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

    Brazil Markets Rally on Signs of Peaceful Transition of Power

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

    Brazil’s stocks and its currency rallied on signs that President Jair Bolsonaro’s administration is preparing for a peaceful transfer of power after losing Sunday’s election to Luiz Inacio Lula da Silva.

    The president’s communications chief said that Bolsonaro won’t contest the election, according to Reuters. Meanwhile, a press official for Lula’s Worker’s Party said Bolsonaro’s top aide, Ciro Nogueira, offered a meeting place for transition teams from the outgoing and incoming presidents. 

    That would be a relief for investors who have been waiting for the incumbent, who had cast doubt on the integrity of the election during campaigning, to concede defeat. 

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    China's Last Offshore Property Bond Havens Are Crumbling

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    The latest moves have dragged even more junk dollar notes from Chinese property companies into distress, with 94% now trading below 70 cents on the dollar. That market was until just years ago one of the most lucrative bond trades globally. But it all began to unravel after a nationwide clampdown started in 2020 on leverage and real estate speculation, and has snowballed into record defaults by developers including China Evergrande Group. 

    The contagion is even reaching property giants that still have investment-grade ratings including China Vanke Co., the nation’s second biggest developer by sales. Its note due 2027, which was trading above 80 cents just a month ago, fell 4 cents Tuesday in the worst two-day drop ever to an all time-low of 40.3 cents.

    “Now with some presumably better-off developers getting into trouble, people start to worry about a contagion to non-state developers,” said Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities. “It’s not just a confidence issue, and developers’ liquidity conditions are only getting tighter in the future given sales have been slower than expected.”

    And

    As refinancing costs surge in global debt markets, China’s property sector has at least $292 billion of onshore and offshore borrowings coming due through the end of 2023, raising the specter of even worse payment pressure to come. There’s $53.7 billion borrowings still due the rest of 2022, followed by $72.3 billion of maturities in the first quarter of next year. 

    “We have seen no improvement in terms of the funding for private-sector developers,” Bank of America Corp. economist Helen Qiao said on Bloomberg Television Tuesday. “The stimulus was not strong enough to get them out of the current liquidity trap, and therefore how exactly they can really survive raises many questions.”

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    US Job Openings Post Surprise Increase, Keeping Pressure on Fed

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    The surprise pickup in vacancies highlights unrelenting demand for workers despite mounting economic headwinds. The persistent imbalance between labor supply and demand continues to underpin robust wage growth, adding to widespread price pressures and reinforcing expectations for yet another large rate hike on Wednesday.

    The latest increase in openings erased much of August’s slide, which, at the time, had suggested a notable moderation in labor demand.

    “After the shock of last month’s report, the September JOLTS data is returning to a familiar story: demand for workers remains robust,” Nick Bunker, head of economic research at Indeed Hiring Lab, said in a note. “By all the key metrics in this report, the labor market is resilient.”

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    Email of the day on institutional versus retail volume

    Eoin - does the source of daily volume in the stock market (buying or selling) influence your opinion of market strength or weakness at any point in time? Are there particular data sources you review which help you determine if institutional buyers/sellers are especially active? Does the trade-off between retail and institutional demand matter?

    I always look forward to reviewing your insights on where markets may be heading in the near term...particularly in this ongoing era of excessive central bank intervention and manipulation.

    Thank you.

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    Eoin's personal portfolio: breakeven stop triggered on stock market index short October 28th

    GameStop, Getty Images Surge as Meme and De-SPAC Frenzy Returns

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    “The first thing you have to realize with these stocks is there’s no rhyme or reason,” said Keith Lerner, chief market strategist at Truist Advisory Services Inc. “They don’t trade based on the big macro trends normally. They trade on speculation and liquidity.”

    A basket of so-called meme stocks tracked by Bloomberg rose 1.4%, while the De-SPAC index is lower by about 0.2%. Both gauges have plunged this year as concerns about a possible US recession diminished investor demand for shares of riskier assets.

    The sudden resurgence in interest for the group comes ahead of what is likely to be a bumpy two weeks for the stock market. A Federal Reserve rate decision on Wednesday will kick off a span of seven trading sessions that will feature four major events including a key jobs report, mid-term elections and inflation data for October.

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    Wheat Surges as Russia Warns on Ship Safety After Ditching Deal

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    Crop traders have been focused for weeks on the approaching deadline of Nov. 19 for renewing the grain-corridor agreement, particularly as senior Russian officials repeatedly criticized the deal, suggesting that any extension would require difficult negotiations. Exports have also been slowed by a swelling backlog of vessels waiting to be inspected as part of the agreement -- Ukrainian President Volodymyr Zelenskiy said some ships had been waiting for three weeks. 

    Vessel and insurance rates to Ukraine stand to rise, said Michael Magdovitz, a senior commodity analyst at Rabobank. New deals from the country had already been drying up as traders didn’t want to risk getting caught short of the deal’s deadline, said Matt Ammermann, commodity risk manager at StoneX. 

    Russia, which leads global wheat exports, stands to offset some of the lost sales. Still, it will be key to watch how shipping costs across the entire Black Sea region are affected by the latest developments, Ammermann said.

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    China's Inward Turn

    Thanks to a subscriber for this report from Citi which may be of interest. Here is a section:

    In some ways this represents an important generational change in the way China will interact with the rest of the world. As far as we know, the term “international circulation” originated in 1988 when a government researcher, Wang Jian, made the case that China should adopt an export-led growth strategy, making use of its huge surplus labor to plug the economy into the international manufacturing process. In that sense, the de-emphasis of international circulation is an important historical shift. In a People’s Daily article in November 2020, Vice Premier Liu He set out a number of objectives relating to the DCS including: (1) the priority of upgrading of China’s technological capacity, including an enhancement of China’s supply chain resilience (though referred to in this article as “optimizing the structure of supply”); (2) the need for finance to serve the needs of the real economy; and (3) the promotion of further urbanization. Any mention of external demand comes last

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