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David Fuller and Eoin Treacy's Comment of the Day
Category - Global Middle Class

    Turkey Stock Rout Triggers Circuit Breakers Twice in an Hour

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

    Turkey halted trades on all listed stocks after sharp declines triggered a market-wide circuit breaker,
    with the lira extending declines to a record low.

    Trading of equities, equity derivatives and debt repo transactions were automatically halted twice within an hour after the Borsa Istanbul 100 index fell as much as 7%. The index was earlier up more than 5.6% before sinking as a central bank intervention on the currency market failed to stem the lira’s decline. The currency has come under pressure after the central bank cut its benchmark repo rate by a percentage point to 14% on Thursday, despite inflation accelerating to over 21%.

    The central bank’s easing cycle since September saw the key rate fall by 5 percentage points, prompting a rush to buy dollars among corporates and retail investors.  President Recep Tayyip Erdogan has advocated for cuts in borrowing costs, arguing that lower rates will eventually free Turkey’s economy from a reliance on short-term foreign inflows. The policy pivot and the ensuing market turmoil prompted complaints from industrialists, who say the current volatility is hurting companies. 

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    BOE Says 'More Persistent' Inflation Prompted Surprise Rate Rise

    This article for Bloomberg may be of interest to subscribers:

    “We’ve seen evidence of a very tight labor market and we’re seeing more persistent inflation pressures, and that’s what we have to act on,” Bailey told BBC News on Thursday. “We’re concerned about inflation in the medium terms, and we’re seeing things now that can threaten that.”

    The remarks represent a shift in tone for the U.K. central bank, which previously said most pressures on prices were temporary, or “transitory,” and likely to pass in the next few months. Now, Bailey expects the consumer price index to top 6% in the coming months, triple the BOE’s target.

    Becoming the first major central bank to hike its benchmark since the pandemic started, the BOE raised borrowing costs by 15 basis points to 0.25%. No other Group of Seven central bank has made since the start of the crisis.

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    Email of the day on demand surges versus supply disruptions

    The author of this article in the FT argues that the current rise in inflation is a demand side event and not due to supply shortages. He argues that the statistics show that global supply has risen in 2021 but not as fast as global demand.  

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    Email of the day on charging station stocks

    Additionally, while individuals do not have gas pumps installed at their home, they can have a level 2 ev charger installed that would seriously compromise the market share of a commercial charging station.

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    Global Shortage of Fertilizers Sends Demand for Dung Soaring

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

    “The arable area still requires significant tonnage of synthetic fertilizer, but this is reduced by the use of manures,” Butler said. Since the animal waste from his farm is not enough, he has been buying biosolids from utility Thames Water, which produces over 750,000 meters squared of sludge each year for farmers across Britain’s southeast. 

    However, Butler said that it’s increasingly difficult to source human excrement as “there is more demand than supply for biosolid materials.”

    In the U.S., biosolids are regulated by the Environmental Protection Agency, and in Europe, biosolids have been in use since 1986 when it received regulatory approval from the European Union. 

    While manure is an inexpensive alternative to pricey synthetic fertilizers, it is a “poor replacement for those accustomed to traditional fertilizer products,” said Alexis Maxwell, an analyst at Bloomberg’s Green Markets. For example, the fertilizer diammonium phosphate has six times the nitrogen and 15 times the phosphate as manure on a per ton basis.

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    Gundlach Sees 'Rough Waters' for Market as Fed Pursues Taper

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

    Gundlach, 62, said the reason why Fed Chair Jerome Powell characterizes the economy as strong, but not strong enough to allow for a rate hike at this point, is that the underlying condition is in fact weak -- artificially propped up by an unprecedented degree of stimulus.

    Here are some other takeaways from Gundlach’s remarks:
    He focused heavily on inflation, saying the annual pace of gains in the consumer price index could hit 7% in the next month or two. He ran through numerous inflation measures and pointed out that shelter costs have climbed significantly. He also said it’s possible that the CPI inflation gauge won’t drop below 4% throughout 2022.

    Markets could face more volatility now that the Fed has said it might quicken its tapering program.

    Gundlach reiterated that he bought European stocks for the first time in 12 years, which he disclosed a few months ago. He still owns some of those and they’ve done just OK until recently. He didn’t own emerging-markets equities, though he envisioned a scenario when they might outperform U.S. firms. “We’re looking for major opportunities” and emerging markets could be one over the next few years, he said.

    The dollar has been in structural decline since 1985, he said, reiterating that the twin-deficit problem (that’s the current-account gap and the federal budget deficit) will cause the greenback to fall over time, which bodes well for emerging markets.

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    Vodafone Shares Jump After Betaville 'Uncooked Alert'

    This note from Bloomberg may be of interest to subscribers. Here it is in full: 

    Vodafone shares rose as much as 3.3% following a so-called “uncooked” mention in a Betaville report regarding potential private equity interest in the telecom operator. Shares pared gain to 1.8% as of 4:18 p.m.

    Representatives for Vodafone were not immediately available to comment when contacted by Bloomberg via phone and email
    Betaville says there is speculation that one of Europe’s largest private equity firms is looking at all of some of Vodafone, citing people following the situation
    NOTE: The speculation is described as “uncooked,” a term the Betaville blog often uses to refer to market gossip
    NOTE: Vodafone shares have declined 5.9% YTD vs Stoxx Telecoms Index’s 9.5% gain
    READ: Private Equity Rummages in the Telco Bargain Bin: Chris Hughes

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    Lira Respite Will Come Down to How Far the Central Bank Can Go

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

    Turkey’s direct intervention in its currency markets on Wednesday, the first in seven years, shows policy makers are intent on drawing a line in the sand on how far they are willing to tolerate weakness in the lira.

    However, how long policy makers are able to buy the currency some respite will essentially come down to the size of the war chest and how willing the central bank is to run down those assets. The Turkish central bank’s gross reserves add up to $128.5 billion, with $60.5 billion coming from the bank’s swap deals, according to latest data released on Nov. 19. When swaps and other liabilities such as required reserves are stripped, Turkey’s net reserves stand at -$35 billion. The bank has repeatedly said that its gross reserves -- the total amount at its disposal at the time -- are more important than net reserves.

    The central bank’s intervention this morning is significant if only for the signaling it sends. During a previous episode of similar stress in the lira back in 2018, there was no reported intervention. In other words, the policy makers may be telling the markets that their strategy to ward off any speculation on the currency will take a different tack this time. In 2018, the central bank took the benchmark rate to 24% from 8% in a short span to arrest the decline in the lira.

    Last week the lira tumbled more than 11% against the dollar in a single day, representing a 10-standard deviation shock based on its moves in the past five years. The currency has weakened after the central bank slashed its benchmark by 400 basis points since the end of August. The monetary authority meets next on Dec. 16.

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    Euro-Area Inflation Tops All Forecasts With Record 4.9%

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

    Anticipating a spike in inflation this month, ECB officials have redoubled efforts in recent days to reassure citizens that they are facing a once-in-a-generation cost-of-living squeeze that won’t endure, driven by energy and a series of one-time factors.

    While President Christine Lagarde is sticking to that script, some colleagues are warning that price pressures might take longer to subside, stoking speculation about the future course of monetary policy. 

    At a Dec. 16 gathering, the Governing Council is set to announce the end of its pandemic bond-buying plan and outline how regular purchases and interest rates will develop as the economy continues its recovery.

    “While energy costs and statistical effects can explain the bulk of this month’s jump, today’s reading also revealed some stronger than anticipated underlying pressure. That will add to concern over upside risks to the outlook, but the ECB is still likely to see inflation falling below 2% by the end of next year.” - Maeva Cousin, senior euro-area economist. 

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