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

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

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

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

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

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

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

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    US Job Market Shows Fresh Strength With ADP and Layoff Data

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

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

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

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    Generative AI: Hype, Or Truly Transformative?

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

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

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

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    Fed Minutes Reveal Divisions Over Decision to Pause in June

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

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

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

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

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    UK plans to drop flagship £11.6bn climate pledge

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

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

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

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    Why Meta Is Launching Twitter Rival Threads

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

    2. Why is Meta launching a Twitter alternative?

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

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    Kiwis Fall Behind in Debt Payments as High Interest Rates Bite

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

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

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

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

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    Petrobras Switches From Asset Seller to Buyer as Debt Slumps

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

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

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

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

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