native companies could suddenly collect on customers.

But the Silicon Valley axiom to move-fast-and-break-things hasn't been enough to transform an industry built on centuries of observed human behavior, massive marketing budgets and a savvy grasp of the regulatory environment.

Founded in 2015, Lemonade initially aimed to sell renters and homeowners insurance. It was worth $9.87 billion at its peak in 2021; it's now worth $1.23 billion. Root Insurance, also founded in 2015, began with the idea of using telematics -- or in-car data -- to offer personalized auto insurance based on how people drive. In 2020, it was worth roughly $6.8 billion, and has since swooned to about $67 million. Property and casualty insurance startup Hippo went public at a $5 billion valuation in 2021. It is now worth around $425 million.

So far, the insurtechs have been slow to gather and contextualize enough data to actually build better models. Regulations have restricted the use of some of their data and differentiated pricing. And it has been difficult to chip away market share from established industry giants.

I have been a beneficiary of the insurtech market, so perhaps I am more positively disposed towards the sector than others. As a user of MyFitnessPal, I was provided with a life insurance policy (at my peak pre-pandemic fitness point) at a rate that was far below anything available elsewhere. The home insurance premium I pay Lemonade is half what other companies have quoted. The big question is whether these companies can achieve profitability before they run out of money. 

As Parks dug into the details of the loans, he found something alarming: Clauses mandating that borrowing countries deposit U.S. dollars or other foreign currency in secret escrow accounts that Beijing could raid if those countries stopped paying interest on their loans.

In effect, China had jumped to the front of the line to get paid without other lenders knowing.

In Uganda, Parks revealed a loan to expand the main airport included an escrow account that could hold more than $15 million. A legislative probe blasted the finance minister for agreeing to such terms, with the lead investigator saying he should be prosecuted and jailed.

Parks is not sure how many such accounts have been set up, but governments insisting on any kind of collateral, much less collateral in the form of hard cash, is rare in sovereign lending. And their very existence has rattled non-Chinese banks, bond investors and other lenders and made them unwilling to accept less than they’re owed.

“The other creditors are saying, ‘We’re not going to offer anything if China is, in effect, at the head of the repayment line,’” Parks said. “It leads to paralysis. Everyone is sizing each other up and saying, ‘Am I going to be a chump here?’”

Loans as ‘currency exchanges’
Meanwhile, Beijing has taken on a new kind of hidden lending that has added to the confusion and distrust. Parks and others found that China’s central bank has effectively been lending tens of billions of dollars through what appear as ordinary foreign currency exchanges.

Foreign currency exchanges, called swaps, allow countries to essentially borrow more widely used currencies like the U.S. dollar to plug temporary shortages in foreign reserves. They are intended for liquidity purposes, not to build things, and last for only a few months.

But China’s swaps mimic loans by lasting years and charging higher-than-normal interest rates. And importantly, they don’t show up on the books as loans that would add to a country’s debt total.

Mongolia has taken out $1.8 billion annually in such swaps for years, an amount equivalent to 14% of its annual economic output. Pakistan has taken out nearly $3.6 billion annually for years and Laos $300 million.

The swaps can help stave off default by replenishing currency reserves, but they pile more loans on top of old ones and can make a collapse much worse, akin to what happened in the runup to 2009 financial crisis when U.S. banks kept offering ever-bigger mortgages to homeowners who couldn’t afford the first one.

Some poor countries struggling to repay China now find themselves stuck in a kind of loan limbo: China won’t budge in taking losses, and the IMF won’t offer low-interest loans if the money is just going to pay interest on Chinese debt.

For Chad and Ethiopia, it’s been more than a year since IMF rescue packages were approved in so-called staff-level agreements, but nearly all the money has been withheld as negotiations among its creditors drag on.

The G-7 meeting starts today in Japan and the BRICS Summit will be in August in South Africa. On one side we have the major developed countries getting together to talk about cooperation and how to counter Russia and China. On the other, are the world’s major population centres, where growth will be concentrated over the coming decades. They are suspicious of G7 motives and not least since the confiscation of Russia’s sovereign reserves and are also seeking cooperation but with one another. A major PR exercise is now underway to win hearts and minds in the emerging markets as geopolitical battles lines are drawn. 

A temporary slowdown in inflation may give Egypt’s MPC room to pause, especially after Governor Hassan Abdalla signaled higher interest rates are doing little to cool prices.

The central bank “is likely to remain data-led, and will see declining global commodity prices and a reduction in domestic inflation as supportive of their current monetary stance,” said Farouk Soussa, an economist at Goldman Sachs Group Inc. The monetary authority sees inflationary pressures stoked mainly by supply issues, “reducing the rationale for a further hike in the medium term,” he said.

Emerging markets have no choice but to aggressively hike rates when inflation surges. They don’t have deep domestic capital markets and rely on offering a real rate of return to attract inward investment. Egypt’s year over year inflation has probably peaked at around 30% but with overnight rates closer to 18%, there are still sharply negative real rates. That’s the primary reason for the downtrend in the Egyptian Pound. 

President Joe Biden expressed confidence that negotiators would reach an agreement to avoid a catastrophic default, even as House Speaker Kevin McCarthy criticized his decision to travel to Japan for an international summit.

“I’m confident that we’ll get the agreement on the budget and that America will not default,” Biden said Wednesday at the White House, shortly before departing to Hiroshima, Japan for a Group of Seven leaders summit.

On Capitol Hill, McCarthy and other Republican lawmakers criticized Biden for his decision to travel, with the House speaker labeling the president “a big obstacle” to an agreement.

“Mr. President, stop hiding, stop traveling,” McCarthy said.

On Tuesday, Biden and congressional leaders agreed to a new narrower round of staff-level talks with hopes of reaching a bipartisan deal to avoid an unprecedented US default. The US president also announced he was canceling planned stops in Australia and Papua New Guinea, and would return to Washington by the beginning of next week for continued negotiations.

The decision to attend the G7 meeting is a clear signal there are more important issues at stake than the inward facing decision about how spending and taxing priorities are apportioned. Holding the sovereign debt market to ransom is not the most productive use of anyone’s time but at least it ensures there is a discussion about the trajectory and sustainability of the national debt and obligations. 

 “An important influence over the last year has been the closing of the IPO market,” Burns said in the statement. “We had fourteen companies go public in 2021 but as the IPO market closed in 2022 companies postponed their plans with no private holdings going public.” 

During the year the fund invested £281 million into private companies for follow-on investments as well as two new investments in UPSIDE Foods and Climeworks, Burns said. Private holdings made up 28.6% of the portfolio at March 31.

“We will continue to closely monitor the proportion of the company invested in private companies throughout the year recognising that the proportion can be volatile,” he added.

Scottish Mortgage is not the only fund to have to write down investments in private assets. The low interest rate, low inflation and abundant credit of the last decade allowed long duration assets like high growth, zero profit companies to expand rapidly. The right investment decision was to bet big on the private assets sector. The big mistake was to think the trend was immune to tightening credit conditions. 

Brazilian lawmakers introduced changes to President Luiz Inacio Lula da Silva’s proposed spending rules to include automatic penalties in case the administration is unable to meet fiscal goals set in the bill.

The government would be forced to reduce spending in case revenue comes in below its estimates, including delaying some payments, freezing the salary of public workers and halting the hiring of new ones, according to the text of the bill released on Tuesday by lawmaker Claudio Cajado, the bill’s rapporteur.

“Party leaders’ reaction to the new text is very positive,” Cajado told reporters, adding that the plan is to take the bill to a floor vote on May 24. “We made room for different opinions and I hope there will be no more changes to the bill.”

The new fiscal framework proposed by Finance Minister Fernando Haddad includes small but growing primary budget surpluses, which don’t take into account interest payments, in order to stabilize public debt. It’s part of government efforts to assuage investors worried about Brazil’s finances under Lula and to help the central bank lower interest rates, considered by the president as the main impediment to growth.

Brazil was among the first to aggressively raise rates to ensure a positive real rate would counter inflationary pressures by sucking liquidity out of the economy.  Today that positive real rate stands at 9.57%. 

Turkey will hold a runoff election, with President Recep Tayyip Erdogan just failing to secure enough votes for a first-round victory.

The 69-year-old, looking to extend his two decades in power, will face Kemal Kilicdaroglu, 74, in another vote on May 28 after doing better than polls predicted.

Turkish stocks and bonds dropped, while the cost of insuring the government’s debt against a default spiked, as the results wrong-footed investors betting on a quick end to Erodogan’s unconventional economic policies, which include keeping interest rates well below the level of inflation.

“This is a major disappointment to investors hoping for a win for opposition candidate Kilicdaroglu and the reversion to orthodox economic policy he promised,” said Hasnain Malik, a strategist at Tellimer in Dubai.

Erdogan won 49.5% of the votes, while Kilicdaroglu secured just under 45%, with nearly all the ballots counted, Turkey’s High Election Board said on Monday. Another contender, Sinan Ogan, received 5.2% and was eliminated from the race.

Turkey has a population of 85 million and a median age of 33. It’s no longer a very young country and is stuck squarely in the middle income trap. Erdogan’s domestic policy of promoting Islamic nationalism and international policy of boosting the country’s regional footprint have gained geopolitical points but has also been expensive. 

Under a constitution promulgated in 2017, the military-appointed senators get to vote alongside the 500 elected lower house members to decide on the next prime minister. 

Political parties affiliated with Thaksin, 73, have won the most seats in every national vote dating back to 2001, only to be unseated from power by dissolutions or coups. 

Whether Thaksin’s planned return to Thailand in July will exacerbate tensions with the military elite is another question. The telecoms magnate has been living in self-imposed exile after fleeing to avoid prison over a corruption conviction that followed a coup that toppled his own government in 2006.

Thaksin Shinawatra’s plan to return to the land of smiles in July is certainly going to represent a flash point in democrats’ relationship with the military. Quashing the corruption charge could easily be a precondition for successful negotiation of a coalition agreement to form a civilian government. The challenge will be in how a new administration will further their aims, without running headlong into opposition from the military/royalty-aligned status quo. 

Relations between South Africa and the US — its second-biggest trading partner after China — have soured over Pretoria’s insistence that it is taking a non-aligned stance toward Russia’s war in Ukraine. Even so, South Africa participated in naval exercises with Russia recently, while officials of the ruling African National Congress have expressed support for Russia’s invasion of Ukraine.

State Department spokesman Vedant Patel wouldn’t be drawn on whether the US would consider sanctions against South Africa should the arms claim prove true, but added during a regular State Department briefing Thursday that the US had “serious concerns” about a sanctioned Russian vessel docking in a South African port.

“The political stakes are high, with trade deals and market access all now in question,” economists at Rand Merchant Bank wrote in a client note. “This will add an additional layer of risk until the debate around this has cleared, and the rand should reflect that risk premium.”

Eskom’s challenge in keeping the lights on pales into insignificance relative to the threat of forcing countries to pick sides in the new geopolitical landscape. Selling arms to Russia is not exactly remaining unaligned. Of course South Africa could argue they are equally willing to sell arms to Ukraine. Nevertheless, from NATO’s perspective, depriving Russia of resources is essential to the path to ending the conflict so South Africa’s nonconformity is likely to be viewed very negatively. 

But it's not unfair to say that Google, which in April, according to data from SimilarWeb, hosted roughly 91 percent of all search traffic, is somewhat synonymous with, well, the internet. And the internet isn't just some ethereal, predetermined thing, as natural water or air. The internet is a marketplace, and Google is its kingmaker.

As such, the demo raises an extremely important question for the future of the already-ravaged journalism industry: if Google's AI is going to mulch up original work and provide a distilled version of it to users at scale, without ever connecting them to the original work, how will publishers continue to monetize their work?

Google has unveiled its vision for how it will incorporate AI into search," tweeted The Verge's James Vincent. "The quick answer: it's going to gobble up the open web and then summarize/rewrite/regurgitate it (pick the adjective that reflects your level of disquiet) in a shiny Google UI."

Google announced it would pay the New York Times $100 million over three years this week. That results from years of litigation that Google was giving away content that should have been paid for.

The advent of advanced large language models means computer programs can scour Twitter for titbits and write journalistic synopses just like most journalists. Several services like Buzzfeed and CNET have tried and failed to use AI for unsupervised article writing. 

Separately, data from the People’s Bank of China showed credit and new loans were much worse than expected in April as consumers and businesses curbed their borrowing.

“China’s credit data came in well below estimates, reinforcing the concerns over the sustainability of post-Covid recovery,” said Zhou Hao, chief economist at Guotai Junan International Holdings Ltd. Overall growth momentum “has been slowing significantly,” he said. 

Expectations of policy easing has been growing, and a “policy rate cut looks imminent in the second quarter,” he added.

China’s economic growth accelerated to a one-year high in the first quarter after pandemic restrictions were dropped, led by stronger consumers spending on travel and shopping. Recent data has been more mixed though, with manufacturing activity contracting in April and imports plunging.

China did not engage in the same pandemic spending as many western governments. That ensures inflation was kept under control. Instead they decided to use the pandemic as a means to curtail speculation in the housing sector which was the exact opposite of what happened in other countries. That has helped to keep government bond yields contained and the trend is still lower. 

“Unfortunately, the negative sentiment is dragging down the real estate sector more broadly,” the firm’s president, Connor Teskey, told investors during an earnings call Wednesday. “We think that’s completely unfair.” 

The Brookfield group is one of the world’s largest owners of prime office properties, with a portfolio that includes New York’s Manhattan West and London’s Canary Wharf. Office landlords in major cities around the world are being squeezed by a combination of higher borrowing costs and lower occupancy, as many companies continue to allow employees to work from home at least part of the time. 

Brookfield Asset’s parent company has defaulted on mortgages covering more than a dozen office buildings, mostly in Los Angeles and around Washington.

The property market is “bifurcated” as high-quality assets perform well and lower-quality assets struggle, Teskey said on the call. 

 

The durability of the work from home phenomenon will be tested by the upcoming recession. I’ve been working from home since 2007 and I can attest the better description is you live at work. However, the experience of entrepreneurial people versus those simply marking time is very different.  Flexible time arrangements are not appropriate for every position. Efficiency metrics will quickly be developed to decide whether the cost of a large office building is outweighed by the productivity gain for happier more flexible workers. 

As countries compete for capital, investors and developers have said aggressive subsidies like the US Inflation Reduction Act — which provides $374 billion in funding for clean energy — will be needed to attract the vast investment required.

The new measures are a “great first step,” Fortescue Metals Group Ltd. said in a statement on Wednesday. The Australian iron ore miner has ambitions to become one of the world’s biggest green hydrogen producers and plans to reach final investment decisions on five projects around the world this year.  

The announcement of significant investment in the green hydrogen sector comes hot on the heels of opening the Northern Territory to natural gas development. Regardless of how the global energy sector evolves Australia looks likely to be significant beneficiary. That also applies to coal exports for both steel and electricity generation. 

Platinum ETFs saw heavy buying at the end of April from South Africa based funds. Year-to-date regional inflows into platinum funds in South Africa (+333 koz) are the standout when compared to the US (-107 koz), the UK (-18 koz) and Switzerland (-17 koz). Net flows have been positive every month this year so far, as South African investors are more acutely aware of the electricity supply issues being faced by PGM producers. Total global holdings stand at 3.3 moz, up from 3.0 moz at the beginning of the year, although that was down 1 moz from the peak level of holdings in July 2021.

These investors bought into the recent price rally and hope for more. The platinum price had risen more than 20% since late February before the recent correction. Supply issues in South Africa (~75% of mined supply) are well documented. The regularity and severity of load-shedding in 2022 was unparalleled, with the situation unlikely to improve significantly during 2023. Load-shedding resulted in the build-up of above-ground stocks of unrefined PGMs last year and could lead to an estimated loss of ~250 koz of platinum production this year as the Southern Hemisphere winter begins to bite. Available first-quarter results of major South African PGM miners all cite load-shedding as impacting refined output to some degree.

Platinum prices went vertical during the last South African power cuts. That acceleration also marked the peak of the decade-long bull market as the global economy headed into the financial crisis in 2008.

At the time there was a lot of talk about platinum miners investing in their own generating capacity. The subsequent crash meant very few completed that work. The big decline in platinum prices following the diesel cheating scandal drove several platinum miners into bankruptcy. The recent issues with Eskom have revitalized talk of building solar and wind farms so operations can be independent of the utility. 

The country has burned most of its international reserves and recently faced difficulties to pay for fuel imports. The central bank stopped publishing reserves data in early February, when they stood at about $3.5 billion, out of which $2.6 billion was gold, suggesting only the precious metal is left.

While the Arce administration says the ability to operate with its gold in markets will halt the “low liquidity” Bolivia is going through, opposition lawmakers criticized the bill by saying it’s not a structural solution to the current economic crisis.

Senator Silvia Salame called it a “patch” to allow Arce’s administration to stabilize the country’s situation until the 2025 presidential elections.

Finance Minister Marcelo Montenegro said the gold reserves will be replenished by buying the commodity from local producers
in bolivianos.

Bolivia is not a big holder of gold so that is unlikely to be behind today’s weakness. Instead the prospect of continued rises in the Fed Funds Rate, in response to a stronger than expected jobs report, takes that mantle. 

“This is a solid report, showing a resilient economy on the back of supportive remittances, rising exports, and improving labor conditions,” said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics. “We expect economic activity to be more resilient than in previous cycles.”

The economy’s accelerating growth gives some pause to economists who’ve predicted that the country is headed for a contraction later in the year, due to the expected downturn in the US, Mexico’s biggest trading partner. Part of the surprise is the boost from the domestic market, which has contributed especially to the revival of the services sector, after it plunged earlier during the pandemic.

The Mexican peso erased earlier losses and strengthened as much as 0.3% after the first quarter release.

Mexico is likely to be one of the primary beneficiaries of the reorientation of supply chains as geopolitical tensions between the OECD and China intensify. The prospect of exporting LNG to Europe and the potential for domestic lithium to be used for battery manufacturing and exports is a key reason for optimism about the potential for economic growth. 

The outlook depends largely on the resiliency of the job market. Low unemployment and persistent wage gains have so far allowed consumers to weather high inflation and keep spending.

The personal consumption expenditures price index grew at an 4.2% annualized pace in the January to March period. Excluding food and energy, the index rose 4.9%, faster than forecast and the most in a year. March data will be released Friday. Services inflation remained hot while prices of non-durable goods accelerated.

The inflation and consumer spending figures likely keep the Fed on track to raise interest rates by a quarter percentage point next week. First Republic Bank’s continuing struggles, however, do raise the possibility that the central bank could pause.

Consumer demand surged in the early part of the first quarter and eased back in the later part of the quarter. At the same time economic growth eased and inflation increased. 

When I see/read that Glaxo's shares have been ranging for 20 years, I can't help but be reminded by your service's maxim that, ranges are explosions waiting to happen." After 20 years, one must wonder when and in what direction will we see the explosion?

Thank you for this topical question. Glaxo has been a highly innovative company and yet the share has been locked in a lengthy and volatile range for decades. That suggests the innovations that drove the original bull market and funded the M&A activity that created GlaxoSmithKline are priced in.

Climate finance is likely to be a focus of December’s COP28 meeting in the United Arab Emirates, with the oil-exporting host saying it will address ways to fund the energy transition in poorer countries that simultaneously need to expand access to electricity. That adds pressure on industrialized nations and oil producers to step up. 

While Vietnam’s $15.5 billion and Indonesia’s $20 billion planned JETP agreements are at an earlier stage, they’re also much bigger and potentially more complex. A smaller deal envisaged with Senegal is complicated by its plan to start producing gas.

“We could have done an amazing, amazing model right here in South Africa,” said Tasneem Essop, executive director of Climate Action Network International, which represents over 1,900 climate-focused organizations in more than 130 countries. But “we got embroiled in the politics of it all.”

Coal might be dirty, but it is cheap, reliable, many countries have domestic supplies, plants can rapidly be constructed and last for decades. That’s hard to compete with. The unspoken drawback of forcing developing countries to abandon coal is higher electricity usage is a major contributor to higher standards of living.

Psychiatric medications are a crucial part of treatment for many mental health conditions, helping to ease symptoms and boost mental well-being. But there are some more commonly prescribed.

Mental health conditions are complex. Just one medication will help in some cases. Other times, you might try a few different medications before finding the right one or even need more than one medication.

Psychiatric medications are an important part of many people’s treatment plans, including therapy and other strategies. While they can’t cure your mental health condition, they can help manage your symptoms.

The pharmaceutical industry thrives on chronic conditions. That’s why some of the most successful companies cater to diabetes or why Viagra was such a big hit. The pandemic has seen an explosion in the number of people seeking mental health solutions. It is now much more socially acceptable to talk about mental health and to a certain extent is faddish on social media. That suggests a growth market. I took the list of medications in the above article and traced down the parent companies. 

However, lower risk in emerging markets isn’t just a China story. Fundamentals have also improved more broadly. Over the past 20 years, per capita GDP in emerging markets has roughly doubled as a share of developed markets (Exhibit 5, left side). Measures of external vulnerabilities have also improved from their periods of peak fragility in the 1980s and 1990s. Current account balances in emerging markets are now positive in aggregate, and measures of external debt sustainability (e.g., external debt as a percentage of exports) look much healthier (Exhibit 5, right side).

Bottom line: there are many reasons to believe that the relatively attractive valuations found in emerging markets represent a 5-10 year opportunity. In other words, the current expected premium is likely due to these markets being relatively underpriced, as opposed to representing compensation for assuming meaningfully greater portfolio risk.

The technology sector is a bet on the future and as such it is a long duration asset. When rates are low and credit is abundant, the penalty for taking long-term bets declines and the allure of those assets is boosted. Cashflows, valuations and sustainability are only truly relevant when there is a discount rate to compare them to. Another way of thinking about it is expected returns tend to fall when bond yields are high. In order to surmount the hurdle rate of money market funds, fundamentals and valuations matter. 

LVMH, Europe’s largest company by market value, has now made it to the world’s top 10.

A first-quarter sales beat sparked a 5% increase in the share price Thursday, giving the luxury powerhouse a 29% rally for the year. That, along with a gain in the euro against the dollar, lifted LVMH’s market capitalization to $486 billion, briefly ranking it as the world’s 10th-biggest company. Should it reach $500 billion, it would become the first European company to achieve that milestone.

Luxury goods represent an interesting paradox which must be among the marketing profession’s greatest triumphs. They have created an aura of desirability, mystique and aspiration for items that are not in limited supply. Of course, companies like Hermes ensure their most desirable bags are very hard to purchase, but the entire sector rides on the coattails of that limited supply argument. 

The group’s index of new orders at service providers dropped more than 10 points to a three-month low of 52.2. While still consistent with expansion, the scale of the drop suggests a significant slowing in the pace of bookings growth. The business activity measure, which mirrors the ISM’s factory production index, slipped to 55.4.

“There has been a pullback in the rate of growth for the services sector, attributed mainly to a cooling off in the new orders growth rate, an employment environment that varies by industry and continued improvements in capacity and logistics,” Anthony Nieves, chair of the ISM Services Business Survey Committee, said in a statement.

The pandemic shutdown represented a massive dislocation which pulled the pendulum of demand into sharply negative territory. Massive fiscal and monetary stimulus was implemented to revive. That ensured when demand recovered, it swung to an extreme level in the opposite direction. Like any pendulum there are several swings to less extreme amplitudes, before it settles back to equilibrium. 

The US’s largest car insurer, State Farm Mutual Automobile Insurance Co., reported a $13.4 billion (!) underwriting loss last year, the largest shortfall in its 100-year history; Allstate Corp.’s auto-insurance underwriting loss was $3 billion, while Berkshire Hathaway Inc.’s Geico car-insurance unit lost $1.9 billion.

In the UK, Direct Line Insurance Group Plc’s chief executive departed in January after mounting losses at the motor division forced it to scrap its dividend. The stock has declined more than 50% in the past year.

These woeful results have shaken confidence in the industry’s purported ability to assess risk and forecast accurately. Insurers are belatedly hiking premiums, though often not as quickly as they’d like. Customers who drive Range Rovers and other vehicles prized by thieves, may struggle to get coverage at all.

Soaring used-car prices are the proximate cause of insurers’ woes – a textbook example of how supply chain upheaval can cascade through the economy. Historically, vehicles were a depreciating asset, but suddenly the cost of replacing a stolen or damaged vehicle was far more than insurers had calculated.

The insurance sector is not in the habit of sustaining losses on underwriting so premiums are most assuredly going up. That’s true of every area of the insurance business and not only automotive rates. Everything from commercial, to health to cyber rates are rising.

This news struck me as interesting because it follows hot on the heels of Piguet Ademar’s issuing a replacement guarantee on any high end watches bought over the last couple of years. The threat of theft has growth so high it is impacting sales of their timepieces. 

LVMH shares rise to a record high, contributing most to gains in the French and European indexes on Friday as analysts upgrade their estimates for the French luxury behemoth. Peer Hermes International also hits an all-time peak.

News that foot traffic is ramping up in Macau is clearly positive news for the luxury goods sector as Chinese consumers hit the shops after a lengthy hiatus. 

“The broad ideas are orthodox and the government does agree with the idea of stabilizing debt,” said Katrina Butt, a senior economist at AllianceBernstein LP. “Still, there are some unanswered questions and the government seems to bank on economic growth to be able to achieve the targets, given an increase in the tax burden doesn’t look feasible at this moment.”

The proposal is crucial for President Luiz Inacio Lula da Silva to win over investors, who have been worried about the health of public finances since the leftist leader obtained congressional authorization to boost outlays, bypassing current spending rules that will be replaced by the new fiscal framework. Since then, concerns about swelling debts have helped to fuel inflation expectations keeping, in turn, borrowing costs high.

Brazil was very early in raising rates and now has some of the highest real rates of any country. That begs the question, what will be required for rates to begin coming back down? The fiscal agreement announced today is a step toward placating hawks at the central bank who are reluctant to ease up while the government is talking about major giveaways. 

I am reweighting the Autonomies portfolio as we are approaching the end of the quarter. It’s a tumultuous three months with banks and several retailers experiencing steep selling pressure. Meanwhile several luxury goods companies are at new highs. Technology companies have staged impressive rebounds and commodity stocks are very steady. The biggest surprise for me is how varied the performance of the financial sector is. That clearly suggests there will be big winners and losers from the unfolding market environment. 

Sweden has long fallen short on its constitutional pledge to provide an affordable place to live for all of its 10.4 million people, but until recently that was masked by the growing economy which had helped disguise flaws in the system. 

The shortage of affordable accommodation is hitting recruitment. The Stockholm Chamber of Commerce reported last year that three out of four heads of human resources said the housing situation was making it harder for their firms to hire new staff. 

Rents are negotiated annually by landlords and the tenants association. Advocates say the system helps create a rental market in Stockholm where teachers, police officers, street cleaners and other public sector workers can afford to live alongside bankers, software developers and government officials. Yet supply hasn’t kept up with demand for decades. Average waiting times for a rent-controlled apartment is now 9.2 years, but can stretch up to 20 years in some parts of the capital.

Socialism’s only hope of functioning is to ensure the cost of living never rises. That means creating a social contract where the only means of generating personal wealth is through ingenuity and productivity. It’s a high bar and apparently unachievable for long. 

Collapses of Large Banks on Fridays:

- Friday, Mar. 14, 2008: Bear Stearns hit by liquidity crisis

- Friday, Sept. 12, 2008: Last trading day before Lehman Brothers declares bankruptcy

- Friday, Sept. 26, 2008: Washington Mutual seized by regulators marking largest bank collapse in US history

- Friday, Mar. 10, 2023: SVB seized by regulators, marking 2nd biggest bank failure in US history

- Friday, Mar. 10, 2023: Signature Bank sees $10 billion in withdrawals, seized by regulators 2 days later

- Friday, Mar. 17, 2023: UBS bids for Credit Suisse, $CS, to avoid its collapse

- Friday, Mar. 24, 2023: Deutsche Bank, $DB, credit default swaps hit 4-year high on contagion fears

Just about every large bank failure in recent history has occurred on a Friday.

This can't be a coincidence.

Giving regulators time to make an announcement over the weekend helps to avert market panic. That’s as good a reason as any to announce bad news as close to the market close as possible on a Friday. 

The PDI-P, which secured 22 per cent of parliamentary seats in 2019, is the only party that can nominate candidates without having to ally with other parties. Both Mr Widodo and Mr Ganjar are members of PDI-P.

For Mr Ganjar, the main obstacle to being named PDI-P’s presidential candidate is his own party, said Padjadjaran University political communication expert Kunto Adi Wibowo.

“If Ganjar wants the nomination, PDI-P should be the one to nominate him. He doesn’t want to quit his own party. But will Megawati (Sukarnoputri) give the ticket to Ganjar while she is grooming Puan (Maharani)?,” he said.

Ms Megawati is PDI-P’s chief, while Ms Puan, her daughter, is the House of Representatives Speaker and ranks low in electability rating polls.

Prof Firman noted that both PDI-P and Gerindra may finally have to strike a “tough deal” if they cannot come up with their nominees amid the constant rise in popularity of Dr Anies, given the solidity of his support. 

“If they are forced by pressing circumstances, they will make a deal and resort to the most popular candidates,” he said.  

President Widodo has been a stabilizing force for Indonesia throughout his tenure. The biggest test of sound governance is in the transfer of power. If the sound base he has built can be sustained, the long-term outlook for Indonesia’s potential will be upgraded by investors. 

Volkswagen’s China joint venture with SAIC Motor is offering 3.7 billion yuan ($540 million) in cash subsidies to boost sales, according to a statement on the company’s Wechat account, making the German automaker the latest participant in the ongoing price war. 

The venture will provide a subsidy of between 15,000 yuan and 50,000 yuan on any model in its lineup until April 30, which includes brands like Teramont, Lavida, Lamando, Tiguan, Passat, Touran, and the all-electric ID. series

Other incentives include short-tern interest-free loans, lifelong service packages, upgraded components and buy-back guarantees.

It’s been a busy week for Volkswagen. They are attempting to compete on price in China. The company revealed the design of a compact electric vehicle slated for mass production and costing around €25,000. Then they are also talking about direct investments in mining companies to boost access to resources. That all sounds expensive. 

Defence budget and levelling up
Mr Hunt confirmed the government will add £11 billion to the defence budget over the next five years and another £30 million is being allocated for veterans.

There will be 12 new investment zones, and they will potentially be in the West Midlands, Greater Manchester, the North East, South Yorkshire, West Yorkshire, East Midlands, Teesside and Liverpool. There will also be at least one in each of Scotland, Wales and Northern Ireland.

Mr Hunt also announced a series of levelling-up and local transport-related funding pots.

Taxes
The chancellor confirmed the planned increase in corporation tax to 25 per cent will be going ahead, but announced a new policy of “full capital expensing” over the next three years, which will mean every pound invested in IT equipment, plant, or machinery can be deducted immediately from profits.

Mr Hunt said he will introduce a new tax credit for small and medium-sized firms that spend 40 per cent of their expenditure on research and development. Tax reliefs for film, TV and video gaming will also be extended, he said.

Up to £20 billion will be allocated for the early development of carbon capture and storage.

Mr Hunt said that, subject to consultation, nuclear power will qualify for the same investment incentives as renewable energy and alongside that “will come more public investment”.

Falling Gilt yields could not come at a better times for the UK and its mortgage holders. The upgraded growth estimate which expects to avoid a recession this year helps to highlight the efforts of the Bank of England to talk the market down were more about affecting sentiment than actually containing growth. 

Charles Schwab Corp. tumbled the most ever on an intraday-basis as the online brokerage sought to reassure investors that it has sufficient liquidity to handle any volatility following the collapse of Silicon Valley Bank.

Shares of Westlake, Texas-based Schwab dropped as much as 23% to $45 after trading was halted for volatility. The stock later pared its decline and was down 17% to $48.93 at 10:09 a.m.
in New York.

The firm has a broad base of customers and capital in excess of regulatory requirements, founder and Co-Chairman Charles Schwab and Chief Executive Officer Walt Bettinger said in a statement on its website Monday.

“Schwab’s long-standing reputation as a safe port in a storm remains intact, driven by record-setting business performance, a conservative balance sheet, a strong liquidity position, and a diversified base of 34 million-plus account-holders who invest with Schwab every day,” the executives wrote.

The company, with roughly $7.4 trillion of client assets, said it has access to about $100 billion of cash flow, more than $300 billion of incremental capacity with the Federal Home Loan Bank and other short-term facilities, and that more than 80% of deposits at its bank are insured by the Federal Deposit
Insurance Corp.
 

Companies like Schwab offered an attractive service to their customers during the big bull market. Instead of selling highly appreciated assets and absorbing the capital gains tax hit, why not offer the stock portfolio as collateral against a loan to buy a new house, car or boat? Real Estate agents I know report that was a major source of funding during the pandemic housing boom. 

Your focus on some military defence companies is timely. What do you think are the best "spades and shovels" type defence companies (not high techs like Raytheon) but ones that makes bullets, shells, camouflage, personal military equipment? Have we missed Rheinmetall?

Can you pls keep them under review in the video thereafter as I sometimes don't have time to read the front page and prefer video. Thanks and keep up the good work.

Thank you for this email and suggestion. I’ll certainly cover more of the charts in the videos in future.

The challenge of investing in defense stocks is the sector went through a lengthy process of consolidation as budgets were cut following the fall of the USSR. For example, the UK armoury where munitions are manufactured is owned by BAE Systems and it represents a negligible portion of earnings. 

Brazil’s worsening credit outlook amid troubles facing local retailer Americanas SA raises the risk of a recession that could lead its central bank to change its balance of risks at the upcoming interest rate decision on March 21 and 22, Tony Volpon, a former director at the bank, said in an interview.

“At the very least, the central bank committee should change the balance of risks at the next meeting, which would be a signal to start cutting its rate in May”

NOTE: BCB said in the statement of Feb. 1 meeting, which maintained the Selic rate at 13.75%, that the risks to its inflationary scenarios remain in both directions, upside and downside

According to Volpon, high interest rates and worsening of credit in the midst of the Americanas case may reduce investment and increase the risk of a drop in economic growth

“If the BCB does nothing, it is almost certain that there will be a recession”

Volpon had written earlier on Twitter that “almost every recession needs a ‘snap’ and the Americanas case and the collapse of the credit market already set up an exogenous shock that, left unanswered, should lead to a recession”

Basic scenario is interest rate cuts starting in May, but BCB could cut it later this month if credit data show a more serious deterioration, says the former director

According to him, part of the market could react badly to an eventual Selic cut, which would lead to a greater rate curve steepening, but this would not prevent the positive effect of monetary relief on the economy

Possible negative investor reaction to an early interest rate cut could also be mitigated with announcement of the new fiscal framework, says Volpon

The Selic overnight rate is currently sitting at 13.65% and CPI is at 5.77%. The aggressive pace of hikes in 2021, a year ahead of developed markets, successfully capped inflationary pressures and the central bank has held rates at elevated levels for long enough to convince consumers they are serious about fixing the problem. 

Discovered by retail investors as a cheap way of gambling during the meme-stock era in 2021, zero-day options got a fresh boost on index trading after firms like Cboe Global Markets Inc. last year expanded S&P 500 options expirations to cover each weekday. The offerings became an instant hit among institutions as daily reversals ruled the market, spurred by the Federal Reserve’s most aggressive monetary tightening in decades. 

By the third quarter of 2022, 0DTE contracts accounted for more than 40% of the S&P 500’s total options volume, almost doubling from six months earlier, data compiled by Goldman Sachs Group Inc. show. 

Behind the explosive rise, according to JPMorgan, are likely high-frequency traders — the computer-driven firms present at virtually every node of the modern equity landscape — as market makers and fast-moving seekers of an investing edge. 

It’s a match made in quantitative heaven: For firms known to measure the life cycle of trades in thousandths of a second, zero-day options hold obvious benefits as tools to balance exposure and otherwise hone strategies designed to harvest fleeting profits by darting in and out of positions. 

At any time the market is a centre for speculation. The pendulum of perception swings from casino conditions to conservativism as money supply ebbs and flows with the broad economic cycle.

Those making money believe they have invented a better mouse trap. Those who are outside the new market believe it is too good to be true and therefore dangerous. 

"There is good performance improvement opportunity in this business in all the divisions, especially in civil aerospace and power systems," he told reporters. "And that is ongoing and then strategic review will create the clarity."

He said he would focus on reducing its debt, which stood at 3.25 billion pounds at year-end, to obtain an investment grade, before resuming payouts to shareholders.

Rolls, which also has defence and power systems divisions, posted operating profit of 652 million pounds for 2022, up 57% and beating an analyst forecast of 478 million pounds.

It guided to underlying operating profit of 0.8-1.0 billion pounds and free cash flow of 0.6-0.8 billion pounds this year, based on a forecast for its engines to fly 80-90% of 2019's level.

Rolls Royce has three divisions. These are Civil Aerospace, Defence and Power Systems. Within each of those units it has maintenance contracts. Aftermarket service represents about 55% of all revenue. That means the company is highly leveraged to the 

While US mortgage holders tend to borrow over 30-year terms, insulating them from tightening cycles, a majority of Australian borrowers are on variable rate home loans that adjust upwards each time the central bank hikes. 

Australia’s housing market is already in a downturn and higher borrowing costs are likely to drive more declines this year. 

There’s a further risk from re-pricing of loans that were fixed for 2-3 years at record-low rates during the pandemic. RBA data suggest 23% of all outstanding mortgage debt will be re-priced this year and in some cases borrowing costs will more than double to close to 6%. 

While the RBA is relatively sanguine about housing, Eliza Owen, head of research at property consultancy CoreLogic Inc., sees risks on the horizon.

“Australians with fixed-rate loans are about to see a painful adjustment. This is partly the intention of rising rates,” Owen said. “The true test of the market will be over the next 10 months.”

Australia, “the lucky country” avoided recessions between the early 1990s and the pandemic because many of the troubles assailing the rest of the world did not impact the domestic market. Moreover the boom of Chinese demand, for just about everything Australia exports, was a major boost to the economy over the last twenty years and insulated Australia from the credit crisis. 

An office landlord controlled by Pacific Investment Management Co. has defaulted on about $1.7 billion of mortgage notes on seven buildings, a sign of widening pain for the industry as property values fall and rising interest rates squeeze borrowers.

The buildings — in San Francisco, New York, Boston and Jersey City, New Jersey — are owned by Columbia Property Trust, which was acquired in 2021 for $3.9 billion by funds managed by Pimco. The mortgages have floating-rate debt, which led to rising monthly payments as interest rates soared last year.

“We, like most office owners, are addressing the unique and unprecedented challenges currently facing our asset class and customer base,” Justina Lombardo, a spokesperson for Columbia Property Trust, said in an emailed statement. “We have engaged with our lenders on a restructuring of our loan on seven properties within our larger national portfolio.  We look forward to a collaborative process yielding thoughtful solutions that reflect current market conditions and best serve the interests of all stakeholders.”

Over the last few months I have been struck by the number of conversations I’d had where investors have been investing in private credit for years already. One way of thinking about it is investment banks are going back to their roots. 

The British premier had been preparing to unveil a new deal this week, but vocal opposition from unionists in Northern Ireland and Brexit hardliners in Sunak’s own Conservative Party scuppered the plan. Sunak had a positive talk with European Commission President Ursula von der Leyen late Friday and they will speak again soon, a person familiar said. He’s also gearing up to talk to his Cabinet before Monday, people directly involved in the plans said.

Sunak also wants to have further discussions with DUP Leader Jeffrey Donaldson, whose party has blocked the formation of Northern Ireland’s devolved power-sharing government for more than a year over the current post-Brexit trading arrangements, known as the Northern Ireland Protocol. His endorsement is likely to prove crucial and without it an announcement of the deal may be further delayed. 

There are three potential solutions to the question of how the Good Friday Agreement fits into the overall Brexit question. The first is the border with the EU is in the middle of the Irish Sea. This is the current situation which Boris Johnson implemented. 

A factor that’s gotten less attention, though, is something a bit more arcane, something more specific to the business models that have both enriched some of the world’s biggest tech companies and shaped the way many of us experience the internet. That factor is the iPhone.

In 2021, Apple rolled out what it called App Tracking Transparency. Henceforth, iPhone users had to opt in to certain forms of digital tracking, in particular targeting that involves the sharing of information between different apps.

Social media companies rely heavily on that technique to serve up the targeted ads that are their profit engines. The data they collect can form an ever-more-detailed mosaic of a user and, most importantly, a better sense of what kind of person responds to which types of ads.

Apple presented its anti-tracking policy as a way for people to take control of their information, at a time when lawmakers around the world are championing a similar cause. Ads are intrusive and annoying, and being closely tracked on the internet is creepy. If you are a political dissident or a woman researching abortion in a place where the procedure is illegal, it is terrifying.

At the time, however, Facebook’s parent company Meta saw the change as a serious threat. Social media executives feared that lots of iPhone users would opt out of this kind of app tracking when given the option. Almost two years on, they seem to have been right. Meta estimated that the change cost it $10 billion in 2022, or 9% of its total revenue.

Eric Michael Seufert, an analyst at Mobile Dev Memo, went so far as to call it “the App Tracking Transparency recession.” Seufert argued that the tech companies having the hardest time right now are those most directly affected by Apple’s policy. As he points out, revenue at YouTube, Google's video arm that relies heavily on third-party ad tracking, has lagged the company's search revenue, which is far less reliant on this type of tracking.

Perhaps a more accurate way of thinking about the repercussions of Apple’s walled garden approach, to information on its phones, is it is a bear market on click bait. The ads we are served are chosen based on assumptions the seller makes about our proclivities. That’s a valuable asset and now Apple holds that information for itself. 

The talk was split into two parts. The first was devoted to talking about the risks climate change represents and what a potential solution might look like. The second part criticised world leaders in turn. 

Norfolk Southern Corp. fell again as the railroad faced growing fallout from a train derailment that spilled chemicals in Ohio early this month.

The US Environmental Protection Agency notified the company of its “potential liability” and encouraged Norfolk Southern to reimburse the agency for its costs related to the crash. The EPA urged a quick response in its Feb. 10 letter.

The railroad said it received the EPA’s request and “will continue to perform or finance environmental monitoring and remediation,” according to an emailed statement. Norfolk Southern’s hazardous materials team was at the scene within an hour of the accident and continues to work with authorities, the company said in the statement.

The 150-car train derailed at 8:55 p.m. Eastern time on Feb. 3. It was hauling about 20 railcars with chemicals, including vinyl chloride, ethylhexyl acrylate and isobutylene, according to the EPA. 

Those chemicals were released into the air, surface soils and surface waters near East Palestine, Ohio. 

Norfolk Southern slid 1.2% Monday in New York, the fourth decline in six trading days since the spill. The shares are down 2.7% this year, while the S&P 500 Index is up 7.8%

The spill and burn off of butyl acrylate into the Ohio river, which provides drinking water for millions of people, has understandably put consumers on edge. There will certainly be class action lawsuits if there is a hint the spill has led to health issues, particularly following the evacuation from a wide area around the spill. 

Top European Union officials raised the possibility last year of making major streaming operators like Netflix Inc. and YouTube help pay for 5G and fiber infrastructure. Telcos had been pushing for such a move for over a decade.

The EU’s executive arm is expected to publish a request for feedback on the idea this month, the first step toward a formal proposal. When a draft of this consultation was circulated around Brussels recently, telcos read it with glee — and tech companies with horror. The consensus was that the EU is no longer asking whether it will do something but rather, how.

Last week brought another cause for celebration, at least for the bankers who work with the likes of Deutsche Telekom AG and Vodafone Group Plc. Commissioner Thierry Breton said the EU should more closely consider cross-border mergers, which could create “a true single market for telecoms” in Europe. Telcos, again, have been lobbying for consolidation for a long time.

Regulatory changes mean a lot to investment prospects in any sector, but when it comes to who pays for expensive network upgrades, it can have a material impact on the bottom line. Telecom stocks have been off the radar for 20 years because growth did not look likely to ever return. Repricing for the potential for slimmed down costs is a welcome development. 

Consumer spending ticked up at the start of the 2023 in the US, reversing declines late last year and suggesting that even lower-income families have some cash buffers to fall back on, according to a Bank of America Institute report.

Bank of America credit- and debit-card spending rose 1.7% in January from December, making it a 5.1% jump from a year earlier. 

The robust annual gain reflects in part the negative impact from the Omicron variant back in January 2022, according to the report. But it also suggests that consumption was bolstered by an increase in Social Security benefits and the minimum wage in some states, as well as the surprisingly robust labor market. Services such as airlines and restaurants in particular saw a boost.

The data add to evidence that a pullback in late 2022 — which had economists worried that a recession was looming — may have been short-lived. Once again, the American consumer proved more resilient than expected.

This news item supported the Dollar today as investors once more begin to bet on the possibility the peak of the interest rate hiking cycle is further in the future. The Dollar Index continues to extend its bounce from the region of the 1000-day MA. 

“At the right price there should be plenty of appetite for any Egyptian IPO,” said Hasnain Malik, a strategist at Tellimer in Dubai. However, he said that, in general, foreign institutional investors are more likely to go for IPOs out of the private sector, whereas sovereign wealth funds will be more interested in government-related enterprises.

“This is because, for sovereign wealth, the concern over whether their interests as a minority investor are subordinated to those of the government is outweighed by their geopolitical interest in the overall country,” he said.

The benchmark EGX 30 Index has been on a bullish run, rising over 100% in local currency terms from its July low, and is the third-best performing benchmark globally this year. It jumped 3.9% on Thursday, extending gains to a fifth day, and closing at the highest since May 2018.

The Gulf War was a transformative event for India. When Iraq invaded Kuwait remittances abruptly stopped and the Indian government was presented with a dilemma. They chose economic reform and capitalism and the rest is history. The Nifty Index is up 3077% since 1991 for an annualised 9.53% gain. That is almost identical to the S&P500’s 9.99% 32-year annualised performance on a constant currency basis.  

Brookfield Asset Management Ltd.’s earnings rose in the fourth quarter as it wrapped up a record year of fundraising that has given the firm more than $90 billion to invest. 

The Canadian alternative asset manager reported distributable earnings of $569 million, or 35 cents a share, up 6% from the prior year. It’s the first quarterly report for Brookfield Asset as a public company after it was spun out of parent Brookfield Corp. in December. 

The company raised a record $93 billion in capital last year. “Our fundraising outlook remains strong,” Chief Executive Officer Bruce Flatt and President Connor Teskey said in a letter to shareholders. “In 2023, we expect to have three flagship funds in the market, along with several complementary perpetual strategies and other long-term funds.”

Brookfield Corp. spun off a 25% stake in the division in an effort to gain a higher valuation by separating the money-management business from its own investment capital. Brookfield Asset managed $418 billion in fee-bearing capital at the end of December across asset classes including real estate, infrastructure, credit, private equity and renewable power.  

The Toronto-based company plans to more than double that to $1 trillion by 2027, driven by ambitious plans to grow in private credit and insurance. Some of the growth may come through acquisitions, Flatt suggested at a conference in December.  

$93 billion raised during a bear market for stocks and amid rising yields is an impressive feat. Blackstone is also chasing the moniker of the first alternative asset manager to reach $1 trillion under management. 

Borsa Istanbul has also canceled trades that were executed on the morning of Feb. 8 before transactions were suspended, citing low trading volumes. Before those cancellations, the benchmark Borsa Istanbul 100 Index had erased $35 billion in value and was headed for its worst weekly performance since the 2008 global financial crisis. 

Even with Wednesday’s trades being removed, the two days of selling following the deadly earthquakes in Turkey’s southern region wiped out $21 billion in value. Turkish stocks, which are this year’s worst performers globally, entered a technical bear market on Tuesday after falling more than 20% from their January high.

The earthquake in Turkey is a human disaster of epic proportions and will require significant investment in rebuilding. It is to be hoped building standards also improve to minimize the impact for inevitable future quakes. The big question in the short term is how much inflation will jump as the rebuilding process gets underway? 

Lula tried to walk back prior comments on Monday, saying his criticism was not about whether or not the central bank was independent, but rather over the fact that the institution continues to keep borrowing costs high. 

In Brazil, “the problem is that there is a culture of living with high interest rates and that doesn’t mix well with necessities and investment.” Lula said.

The president had publicly questioned the central bank in both January and earlier this month. Current Selic levels make it “impossible” to boost growth, Lula said previously, adding that he considered the bank’s autonomy law to be “nonsense” and suggesting a higher, 4.5% inflation goal. 

Lula’s default mode is to spend. His first tenure as President of Brazil afforded him the luxury of spending during an historic commodity boom. This time around he has inflation to contend with and a central bank that appears ready to push back against profligate spending plans. The challenge is clear. If spending goes ahead without inflation coming down, the central bank will raise rates to levels that clearly depress economic activity. 

The inflation that we originally got was very much a collision between very strong demand and hard supply constraints, not something that you really have seen in prior, you know, in business cycles.

And

I think it's -- because this is not like the other business cycles in so many ways. It may well be that as -- that it will take more slowing than we expect, than I expect to get inflation down to 2 percent.

And

this is not a standard business cycle where you can look at the last 10 times there was a global pandemic and we shut the economy down, and Congress did what it did and we did what we did.

There is some logic to that statement. We have never shut down the entire global economy or printed so much money in such a short period of time. The clear conclusion Powell is taking in predicting a soft landing is that inflation really is transitory. 

The European Central Bank lifted interest rates by a half-point, with President Christine Lagarde saying another such move is almost certain next month, despite conceding that the inflation outlook is improving.

Policymakers, as expected, raised the deposit rate to 2.5%, the highest since 2008. Lagarde warned that the most aggressive bout of monetary tightening in ECB history isn’t done — even as energy prices plunge and the Federal Reserve moderates the pace of its own hikes.

In a statement, the Governing Council said it “intends” to raise rates by another 50 basis points at its March meeting, then “evaluate the subsequent path of its monetary policy.”

The ECB may hike again at the next meeting but clear implication is the peak of the hiking cycle will be lower than the USA’s. The same is true for the Bank of England. The vast sums spent to avoid an energy crisis mean governments will be under pressure to contain costs in future. That will siphon money from speculative activities and help to contain demand driven inflationary pressures. 

Hello Eoin, In today's Financial Times it is stated that the IMF is concerned about the risks of debt defaults by emerging market companies and states. How does this bring into question the flow of stock market investments in these countries in recent months?

Thank you for this question which is certainly topical. Countries like Ghana, Egypt, Pakistan, Lebanon, and Turkey experienced significant stress in their respective debt markets over the last 12 months. The unfolding drama with Adani group in India is an additional sign that global liquidity conditions are tightening. I think it reasonable to assume the flow of money into “emerging markets” is either bargain hunting or avoiding some of these destinations. 

As always thanks for your excellent service. I appreciate your comments on Volkswagon today, and am considering buying some, as I don't see how the German government would let VW go under. Can you also please comment on Credit Suisse. Do you think there is a serious risk that Credit Suisse will not survive. Thanks in advance. 

Thank you for this question which may be of interest to the Collective. Credit Suisse employs over 50,000 people so I imagine the Swiss government has an interest in ensuring it remains a going concern.

The biggest challenge for all Swiss banks is they lost all their US clients when they were forced to share account details in 2012. That sharing was greatly expanded in 2017 and today Switzerland shares details with almost 100 countries. Swiss banks have struggled to tap into new markets like China and India. 

In a recent article, Joseph Stiglitz argues that the current inflation is primarily due to the supply-side shock of the Covid crisis and to shifts in the demand patterns. His view is that the rate of inflation has already peaked - it is 1% higher now than in June 2022. He claims that the rise in interest rates has been largely passed on to consumers via higher prices and that any future interest rate rises would be inflationary.

Thank you for this email which may be of interest. I believe the article you referring to is Stiglitz’s one in Project Syndicate. Here is a section:

Worse, it is not even clear that there is any upside to this approach. In fact, raising interest rates could do more harm than good, by making it more expensive for firms to invest in solutions to the current supply constraints. The US Federal Reserve’s monetary-policy tightening has already curtailed housing construction, even though more supply is precisely what is needed to bring down one of the biggest sources of inflation: housing costs.

Moreover, many price-setters in the housing market may now pass the higher costs of doing business on to renters. And in retail and other markets more broadly, higher interest rates can actually induce price increases as the higher interest rates induce businesses to write down the future value of lost customers relative to the benefits today of higher prices.

To be sure, a deep recession would tame inflation. But why would we invite that? Fed Chair Jerome Powell and his colleagues seem to relish cheering against the economy. Meanwhile, their friends in commercial banking are making out like bandits now that the Fed is paying 4.4% interest on more than $3 trillion of bank reserve balances – yielding a tidy return of more than $130 billion per year.

The assumption the passthrough mechanism from costs to rents is seamless is a big leap. Without a healthy economy that delivers wage growth, rental yields increase through lower purchase prices. This article describing how robo-purchases by institutional investors in property have gone wrong, particularly Opendoor, may also be of interest. 

Putin’s confidence in his military’s ability to grind out a triumph - even at a cost of vast casualties and destruction - reflects a misreading of the West’s commitment to turn back his aggression, some insiders concede. The US and its allies have steadily stepped up weapons supplies to categories once considered off-limits.

Still, US and European military officials fear the conflict could soon settle into a World War I-style artillery fight with largely stagnant front lines, a scenario that could come to favor Russia, with its larger population and military industry.

Diplomatically, Russia has sought to win supporters among non-western countries with appeals for talks on a cease-fire. Even people close to the Kremlin admit those are hopeless at present, given Ukraine’s demand that Russia pull out its troops as a condition for any deal.

The minimum the Kremlin would accept would be a temporary truce that left Russia in control of the territory its forces currently hold in order to win time to rebuild its forces, the people said. Though short of the boundaries of the regions that Putin illegally annexed in September, that would still leave Russia with a large swath of land, linking the areas it occupied before the war. As a result, the idea is a nonstarter with Kyiv and its allies.

“Unless something changes, we’re looking at a war of attrition like World War I, which could go for a long time because both sides believe time is on their side,” said Andrey Kortunov, head of the Kremlin-founded Russia International Affairs Council. “Putin is sure either the West or Ukraine will grow tired.”

The route to a Russian victory lies in a war of attrition. They have more artillery, shells and tanks than NATO so they estimate a long drawn out conflict will eventually favour larger numbers. Absorbing high casualties is part of that strategy. It worked for Iran against Iraq in the 1980s and Russia appears to be following a similar strategy. 

Australia's surprisingly strong 4Q inflation isn't likely to phase the Reserve Bank of Australia. The headline outcome exceeded consensus estimates, but undershot the central bank's forecasts - and isn't a threat to our view that a February rate hike is likely to be the last of this cycle.

The economy’s inflationary pulse largely reflects temporary shocks, centered on utilities and airfares in 4Q. A number of other categories showed continued signs that pressures are set to subside in 2023. The central bank’s expectation for a lift in wage growth - necessary for inflation to be sustained in the target band - looks increasingly vulnerable given emerging signs of a softening labor market. Click on the Text tab for the full report.

The Australian Dollar has broken the two-year sequence of lower rally highs against the US Dollar. This is the 7th time since 1985 that the Australian Dollar has rebounded from the $0.60 area. The only time it has sustained move below that level was a brief period between 2001 and 2002. I’ll never forget that time because I felt well off from my success in door to door selling in Melbourne and only got £1 for every A$2.60 when I got to London in the spring of 2000. 

“In terms of just the macro and company performance, I think it will be much more muted as people capture the inflationary pressures,” he said. “Private equity M&A activity I think will be dampened.”

Concerns around portfolio company performance were not the only challenges up for discussion in the south of France, with private equity firms struggling to secure the debt financing they need to do big deals and juice returns and facing more competition when raising funds. 

The chief economist at German insurer Allianz SE, Ludovic Subran, said the industry had “nowhere to hide” when markets turned last year. “The private equity world has not been immune or has not defied gravity,” he said.

Banks pulling back from lending on buyouts was described as a “new reality” by Francois Jerphagnon, head of Ardian Expansion, in an interview with Bloomberg TV. This will open up an opportunity for private credit funds to step in, others said.

“There is much more interest in private credit and infrastructure where you do have that hedge against inflation and that hedge against rising rates,” said Richards at Pantheon.

Blackstone’s Eapen said private credit providers are in “the middle of a golden age” and that last year had been one of his business’s biggest ever for deploying capital. 

After the credit crisis, the vindictive wish of anyone who lost money in the crash was for banks to go broke. At the very least everyone concluded they needed to be heavily regulated. Today the burden of regulation is heavy within the banking sector and we are in our 15th year since the crash. 

“Every decade, there is a new leader in the market. In the 2010s, it was US stocks and mega-cap tech,” Kandhari said in a phone interview. “Leaders of this decade can clearly be emerging-market and international stocks.” Morgan Stanley IM has $1.3 trillion in assets under management.

The asset class has had a strong start to the year, with the MSCI emerging-markets index soaring 8.6% compared with a 4.7% advance for the US benchmark. The gains come as China’s pullback from its strict Covid Zero policy brightens the economic outlook, while investors position for the end of aggressive central bank interest-rate hikes. Many also still see US stocks as expensive, with those in emerging-markets trading at a nearly 30% discount.

There’s a growing disconnect between US’s shrinking share of the global economy and the size of its stock market capitalization, Kandhari said. Along with fund allocations to emerging-markets that are well below historical averages and inexpensive currencies, that gives them a lot of room to outperform, she said.

“What really drives this asset class is the growth differential, and that growth differential of the EM is improving relative to the US,” she said.

The risk of a US recession is increasingly being priced into equity markets. At the same time, China has just exited its three-year quarantine. US money supply is now negative on a year over year basis for the time. China is boosting monetary and fiscal support for its markets. Even with arguments about trade wars and competing systems, it will still be easier to make money in China this year. 

First, no country can avoid engaging with both the US and China. Dealing with both simultaneously is a necessary condition for dealing effectively with either. Without the US there can be no balance to China anywhere; without engagement with China, the US may well take us for granted. The latter possibility may be less in the case of a big country like India, but it is not non-existent.

Second, I know of no country that is without concerns about some aspect or another of both American and Chinese behaviour. The concerns are not the same, nor are they held with equal intensity, and they are not always articulated – indeed, they are often publicly denied -- but they exist even in the closest of American allies and in states deeply dependent on China.

This perspective gels very well with the reality on the ground I observed in Saudi Arabia on my last two visits. The simple reality is China is the country’s biggest customer and the USA the country’s greatest geopolitical ally. There is no way to play favourites the greatest risk for any country is to be taken for granted because that greatly enhances the scope for one’s interests to be trampled. 

As Ukraine and its allies prepare for a potential escalation in fighting in the spring, the debate over sending battle tanks to back Kyiv’s military and potentially retake territory has become a flashpoint among NATO allies. US and European officials have bridled at Scholz’s slow decision-making, saying the German leader should be more assertive, following through his promised “Zeitenwende,” or historic turning point on security. 

Scholz has insisted that Germany should not act alone in sending new categories of heavy weapons that could provoke an escalation with Moscow. He’s placed a premium on moving in lockstep with the US and NATO. 

“We never go alone,” Scholz said in an interview last week with Bloomberg. 

There are estimates Rheinmetall could send as many as 139 Leopard Type 1 and 2 tanks to Ukraine via various swap agreements over the next several months. By that time, there is a risk available inventory will be fully exhausted. 

As part of its deal with the IMF, Egypt agreed to shrink the footprint of all state-run enterprises, including “military-owned companies,” and committed to allow for a more flexible exchange rate.

“We are also looking at our region, and we want to be a role model for the region,” Al-Jadaan said. “We are encouraging a lot of the countries around us to really do reforms,” he said.

 

The UAE’s reluctance to offer donations but attach support to investments is a model Saudi Arabia is now also following. The big oil exporters want regional stability. This change of policy suggests they now appear to believe that will best be achieved through economic reforms.

The Arab Spring shook up the Middle East more than a decade ago and resulted in significant turmoil. It now appears that the policy suite developed in response to those events has matured. Large young populations need to be offered a route to a productive life or rebellion is inevitable. 

I just wondered whether you had any thoughts on Lumber given the recent price action? Thanks and keep up the excellent work, I'll definitely be renewing my annual subscription (as I have been for more years than I care to count!)

Thanks for this topical question and your long-term patronage. Serving loyal long-term subscribers is why I happily regard this service as a vocation. ​

The Indonesian rupiah is leading a rally in Asia’s emerging-market currencies as bets grow that the US will slow rate hikes, bolstering risk sentiment. 

The rupiah gained as much as 1.3% against the dollar, the most in more than two months, while the baht climbed more than 1% to its highest level in about 10 months. Most Asian currencies are stronger. 

Easing inflationary pressures in the US have raised expectations of a smaller rate hike in the upcoming meeting of the Federal Reserve, while optimism over China’s reopening has also brightened the outlook for some of the regional currencies.

Last week’s lower CPI reading has led the wider investment community to conclude the peak of the interest hiking cycle is upon us. The Dollar took another leg lower on the news and supported everything from gold to crypto and non-US dollar denominated stock markets.

UK Prime Minister Rishi Sunak plans to strengthen anti-protest legislation, giving police additional powers to clamp down on demonstrations even before they’ve caused any disruption.

The government on Monday will propose an amendment to its own Public Order Bill — currently working its way through the House of Lords — to broaden the definition of what constitutes “serious disruption,” according to a statement from Sunak’s office. 

“We cannot have protests conducted by a small minority disrupting the lives of the ordinary public: it’s not acceptable and we’re going to bring it to an end,” Sunak said in the statement. “The police asked us for more clarity to crack down on these guerrilla tactics, and we have listened.”

The legislation is aimed at strengthening the police’s ability to deal with protests such as those in recent years from environmental campaigners at Just Stop Oil and Extinction Rebellion, who have brought traffic and public transport to a standstill by blocking bridges, motorways and London’s subway network. But it’s provoked the ire of civil liberty groups and of the opposition Labour Party. 

Labour’s policing spokeswoman, Sarah Jones, said in a statement that the police already have powers to deal with disruptive protests. She criticized Sunak for not focusing instead on tackling “the epidemic of violence against women and girls” or on prosecuting criminals. 

The amendment will include allowing police to consider the total impact of a series of protests rather than treating them as a single incident; giving officers the right to step in even before a protest has resulted in disruption, and letting them deal with long-running campaigns designed to cause chaos repeatedly, according to the statement.

Tightening the noose of civil liberties is almost always done in a reasonable manner. Who could argue with additional measures to ensure extremist activists don’t block major roads? Of course, we need additional measures to stop activists from defacing great works of art. However, once these kinds of measures are in place, they are often applied at the discretion of the authorities in new and surprising ways. With teachers ready to strike, the government appears to be putting measures in place to combat disruptions.

I posted the first part of this update on Wednesday and saved the second part of today. The number one theme in emerging markets is governance. That’s where Saudi Arabia is clearly attempting to make an impression.

In speaking with the junior minister for investment, the decision to give opportunities to young people is very intentional. They know the only way to achieve the progress they need is through harnessing the productive capacity and thirst for invention of the young.

It’s incredibly refreshing to meet so many tenacious young people with ambitious dreams for the future. The fact they have a route to achieve their goals is even better.

Egypt is grappling with its worst foreign-currency crunch in years and has recently seen the emergence of a black market for dollars. It secured a $3 billion loan from the International Monetary Fund and sought help from its wealthy Gulf Arab allies. 

Core inflation, the gauge used by the central bank that strips out volatile items, accelerated to 24.4% in December from 21.5% in November. 

This week the government said it would curb state spending, including through halting costly new infrastructure projects. The central bank announced in December it was targeting inflation at an average of 7%, plus or minus 2 percentage points by the fourth quarter of 2024.

Allen Sandeep, director of research at Naeem Holding in Cairo, has said the latest bout of depreciation sets the stage for a pickup in inflation to around 23%-25% and higher government borrowing costs. 

Egypt is one of the largest food importers in the world. With a population now in excess of 100 million that is a major point of stress. The war in Ukraine threw food security into a state of flux and has contributed to the inflation spike.

Saudi Arabia’s 11.95 billion riyals ($3.2 billion) of funding for a joint venture that will invest in mining assets internationally is “going to be a moving target,” Mining Minister Bandar Alkhorayef said in an interview with Bloomberg TV.

“We are establishing a governance between this JV with the ministry to make sure that this JV allows the country to get the right minerals needed for our industrial strategy and our needs in general,” he said

In 2022, Saudi Arabia saw as much as $32 billion of investments in the mineral sector, a 50% growth in revenues from 2021, the minister said in a separate interview

Saudi Arabia had previously estimated its mineral wealth at $1.3 trillion, but that’s now considered conservative because discoveries have been better than expected, he said

Maaden is now one of the largest industrial metal miners in the world and is only beginning to invest beyond Saudi Arabia’s borders. That represents a significant source of new competition for world-class mining opportunities and suggests bidding wars will be more common.

Any pullback in Brazilian asset prices should revert quickly as the protests should be short-lived and not have major direct implications, Citigroup strategists led by Dirk Willer wrote in a note Monday. 

The Brazilian real was the worst performer among 23 emerging market peers tracked by Bloomberg, weakening 1.2%

The protests have been publicly criticized by far-right leaders, including former President Jair Bolsonaro, and they lack support from leaders in the executive, legislative and judiciary branches

David long ago observed “governance is everything”. That is as true to today as in the past, but there is no getting around the fact that standards are deteriorating. Peaceful hand-off of power, following a free and fair election, is the basic starting point for liberal democracies.

The underperformance of growth stocks has been the standout issue of 2022. Inflation surged and central bankers belatedly accepted it was not a transitory event. That has resulted in the swiftest pace of interest rate hikes in decades and it has also been a truly global phenomenon. This was accompanied by a swift run-up in the Dollar that tightened liquidity even more.

Hi Eoin, isn't the VIX approaching a level or is already at a level where it is very attractive to go long the VIX? how much downside could there still be?

Thank you for this question and I’ve been pondering this same topic myself. One of the primary issues I have been thinking about is the fact the VIX has contracted at the same time as the S&P500 has been falling. That’s quite unusual since the VIX is primarily calculated based on demand for put options.

The announcement Friday was “very exciting news for Games Workshop,” said Andrew Wade, an analyst at Jefferies in a research note, noting that licensing income has built strongly in recent years. “A mainstream TV/film product could be game-changing in terms of Warhammer’s brand reach and awareness.”

Shares in Games Workshop rose 11% in early trading on Friday, the most in almost nine months. The stock — a pandemic market darling as lockdowns boosted demand for home-based hobbies — had previously fell about a quarter year-to-date.  

Amazon is gearing up to spend more than $1 billion a year to produce movies that it will release in theaters, following the $8.5 billion acquisition of MGM, a 98-year-old Hollywood studio that released Ben-Hur and Legally Blonde. I

The ex-superman actor Henry Cavill is likely to star and executive produce a series adaption of Warhammer 40k, a franchise he’s made no secret of his love for, according to a report the Hollywood Reporter Thursday.

This is a significant coup for Games Workshop and will greatly enhance the visibility of its Warhammer franchise. I never got into Warhammer since I have never had the free time to play the game. However, two of my younger brothers are avid fans, and have spent many long hours painting and arranging their battle groups.

As I’ve written many times about the economy and markets, we never know where we’re going, but we ought to know where we are. The bottom line for me is that, in many ways, conditions at this moment are overwhelmingly different from – and mostly less favorable than – those of the post-GFC climate as described above. These changes may be long-lasting, or they may wear off over time. But in my view, we’re unlikely to quickly see the same optimism and ease that marked the post-GFC period.

We’ve gone from the low-return of 2009-21 to a full-return world, and it may become more so in the near term. Investors can now potentially get solid returns from credit instruments, meaning they no longer have to rely as heavily on riskier investments to achieve their overall return targets. Lenders and bargain hunters face much better prospects in this changed environment than they did in 2009-21. And importantly, if you grant that the environment is and may continue to be very different from what it was over the last 13 years – and most of the last 40 years – it should follow that the investment strategies that worked best over those periods may not be the ones that outperform in the years ahead.

That’s the sea change I’m talking about.

There is really only one big question. Will the Fed relent and revert to the GFC playbook when unemployment rises and economic hardship stokes deflationary fears? 2023 will probably deliver an answer.

“While the war against inflation is turning, we are a long way off declaring victory and the Fed will keep its hawkish stance for a while longer, even if it does potentially force a recession,” said Richard Carter, head of fixed interest research at Quilter Cheviot.

The CPI-fueled stock rally fails to recognize that corporate earnings are just starting to see the impact of tight monetary policy, James Athey, investment director at Abrdn.

“As the full effects of the Fed’s aggressive actions this year play out next year, it seems inevitable that we will see a significant repricing lower in EPS forecasts and thus the broad market,” Athey said.

The stock market has been pricing in the likelihood Inflation has peaked since October. Now is the time to start thinking about the knock-on effects of inflation peaking. Economic activity will slow as the race to overtake inflation with purchase subsides and as savings are eroded. Corporate profits will inevitably slow in response and unemployment will likely rise from Q2 onwards.

A deal on the carbon measure would be a major victory for one of the EU’s more controversial proposals, when it was announced last year as part of the bloc’s package to cut emissions by 55% by the end of the decade. The proposal tabled by the European Commission in 2021 envisaged that the importer would be entitled to account for the pollutions costs paid in country of origin if it has carbon pricing.

The EU plans have already caused diplomatic unease in China and India and there’s concern that Russia may not comply with it. The EU mechanism also comes amid growing tensions over the US government’s Inflation Reduction Act, the country’s $369 billion green package, which provides subsidies only to American manufacturers to develop some clean technologies, including electric vehicles. The EU sees that as a possible contravention of WTO rules.

For its part, the EU argues that the CBAM is in line with international trade rules as an environmental measure, designed to stop industry from moving carbon emissions outside of the bloc as it imposes stricter climate measures on industry. A potential preliminary deal among negotiators on Monday would need the endorsement of ministers from national governments and the full EU Parliament to enter into force. That may be done only after policy makers iron out the details of a link with a broader carbon market reform.

For European bureaucrats climate change is a religion and adherence to its tenets borders on zealotry. From their perspective, there is an acute need to reduce all forms of carbon emissions as quickly as possible to avoid the worst effects of climate change.

China’s Contemporary Amperex Technology, the world’s biggest maker of electric-car batteries, signs a global partnership agreement with Honda Motor, according to an exchange filing to Shenzhen Stock Exchange.

China has worked hard to capture the market for EV batteries and that is now paying dividends. Traditional car companies all now want to be EV companies but are years behind in building their own factories and supply chains. That is most especially true for batteries. China has a dominant position in mining and processing the respective raw materials. The implication is clear, there is no way for car companies to achieve their EV goals without outsourcing at least part of the process to Chinese companies.

Professional investors are loading up on bets that an economic recession can be avoided despite all the warnings to the contrary. It’s a dangerous bet -- for a variety of reasons.

Money managers have been favoring economically sensitive equities, such as industrial companies and commodity producers, according to a study from Goldman Sachs Group Inc. on positioning by mutual funds and hedge funds with assets totaling almost $5 trillion. Shares that tend to do well during economic downturns, like utilities and consumer staples, are currently out of favor, the analysis shows.

The positions amount to wagers that the Federal Reserve can tame inflation without creating a recession, a difficult-to-achieve scenario often referred to as an economic soft landing. The precariousness of such bets was on display Friday and Monday, when strong readings on the labor market and American services sectors drove speculation the Fed will have to maintain its aggressive policies, increasing the risks of a policy error.

“Current sector tilts are consistent with positioning for a soft landing,” Goldman strategists including David Kostin wrote in a note Friday, adding that the fund industry’s thematic and factor exposures point to a similar stance. 

I am reminded of 2007 and 2008 when commodities were surging and banks beginning to roll over. At the time commodity inflation was running rampant but there was relatively little upward pressure on wages. The growing weakness in the housing sector effectively kept wage demand growth under control. Nevertheless, the spike in energy prices and overleverage in the financial system caused a significant problem.

Amazon is aware of the macro challenges, and hence AWS employees are reaching out to clients to see how it can help optimize spending, said David Brown, AWS' vice president.

"If you're looking to tighten your belt, the cloud is the place to do it," AWS CEO Adam Selipsky said during his keynote presentation.

However, an investment firm Andreessen Horowitz analysis last year, painted a different picture. It showed that a company could trim its computing costs by half or more by bringing workloads from the cloud back to on-premises data centers.

Amazon is also offering a cheaper alternative, Graviton computing instances based on energy-efficient Arm-based chips alternative to standard Advanced Micro Devices, Inc (NASDAQ:AMD) and Intel Corp (NASDAQ: INTC) processors.

"We do see some customers who are doing some belt-tightening now," Selipsky told CNBC. Expedia Group, Inc (NASDAQ: EXPE) CEO Peter Kern sees the cloud as an area where his company can reduce its fixed costs.

The point I have been making for at least the last year is large companies offering cloud services saved startups time in scaling up. Instead of buying servers and hiring teams or engineers to create a data base, they outsourced that to companies like Amazon, Microsoft and Google/Alphabet. As the fountain of money supporting the startup scene ebbs, that will inevitably hit spending on outsourced data infrastructure. The subscription business model only works when you have subscribers.

In Australia, where the pace of housing declines has eased, the outlook for mortgagees is similarly tough: borrowing capacity has fallen and monthly repayments have surged. In addition, a large chunk of loans that were fixed at record-low rates during the pandemic are due to roll over in 2023 at a much higher rate. 

With the full impact of past hikes yet to be felt, rates still rising and the economy set to weaken, there’s likely still some way to go before prices bottom, said Shane Oliver, chief economist at AMP Capital Markets in Sydney. 

Given expectations that rates will rise higher in both countries, some economists see home values dropping more than 20% from their peaks. 

Rolling fixes is likely to be a major topic of conversation in Australia, Canada, and the UK in 2023. The impending step higher in mortgage payments for millions of consumers is the central dilemma for their respective central banks. They need to raise rates to try and tackle inflationary pressures but every hike makes the problem of consumer debt sustainability worse.

Since returning from the Chart seminar in London I have spoken to several people who work in the Israeli high-tech industry, They all tell me that about 10% of their colleagues have lost their jobs recently. Today you referred to your MIIN index. How can we invest in these countries?

Thank you for this additional insight. The market for big ideas ballooned with the delivery of free money. Suddenly, no idea was too grand, or time to delivery/commercialization too long. That trend was looking tired in 2019, as the Federal Reserve’s quantitative tightening was siphoning liquidity from the global economy.

I see a third question more related to the protests, not COVID, and I apologize in advance for the potential false equivalency. When comparing Europe's energy situation and the global supply chain / China sourcing situation how will each unfold in future years? Certainly both are heading directions (reversing) that will not turn. Are Europe's hooks deeper into the Russian supply habit or is the global supply chain China habit even deeper?

I am most interested in the impact similarities these two withdrawal themes may have on the West, and the length of time change will take. I have long thought North America "has it all" when you look at materials, labor, and markets.

Thank you for this question which raises some important points. The conclusion that Europe is in a more difficult position than North America is clear but nothing is ever so simple.

Europe relied on Russia to supply much of its energy and much of the money spent on imports was recycled through European countries. That is over. Europe now needs to mirror the USA’s success in becoming energy-independent.

According to Central Election Commission, KMT won 13 out of 21 cities and counties, while DPP only managed to secure five cities in the southern part of Taiwan, the least since its founding in 1986. KMT candidates took 50% of votes in the contests, versus 41.6% for the DPP, 11.39 million votes counted as of 11:53 pm in Taipei, according to the official election website.

That prompted President Tsai Ing-wen to step down as party leader, saying in televised remarks: “In the face of these results, there are many areas where we need to engage in self-reflection.”

The elections represented the last major test of Tsai’s DPP before her second and final term draws to a close and Taiwan picks a successor in early 2024. The KMT, or Nationalist Party, hopes the gains in local races will help it mount a comeback after defeats in presidential elections in 2016 and 2020.

The results will be closely watched in Washington and Beijing, since the DPP’s rise to power has prompted China to cut off communications with Taiwan and ramp up diplomatic and military pressure on the island. The KMT, which favors eventual unification with China, had previously overseen a historic expansion of ties with Beijing, easing travel, trade and investment across the Taiwan Strait. 

The Tsai administration has actively escalated tensions with China and the electorate does not want to be in a war with China. That does not mean they want to be part of China but not do they wish to do anything to antagonise China. Taiwan’s citizens are very much aware of the fine balance that needs to be maintained when squeezed between two great powers.

Technicals over Fundamentals for now…our tactically bullish call was always more about the technicals than the fundamentals. Today, we provide an update to those factors, some of which no longer justify higher prices although they provide support at current levels. The deciding factor is market breadth, which has improved greatly over the past month and argues for us to remain bullish into year end before the fundamentals take us to lower lows next year. Feedback on our call for the S&P 500 to reach a price trough of 3,000-3,300 in Q1 '23…we've gotten a fair amount of pushback on that our forecast on this front is too aggressive both from a magnitude and timing standpoint. While directionally bearish, many investors struggle to see even a retest of 3,500. In our view, what was priced at the October lows was peak Fed hawkishness, not material earnings downside. If we were forecasting a modest 5% forward EPS decline and a reacceleration off of those levels, we'd concede that the earnings risk is probably priced, but we're modeling a much more significant 15-20% forward earnings downdraft, which should demand a more recessionary type 13.5-15x multiple on materially lower EPS.

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

This coincides with my view. The US yield curve is heavily inverted and the pace of tightening has been surprisingly quick. That suggests it is not unusual for the corporate profits to have been immune because there is a significant lag between tightening and when it shows up in the economy.

On the income side, if you earn more than £100,000, you really should be looking at how to put as much of your salary as you can above that amount into a pension via salary sacrifice. Why’s that? Because contrary to what you might think, you’re not paying a 40% marginal tax rate. As the team at tax advisors Blick Rothenberg point out, your marginal tax rate is in fact closer to 60%, because £100,000 is the point at which your personal allowance starts to get whittled away. (This is also why the 45% rate was cut to £125,140 rather than £125,000 — so that it aligns with the point at which your personal allowance is all gone.)

As a result, any money you can shield from this rate is doing a great deal more work than any other pound you save. That said, given that your mortgage is probably going up, and your heating bill is through the roof, it’s quite possible that you are already doing as much as you can on that front without causing a major liquidity crisis in your household.

On the investment side, falling squarely into the “be thankful for small mercies” category, at least the chancellor didn’t mess around with the annual allowances for tax-efficient “wrappers” — you can still put up to £20,000 a year into an individual savings account, and up to £40,000 a year into a pension (assuming you earn that much each year). The latter of course is still subject to the (frozen) lifetime allowance, so do be careful if you’re in danger of breaching that £1.073 million lifetime cap.  

So if you have grown a bit sloppy with your admin, and you are holding any shares outside a tax wrapper (i.e. an Individual Savings Account or a pension), then now is the time to get a handle on that and move them. At least then you’ll be shielded from dividend or capital gains taxes. If you have already exhausted these allowances, you might want to start looking at venture capital trusts or enterprise investment schemes, though those are a topic for another day. 

Government rules tend to change investor behaviour. The perversion, that is the tax system, means the incentive to make a lot of money from working is actively under attack. Instead one is being encouraged to invest as much as possible to shield assets from the tax regime. That basically means outsourcing the job of making money to companies rather than individuals. That’s not great news for hard workers, but it certainly benefits the asset management sector.

Vietnam's State Securities Commission (SSC) has carried out measures to strengthen the local stock market following strong fluctuations triggered by investors' cautious sentiment and global stock market, local media reported on Wednesday.

The recent market corrections were caused by investors' cautious sentiment while facing uncertainties and less positive prospects in the world economy and politics, local newspaper Vietnam News reported.

As part of an effort to ensure a stable, sustainable and transparent development of the Vietnamese stock market, the SSC has strengthened inspection and supervision to address violations on the stock market, the newspaper said.

It has also proposed amending regulations regarding private offering and trading of corporate bonds in the domestic and international markets to improve the management mechanism for the private placement of corporate bonds.

In the short term, domestic investor sentiment is still strongly influenced by information, wrong handling of enterprises, and fluctuation in the corporate bonds market.

However, given Vietnam's long-term macroeconomic growth and the profit gains of listed companies, long-term investment opportunities will appear quite clearly, investment strategist Thai Huu Cong told local newspaper Saigon Investment.

The Dong tends to be the Vietnamese government’s first recourse in attempting to stimulate the economy. The currency has been falling all year and only began to steady over the last couple of weeks.

Lula said that he won’t give any details on his cabinet before returning from an international trip to attend COP27 in Egypt.

“The stakes are high in terms of fiscal uncertainty, in terms of cabinet composition, in terms of key appointments in the economic team,” said Joel Virgen Rojano, director for Latin America strategy at TD Securities. “All of that for now has a really big question mark and the markets are becoming impatient.” 

Emerging-market investors from Neuberger Berman LLC to Franklin Templeton had bet on the South American nation ahead of the election as they saw little distinction between Lula and President Jair Bolsonaro’s fiscal agenda. Neuberger wasn’t immediately available to comment on its current recommendations in Brazil.

“Markets tend to hate uncertainty,” Dina Ting, head of global index portfolio management for Franklin Templeton exchange-traded funds, wrote in an emailed response to questions. “From a long-term perspective, the fundamentals and macro factors have not changed. Brazil is still trading at a discount to historical averages and helped by both elevated commodity prices and favorable demographics, including its young workforce.”

Brazil faces many of the same issues as everywhere else. There is a clear need to enact some type of fiscal control but the population are already impatient with the pace of economic recovery. Those are two opposing perspectives and the new administration will need to tread very carefully if the currency is to remain stable.

Traders who have for long been seeking clear signals of a pivot away from the staunch Covid Zero policy cheered the slew of changes announced on Friday, which included a cut in the amount of time travelers and close contacts must spend in quarantine, and a pullback on testing. The decisions by the National Health Commission followed a meeting by the nation’s top leaders on Thursday, where a more targeted approach was encouraged to tackle outbreaks.

“This is a huge positive for the market,” said Wang Yugang, a fund manager at Beijing Axe Asset Management Co. “Of course how much efficacy these measures have for the economy we will need to observe.”

In a display of broad market optimism, every stock on the 50-member Hang Sang China gauge was up on Friday. On the mainland, the CSI 300 Index ended 2.8% higher.

The Chinese government is wrestling with the opposing challenges of rising cases and the slowdown in the economy. The reality is quarantines cannot stop the spread, only slow it down, when COVID is endemic everywhere else. At some stage China will have to grasp the nettle and tolerate higher numbers of infections for longer. How willing they will be to tolerate millions of cases a day remains an open question. Of course the answer, supplied by India’s experience, would be to simply stop counting.

In September, a sharp slide in the yen following the policy statement and dovish comments by Kuroda prompted Finance Minister Shunichi Suzuki to order Japan’s first entry into markets to prop up the currency in 24 years. While the governor moved the market again during Friday’s briefing, his tone was more cautious and his remarks weren’t preceded by falls in the currency like the previous month. 

Kuroda continues to hold firm as the last anchor of low global rates just a day after the European Central Bank went ahead with another jumbo rate hike. But the governor is walking on a tightrope as his stance risks putting further downward pressure on the yen despite billions of dollars spent by the government to support the currency.  

“The likelihood of the BOJ pivoting toward tightening is still small as Japan’s inflation is not broad based at all and is only rising about a third of the pace seen in Europe and US,” said Kyohei Morita, chief Japan economist at Nomura Securities.

The speed of the Yen’s decline since March has alarmed politicians and not least because the price of oil is in the region of the 2008 peak when redenominated into the currency. The Bank of Japan’s challenge is much of the inflation is imported. Domestic demand needs a cultural change and that will not be achieved by transient price pressures.

The US economy does not appear to be on the brink of recession at the moment. In thinking about the odds of a recession next year, we break the risks into three categories: (1) the risk that a recession will prove necessary to bring inflation down, (2) the risk that the Fed will cause a recession that is not necessary, and (3) the risk that something else will cause a recession.

The odds that a recession will prove necessary have fallen a little because the first two steps of the required adjustment—slowing GDP growth to a below-potential pace and rebalancing supply and demand in the labor market— have gone remarkably well so far. But it would be premature to say that this risk has fallen too much until we see consistent evidence that labor market rebalancing is slowing wage growth and breaking the wage-price feedback loop.

The odds that the Fed will cause a recession that is not necessary have likely risen somewhat. It is increasingly clear that shelter and health care inflation— and by extension commonly used measures of the underlying inflation trend such as trimmed-mean inflation—are likely to remain uncomfortably high throughout 2023 and would even if the labor market rebalanced tomorrow. While it is not our base case, we see some risk that too great a focus on lagging indicators, too little patience, or tightening too quickly to gauge the impact on the economy could result in a recession that is not necessary.

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I used this slide in my IFTA conference slide deck a year ago. At the time, worry about inflation was not urgent even through the 5-year has broken highs and had first step above the base characteristics.

As I thought about what to talk about at the NAAIM conference today, I thought it would be time to update my chart. In the last year, yields have surged and instead of the illusory dragon, today Jay Powell is being tasked with slaying the inflation dragon.

The result was “solid” and leaves Mexico’s economic growth at a pace of 2.2% for the year, according to Alberto Ramos, Goldman Sachs Group Inc.’s chief Latin America economist. 

“The economy still has room to grow, and we expect it to expand in coming quarters supported by firm terms of trade and further normalization of activity among a number of still lagging sectors, particularly services,” he wrote in a research note Friday. 

Not only is China slowing down, but its relationship with the biggest buyers of its exports is deteriorating. Large global companies are not making decisions about how much manufacturing they want to do in China. Within the next decade, manufacturing in China by foreigner will focus on the domestic market while exports are likely to face greater competition from other economies.

Banks in Switzerland sought the most dollars since 2008 using an emergency dollar swap facility provided by the Federal Reserve in what is likely to be a bid for easy profits.

In Wednesday’s auction conducted by the Swiss National Bank, 17 institutions took up $11.09 billion. That’s the most since October 2008, when the Global Financial Crisis was raging in the wake of Lehman Brothers’ collapse. 

This is the fourth week in a row when banks have accessed the facility. Last Wednesday, 15 banks took up $6.27 billion in funds. 

According to economists at Credit Suisse, Swiss banks swap the dollars into francs in order to generate a profit. The lenders can even sell the cash back to the SNB using its reverse repo auctions, or deposit it at the institution to benefit from a positive interest rate.

“We do not believe that the increased demand for US dollar liquidity by domestic banks reflects any liquidity issues in the Swiss banking system”, Credit Suisse economist Maxime Botteron wrote in a report last week.

The dollar swap facility was created during the crisis that began in 2007 as a lifeline to provide safe access to Greenback liquidity, while the SNB’s cash-taking repo auctions are designed to drain excess liquidity from the market. 

It’s not clear that Swiss officials are likely to act to stop banks from taking advantage of the facility. Conditions of the dollar auctions are controlled by the Fed, and the reverse repos are a core instrument in the SNB’s current tightening of monetary policy.

All Swiss and foreign banks which have a branch in Switzerland or are registered with Swiss authorities are entitled to participate in the dollar auctions. Credit Suisse expects predominantly smaller banks to take advantage of the profit play.

The world is dealing with falling supply of Dollars as rates rise and money supply shrinks. Tapping swap lines to source dollars which can then be sold for a profit is a handy money making exercise for banks. 

The central bank will defend the rupiah in line with fundamentals, Warjiyo said. It will monitor forex supply, and strengthen the currency stabilization policy, he added.

“The hike reflects less concern of inflation but more on the need to anchor FX stability,” said Wellian Wiranto, economist at Oversea-Chinese Banking Corp. in Singapore, who now sees a terminal rate of 5.25%. “Going forward, downside risks to growth will gain more prominence.”

A weakened rupiah threatens to fan imported inflation, adding to the risk posed by higher fuel costs that’s sent consumer price gains to a fresh seven-year high of 5.95%. Bank Indonesia expects inflation to climb further to 6.3% at the year-end before returning to its 2%-4% target next year.

The central bank retained its 2022 growth forecast for the economy, expecting it to be at the upper end of its 4.5%-5.3% target, while flagging risks from a slowing global recovery. For now, it expects to end the year with a current account surplus of 0.4%-1.2% of gross domestic product -- better than its previously estimated 0.5% of GDP.

The Indonesian Rupiah spent most of 2021 in a tight range relative to the Dollar but broke down in May and is now trending lower. The pass through of inflationary pressures from the developed world into ASEAN didn’t pick up until early this year. Many ASEAN countries did not engage in the same degree of monetary stimulus so effect was delayed. However, the surge in energy prices is increasing the cost of fuel subsidies and putting downward pressure on regional currencies.