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

    Gold Hits One-Month High as Dollar Slide Brings in Fresh Buying

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

    “A million ounces of gold was bought in under two minutes moving the price nearly a percent - this suggests fresh buying,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York. “Gold holding above the 50-day moving average for the first time since August added to the positive sentiment.”

    Aggressive Federal Reserve monetary tightening aimed at cooling inflation has weighed on metal prices this year by driving up the greenback and hurting demand prospects. Higher interest rates tend to diminish the investor appeal of commodities, which bear no interest.

    Traders are eyeing the upcoming US inflation reading due Thursday, after the core consumer price index rose more than forecast to a 40-year high in September. Another hot print could further curb hopes of an impending slowdown in the Fed’s monetary tightening.

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    401(k) Plans Now Let Workers Put Retirement Money Into Cryptocurrency

    This article from the Wall Street Journal may be of interest to subscribers. Here is a section:

    Retirement-plan providers have moved ahead, and some of the 24,500 401(k) plans that Fidelity Investments administers began offering bitcoin in their investment menus this fall, the company said. ForUsAll Inc., a San Francisco-based 401(k) provider that caters to small companies and has $1.4 billion in retirement-plan assets, says 50 of its 550 clients began allowing workers to invest some of their retirement savings in cryptocurrency, including bitcoin and ether, about eight weeks ago.

    The 401(k) companies are launching their crypto offerings amid a bear market that has caused steep selloffs in many cryptocurrencies. Since hitting a high of more than $66,000 in November 2021, bitcoin has fallen to $20,092.

    The U.S. Labor Department, which regulates company-sponsored retirement plans, earlier this year cautioned employers to "exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan's investment menu," guidance that has had a chilling effect on some employers and providers.

    Fidelity, the nation's largest 401(k) plan provider -- with $3.3 trillion in the plans it administers -- declined to provide details about companies offering its cryptocurrency option. It announced the offering earlier this year, citing demand from employers and workers.

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    JPMorgan, Citigroup Maintaining Some Russia Ties Due To U.S. Government Instructions

    This note from Dow Jones may be of interest to subscribers.

    JPMorgan Chase & Co. and Citigroup Inc. are maintaining some ties with Russian companies for strategic reasons on directives behind the scenes from the U.S. State Department and Treasury Department, Bloomberg reported on Monday. The country's biggest banks are caught between Congress, which is pushing for strict sanctions against Russia for its invasion of Ukraine, and the Biden administration, which has urged banks to continue doing business with strategic Russian companies, Bloomberg reported, citing people familiar with the situation. Nnedinma Ifudu Nweke, a lawyer at Akin Gump Strauss Hauer & Feld LLP who specializes in economic sanctions, told Bloomberg that some pockets of business are still allowed with Russia, particularly in the humanitarian space as well as facets of the financial system that would pose a systemic risk. A spokesperson from the Treasury Department told Bloomberg that it has issued guidelines to banks to assure that humanitarian aid, energy and agriculture activities continue.

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    Billions in Capital Calls Threaten Forced Sales of Stocks, Bonds

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

    Capital calls are not the only problem for investors in private markets. Even their successes are creating headaches.

    As many alternative assets outperformed public markets in recent years, institutions have broken past fixed limits on the proportion of their portfolios that can be allocated to private markets.
     
    While this so-called denominator effect may be exaggerated -- because there is a lag in revaluing private assets to reflect the very latest market conditions -- it does have the potential to trigger increased selling at a time when it is least wanted.

    And the sums involved could be huge. A significant amount of the easy money pumped into the financial system by central banks during the pandemic found its way into unlisted assets, which grew to $10 trillion globally by September 2021, a fivefold increase from 2007, according to figures from investment data firm Preqin.

    “There’s a regime change of sorts in the macro world and in markets that we need to take hold of,” Stephen Klar, president and managing partner of Wellington Management Co., said at the Global Financial Leaders’ Investment Summit in Hong Kong on Nov. 3. “We’re working with our clients on thinking through how to really get that asset allocation back to a more diversified and rebalanced manner.”
     

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    Debt Limit Will Complicate Bill Supply Normalization, BofA Says

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

    Treasury bill supply could rise by $1 trillion by the end of 2023, but the impending debt ceiling episode will complicate the timing, according to Bank of America strategists. 

    Strategists Mark Cabana and Katie Craig estimate Treasury will issue about $193 billion of bills in 4Q 2022 and $257 billion in 1Q 2023, with particularly strong months of supply in November, February and March because they are typically heavy deficit months that require additional issuance to sustain the cash balance

    However, bill supply projections and the associated market impact are complicated by uncertainty around the timing of the debt limit, another round of money-market reform and the Federal Reserve’s quantitative tightening

    Positive quarters of bill supply should help cheapen bills relative to overnight index swaps, and strategists estimate spreads should narrow by 10 basis points or more

    Still, the monthly path of bill issuance is “much less clear” because of the debt ceiling, which could become constraining as early as December 2022

    At that point Treasury would enter a debt issuance suspension period, which would restrict their ability to issue debt -- likely cutting bills to keep coupon sizes unchanged

    Strategists project the potential default, or x-date, would be in August or September 2023. After that, there would be a surge of bill supply to replenish the cash balance

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    China reopening playbook

    Thanks to a subscriber for the report from Goldman Sachs which may be of interest. Here is a section:

    The light at the end of the tunnel?
    China’s Zero-Covid Policy (ZCP) has kept Covid cases at low absolute levels but at rising economic costs as the virus becomes more transmissible. Reported cases are rising but more signs of Covid policy relaxation have been made available post the Party Congress, and our economists expect China could start to reopen in 2Q23 on political and public health considerations.

    China could rally 20% on (and before) reopening
    Cross-country empirical analysis shows that equity markets tend to pre-trade reopening (as defined by the peak of activity disruptions) about a month in advance and the positive momentum typically lasts for 2-3 months. We estimate that a full reopening could drive 20% upside for Chinese stocks based on empirical, top-down, and historical sensitivity analyses. Importantly, equity markets usually react more positively to local policy relaxation than to international reopening, with Domestic Cyclicals and Consumer sectors outperforming.

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    China Said to Prepare Plan to End Covid Flight Suspensions

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

    The focus now appears to have moved to step two, with senior leaders recently asking regulators to draw up a game plan for easing the circuit breaker rule. The third step would be facilitating a full return to normal aviation traffic, the people said. It’s unclear what the timeline is for the implementation of these two steps.

    The State Council and CAAC didn’t immediately respond to requests for comment. Evidence China is even considering changes that would ease its global isolation would be scrutinized by investors, with Chinese equities near multi-year lows because of the economic damage wrought by Covid Zero’s snap lockdowns, testing drives and border restrictions. 

    Shares of airlines, including China Eastern and China Southern, extended gains in Hong Kong on the flight ban news, while the yuan climbed in offshore trading. 

    An unverified screenshot circulating on social media claiming a broad reopening plan was being considered sparked a $450 billion speculative rally in stock markets this week. Soon after, China’s top health body reaffirmed its commitment to the zero-tolerance virus approach. 

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    Bond king Jeffrey Gundlach says any year-end stock market rally is going to be derailed by intense tax-loss selling

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

    So most investors, whether they own stocks or bonds, should have plenty of opportunities to harvest losses between now and the end of the year. And that means there will be more selling pressure ahead.

    "There will be pretty high tax loss selling I would think. I even got a white paper from somebody saying this was the greatest tax loss selling opportunity of a generation. I would say it might be two generations," Gundlach said.

    Tax-loss selling is a tax optimization strategy that investors and financial advisors often take advantage of in taxable accounts heading into year-end. The strategy involves realizing losses by selling out of losing positions, and then buying back those portfolio positions 31 days later to avoid the tax wash-sale rule.

    The strategy allows investors to realize losses that can offset future realized gains, ultimately helping reduce tax liabilities in the long term.

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