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

    China Shifts to Stimulus Mode With Xi's Options Dwindling

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

    The new stimulus package under consideration has been drafted by multiple government agencies and includes at least a dozen measures designed to support areas such as real estate and domestic demand, according to people familiar with the matter. 

    A key component is support for the real estate market. Regulators are seeking to lower costs on outstanding residential mortgages and boosting relending through the nation’s policy banks to ensure homes are delivered, one of the people said.

    The State Council may discuss the policies as soon as this Friday but it’s unclear when they will be announced or implemented, the people said.

    “The aim of stimulus this time is to keep growth ticking over, consistent with the relatively conservative ‘about 5%’ gross domestic product growth goal, rather than to spur a round of robust growth,” said Duncan Wrigley, chief China economist at Pantheon Macroeconomics. “Policymakers are still wary of repeating the kind of debt hangover that the Global Financial Crisis stimulus produced and they spent the decade up to the pandemic trying to sort out.”

    Property Woes
    The weak property market remains a major drag on China’s economy, although policymakers appear reluctant to use its old playbook of driving up investment in real estate as a way to boost growth. Goldman analysts said in a recent report they don’t expect a repeat of the 2015-2018 shantytown renovation program that pumped central bank money into the property sector and sent home price surging.

    Beijing is seeking to reduce the economic and fiscal reliance on the housing market, Goldman said, which suggests an L-shaped recovery in coming years.

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    BOE Beat Fed to Interest-Rate Hikes, Still Set to Finish Last

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    The data on Tuesday showed faster-than-anticipated wage growth and lower unemployment. Hours later, new BOE rate setter Megan Greene joined policymaker Catherine Mann in warning of the risks of persistent inflation and the difficulty of getting back to the 2% target. 

    The surprise April wage figures were partly driven by an increase in the national minimum wage, which won’t be repeated in later months. Still, according to Goldman Sachs analysts including Isabella Rosenberg, “we don’t think they can be ignored.”

    “The BOE has much further to go than other central banks,” they said.

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    US Plans to Buy 12 Million Barrels of Oil for Reserve This Year

    This article for Bloomberg may be of interest. 

    The US plans to purchase about 12 million barrels of oil this year as it begins to refill its depleted emergency reserve amid falling crude prices, according to two people familiar with the matter. 

    The figure includes 3 million barrels already scheduled for delivery in August and an additional 3 million barrels from a solicitation the Biden administration issued on Friday, according to the people. 

    An Energy Department spokesperson said they will continue to “seek opportunities for additional repurchases as market conditions and the constraints of SPR operations allow.”

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    BOJ Is Said to See Little Need to Tweak Yield Control Now

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    Still, officials aren’t confident enough to say achievement of the BOJ’s 2% price target is in sight, pointing to the need for continued monetary stimulus, the people said.

    The yen fell and bonds rose after the report. The yield on 10-year Japanese government bonds fell 1 basis point, while bond futures ticked higher.

    Governor Kazuo Ueda and his fellow board members will conclude a two-day policy meeting on June 16. Speaking in parliament Friday, Ueda said that recent data appear to show inflation deviating upward from the BOJ’s base case.  

    The final policy decision next week will be made after assessing economic data and developments in financial markets up until the last moment, the people said. 

    As the last anchor of global low interest rates, whether the BOJ will decide to pivot away from easing is a key factor that could cause ripples across global financial markets. 

    T. Rowe Price, BlackRock Inc. and the European Central Bank are among those warning that any policy normalization from the BOJ may send a wave of Japanese cash flowing out of global markets and surging back home.

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    Oil Extends Losses as Goldman Forecast Adds to Demand Concerns

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    Oil extended losses as Goldman Sachs Group Inc. cut its price forecast again, adding to a drumbeat of concerns about the outlook for demand.

    West Texas Intermediate slumped below $68 a barrel after Goldman — which has had one of the more bullish forecasts for crude — made its third downward price revision for the global benchmark in six months, trimming its estimate to $86 for the end of the year on rising supplies and waning demand.

    “Beyond the fact that a vocal crude bull cut their crude forecast again, physical market indicators also are shaking confidence of bulls expecting the market to shift from a surplus to a deficit in the coming months,” said Rebecca Babin, a senior energy trader at CIBC Private Wealth. “Time spreads, which are the holy grail for traders assessing supply and demand dynamics, continue to deteriorate, fueling a massive risk aversion and prompting shorts to maintain pressure on prices.”

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    Bunge Is Said to Near Deal to Buy Glencore's Viterra

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    Combining the two will create a trader big enough to take on the industry’s elite: Minneapolis-based Cargill Inc. and Chicago’s Archer-Daniels-Midland Co. The deal is the culmination of Bunge Chief Executive Officer Greg Heckman’s transformation of the once troubled St. Louis-based crop trader into a cash-rich oilseeds champion.

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    Stocks Drop 20% If Bonds Have Inflation Right in JPMorgan Model

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    The widening disconnect between stocks and bonds suggests a 20% downside risk for equities if bonds are proved correct in pricing inflation volatility, according to modeling by JPMorgan Chase & Co. strategists.

    “Bond markets are still pricing in a sustained period of elevated macroeconomic uncertainty, even if there has been some modest decline over the past three months,” strategists including Nikolaos Panigirtzoglou and Mika Inkinen wrote in a note. “By contrast, equity markets look ‘priced for perfection’ with the S&P now above a fair value estimate looking through the rise in macroeconomic volatility since the pandemic.”

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