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

    Dollar Soars After Jobs Surprise Reignites Higher Rates Bets

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

    A broad gauge of dollar strength jumped after the jobless rate in the US hit a 53-year low as traders amped up bets on a higher policy rate.

    The Bloomberg Dollar Spot Index extended gains for its biggest two-day climb in four months after data highlighted the resilience of the labor market and another report showed resurgence in consumer demand, suggesting even more tightening may be in store from the Federal Reserve. 

    The greenback gained as much as 1.2%, climbing against all of its peers in the Group of 10, with the Japanese yen, the Australian dollar and New Zealand dollar falling the most. 

    “The headline number for nonfarms was shocking, and the US dollar is clearly reacting to that,” said Bipan Rai, a currency strategist at Canadian Imperial Bank of Commerce. “We still have plenty of data to comb through before the picture is complete.”

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    Is this time different?

    In watching to Jerome Powell’s press conference yesterday I was struck by the number of times he said this is not a normal business cycle. 

    The inflation that we originally got was very much a collision between very strong demand and hard supply constraints, not something that you really have seen in prior, you know, in business cycles.

    And

    I think it's -- because this is not like the other business cycles in so many ways. It may well be that as -- that it will take more slowing than we expect, than I expect to get inflation down to 2 percent.

    And

    this is not a standard business cycle where you can look at the last 10 times there was a global pandemic and we shut the economy down, and Congress did what it did and we did what we did.

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    ECB Hikes by Half-Point and Signals Same Again in March

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

    The European Central Bank lifted interest rates by a half-point, with President Christine Lagarde saying another such move is almost certain next month, despite conceding that the inflation outlook is improving.

    Policymakers, as expected, raised the deposit rate to 2.5%, the highest since 2008. Lagarde warned that the most aggressive bout of monetary tightening in ECB history isn’t done — even as energy prices plunge and the Federal Reserve moderates the pace of its own hikes.

    In a statement, the Governing Council said it “intends” to raise rates by another 50 basis points at its March meeting, then “evaluate the subsequent path of its monetary policy.”

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    Oil's Pipe Dream

    This article for Javier Blas for Bloomberg may be of interest. Here it is full: 

    For years, energy experts modeling the impact of 2050 net zero targets on oil demand had the advantage that the deadline, and the incremental steps to getting there, were a long way off. If time proved their scenarios wrong, they’d be long forgotten anyway. 

    But now, those first intermediate waymarks are around the corner, and they look increasingly farfetched.

    Earlier this week, BP Plc published its annual Energy Outlook, presenting three scenarios — not forecasts — for how oil demand may evolve. The Net Zero path, broadly in line with the goals of the Paris Agreement, is difficult to reconcile with current trends.

    In such a narrative, BP’s model shows global oil consumption collapsing to 21 million barrels a day by midcentury, down from about 98 million today.

    Ignore 2050 and focus instead on the intervening milestones, starting with 2025. In just two years’ time, BP’s Net Zero scenario sees oil demand 4 million barrels a day lower than it is now. That would mean removing the equivalent of Germany’s entire consumption in 2024 and repeating that feat again the following year. 

    Every oil forecast I’ve seen shows demand rising in 2023, and the few 2024 projections already published — including one from the US government — see growth continuing.

    Looking further ahead, BP’s Net Zero readout suggests demand would need to plunge a further 9 million barrels a day from 2026 to 2030, falling to 85 million a day by the end of the decade. That equates to eliminating the consumption of France each year and, on the final year, striking out Italy as well.

    Then the really difficult period starts. The scenario sees the world using just 70 million barrels a day in 2035, requiring the annual removal of 3 million a day. That equals the demand of Japan, currently the world’s fourth-largest consumer.

    Net zero models look increasingly at odds with short-term trends. It’s possible oil demand can sink by 2050, but is it going to plummet in a matter of months and keep falling precipitously every year for the next decade? No.

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    The January Barometer

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

    Table 1 contains historical return data for the S&P 500 in the first five days of January as well as annual returns. This is the “Early Warning System.” The last 46 times that the first five days had positive returns, the full-year return was positive 38 times, for an 82.6% accuracy ratio. The average S&P 500 gain was 14.3% in those years.

    The second part is the S&P 500 return in January and the accuracy in forecasting the return for the year. In years when the S&P 500 had positive returns in the month of January, the average return for the year was 17.6%. The indicator has registered 10 major errors since 1950, for an 85.7% accuracy ratio.

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    China's CATL Is Said to Pick Banks for $5 Billion Swiss GDR Sale

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

    CATL accounts for the largest share of the global electric-vehicle battery market, according to data from Seoul-based SNE Research. It sold a total of 165.7 gigawatt-hours of batteries in the January-November 2022 period, almost three times as much as second-placed BYD Co., a Chinese automaker that also manufactures batteries.

    CATL’s market share was about 35% in the first 10 months of last year. The Fujian-based company supplies carmakers including Volkswagen AG, Geely Automobile Holdings Ltd., Nissan Motor Co. and Tesla Inc., which delivered fewer EVs than expected last quarter, despite offering some price cuts. 

    In 2017, CATL raised about $822 million in an initial public offering in Shenzhen. The company raised another 45 billion yuan ($6.7 billion) in a private share placement last year. China Securities was the lead sponsor, while CICC, Goldman Sachs and UBS were among the co-lead underwriters.

    Shares of CATL have fallen about 18% in the past year, valuing the company at about $172 billion.

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    Adani Stock Crash at $92 Billion as Collateral Worries Grow

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

    The crisis of confidence plaguing Gautam Adani has taken a sudden turn for the worse, with a record 28% plunge in his flagship company’s stock raising questions over the extra collateral he needs to cover loans.

    Adani Enterprises Ltd. plummeted in afternoon trading in Mumbai after Bloomberg reported Credit Suisse Group AG has stopped accepting bonds of Adani Group’s firms as collateral for margin loans to its private banking clients. Banks including Barclays Plc had earlier asked for more shares to cover a $1 billion loan.

    With the rout in the group’s stocks triggered by short seller Hindenburg Research’s fraud allegations reaching $92 billion on Wednesday, the risk is that more financial institutions start to scrutinize their exposure to the indebted conglomerate. Without a dramatic upturn, investors who bought into a recently completed $2.5 billion stock sale by Adani Enterprises may be staring at deep losses.

    “The problem now is that the dynamics are becoming a self-reinforcing negative feedback loop and investors are now just dumping the shares and asking questions later,” said Peter Garnry, head of equity strategy at Saxo Bank A/S.

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    Eoin's personal portfolio: trading short breakeven stop triggered January 20th 2023