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

    BOJ's Ueda Gains Flexibility After Scrapping Guidance on Rates

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

    The central bank also called for a long-term review of its policies and issued new price forecasts that show inflation below 2% again in the fiscal year ending March 2026. 

    The decision to keep stimulus in place in pursuit of stronger inflation keeps the BOJ in a very different place to its price-fighting global peers for now. 

    While the wave of policy tightening around the world to weaken inflation appears close to peaking, the Federal Reserve still looks set to push up borrowing costs further when it meets next week.

    That possibility still seems a long way off for the BOJ, given a reiterated commitment in Friday’s statement to continue easing with yield curve control.  Still, Ueda later clarified that policy could be changed including a normalization during the review process.

    “We’re not starting the review with the aim of normalizing,” Ueda said. “But it’s not zero chance we begin normalizing during the review period.”

    For now, the risk of a premature tightening move stopping the BOJ from achieving its price target is greater than the cost of a delayed move, he said.

     

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    First Republic Plunges Anew Amid Elusive Search for Rescue Plan

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    US officials are coordinating talks to rescue First Republic, with the Federal Deposit Insurance Corp., the Treasury Department and Federal Reserve orchestrating meetings about throwing a lifeline, Reuters reported, citing unidentified people. 

    But some of the biggest US banks, which have already contributed $30 billion in deposits to prop up First Republic, have balked at getting more involved and potentially throwing good money after bad, Bloomberg News reported. 

    The focus has shifted to a US takeover, according to CNBC. For its part, First Republic has acknowledged it’s engaged in discussions with multiple parties about strategic options.

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    Mexico Surprises With Above-Forecast Growth on Export Surge

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    “This is a solid report, showing a resilient economy on the back of supportive remittances, rising exports, and improving labor conditions,” said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics. “We expect economic activity to be more resilient than in previous cycles.”

    The economy’s accelerating growth gives some pause to economists who’ve predicted that the country is headed for a contraction later in the year, due to the expected downturn in the US, Mexico’s biggest trading partner. Part of the surprise is the boost from the domestic market, which has contributed especially to the revival of the services sector, after it plunged earlier during the pandemic.

    The Mexican peso erased earlier losses and strengthened as much as 0.3% after the first quarter release.

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    US Economic Growth Slows to 1.1% While Inflation Accelerates

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    The outlook depends largely on the resiliency of the job market. Low unemployment and persistent wage gains have so far allowed consumers to weather high inflation and keep spending.

    The personal consumption expenditures price index grew at an 4.2% annualized pace in the January to March period. Excluding food and energy, the index rose 4.9%, faster than forecast and the most in a year. March data will be released Friday. Services inflation remained hot while prices of non-durable goods accelerated.

    The inflation and consumer spending figures likely keep the Fed on track to raise interest rates by a quarter percentage point next week. First Republic Bank’s continuing struggles, however, do raise the possibility that the central bank could pause.

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    McDonald's Has a Secret Weapon to Take Down Burger King, Wendy's

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    During the call the chain's chief financial officer, Ian Borden, explained just how well that has worked.

    "MyMcDonald's Rewards is yet another example of how we've tapped into our marketing engine to deploy our loyalty platform throughout the system," the executive said.

    "Now in 50 markets, loyalty is building even stronger relationships with our customers, and the results continue to shine. In our top six markets, digital sales now represent almost 40% of systemwide sales, or nearly $7.5 billion, growth of more than 30% over the last year."

    McDonald's' digital-membership numbers are particularly strong when you compare them with Starbucks, the company generally considered the pioneer of app-based loyalty rewards programs and mobile order and pay.

    Starbucks, which reports only U.S. loyalty program members, ended its most-recent quarter with more than 30 million active rewards members.

    Across its top six markets, McDonald's has an even bigger membership base.

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    Wall Street Is Getting a New Fear Gauge as 0DTE Mutes VIX

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    Cboe Global Markets Inc., the Chicago-based exchange operator behind the VIX, has announced that a new one-day version of its flagship volatility index is poised to launch. The Cboe 1-Day Volatility Index (ticker VIX1D) is scheduled to start Monday, according to a notice on Cboe’s website. 

    If it succeeds in capturing the sentiment embedded in in 0DTE options, it could mark a significant moment for investors and traders across the spectrum.

    “This makes sense because so much of the volume has moved to shorter tenors,” said Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets. “I’ve been joking that the VIX is going through a mid-life crisis, being replaced by someone younger (shorter dates).”

    There is already some evidence that nearer-term options have been flashing more stress than the VIX. Cboe offers a nine-day version of the gauge (VIX9D), which has regularly traded at higher levels than the VIX this year. 

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    Email of the day on Hong Kong

    As a HK subscriber to your excellent service, I like to give a few on the grounds observations. In my view, the reason why LVMH is making the shift is 1) China opened Hainan tax free shopping and Shenzhen also exploring the same makes shopping high end products less unfavorable in the mainland. 2) Chinese tourist since reopening find HK less attractive relatively for tourism than before.

    On HK becoming just another Chinese city, on recent trip to UK, found some general public perception of HK over the last few years seriously incorrect, I suppose due to the sensational and misleading journalism on HK from the press in the west. While there are changes in HK in last few years, that it is becoming another Chinese city I think is very much misplaced.

    On the HKD peg, from what I heard from current and prior HK central bank chiefs and top officials from PRC, there is no desire or rationale to change the peg for the foreseeable future. Also that HKD in circulation is back by about 5X USD reserve and that the peg is setup unilaterally by HK, risk of interference by US due to geopolitical concern is low.

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    Email of the day on combustion risk from EVs