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

    South African Central Bank Maintains That Next Rates Move Is Up

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

    The Reserve Bank’s hawkish stance is likely to draw criticism from politicians and labor unionists, who say it should be doing more to support the economy and reduce unemployment that’s at a record high.

    The central bank cut the key rate by 300 basis points last year. Its contribution to an economic recovery will now be predictable policy, according to Deputy Governor Kuben Naidoo.

    “You need low, predicable rates during the recovery to support economic activity, to encourage people to lend, to encourage businesses to invest,” he told reporters. “That’s the contribution of the SARB during a crisis.”

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    Email of the day - on type-2 top formation development and completion

    Thank you, Eoin, for the service. Your call on BTC topping out was excellent. Could you please explain again the signals for your call? You were discussing inconsistency in trend, I believe. In what period? Also, it would be great to hear (based on your latest audio comment) why do you think BTC is not in a secular bull? Thank you. Kind regards, 

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    Eurozone in Double-dip Recession as Mediterranean Economies Risk Another Lost Summer

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

    But Robert Alster at Close Brothers Asset Management warned of a divide between industrial economies in the north and tourist-reliant nations in the south, despite the start of UK tourism to Portugal. This could spark a return to the two-speed Europe which raised questions over the stability of the bloc after the financial crisis.

    Mr Alster said: “The risk now is that the north/south divide continues to widen. Germany’s economic growth is not far behind the UK’s, with its vaccination programme set to overtake, whereas Spain’s economy has been hardest hit,” he said.

    “The northern countries have benefited from strong manufacturing growth, with the US and China driving global demand, whereas the Southern countries are on tenterhooks to see whether the European tourism season can go ahead.”

    Two consecutive quarters of contraction mean the currency area is officially in recession again, despite not fully recovering from the initial shock of Covid.

    GDP remains more than 4pc below its pre-pandemic peak at the end of 2019.

    Employment fell by 0.3pc in the first quarter of 2021, meaning the number of people in work is still almost 3.6m below its pre-Covid level.

    Jack Allen-Reynolds at Capital Economics said the jobs market should soon start to recover too, but that the rebound in hiring will probably be quite slow.

    He said: "Many firms will be able to raise output by increasing employees’ working hours before they start taking on more staff."

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    Email of the day - on China's growth potential

    That some manufacturing will move to other parts of Asia makes sense (especially as Chinese labour costs rise)

    But the comparison some make with Japan needs to take account of the facts that:

    a) Even now only 60% of the Chinese population is urbanised (93% for Japan)

    b) Output per capita must still be much lower than advanced countries so they can also catch up in that? Most developing countries have the constraint that they don't have the capital to invest for that but lack of capital is not China's constraint.

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    The Days of Low Treasury Yields Are Numbered

    This article by Bill Dudley may be of interest to subscribers. Here is a section:

    Today, there’s ample reason to expect a positive term premium to return. For one, the Fed has a new, more patient monetary policy stance. As a result, inflation will be higher and more variable — a risk that must be compensated with higher long-term yields. Also, keeping inflation in check will require a higher peak fed funds rate, reducing the risk that the Fed will again get pinned at the zero lower bound. Beyond that, deficit financing is expanding the supply of government bonds: Treasury debt outstanding has quadrupled since 2007, and the Biden administration is seeking to add several trillion dollars more. Meanwhile, one big source of demand for the bonds is set to dwindle as the Fed phases out its asset purchases, most likely next year.

    Putting the pieces together, one can expect a 10-year Treasury yield of at least 3%: The 2.5% floor set by the federal funds rate, plus a term premium of 0.5% or more. But that’s not all. The Fed says it wants inflation to exceed its 2% target for some time, to make up for previous shortfalls. This, in turn, could stoke inflationary fears and lead markets to expect a higher path for future short-term rates. As a result, the 10-year Treasury yield could more than double from the current 1.6%. And if persistent deficit financing prompts concern about growing U.S. debt, the yield could go to 4% or higher.

    Anyone who has been in finance for less than a decade has rarely seen 10-year Treasury note yields above 3%. So what’s coming could, for many, be quite a shock. The secular bond bull market that began nearly 40 years ago is finally ending.

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    Romania Holds EU's Highest Rates as Economy Trumps Inflation

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

    The central bank is switching to a “wait-and-see mode,” Commerzbank analyst Alexandra Bechtel said. “The rate-cut cycle is complete.”

    The jump in inflation has brought to an end a run of four reductions in the benchmark during the pandemic.

    That easing helped fuel an economic revival: Economic growth outshone the rest of the EU in the last quarter of 2020. The expansion has added to upward price pressures that are mainly being driven by higher global energy costs and the liberalization of the domestic electricity market.

    With borrowing costs stable, central bank Governor Mugur Isarescu has said he may make the national currency’s exchange rate more flexible to keep inflation in check without choking the nascent economic recovery.

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    Email of the day on shipping investment vehicles:

    Further to your longer-term theme review on Fri., the Collective might want to consider this new shipping fund launch.

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    Pound Surges 1% as Risk of Imminent Scotland Referendum Recedes

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

    Then there’s the prospect of another divisive campaign, and issues over Scotland’s future currency, the state of its finances, EU membership and the border with England coming to the fore again. That’s something many in Scotland remain unwilling to get into again.

    “We haven’t demonstrated that we have the capability,” said Rachel Martin, 63, a bank worker in Glasgow, which as a city voted for independence seven years ago when the country as a whole rejected it. “I haven’t seen the politicians answer the questions that weren’t answered at the last referendum that we had.”

    Sturgeon may need the political capital she’s been accruing since taking over as Scotland’s first minister and SNP leader following the 2014 vote to stay in the U.K.  

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    Kellogg Gains Amid Unexpected Organic Sales Growth in 1Q

    Kellogg shares rose as much as 3.9% to $65.50 premarket, which would be the highest intraday level since November, after the packaged food company surprised analysts with positive organic sales growth in the first quarter, vs expectations for a decline.

    “K impressed this morning, as another large-cap food name tops revenue and profit expectations, partially driven by positive shipment timing and emerging market strength,” Jefferies analyst Rob Dickerson writes

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