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

    China Has a Debt Ceiling Problem of Its Own

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

    Before Covid, regional authorities got roughly 40% of their income from local taxes, with the rest split almost evenly between land sales and subsidies from the central government.

    Last year, land sales tumbled 23%, while total expenditure rose 6%. Beijing did increase its subsidy, but its support was not enough to plug municipalities’ budgetary hole. As such, local government debt has ballooned to 66% of China’s gross domestic product, from 29% in 2012, according to CLSA Ltd. estimates. 

    On the other hand, Beijing’s own book remains fairly pristine. The central government’s debt-to-GDP ratio stands at only 24%, versus 15% a decade ago. 

    Because of this power imbalance, China’s sovereign debt manages to be solidly in the investment-grade territory, even though the nation has become one of the world’s most leveraged. When investors fret about China’s elevated borrowings, they refer to those from real estate developers or municipal authorities. They do not talk about the central government’s book.

    However, it is increasingly clear this fiscal arrangement is near a breaking point. According to CLSA, regional governments already spent 10.8% of their revenue on interest payments. Their expenses would have been a lot higher if the People’s Bank of China did not pump liquidity into the financial system. The average cost of borrowing for municipals fell from 5.6% in 2018 to 4.1% recently.

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    Australia Recession Risk Rises as RBA Seen Hiking More Than Fed

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

    While US mortgage holders tend to borrow over 30-year terms, insulating them from tightening cycles, a majority of Australian borrowers are on variable rate home loans that adjust upwards each time the central bank hikes. 

    Australia’s housing market is already in a downturn and higher borrowing costs are likely to drive more declines this year. 

    There’s a further risk from re-pricing of loans that were fixed for 2-3 years at record-low rates during the pandemic. RBA data suggest 23% of all outstanding mortgage debt will be re-priced this year and in some cases borrowing costs will more than double to close to 6%. 

    While the RBA is relatively sanguine about housing, Eliza Owen, head of research at property consultancy CoreLogic Inc., sees risks on the horizon.

    “Australians with fixed-rate loans are about to see a painful adjustment. This is partly the intention of rising rates,” Owen said. “The true test of the market will be over the next 10 months.”

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    France Forges Pact to Make Nuclear Part of EU Clean Energy Shift

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

    “The US, the UK, South Korea, China, India and even Japan are contemplating using nuclear energy as an important means to decarbonize their economies, and we need to be on the same level playing field,” Pannier-Runacher said Monday.

    The next battleground is a definition of “green hydrogen” in an EU directive known as RED3, which would set targets for using the fuel in industry and transport. France is pushing for nuclear to be considered a clean energy source, while countries such as Spain and Germany are focusing on hydrogen derived from renewables such as wind or solar.

    The EU sees hydrogen as a key pillar of its efforts to slash emissions by 55% by 2030. The outcome of the negotiations could jeopardize a flagship project to pump the fuel from Barcelona to Marseille and then onto Berlin via a pipeline, known as BarMar or H2Med.

    France’s Hydrogen Pipeline With Spain at Risk Over Green Rules For “green investments,” France has already reached a compromise with Germany to allow nuclear energy and natural gas to receive funding from environmental investors. While that added the two energy sources to the so-called EU taxonomy — a list of activities deemed in line with the bloc’s transition to climate neutrality — there are still concerns the move could divert investment away from renewables.

    The French initiative was welcomed by a number of other EU nations. “We are happy that nuclear somehow came back to the discussion in the EU  — years ago it was kind of a forbidden topic,” said Anna Moskwa, Poland’s minister of climate and environment. “It is of our common interest to build stable sources, that is why Poland decided to develop nuclear.”

     

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    Why Unprofitable Stocks Make The IBD 50; Here's How 4 Earn Their Place

    This article from Investor’s Business Daily may be of interest. Here is a section: 

    Outstanding sales growth is a sign of a market leader, even in cases when companies are unprofitable. Other factors contribute to the selection criteria for IBD 50, including past stock performance. For example, many stocks with a weak bottom-line outlook have high Relative Strength Ratings.

    Monday.com posted two profitable quarters of EPS in Q3 and Q4 after a string of losses. The profitable quarters helped the company post a positive 2022 with 73 cent EPS, but analysts are expecting losses of 36 cents in 2023 and 9 cents in 2024.

    "We finished FY '22 with strong revenue growth, improving efficiency and positive free cash flow for the second consecutive year," said co-CEO Roy Mann. "Despite macro uncertainties, we believe we are well positioned for the road ahead."

    The Israel-based software applications and workload management firm gave a full-year 2023 revenue range of $688 million to $693 million, exceeding analysts expectations.

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    Here's what you need to know about the fight over property tax cuts in the Texas Legislature

    This article from the Texas Tribune may be of interest. Here is a section: 

    Part of the fight will deal with whether to use less funds on property tax cuts and more on public schools, infrastructure and other needs. Democrats have their own ideas about what to do with the extra funds, including a $15,000 pay raise for Texas teachers, which would cost $12 billion over the next two years.

    “With an unprecedented $33 billion budget surplus, we have at least 33 billion opportunities to improve our schools,” said state Rep. Trey Martinez Fischer, of San Antonio, head of the Texas House Democratic Caucus.

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    Pimco-Owned Office Landlord Defaults on $1.7 Billion Mortgage

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

    An office landlord controlled by Pacific Investment Management Co. has defaulted on about $1.7 billion of mortgage notes on seven buildings, a sign of widening pain for the industry as property values fall and rising interest rates squeeze borrowers.

    The buildings — in San Francisco, New York, Boston and Jersey City, New Jersey — are owned by Columbia Property Trust, which was acquired in 2021 for $3.9 billion by funds managed by Pimco. The mortgages have floating-rate debt, which led to rising monthly payments as interest rates soared last year.

    “We, like most office owners, are addressing the unique and unprecedented challenges currently facing our asset class and customer base,” Justina Lombardo, a spokesperson for Columbia Property Trust, said in an emailed statement. “We have engaged with our lenders on a restructuring of our loan on seven properties within our larger national portfolio.  We look forward to a collaborative process yielding thoughtful solutions that reflect current market conditions and best serve the interests of all stakeholders.”

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    Brexit Deal Hopes Rise as Sunak Set for Weekend Crunch Talks

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

    The British premier had been preparing to unveil a new deal this week, but vocal opposition from unionists in Northern Ireland and Brexit hardliners in Sunak’s own Conservative Party scuppered the plan. Sunak had a positive talk with European Commission President Ursula von der Leyen late Friday and they will speak again soon, a person familiar said. He’s also gearing up to talk to his Cabinet before Monday, people directly involved in the plans said.

    Sunak also wants to have further discussions with DUP Leader Jeffrey Donaldson, whose party has blocked the formation of Northern Ireland’s devolved power-sharing government for more than a year over the current post-Brexit trading arrangements, known as the Northern Ireland Protocol. His endorsement is likely to prove crucial and without it an announcement of the deal may be further delayed. 

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