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

    Brazil Inflation Slows Past All Forecasts as Rate Cuts Loom

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

    Brazil’s annual inflation slowed much more than expected in May, hitting the lowest level in two and a half years and piling pressure on the central bank to ease monetary policy in coming months.

    Official data released Wednesday showed consumer prices rose 3.94% from a year earlier, less than all forecasts in a Bloomberg survey of analysts that had a 4.04% median estimate. Monthly inflation stood at 0.23%.

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    Lira Plunges as Turkey's New Economy Team Pulls Back Defense

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

    President Recep Tayyip Erdogan, who won reelection to a five-year term, has long championed an unorthodox economic policy based on ultra-low interest rates. The costs of that policy piled up in the form of depleted foreign-currency reserves, an inflationary spike, and an exodus of foreign capital, leading markets to price in a large depreciation after the vote as investors bet that it was unsustainable. 

    Minister Simsek
    Erdogan’s appointment of Simsek, a former Merrill Lynch strategist, has intensified expectations of a return to orthodoxy and abandonment of state intervention in favor of allowing the market to determine fair value for Turkish assets. Since the election on May 28, the lira has weakened more than 13% against the dollar.

    Investors are betting that more weakness is coming. The options market is currently pricing about an 80% chance that the lira will hit 25 per dollar within the next three months, and a more than 60% chance that it could hit 27 per dollar, according to data compiled by Bloomberg.

    Turkey’s state banks don’t comment on their interventions in the foreign-exchange market. A former governor of the central bank said in 2020 that state-owned lenders carry out transactions in line with regulatory limits and could continue to be active in the currency market.

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    Weak market being obscured by megacap gains

    This article by Martin Pelletier may be of interest. Here is a section: 

    It's understandable to assign higher revenue multiples to smaller and highly disruptive companies with exponential growth potential. However, the combined market capitalization of these seven companies now exceeds US$10 trillion, so how can they deliver such growth while defying the laws of diminishing returns, especially when they were unable to do so when they were smaller, more innovative and capital was next to free with interest rates hovering around zero per cent? Over the past decade, Nvidia's revenue has grown sixfold and yet the market is now giving it a 38 times multiple. Microsoft has grown revenue by 2.7 times with a current 12 times multiple, and Apple's revenue has grown 2.2 times and yet it has a seven times multiple.

    It isn't as if this hasn't happened before. Take Sun Microsystems Inc., which traded at more than 10 times its revenue prior to the bursting of the 2000 tech bubble. In 2002, chief executive Scott McNealy responded to the aftermath with a thought-provoking quote.

    "At 10 times revenues, to provide a 10-year payback, I would have to distribute 100 per cent of our revenues to shareholders for 10 consecutive years in the form of dividends. This assumption assumes that I can achieve such an arrangement with our shareholders, that we have no cost of goods sold (which is highly unlikely for a computer company), that we have zero expenses (difficult with 39,000 employees), that we pay no taxes (also challenging), and that you, as shareholders, pay no taxes on the dividends received (which is illegal)," he said.

    "Additionally, this assumption presumes that, with no investment in research and development for the next 10 years, we can maintain the current revenue rate. Considering these unrealistic assumptions, would any of you be interested in purchasing our stock at US$64? Can you fathom the absurdity of these basic assumptions? We don't need any transparency or footnotes to recognize their implausibility. What were you thinking?" In a seemingly repetitive cycle, we wonder if we will eventually be questioning ourselves again with a "what were you thinking?" moment. If you are tempted to say "this time it's different," we checked with ChatGPT and will leave you with its answer.

    …"It's prudent to exercise caution, diversify portfolios and focus on fundamental principles rather than getting carried away by the idea that the current situation is entirely unprecedented."

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    Gold Wavers as Traders Assess Fed Rate Path After Australia Hike

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

    Gold swung between gains and losses as traders mulled the Federal Reserve’s interest-rate path after a surprise hike by Australia’s central bank.

    The Reserve Bank of Australia unexpectedly raised its key rate and kept the door open to further hikes. Treasury yields rose alongside a strengthening dollar, keeping bullion’s upside in check. Traders have been increasingly betting the US central bank will hold rates steady at its June meeting, while keeping the option for hikes later open.

    “After many traders were surprised by the hawkish rate rise by the RBA, fears are growing that the Fed might need to do a lot more tightening,” said Ed Moya, senior market analyst at Oanda.

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    Major dam breached in southern Ukraine, unleashing floodwaters

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

    The dam, 30 metres (yards) tall and 3.2 km (2 miles) long and which holds water equal to the Great Salt Lake in the U.S. state of Utah, was built in 1956 on the Dnipro river as part of the Kakhovka hydroelectric power plant.

    It also supplies water to the Crimean peninsula, annexed by Russia in 2014, and to the Zaporizhzhia nuclear plant, which is also under Russian control and which gets cooling water from the reservoir.

    The International Atomic Energy Agency (IAEA) said there was no immediate nuclear safety risk at the plant due to the dam failure but that it was monitoring the situation closely. The head of the plant also said there was no current threat to the station.

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    Here's What Morgan Stanley to Goldman Say About Saudi Cut

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

    RBC Capital Markets
    While some will focus on Saudi Arabia not acting in concert with the rest of OPEC+, the fact that the kingdom is willing to shoulder the curbs alone adds to the credibility of the cut and signals real barrels coming off the market, analysts Helima Croft and Christopher Louney wrote in a note. Saudi Arabia has a track record of delivering on material cuts, they said.

    ANZ Group Holdings Ltd
    .“The move by Saudi Arabia is likely to come as a surprise, considering the most recent change to quotas had only been in effect for a month,” analysts Brian Martin and Daniel Hynes wrote in a note. “The oil market now looks like it will be even tighter in the second half of the year.”

    UBS Group AG
    “There has been some anticipation of a production cut, that is why the reaction this morning was a bit more muted,” Strategist Giovanni Staunovo said in a Bloomberg television interview. Still, “the market will react further when the cut is implemented in one month’s time, as soon as inventory dynamics show a drop or exports fall from Saudi Arabia.”

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    China gas demand becomes more feasible at low LNG prices but challenges persist

    Thanks to a subscriber for this article from S&P Global focusing on Chinese LNG demand. Here is a section: 

    China's Shenzhen Energy closed a buy tender on May 30 seeking an August-delivery cargo,and the tender was awarded in the low $9s/MMBtu,according to several sources.

    Prior to this, China's Guanghui Energy was heard to have partially awarded a buy tender for certain cargoes delivering from July 2023 to January 2024,S&PGlobal Commodity Insights reported earlier.

    The prices of pipeline gas in China, which reflect crude prices 9-12 months ago, have been rising this year, with the average net import price above $8.5/MMBtu in April, showed calculations based on customs data

    This means that the price advantage of pipeline gas over spot LNG is fading, which is expected to stimulate buying interest from importers who do not have sufficient long-term contracts in hand, market sources said.

    "Rising prices of domestic pipeline gas in China could provide some incentive for downstream industries to switch to LNG," a Chinese importer said, adding that the current LNG prices were quite competitive and second-tier buyers could be more likely to come out to buy spot cargoes.

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    Bitcoin Coders Feud Over Whether to Crush $1 Billion Meme Frenzy

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

    Others defend the software innovation, called Ordinals, that allows Bitcoin’s blockchain to host large numbers of memecoins and nonfungible tokens — digital collectibles — for the first time, arguing it can have wider applications.

    Developer Casey Rodarmor created Ordinals to enable users to inscribe digital content like videos, images and text on satoshis, the smallest unit of Bitcoin. There are 100 million satoshis in one Bitcoin. 

    Rodarmor’s innovation took off this year and was seized on by pseudonymous blockchain analyst Domo to develop the Bitcoin Request for Comment — or BRC-20 — standard, which led to the explosion of memecoins.

    There are now about 25,000 meme tokens on the Bitcoin blockchain with a market value of roughly $475 million, according to website brc-20.io. The figure had soared past $1 billion in early May.

    Jameson Lopp, co-founder of crypto storage solutions provider Casa, said the Bitcoin network is meant to be an “auction market for the block space” — the place where data is stored — and Ordinals merely stoked demand for it.

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