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

    China Markets Start 2023 With a Bang as Policy Shift Hastens

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

    The world’s second-biggest stock market is looking like an investor darling again, as optimism about the eventual benefits of Beijing’s abrupt end to Covid curbs outweighs concerns over the short-term pain it inflicts. Adding to that is a series of policy developments signaling the return of economic pragmatism, including plans of fresh property support, discussions of ending a ban on Australian coal imports and progress toward concluding a crackdown on Jack Ma’s financial tech behemoth.

    The euphoria has spread beyond equities. The offshore yuan strengthened 0.5% against the dollar, while dollar bonds of some of China’s distressed developers saw sharp gains.

    “These directly remove some of the pillars of risks for China — property, geopolitical, and regulatory headwinds,” said Marvin Chen, a Bloomberg Intelligence analyst, referring to the slew of “active” policies. 

    Concerns over a further worsening of China’s property debt crisis receded further Wednesday after Bloomberg News reported that authorities are weighing new measures to ease the cash crunch plaguing some systemically important developers. The resumption of approvals for private equity funds to raise money for residential housing developments also lifted sentiment. 

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    Oil's New Year Slump Deepens Below $75 as China Concerns Grow

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

    Crude’s dwindling levels of open interest have left it open to sharp swings in recent months, and a failed attempt to break above its 50-day moving average this week has done little to improve the technical picture. While sanctions against Moscow over Russia’s war in Ukraine dragged its oil flows to 2022 lows late last month, that’s been of little relief to bulls so far this year. 

    The impact of a pre-Christmas freeze that hobbled refinery capacity in some parts of the US should also become clearer in inventory data this week, with the industry-funded American Petroleum Institute’s figures due later. In the short-term, that has lowered crude processing capacity in North America and is also weighing on prices. 

    “We’ve seen these big freeze-offs in the US and that has meant that the crude balance has actually weakened,” Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd., said in a Bloomberg TV interview, referring to US refinery closures due to cold weather. “There’s a few more weeks of softness I would think.”

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    Mining Stocks Rally as Gold Advances to Highest Level Since June

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

    Kinross Gold and Pan American Silver are among the gold and silver miners getting the biggest boost Tuesday, as gold rose to the highest in six months.

    Gold rose 1% to trade over $1,840 an ounce as the precious metal continues to gain momentum
    The Bloomberg Americas Mining Index gains as much as 3.2% led by Kinross’s 7.5% rise and Pan American’s 7.4% climb, Newmont climbs 3.7% and is one of the top performer in the S&P 500 Index

    Other miners rallying include: EQX CN +11%, ARIS CN +10%, SVM CN +4.3%, BTO CN +3.3%, ABX CN +3.8%, FR CN +2.8%, LUN CN +3.9%, YRI CN +3.1%

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    Email of the day on spread-betting companies:

    Eoin, I hope you have had a good break. A very happy New Year to you and yours. I apologise, as I am sure I have asked the question previously. However, I cannot find your answer. Can you direct me to a good Spread Betting company in the UK? In anticipation, many thanks.

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    IMF's Georgieva Expects Third of World to Suffer Recession

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

    “We expect one-third of the world economy to be in recession,” Georgieva told CBS’s ‘Face the Nation’ in an interview aired Jan. 1. “Why? Because the three big economies — US, EU, China — are all slowing down simultaneously.”

    The IMF already warned in October that more than a third of the global economy will contract and that there is a 25% chance of global GDP growing by less than 2% in 2023, which it defines as a global recession.

    Examining the three biggest economies on CBS, Georgieva painted a mixed picture of their ability to withstand the downturn.

    While “the US may avoid recession,” the European Union has been “very severely hit by the war in Ukraine — half of the EU will be in recession next year,” she said. At the same time, China faces a “tough year.”

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    How Early Exercise Order Flow Impacts Equity Option Put/Call Ratios

    Thanks to a subscriber for this article from the Cboe which may be of interest. Here is a section:

    Historically, dividend related ITM [Ed. In-the-money] call exercises have resulted in some of the highest call volume days of the year, including March 15, 2012, when a record 9M calls traded in SPY, but changes to the clearing process since then have dampened that activity. 

    Mathematically, the decision to exercise a call or put early is related to the extrinsic value of the contract. For calls, if the dividend(s) amount exceeds the extrinsic value, a long holder is usually better off exercising. For puts, the decision is a bit more subtle, with extrinsic value compared to the carry cost on the strike. As U.S. interest rates have increased sharply to decade-highs this year, the cost of carry for deep positions has increased, while the selloff in many popular stocks has resulted in large blocks of deep put open interest. Unlike dividend-related call exercises, which tend to happen quarterly, put exercise dynamics may repeat daily if positions are open. In practice, put exercises are more common on Wednesdays based on the timing of settlement. Puts exercised on a Wednesday result in a stock sale on Thursday, which settles Monday.

    Fortunately, early-exercise candidate call and put strikes for all listed products are calculated intraday and available in a subscription product on the Cboe DataShop.

    A sample from the file for December 7 shows that all the active Amazon deep put strikes were considered optimal to exercise as of 2 p.m.

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    War and Currency Statecraft

    Thanks to a subscriber for this report by Zoltan Pozsar for Credit Suisse. Here is a section: 

    Holiday Hours

    Comment of the Day and the Subscriber’s audio & video will next be updated on January 3rd.
    I’d like to take this opportunity to wish all our subscribers a very happy and peaceful Christmas and a prosperous New Year.