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

    US Ramps Up Debt Issuance, Adding Fuel to Selloff in Treasuries

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

    The bump in issuance showcases the rising borrowing needs that contributed to Tuesday’s decision by Fitch Ratings to lower the sovereign US credit rating by one level, to AA+. Fitch said it expects US finances to deteriorate over the next three years. That’s from an already enlarged position — the Treasury is pencilling in some $1 trillion worth of issuance in all this quarter.

    Ahead of the announcement, dealers had also laid out expectations for stepped-up issuance of other securities, and for the boosts in sales to stretch into 2024, which the Treasury confirmed on Wednesday.

    “While these changes will make substantial progress towards aligning auction sizes with intermediate- to long-term borrowing needs, further gradual increases will likely be necessary in future quarters” the department said in a statement.

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    Thailand Mulls Suspending Rice Farming on Drought

    This article from the Bangkok post may be of interest. Here is a section:

    Thai government considers suspension of rice farming in central region to save water amid drought, Bangkok Post reports, citing Surasri Kidtimonton, secretary-general of the Office of the National Water Resources.

    Rainfall this year has been lower than average triggering an expectation of drier rainy season

    Hardest areas will likely to be the central provinces, which is considered the country’s main rice growing region

    Region may face 40% drop in accumulated precipitation this rainy season, likely causing widespread water shortages

    Water levels are also at low level at four main dams including Bhumibol in Tak province and Sirikit in Uttaradit province

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    Baseball-Size Hail Makes Insuring Solar and Wind Farms Pricier

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

    Solar plants and wind farms are crucial weapons in the battle against greenhouse gas emissions. So it’s a cruel irony that their effectiveness is often hobbled by damage from storms, floods, wildfires and other disasters amplified by global warming. That’s making them harder to insure. Property insurance premiums for US solar facilities have soared as much as 50% over the past year, threatening to slow their rollout and derail global efforts to cut carbon emissions.

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    Strategists Scramble to Catch Up as S&P 500 Rally Rumbles On

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

    There’s a shift in tone happening across Wall Street.

    Oppenheimer Asset Management’s Chief Investment Strategist John Stoltzfus lifted his target on the S&P 500 index to a Street high, a day after Morgan Stanley’s Michael Wilson, one of the market’s leading doomsayers, sounded less bearish than usual. 

    Stoltzfus now sees the S&P 500 index hitting 4,900 by the end of the year, leaving room for another 7% gain. The target would mark a new record for the gauge, and one that plays out against bearish predictions by bigwigs such as Wilson, JPMorgan Chase & Co.’s Marko Kolanovic and Bank of America Corp.’s Michael Hartnett. They were all blindsided by the resilience of the US economy and the sudden emergence of the artificial intelligence-driven tech rally.

    US equities have soared this year as investors looked past the earnings recession, growing confident that the economy would avoid any serious slowdown while anticipating less hawkish monetary policy. Even so, the most recent median forecast among Wall Street strategists tracked by Bloomberg still showed a decline for the index by year-end.

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    UK House Price Declines Deepen as Borrowing Costs Cut Demand

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

    British home prices fell further last month as borrowing costs held back demand, one of the largest mortgage lenders said, although the rate of decline showed a chance that the market could yet avoid a hard landing.

    The Nationwide Building Society said prices fell 3.8% in its July survey from a year ago, quicker than a 3.5% drop in the previous month. While economists expected a slightly larger decline of 4%, it was the third straight month that prices had fallen at their fastest pace since the global financial crisis
    in 2009.

    The first hard data about July home prices indicate the 13 interest-rate increases from the Bank of England since the end of 2021 have strained consumer’s ability to pay for properties. Values based on Nationwide’s data have fallen about 4.5% since they peaked in August and now average £260,828 ($334,000).

    Still, prices have so far avoided the collapse that appeared possible last autumn, when then-Prime Minister Liz Truss’s ill-fated budget sent borrowing costs soaring to 14-year highs. In November, Nationwide warned of a potential 30% drop in prices in a worst-case scenario.

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    Chile fires the starting gun on EM easing cycle

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

    The decision by policymakers to cut rates by a consensus-busting 100bp to 10.25% on Friday made Chile the first major EM to lower its key policy rate since the aggressive post-pandemic tightening cycle across the emerging world. With the economy struggling, a marked improvement in the outlook for inflation encouraged policymakers to get on with the job of reversing past hikes that saw Chile’s policy rate climb from just 0.5% in mid-2021 to a peak of 11.25% in late-2022.

    As we noted earlier this year, further steep declines in inflation, led by food, should make space for additional easing in the months ahead.

    Who’s next?
    Attention now turns to which EM central banks are likely to be the next to start cutting rates. Prior to lowering rates on Friday, the CBC was one of a handful of EM central banks that had already been on pause for longer than usual. Others in that category include Brazil and the Czech Republic, where monetary policy announcements are due this week on Wednesday and Thursday respectively.

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    Air Pockets, Free Falls, and More Cowbell

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

    There are very few conditions in which we have any specific expectations for near-term market action. The exceptions are when the market is strenuously overextended in a “trap door” situation combining rich valuations with unfavorable internals, or when the market is strenuously compressed following a material improvement in valuations.

    Over the past four decades, I’ve developed scores of interesting “syndromes” and relationships, many that I’ve discussed in these market comments. A subset of these capture features of “overextension” and “compression” that occur at major market extremes.

    The chart below shows one such syndrome that emerged in mid-April as the S&P 500 advanced above 4400, and again last week, which I consider part of the same overextended advance. The criteria are intended to capture a certain “relentlessness” of speculation that often precedes abrupt market losses. This particular syndrome is among several that I monitor to identify speculative “blowoffs.”

    In this case, “relentlessness” is defined by periods when the S&P 500 is at least 4.5% above its 50-day average, with a relative strength index (RSI) above 70 – indicating a preponderance of advancing days relative to declining days in recent weeks, a 14-day rate of change (ROC) greater than 4% in the S&P 500, and at least a mildly bullish tilt in advisory sentiment, based on Investors Intelligence data. Periods like this look briefly parabolic, as investors increasingly buy every dip, in fear of missing out.

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    BOJ Wades Into Bond Market After YCC Tweak Triggers Yield Spike

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

    The purchases are another reminder that Japan’s slow retreat from ultra-loose monetary policy brings a heightened risk of volatility and intervention across multiple asset classes globally. It also underscores the challenge in interpreting a rates regime that is built on gray lines to let the BOJ be flexible rather than clarity for markets.

    “That flexibility is obtained with opaqueness on when they intervene,” said Calvin Yeoh, portfolio manager at hedge fund Blue Edge Advisors Pte in Singapore. “Flexibility is another word for optionality, which potentially manifests as volatility. No one knows exactly when, between 0.5 to 1%, does the BOJ step in meaningfully, which is an awfully wide range.”

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