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

    German Inflation Sinks to Level Last Seen Before War in Ukraine

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

    German bonds pared declines and the euro trimmed gains after the release, as markets increasingly come around to that higher-for-longer narrative. The yield on 10-year government debt is hovering just below 3% — the highest since 2011. The euro is flirting with its weakest level against the dollar this year, near $1.05.

    Money markets are wagering on two quarter-point rate reductions by end-2024, compared with as many as three just two weeks ago.

    Inflation not only remains elevated but is accelerating in some countries. Earlier Thursday, Spain reported a jump to 3.2% this month on electricity and fuel costs. Citing the advance in oil that’s brought prices near $100 a barrel, its central bank sees a further acceleration to 4.3% in 2024. In Ireland, price growth quickened to 5% from 4.9%.

    Read entire article

    Coinbase to let retail users outside the U.S. trade Bitcoin and Ethereum futures on its Bermuda exchange

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

    "We chose to build our business and become a public company in the U.S. believing that the U.S. should be at the forefront of efforts to update our financial system," wrote the exchange.

    Coinbase's move to open up its international exchange to small investors is the latest in the company's ongoing efforts to expand its footprint beyond the U.S. where it has faced growing regulatory scrutiny.

    Following the collapse of competing exchange FTX and the arrest of its now-disgraced CEO Sam Bankman-Fried, the Securities and Exchange Commission soon cracked down on a slew of high-profile crypto companies and founders, including Genesis, Gemini, Justin Sun, the crypto celebrity behind TRON, and Do Kwon, creator of the so-called stablecoin TerraUSD.

    In March, Coinbase, which has long styled itself as the white knight of the crypto industry, revealed that has also become the target of impending SEC litigation after it received a so-called Wells Notice, which informs companies that they are the targets of soon-to-be litigation.

    Shortly after, the U.S.-based exchange, headed by CEO Brian Armstrong, announced that it had received regulatory approval in Bermuda to operate an offshore exchange, and in May, the publicly traded company unveiled Coinbase International Exchange for the use of institutional investors.

    The SEC eventually filed an outright lawsuit against Coinbase in June, but that hasn't stopped billions of dollars of crypto from flowing through both its domestic and offshore entities. Its Bermuda outpost has seen $5.5 billion in trading volume—strictly from institutional investors—as of the second quarter of 2023. (By comparison, Coinbase reported $92 billion in total trading volume in the same period.)

    Read entire article

    Email of the day on yield curve de-inversion and lack of demand for Treasuries

    Eoin, you’re rightly highlighting the dangers of the steepening Yield Curve, or rather “uninversion” currently being undertaken. Typically though, this is a result of the Fed doing a U-Turn and cutting rates at the front end to soften the impact of a sluggish economy, or one in recession.

    In this instance, it’s the other end of the curve showing the movement, only higher, as inflation continues to be a concern and the demand for longer term bonds isn’t enough to match the considerable supply. How does the change in dynamic to this “uninversion” influence your thinking?

    Read entire article

    Oil Tanks Are Running Dry at the Biggest US Crude Storage Hub

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

    Operationally, pulling oil out of tanks when levels fall below the so-called “suction line” is difficult and expensive, and the quality of crude can be compromised by the presence of water and sediment. 

    For now, traders are expecting stockpiles to halt their decline by October and possibly start building up again, depending on how exports shape up. Indeed, this week’s drawdown was less than 1 million barrels — the first time that’s happened since early August.

    Cushing’s role in global oil markets has also diminished in recent years since the US lifted an export ban. Most barrels now flow straight from the prolific oilfields in Texas’ Permian Basin to the coast, where they are shipped to overseas buyers.

    Read entire article

    India Plans to Sell 50-Year Bond on Growing Insurer Demand

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

    “Investor demand has been strong, supported by the expansion of the formal sector, with households allocating a higher share of financial savings in life insurance, pensions and provident funds,” Gaura Sen Gupta, economist at IDFC FIRST Bank wrote in a note.

    The authorities are trying to increase the tenure of debt sold and expect yields to decline after India’s inclusion in JPMorgan Chase & Co.’s emerging market index, a government official, who didn’t want to be named, told reporters.

    The government will sell 300 billion rupees ($3.6 billion) of the 50-year bond in the October to February period, which accounts for almost 5% of its total borrowings.  

    The growing footprint of life insurers — which now own a quarter of government debt — has already impacted the nation’s yield curve. Earlier in the year, longer-dated debt was priced at lower yields than shorter-maturity paper.

    Read entire article

    Stocks Tumble, Dollar Climbs With Traders on Edge

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

    “Investors are beginning to realize that a ‘higher for longer’ interest rate environment is a likely outcome and are slowly adjusting to the ‘new normal,’” Paul Nolte, a senior wealth manager at Murphy & Sylvest Wealth Management, wrote in a note. “Higher-for-longer has been the mantra of the Fed for a few months. It is only recently that the markets have been taking them at their word.”

    Read entire article

    Global watchdog tackles 'vulnerabilities' in leveraged loans

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

    Another issue is overly-aggressive adjustments to earnings before interest, taxes, depreciation and amortisation (EBITDA) of a company borrowing money, IOSCO said.

    "Alongside looser covenants, there is evidence that headline debt-to-EBITDA may be understated," it said.

    Investors have long worried that the EBITDA used, boosted by "add backs", may not be achievable, and that it masks the true amount of leverage.

    "EBITDA adjustments based on future synergies, earnings and asset disposals should be made on a reasonable basis and borrowers are encouraged to provide clear justifications of these adjustments to investors," the proposed guidance says.

    There is also a lack of transparency in the private finance market, which has experienced rapid growth, with private market assets under management reaching $12.8 trillion in June 2022, IOSCO said in a separate report.

    U.S. companies have raised more money in private markets than in public markets in each year since 2009, it added.

    "While the inherent opacity in private finance provides investors with some insulation from the transparency costs faced in public markets, it could also jeopardize availability of information that regulators and investors require to effectively assess risks," IOSCO said.

    Read entire article