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Global luxury brands such as Gucci, Cartier, and Louis Vuitton, among others, have signed leases for retail spaces in a new Mumbai mall developed by Asia’s richest Mukesh Ambani, as the brands and Reliance Industries look to tap lucrative prospects presented by India’s robust economic growth and the swift increase in the number of millionaires.

Jio World Plaza is likely to open this year, Reuters said citing an unnamed source. The new mall is situated within Reliance Industries’ extensive $1 billion business and cultural complex in Mumbai’s bustling business district.

More than a dozen luxury consumer goods brands are entering the country ahead of the festive season, as they look to attract consumers in a market riding on the growing affluence of Indians with higher incomes, spurring greater discretionary spending even in small towns.

While a K-shaped economic recovery in India is also seen to be a strong trend, according to several economists, the Asian economy has beaten almost all countries in terms of rising wealth. Remember India is home for some of the world’s richest including Mukesh Ambani and Gautam Adani.

Luxury goods companies thrive on the “fake it till you make it” gap between reality and aspiration. They sell the assumed trappings of wealth to the new middle class who are eager to show off their success.

That’s why they are now moving en masse to India. With one of the fastest growth rates of any economy, the number of newly minted aspirational consumers is growing quickly. They need a consumer base because China is no longer delivering growth rates of the past.

Economists doubt labor market gains in Brazil and Mexico will be cut short, even as their key interest rates stand at lofty levels of 12.75% and 11.25%, respectively. 

Brazil’s central bank has reiterated plans to relax monetary policy through half-point rate reductions. On the other hand, Mexican policymakers led by Victoria Rodriguez are expected to start cutting only in 2024 as a resilient economy keeps them on watch for inflation.

Elsewhere across the region, Colombia’s services sector is still creating jobs, with higher consumption defying odds of an economic slowdown. Chile’s unemployment rose more than expected in August, but is forecast to fall in coming months.

There’s definitely a gap between the $78,645 a year that people want to get paid to switch jobs and the average $69,475 people received over the past four months, the New York Fed said. Despite the difference, employees were doing much better than the average $60,764 they earned a year ago.  

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

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Some of the topics discussed include: Dollar eases which lends support to both stocks and bonds, higher real rates continue to pressure gold but other precious metals steady, oil eases back from recent high. German Bund yields break out and preipheral spreads rising, crypto steadies.

The ballooning debt crisis could delay the prospect of a recovery of both the property market and the broader Chinese economy, in which real estate is a core pillar.

Country Garden, once considered to be financially sound and stable, failed to pay the interest on two of its bonds due in August and narrowly avoided default by making the interest payment hours before a 30-day grace period ended on September 5.

It also failed to pay an interest of $15 million on a bond that was due in September but was granted a 30-day grace period.

Country Garden’s liabilities of 1.54 trillion yuan were the highest among the top-25 real-estate companies in China, and it was among seven to have reported a loss.

China Evergrande finally stopped trading today. That’s more than two years since the initial signs of trouble arose. Meanwhile Country Garden is trending lower with no real evidence a viable rescue package is about to be provided. That’s not good news for foreign investors in the company’s bonds.

I recorded this interview Sunday evening with CCTV. I believe they asked both guests the same questions and divided the answers between us. This version did not include my view on the Renminbi or gold denominated in it.

German bonds pared declines and the euro trimmed gains after the release, as markets increasingly come around to that higher-for-longer narrative. The yield on 10-year government debt is hovering just below 3% — the highest since 2011. The euro is flirting with its weakest level against the dollar this year, near $1.05.

Money markets are wagering on two quarter-point rate reductions by end-2024, compared with as many as three just two weeks ago.

Inflation not only remains elevated but is accelerating in some countries. Earlier Thursday, Spain reported a jump to 3.2% this month on electricity and fuel costs. Citing the advance in oil that’s brought prices near $100 a barrel, its central bank sees a further acceleration to 4.3% in 2024. In Ireland, price growth quickened to 5% from 4.9%.

The era of negative bond yields afforded both the German government and private sector speculators the opportunity to be paid to borrow. That also implies the EU is now more interest rate sensitive than the USA. Germany’s housing prices are in a steep decline as the era of better than free money ends.

"We chose to build our business and become a public company in the U.S. believing that the U.S. should be at the forefront of efforts to update our financial system," wrote the exchange.

Coinbase's move to open up its international exchange to small investors is the latest in the company's ongoing efforts to expand its footprint beyond the U.S. where it has faced growing regulatory scrutiny.

Following the collapse of competing exchange FTX and the arrest of its now-disgraced CEO Sam Bankman-Fried, the Securities and Exchange Commission soon cracked down on a slew of high-profile crypto companies and founders, including Genesis, Gemini, Justin Sun, the crypto celebrity behind TRON, and Do Kwon, creator of the so-called stablecoin TerraUSD.

In March, Coinbase, which has long styled itself as the white knight of the crypto industry, revealed that has also become the target of impending SEC litigation after it received a so-called Wells Notice, which informs companies that they are the targets of soon-to-be litigation.

Shortly after, the U.S.-based exchange, headed by CEO Brian Armstrong, announced that it had received regulatory approval in Bermuda to operate an offshore exchange, and in May, the publicly traded company unveiled Coinbase International Exchange for the use of institutional investors.

The SEC eventually filed an outright lawsuit against Coinbase in June, but that hasn't stopped billions of dollars of crypto from flowing through both its domestic and offshore entities. Its Bermuda outpost has seen $5.5 billion in trading volume—strictly from institutional investors—as of the second quarter of 2023. (By comparison, Coinbase reported $92 billion in total trading volume in the same period.)

Whenever there is the prospect of additional new funds flowing into the crypto market, prices respond bullishly instantly. Today was another example of that with a jump in both bitcoin and Ethereum prices.

A link to today's video commentary is posted in the Subcsriber's Area. 

Some of the topics discussed include: Dollar rally catches up with gold, stocks steady, Treasury yields extend breakout, oil breaks out.

Bitcoin’s intraday rebound failed to hold and is returned to test the $26,000 area. It remains in need of a bullish catalyst but is holding up well in the face of tightening global liquidity.

Eoin, you’re rightly highlighting the dangers of the steepening Yield Curve, or rather “uninversion” currently being undertaken. Typically though, this is a result of the Fed doing a U-Turn and cutting rates at the front end to soften the impact of a sluggish economy, or one in recession.

In this instance, it’s the other end of the curve showing the movement, only higher, as inflation continues to be a concern and the demand for longer term bonds isn’t enough to match the considerable supply. How does the change in dynamic to this “uninversion” influence your thinking?

Thank you for this topical question. I had a look at several past examples of when the 10-year – 3-month yield curve spread was inverted. The vast majority follow the process you describe at the beginning of your email.

Generally, the long-end pre-empts easing at the short end. In other words, the 10-year peaks before the 3-month. Then the 3-month collapses as interest rates are cut and the curve steepens into sharply positive territory.

Operationally, pulling oil out of tanks when levels fall below the so-called “suction line” is difficult and expensive, and the quality of crude can be compromised by the presence of water and sediment. 

For now, traders are expecting stockpiles to halt their decline by October and possibly start building up again, depending on how exports shape up. Indeed, this week’s drawdown was less than 1 million barrels — the first time that’s happened since early August.

Cushing’s role in global oil markets has also diminished in recent years since the US lifted an export ban. Most barrels now flow straight from the prolific oilfields in Texas’ Permian Basin to the coast, where they are shipped to overseas buyers.

Shale oil producers are complaining about rising costs, the burden of regulatory compliance and supply chain disruptions. The net result is they are in no mood to invest heavily in new supply when there is such an uncertain regulatory cloud hanging over their businesses. That’s inhibiting the non-OPEC+ supply response to higher prices. The Strategic Oil Reserve cannot be emptied twice, so that is an additional factor supporting prices.

“Investor demand has been strong, supported by the expansion of the formal sector, with households allocating a higher share of financial savings in life insurance, pensions and provident funds,” Gaura Sen Gupta, economist at IDFC FIRST Bank wrote in a note.

The authorities are trying to increase the tenure of debt sold and expect yields to decline after India’s inclusion in JPMorgan Chase & Co.’s emerging market index, a government official, who didn’t want to be named, told reporters.

The government will sell 300 billion rupees ($3.6 billion) of the 50-year bond in the October to February period, which accounts for almost 5% of its total borrowings.  

The growing footprint of life insurers — which now own a quarter of government debt — has already impacted the nation’s yield curve. Earlier in the year, longer-dated debt was priced at lower yields than shorter-maturity paper.

The rise of India’s middle class is a major development for the global economy. The spending power of several hundred million people is improving annually. That is creating demand for financial products which the government is taking advantage of. It also represents a fertile market for global brands who can increase the range products sold in the country.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics covered include: Dollar rally reflects a rush to cash, Treasury yields extend breakout, Nasdaq-100 new reaction low, oil prices remain firm, China property developers new low, 

“Investors are beginning to realize that a ‘higher for longer’ interest rate environment is a likely outcome and are slowly adjusting to the ‘new normal,’” Paul Nolte, a senior wealth manager at Murphy & Sylvest Wealth Management, wrote in a note. “Higher-for-longer has been the mantra of the Fed for a few months. It is only recently that the markets have been taking them at their word.”

On days when the stock, bond and commodity markets decline but the Dollar goes up, the only clear conclusion is cash is being raised and stuffed into money market funds.

That pattern of behaviour is putting downward pressure on the very short-end of the curve while the long-end is still trending higher. The net result is the 10-year – 3-month yield curve spread is now recovering from deeply inverted territory.

Another issue is overly-aggressive adjustments to earnings before interest, taxes, depreciation and amortisation (EBITDA) of a company borrowing money, IOSCO said.

"Alongside looser covenants, there is evidence that headline debt-to-EBITDA may be understated," it said.

Investors have long worried that the EBITDA used, boosted by "add backs", may not be achievable, and that it masks the true amount of leverage.

"EBITDA adjustments based on future synergies, earnings and asset disposals should be made on a reasonable basis and borrowers are encouraged to provide clear justifications of these adjustments to investors," the proposed guidance says.

There is also a lack of transparency in the private finance market, which has experienced rapid growth, with private market assets under management reaching $12.8 trillion in June 2022, IOSCO said in a separate report.

U.S. companies have raised more money in private markets than in public markets in each year since 2009, it added.

"While the inherent opacity in private finance provides investors with some insulation from the transparency costs faced in public markets, it could also jeopardize availability of information that regulators and investors require to effectively assess risks," IOSCO said.

The size and lack of transparency within the leveraged loan market is daunting, and there are clear risks associated with the sector. However, it is also the one portion of the bond market that has been immune to interest rates despite investment grade selling off aggressively over the last 18 months.

The appetite for EVs in Europe has been held back in recent months by higher energy, living and borrowing costs, as well as lingering consumer concerns about charging infrastructure and battery range. The German government’s decision to end subsidies for electric cars in company fleets this month led to a 171% increase in new EV registrations in August compared to the previous year, according to Germany’s VDA auto lobby. 

Against that backdrop, Germany has led a months-long crusade to extend the use of internal combustion engines under the European Union’s climate plans through the use of so-called e-fuels.

Running an economy on ideology is not best practice. I have to admit I never thought I would have to point that out. Governments pushing technology that would not survive on its own is not the best use of capital but can be justified if it going to meet a critical social need in future. The wrinkle in that way of thinking is how long do you have to keep supporting it before you admit it is not working. Apparently, we have not reached that point yet.

A link to today's video commentary is posted in the Subscriber's Area.

Some of the topics discussed include: Bond yields breaking higher, rates support the US Dollar, oil mixed, EU gas firms, China property developers breaking lower, greater evidence of liquidity tightening

China Evergrande Group is running out of time to get what would be one of the nation’s biggest-ever restructurings back on track, after setbacks in recent days that raise the risk of liquidation.

The string of surprise developments include scrapping key creditor meetings at the last minute, saying it must revisit its restructuring plan, detention of money management unit staff and an inability to meet regulator qualifications to issue new bonds.

That last item is a major setback to its planned restructuring of at least $30 billion of offshore debt that would have creditors swap defaulted notes for new securities. Evergrande’s shares plunged as much as 25% Monday.

At the epicenter of China’s property crisis, Evergrande is under pressure to finalize a blueprint for its offshore debt restructuring as it grapples with an even bigger pile of total liabilities that amount to 2.39 trillion yuan ($327 billion)—among the biggest of any property firm in the world. The clock is ticking. The company faces an Oct. 30 hearing at a Hong Kong court on a winding-up petition, which could potentially force it into liquidation.  

The distressed real estate giant said late Sunday it couldn’t satisfy requirements of the China Securities Regulatory Commission and the National Development and Reform Commission to issue new notes. It cited an investigation of subsidiary Hengda Real Estate Group Co., without elaborating. The unit said in August that CSRC had built a case against it relating to suspected information disclosure violations.

The challenge in observing trouble in property markets is how long it takes for the unwind. China Evergrande first collapsed two years ago. It may yet be restructured but the bigger emerging issue is Evergrande’s problems are probably the thin end of the wedge when it comes to China’s property sector.

Sticky bets can create dilemmas. Pensions and endowments can’t force private equity managers to sell. They can’t pull money from a fund without typically paying a price. Nor can they replace a manager unless there's evidence of wrongdoing. That means zombie funds can go on for years, sucking up pension managers' time and eroding returns.

Reports from 10 major public retirement systems show that they have a median 4% of their private equity portfolios locked up in funds older than 2009. Collectively, that’s $6.8 billion across more than 900 fund investments, some of which date back to the 1990s. Several funds were so troubled that they were delivering losses.

“Fund lives are going much, much longer,” Miller said. And with asset sales now more difficult, many managers face the same questions: “What, when and how are they going to exit?”

That’s an inconvenient counterpoint to private equity’s pitch that it can reliably take cash from teachers, police, firefighters and other civil servants and hand it back with significant returns a decade later.

When valuations are high and global liquidity is tight, the big question is where does the epicentre of risk reside? Following the global financial crisis, many investors swore they would never again invest in illiquid structures. However, very low interest rates persisted and liquidity remained abundant, which suppressed yields. Those same investors were lured back into the private assets market because they had to capture yield. 

Honeywell (Nasdaq: HON) today announced a strategic collaboration with ESS Tech, Inc. (ESS) (NYSE: GWH) to advance technology development and market adoption of iron flow battery (IFB) energy storage systems. Honeywell has made an investment in ESS as part of this collaboration.

The relationship builds upon each company’s development of energy storage systems, and brings together ESS’ market-leading, patented IFB design with Honeywell’s advanced materials and energy systems expertise.

“The demand for long-duration energy storage represents a compelling market opportunity within the energy transition and the combination of Honeywell and ESS technology can accelerate decarbonization for the commercial, industrial and utility sectors,” said Bryan Glover, chief growth officer, Honeywell Performance Materials and Technology (PMT) group. “Our strategic collaboration with ESS will accelerate Honeywell’s ability to bring comprehensive solutions to our customers while working to advance long-duration energy storage across all industries requiring expansive energy storage.”

“Today, we are creating superior technology in the critical long-duration energy storage industry,” said Eric Dresselhuys, CEO of ESS. “Combining ESS’ innovative technology and deployment experience with Honeywell’s storage and control system expertise will enable us to drive the clean energy transition and deliver value to our customers, shareholders and communities.”

Iron flow batteries are not designed to be moved. ESS’s models fit into shipping containers and are filled with water. They are designed to provide back-up power for approximately 6 hours but potentially double that. With long duration and 20,000 cycles these are long-term designs that can plug into existing infrastructure

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What’s missing? The government hasn’t so far set out a clear plan to defuse mounting debt risks. Also, a lack of direct support targeting vulnerable households and businesses may make it harder to restore confidence.

A statement from the July meeting of the Communist Party’s Politburo indicated the top leadership recognized the importance of “formulating and implementing plans to resolve local debt.” But the steps taken so far — such as a debt swap of 1 trillion yuan for local government financing vehicles — pale in comparison to the size of the problem.
A reduction in tax burdens for households – higher deductions for expenditure on childcare and education — is a positive move but probably too modest to have a material impact on growth. Broader and bolder support measures are required to revive confidence.

Some stimulus is better than none, but the broad question is how dependent is the Chinese economy on credit and leverage? It is well understood the incremental benefit China accrued from infrastructure peaked more than a decade ago.

To avoid the middle-income trap, they had to greatly enhance productivity. There is no doubt some progress was made on that front, but total debt in the economy has tripled from $17 trillion to $51 trillion. They doubled down on infrastructure and property despite the falling rate of return.  

The credit impulse was highly cyclical over the last decade and granted investors some confidence that China’s willingness to provide successive rounds of assistance was a permanent condition. That is no longer true. The measure has been inert for almost two years. It’s a clear confirmation of the piecemeal approaching stimulus.

Russia’s decision to ban exports of all types of diesel is adding to pressure in an already tight global market. The lifting of the ban, which came into force on Sept. 21, will depend on how quickly supplies are replenished in the domestic market, according to First Deputy Prime Minister Pavel Sorokin.

One thing most people are not aware of is gasoil is the same as diesel in the futures markets. Additional heating oil is diesel with anti-clogging agent so it doesn’t freeze in cold weather.

Insecurity of supply from Russia has already been priced into the market with the result that European countries are importing more diesel from both the USA and Middle East.

Lucid's liquidity clock was wound until late 2024 with its $3 billion stock sale in June, yet further large injections, perhaps as soon as late 2024, could help stem the cash burn while the company scales operations. Stiff competition in the luxury-end of the auto industry from peers like Mercedes, Tesla, Audi and BMW, and the potential for an economic downturn, add substantial risk to Lucid's journey toward profitability. A takeover by the Kingdom of Saudi Arabia (60% stake in Lucid via the Public Investment Fund) is possible, yet the timing is questionable relative to the company's convertible bonds' 2026 maturity. The potential of such an action makes our view of event risk favorable -- and a consideration given the country's Vision 2030 plan - but it does make the bonds more of a lottery ticket than well-defined credit.

Building an automotive brand is capital intensive. Tesla got first mover advantage by being the first to provide electric vehicles consumers desired and monopolized the carbon emission sales market for several years. Every subsequent company must be even more efficient and needs to produce even better products. The challenge of funding in a rising interest rate environment is a clear problem. Having a big brother to help with liquidity is certainly a bonus.

A link to today's video commentary is posted in the Subcsriber's Area. 

Some of the topics discussed include: aftermath of the Fed hawkish pause is lower stocks, higher yields, greater uncertainty, China weak, Dollar pauses, gold steady, oil eases, Yen approaching potential near-term support important for carry trades. 

S&P500 is approaching the region of the 200-day MA. That level will need to hold if the nine-month recovery is to remain credible.

As I mentioned in last night’s broadcast, I spent some time this morning going through Japan’s market in search of companies with strong dividend growth.

The primary reason for pursuing this question was to highlight many companies are growing dividends at a rate higher than 10% on a rolling 3-year basis. That helps to emphasise dividend growth is not some passing fad but has become part of the corporate culture.

To compile the list I screened for companies with a market cap greater than $1 billion, 3-year average dividend growth of greater than 10% and positive performance year to date. 270 stocks fit those criteria and several are household name brands.

The additional reason for considering dividend growth is it is generally viewed as a bulwark against the prospect of higher benchmark interest rates. Dividend growth at a rate quicker than the pace with which a central bank is hiking rates is about the best defense investors have against both inflation and the efforts to contain it. That’s one of the primary reasons defense shares are among the last to peak in a bull market.  

Instead, his government looks like it’s in disarray. Xi’s mysterious purge of his foreign minister in July, followed by the reported ouster of his defense chief less than two months later, is making China appear unstable to the outside world. The Chinese leader also overhauled the generals overseeing China’s Rocket Force, which manages the nation’s nuclear arsenal, without giving an explanation.

And those are just the firings that have been made public. 

While most analysts don’t see any threat to Xi, who has amassed more power than any leader since Mao Zedong, questions are being raised about his management style. Morale within the Foreign Ministry in particular is very low, with anxiety running high among a group of bureaucrats that see themselves as professional diplomats who don’t want to get caught up in political power plays, according to Chinese officials who asked not to be identified discussing sensitive information. 

Occasional purges of high profile cadres is a de rigueur for authoritarian regimes. If one’s position is improved by official dictate it can just as easily be erased by official dictate. It’s easy to gloss over what a controlled economy really means when the direct of control is one’s interests. The challenge for global investors today is there are significant doubts about whether the Chinese administration is aligned with their best interests.

“Synthetic biology in its broadest form encompasses a large part of the work that’s being done in biomedicine. That is, how we first understand organisms, but then use that understanding to program them or direct them to do different things,” said Dr. Lloyd Minor, dean of the School of Medicine and vice president for medical affairs at Stanford University. “And I do think that it offers a huge amount of potential across the board,” he said.

“The challenge in biology is that it is not terribly difficult to engineer organisms, to engineer living systems, to do things that can potentially be very harmful. So how do we think about monitoring, regulation, safe oversight in the biology world,” he said.

“It is collapsing time and expanding the aperture by which we are able to run experiments on a broader set of designs that scientists want to test on.” — Jennifer Lum, co-founder of Biospring Partners

Synthetic biology companies see opportunities for artificial intelligence throughout the product-development life cycle from initial design, where scientists can examine and factor in a greater number of variables and options, to the build phase to testing, where scientists can leverage the predictive nature of AI to quickly determine results.  

My view -  I first became aware of synthetic biology in 2016 when reading about the efforts to synthesise a yeast genome. The aim of the research effort was to try and figure out how to build a full human genome by identifying what each individual gene is responsible for. They started with yeast because it is smaller and has a strong record of interacting with the human body.

Artificial intelligence is helping to greatly speed up the pace of discovery. It is not full proof but nothing in science is. The benefit comes from rapid computer modelling, prototyping testing. There are large databases of chemicals that results can be compared against. The scope of research stretches across the entire chemical spectrum from energy to medicine and materials science.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Fed pauses but yields hit new highs and stocks roll over, banks under pressure, UK Gilts peaking, FTSE-100 firms on rollback of net zero, China introduces new local government loans but stocks unmoved, dollar firms, gold reverses early strength, oil slides.

Gold fails to hold intraday strength on rising yields in the aftermath of the Fed press conference. A breakout is unlikely until the trend of rates turns.

“We are committed to achieving and sustaining a stance of monetary policy that is sufficiently restrictive to bring inflation down to our 2% goal over time,” Powell said at a press conference following the decision.

He emphasized the Fed will “proceed carefully” as it assesses incoming data and the evolving outlook and risks, echoing remarks he made at the Fed’s annual symposium in Jackson Hole, Wyoming last month.

After raising rates rapidly last year, “now we’re fairly close, we think, to where we need to get,” Powell said.

There were no surprises from this Fed meeting. The plan remains to raise rates again or until there is clear evidence the inflation is back under control. The intervals between hikes are lengthening so it is possible they will wait until December to hike but November remains the most likely.

Chairman Powell referred to progress in the unemployment statistics even though the headline figure has not moved much. In fact unemployment made a new recovery high at the last reading so upside follow through would represent a breakout.

Sunak said in a speech on Wednesday in London that he would push back by five years to 2035 a plan to bar the sale of new petrol and diesel cars, casting the decision as an effort to protect families struggling with bills. The vast majority of vehicles sold in the UK would likely be electric by 2030 without government intervention, he said.

“At least for now it should be you, the consumer, who makes that choice, not the government forcing you to do it,” Sunak said in Downing Street. 

While Sunak insisted he was still committed to reaching net zero by 2050 and not watering down any targets, he said the UK must act in a “more proportionate way.” He affirmed his belief that climate change was “real and happening,” but said that the debate over the issue had been “charged with far too much emotion and not enough clarity.” 

Is common sense breaking out in the UK, or is this policy reversal a calculated play for the electorate’s unspoken middle ground? Perhaps it is both. The harsh reality for consumers is the efforts to achieve zero emissions are more expensive and wages are not rising quick enough to compensate the majority.

The head of the Panama Canal Authority, Ricaurte Vasquez, said the waterway would opt for reducing daily transits if needed, before planning any further cut to authorized vessel draft, which affects shippers the most.

Passage restrictions are not planned for this month. But in its budget for the fiscal year beginning October, the canal foresees a possible cut to 30-31 daily transits, he added.

The El Niño weather phenomenon "has been very severe this year. We have hot temperatures in the Pacific and the Atlantic simultaneously," Vasquez told journalists in a briefing. "We anticipate that in the upcoming months, in the absence of significant rain, we'll have to be prepared."

A link to today's video commentary is posted in the Subscriber's Area.

Some of the topics discussed include: commonality in government bonds yields, stocks pause ahead of the Fed, oil overbought, China property stocks make new lows, commodity related markets under pressure. 

Canada’s S&P/TSX has possible type-2 top with righthand extension characteristics. The yearlong sequence of higher reaction lows will need to continue to hold if the benefit of the doubt is to be given to higher to lateral ranging.

It is impossible to say how far the Chinese would prepare for a full-scale war with the US in the scenario of a blockade. It’s estimated by Western experts that that it would need a minimum of four months to be ready for prime time. The dilemma for Chinese strategists is that, if there is to be a war with the US, they would be better off striking the first blow, probably by attacking American naval assets in the Indo-Pacific, exploiting the classic vulnerability of ships in port.

Taiwan’s younger generation have no personal memory of the flood of refugees fleeing Communist rule. There has been a generational change and the continued success of the Democratic Party is a clear sign the population has no intention of ever recombining with China voluntarily. Therefore the are only two ways Taiwan can be encouraged to come back to the mainland fold.

The first is economic. Right now, Taiwan is a geopolitical jewel because of the strength of the semiconductor sector and the local ecosystem that supports it. However, the semiconductor sector has always been cyclical, capital intensive and low margin. That’s why companies were willing to stop competing for the prize of being the most efficient.

The best way to observe the phenomenon is in the difference between how much investors are actually spending on 0DTE and the notional value of those options — that is, how much exposure they are getting to the underlying asset via the contracts.

On the latter, the notional trading volume of 0DTE for the S&P 500 currently averages a beefy $516 billion a day, according to data compiled by Cboe Global Markets. Yet the actual amount of money paid out for them, or the premium, is only $520 million.

Put another way, traders are getting $1,000 of stock exposure for every dollar they spend on 0DTE. They would need to spend 10 times that to get the same equity position using derivatives with a longer lifespan, a Bloomberg analysis on Cboe’s data shows.

I find the zero day options (0DTE) sector to be interesting from a number of perspectives. The fact the totals committed to the market are about a 1/1000th of the notional value suggests the impact on the wider market is unlikely to be systemic.

This section from an article by Steve Sosnick on Interactive Brokers may also be of interest: 

So, we find ourselves with a bifurcated options market.  Roughly half the volume is concentrated in ultra-short-term expirations, meaning that VIX is calculated from a subset of the other half of the options universe.  But that hardly means that VIX is broken.  In fact, by removing much of the speculative activity one might assert that it has become more accurate and specialized.  Those who trade VIX and the specific options upon which it is based haven’t gone anywhere.  They remain active and laser-focused upon the relevant products.  Just like everyone else, these traders might be right or wrong over time, but they suddenly haven’t gotten dumber.

The one argument that seems to hold water is that on down days we find more hedgers moving into shorter-term options than before.  There is indeed improved liquidity in those options, and in a market where crises have once again become short-lived, they can indeed offer less expensive protection.  But those who seek portfolio protection over the longer term and for larger sizes have no obvious reason to migrate away from VIX. 

“We are foreseeing that the peak steel demand in China is about to be reached,” he said during an interview at Bloomberg headquarters in New York. “Not because the Chinese economy is not growing, but just because of the maturity it has reached.”

The notion that China’s steel market is poised to contract this decade — after many years of breakneck growth — is widely held across the industry. Rio’s rival BHP Group reckons annual output has reached a plateau just above a billion tons each year that will stretch into 2024. Analysts at Capital Economics Ltd.
said demand and supply probably peaked in 2020.

China is currently restocking iron-ore inventories as demand increased following the end of lockdowns. However, the medium-term risk is that uncompetitive steel mills will shut down as the property sector goes through a downshift in new construction.

China has more steel production capacity than the rest of the world combined. Maybe they will repurpose that into production of military equipment which would support iron-ore demand.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: ECB in the prediction game versus Fed wait and see Bunds, DAX, crude oil extends advance, cocoa pauses, China quiet, Baltic Dry Goods bottoming. 

Cocoa – big trends often lose consistency at the penultimate high. Cocoa pulled back sharply for one week in August but recovered and jumped to a new high over the following five weeks. Today’s downward dynamic signals a peak of at least near-term but potential medium-term significance. Downside follow through will be required to confirm the signal.  

As evidence of economic stagnation increases the market is turning its attention to “how long the ECB will be able to keep rates steady,” said Mauro Valle, head of fixed income at Generali Investments. “It cannot be ruled out that the reversal of the monetary cycle may occur sooner than expected.”

Germany’s economy is stagnating which is bad news for the EU and the ECB’s efforts to get inflation back under control. The reason the Euro is weak is the ECB is predicting they have done enough to get inflation down but the Federal Reserve has repeatedly said they will err on the side of overtightening because the risk of failing to get inflation under control is too high.

The fact the ECB is still running negative real rates suggests the threat of a wage/price spiral remains credible. Against a background of rising oil prices and uncertainty of supply, monetary officials probably believe they don’t have much choice.

“The following is the text of a message from a businessman from Monterrey Mexico I met recently in Austria. His business (offshoring) is based in Mexico generating USDs.

“He is obviously pessimistic and believes there will be a new President next year.

“Thank you for your valuable service.

“Nice to have met you.  Following up on our conversation around the strong Mexican peso I mentioned that I think it is 4 things that are impacting, and some might not be sustainable, mind you I am not an economist or politician, just a small businessman."

​-

“The artificially high official interest rates the Mexican central bank is paying, around 11 or 12 percent which is generating purely short-term financial investments from foreigners that can leave as fast as they came. 

“At the same time Mexican companies cost of capital is extremely high as they mostly take loans in pesos The surprisingly high level of “remesas” which is the money that Mexican workers in the US send back home to Mexio, have grown from $20 billion us dollar annually to over $60 billion, story goes most of the BBC increase is related to the drug trade.

“Nearshoring which is direct investment by American, European (or Chinese companies trying to avoid getting caught in the middle of a trade war) and being close to US markets due to supply chain mgmt., which could be really sustainable.

Finally, the fiscal “discipline” of our government is more due to their lack of the most basic investments in schools, education, hospitals, medicine, highways, ports, infrastructure, and energy.  Once new govt takes over and realizes the major hole there, they will have to start the debt race again and the peso will probably lose value.

I believe only the third point could be sustainable in the mid-term. 

Thank you for this insightful account which raises several important points relating to the strength of the Peso. Since the currency has never had such a long period of outperformance relative to the US Dollar, it certainly worth taking the time to highlight what that has been the case and whether it is sustainable.

Latin American countries have been among the most aggressive in raising rates to combat inflation. Mexico has held its rate at 11.2% since March and is likely to begin cutting before long as inflationary pressures moderate. The CPI rate has fallen from 8.7% to 4.6% so the positive real rate has continued to improve. When that spread reverses, it will remove one of the tailwinds for the currency.

Earlier this month, analysts at Goldman Sachs estimated that Blackstone could attain a 0.19% weighting, implying about $15 billion of demand from index-tracking funds. Some of that buying may have already taken place: Blackstone stock has risen 9% since its inclusion was announced on Sept. 5.

Blackstone is joining after S&P Dow Jones Indices in April relented on a previous ban for new index entrants with multiple share classes.

Blackstone rallied impressively over the last month in advance of its entry into the S&P500. The company’s ambitions of soon achieving the goal of $1 trillion under management and its dominant position in private credit have been the other factors that drove interest in the share.

A link to this week's Big Picture Long-Term video is posted in the Subscriber's Area. 

The ADVANCE Act would:

Facilitate American Nuclear Leadership by:
Empowering the Nuclear Regulatory Commission (NRC) to lead in international forums to develop regulations for advanced nuclear reactors.
Establishing a joint Commerce Department and Energy Department initiative to facilitate outreach to nations that are seeking to develop advanced nuclear energy programs.

 Develop and Deploy New Nuclear Technologies by:

Reducing regulatory costs for companies seeking to license advanced nuclear reactor technologies.
Creating a prize to incentivize the successful deployment of next-generation nuclear reactor technologies.
Requiring the NRC to develop a pathway to enable the timely licensing of nuclear facilities at brownfield sites.

 Preserve Existing Nuclear Energy by:

Modernizing outdated rules that restrict international investment.
Extending a long-established, indemnification policy necessary to enable the continued operation of today’s reactors and give certainty for capital investments in building new reactors.

 Strengthen America’s Nuclear Fuel Cycle and Supply Chain Infrastructure by:

Directing the NRC to establish an initiative to enhance preparedness to qualify and license advanced nuclear fuels.
The bill identifies modern manufacturing techniques to build nuclear reactors better, faster, cheaper, and smarter. 

The primary objection to nuclear energy is cost. Anything that reduces the capital intensity of the construction process is good news. That’s why the streamlining of the regulatory process is so important.

The environmental and safety argument is easily addressed through multiple studies that highlight how safe nuclear power plants are. The challenge is most existing reactors were designed with nuclear bombs in mind. The risk of proliferation twinned with safety scare mongering has been enough to sour the sector in the minds of consumers.  

China’s economy picked up steam in August as a summer travel boom and a heftier stimulus push boosted consumer spending and factory output, adding to nascent signs of stabilization.

Industrial production and retail sales growth jumped last month from a year earlier, blowing past expectations, while the urban jobless rate eased slightly. That improvement came as the government has in recent weeks beefed up pro-growth measures, including plans to spur more spending on home goods and ease curbs on some housing purchases. 

“Perhaps the peak pessimism is behind us,” said Ding Shuang, chief economist for greater China and North Asia at Standard Chartered Plc. “August’s data indicates that the economy is unlikely to suffer from a persisting, deeper downturn going forward even though there might still be some volatility ahead — especially if we take into account the policy factor.”

The times when China’s market does best are when the government says it should. We are not yet at that point, but it is looking more likely than not as the number of property developers in trouble increases.

The possibility of a weekly gain comes as Bitcoin rebuilds its correlation with technology stocks, mirroring the price moves of the Nasdaq 100 Index as it climbed earlier this week. However, the tech-heavy index is on track to be flat to modestly negative for the week as declines in Amazon.com Inc. and Nvidia Corp. drag it lower on Friday. With investors getting ready to parse a bevy of economic data and the Federal Reserve’s rate decision next week, it’s unclear how stocks will perform going forward. 

The thing about drawing conclusions when everything rallied the day before triple witching is that may not last. Today the Nasdaq-100 fell but bitcoin was up. Bitcoin’s rebound is more about impending demand in anticipation of spot priced ETFs than any particular enthusiasm around technology investing.

A link to today's video commentary is posted in the Subscriber's Area.

Some of the topics discussed include: Triple witching tomorrow, stocks firm, Euro weak, oil extends rebound, banks globally firm, agriculture extends bull trend, soft, no or hard landing discussion. 

Banks are liquidity providers. When they are doing poorly, their inability to increase loan issuance has a knock-on effect for the wider economy. When they do well, loan issuance increases and liquidity flows into the wider economy. That helps to support asset prices. Therefore banking sectors tend to be lead, or at least coincident, indicators for their respective economies.

An inverted yield curve is a particular challenge because the sector’s basic business model is to borrow short-term to lend long term. When that happens, they need alternative business models to supplement income and thriving is more difficult. That’s why the performance of banks around the world at present is such an interesting development.
The Nasdaq Global Bank Index has held a sequence of higher reaction lows since late last year and is now firming from the region of the 200-day MA. Long-term it has been forming a base for the last 15-years.  A sustained move above 1000 will be required to confirm a return to demand dominance beyond 18-month bouts of enthusiasm that do not translate into long-term uptrends.

“It’s a risk-reward decision, because if something bad happens at 18,000 feet, that’s an expensive mistake,” Kaes Van’t Hof, president of Diamondback, said on a call with analysts. The company has even gone sideways deep under the home of company chief Travis Stice. So far, he said, the results of the longer laterals have been positive. “The drilling guys can do it, there’s no doubt about that.”

Pioneer, the largest independent producer in the Permian, has an inventory of more than 1,000 future wells that run at least 15,000 feet horizontally — or about 2.8 miles — and some even exceed 18,000 feet. That’s about 3.4 miles, or the length of 50 football fields. The longer horizontal wells generate more oil, cost less per lateral foot and require fewer vertical holes and fracking workers, Pioneer’s president and incoming chief executive officer, Rich Dealy, said on an August conference call.

Servicers, the hired hands of the oil patch, are for the most part eager to take on these kinds of risky, big-ticket jobs. An average 2-mile lateral well costs $6.5 million, all in, compared to around $9 million for a 3-mile lateral well, according to data from Bernstein. Pioneer and Diamondback didn’t say whether they’ve had any problems when they extend the laterals or how much they’ve spent, though Dealy said on the call that the roughly 3-mile laterals result in capital savings of about 15% per foot. Longer horizontals are particularly popular in the Marcellus Shale of the US Northeast as well as the Midland Basin of the Permian in Texas.

Unconventional wells are more capital intensive. The surge of capital chasing returns in a zero rate environment fuelled the initial surge in the early 2010s. Today capital decisions are more disciplined. They rely on higher expected prices and returns and less on acreage because access to capital has been constrained. The success of the anti-carbon movement and higher rates have led that transition.

Meanwhile, mills in Brazil’s Center-South are boosting production. Below-average rains are expected for the country’s cane areas this month, favoring the harvest, Hedgepoint Global Markets analyst Livea Coda said in a Thursday report. The expectation of good Brazilian supplies in the short term is helping to keep a key spread between October and March futures lower.

“Markets do not seem so tight during this third quarter, but they are expected to become tighter from the fourth quarter onwards,” she said.

Rising energy prices create demand for sugar as Brazil will turn towards more ethanol production. That’s just one example of how the uptrend in oil prices will have a knock-on inflationary impact on the wider global economy.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: ARM IPO, Apple eases, bonds steady, heating oil and gasoline push higher, India firm, Mexico mixed, Japanese banks break higher, uranium breaking out. 

“Unity Plus is being retired for new subscribers effective today, September 12, 2023, to simplify the number of plans we offer,” Unity wrote. “Existing subscribers do not need to take immediate action and will receive an email mid-October with an offer to upgrade to Unity Pro, for one year, at the current Unity Plus price.”

A Unity Plus subscription was about $400 per year. After that one year, however, it stands to reason that those former Plus users will have to pay the new Pro rate, which is currently over $2,000 per year.

Developers are also concerned these new fees could impact digital preservation efforts as now game makers are seemingly incentivized to delist older games so they aren’t charged for them. There’s also the question of how Unity plans on tracking installs and whether or not such tools run afoul of government privacy laws. Here’s a tweet from the official Unity account explaining how it intends to monitor a game’s installs.

The basic business model for software companies is to give it away for free so they can build an installed base. Then make the product good enough that it is indispensable to the end user. Then start charging for it in the hope enough users will accept the change to sustain the business. The companies that have succeeded in implementing a charging model like Google and Meta Platforms have multiplied in value. Those which have failed like Twitter have not.

Cocoa futures traded near a 12-year high on worries about West African output.

Prices are up more than 40% year-to-date and are expected to keep rising, supported by concerns that global supplies will remain strained amid adverse weather conditions. Heavy rain in West Africa already has knocked young pods from trees and facilitated the spread of black pod disease, which thrives in humid conditions.

Uncertainty also remains over the El Nino weather phenomenon, with analysts at StoneX anticipating that impacts will persist into early next year.

“The long-term uptrend in the cocoa market remains in place, as low production out of West Africa is expected to keep supplies tight,” ADM Investor Services wrote in a note on Monday.

Ivory Coast, the world’s top cocoa producer, is in the midst of negotiations over new environmental rules for European exports, and Ghana has hiked farm-gate prices in an effort to fend off smuggling. Still, there has been recent optimism that good weather could support a better harvest in Ivory Coast and some areas of Nigeria.

Veteran commodities traders may remember there was an effort by chocolate makers several years ago to boost cocoa supply by providing funding for farm modernization and several invested in additional processing facilities. That fed growing demand but appears to have done little to improve supply.

"Growing interest in nuclear energy is being seen around the world," said Freebairn, noting this his company has been highlighting events in Eastern Europe and North America.

For now, nuclear power provides around 10% of the world's electricity, according to the International Energy Agency.

It comes from roughly 440 reactors in 31 countries with about 390 gigawatt electrical (GWe) capacity, according to UxC's Hinze. If total power demand grows by 2% to 3% as agencies like the IEA predicts over the next 10 to 20 years, and nuclear power keeps it share of the total in the 8% to 10% range, then Hinze expects nuclear power should reach at least 500 GWe by 2040 and as high as 550 GWe.

That would represent a roughly 40% growth over the current market size, he said.

There are potential downside risks to nuclear power growth, including competition from fossil fuels and renewables, but since nuclear power is "already not a huge share of the market, it would make sense that its growth can continue regardless of how the other energy fuels fare," Hinze said.

The uranium price war is over. Kazakhstan flooded the market with supply between 2011 and 2016. That forced several smaller miners out of business. Even Cameco closed mines and supplied long-term contracts by buying spot on the open market. The introduction of the Sprott Uranium ETF helped to soak up available supply and was instrumental in setting up the conditions for the current recovery.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Apple product launch falls flat, Dollar steady, oil surges, natural gas stable, CPI tomorrow could influenced by energy, UK Gilt yields look toppy.

Bitcoin firms from the psychological $25000 as Franklin Templeton add their bid to be the first to have an approved spot price ETF. 

Oil rallied to a 10-month high as production cuts by leaders of the OPEC+ cartel strain global supplies, a setup that’s projected to create the tightest crude market in a decade in the months ahead.

Global benchmark Brent climbed above $91 a barrel, and West Texas Intermediate topped $89, both fresh highs for the year. The gains are already showing signs of filtering into fuel markets, with US gasoline prices at the highest seasonal levels in a decade and diesel — the global economy’s workhorse fuel — pushing past $1,000 a ton in Europe.

Oil markets may experience a shortfall of 3.3 million barrels a day in the fourth quarter, the most constrained market in more than a decade, according to a report Tuesday from the Organization of Petroleum Exporting Countries. The US Energy Information Administration will publish its monthly market report later Tuesday, with the International Energy Agency’s outlook due Wednesday.

Bull markets in commodities can occur for several reasons. Those that last for more than a year or two are the result of a jump in demand and an inability to sufficiently increase supply to cater to it.

At present, OPEC is intentionally restricting supply with the intention of supporting prices. It is working.  Non-OPEC supply is not increasing quickly despite high prices.

The government presented a draft 2024 budget late on Friday that boosts support for state oil giant Petroleos Mexicanos and social programs to consolidate Lopez Obrador’s legacy before the presidential election next June. Officials also proposed an $18 billion dollar-debt ceiling in the 2024 budget, triple the $5.5 billion set for this year.  

The increased spending will result in a fiscal deficit equivalent to 4.9% of gross domestic product — the largest since 1988. It’s a reversal of the president’s penny-pinching ways, which had won him favor with investors in past years as other countries boosted spending to cope with the fallout from the coronavirus pandemic. 

Mexican presidents are limited to a single six-year term so AMLO is currently priming the pump for his anointed successor. The Mexican electorate is spoiled for choice for the June 2024 election. Both candidates have impressive CVs with engineering and computer science degrees respectively, as well as some entrepreneurial experience. That represents a significant upgrade in technocratic experience for the Presidency regardless of who wins. 

What are these risks?

There is one and only one: that the dividends paid by the companies that make up the S&P 500 index do not collapse, as happened from 1929 to 1934.

And so, for those who think that capitalism is finally going to experience its great final crisis, it is better to have gold.

But in the event that this dear system of exploitation of man by man were to survive as it has always done throughout history, well, I could live to be two hundred years old without any problem, my capital remaining mine.

Which is not nothing.

But the value of my capital can vary very greatly, which I don't care about as only the dividend payments matter to me.

Today, transforming my gold into shares is almost indifferent to me.

Let's imagine that in the coming months, the stock market falls by 50%, that gold stays where it is, that the yield therefore increases from 1.7% to 3.4% and that the ratio goes from 1 to 1.5.

At that point, I can sell half of my gold and buy the equivalent in shares, which allows me to double my annual income.

If the ratio passes, after a fall in gold from 1 to 0.5, on the other hand, I must sell my shares to buy gold.

And this is undoubtedly why the ratio has oscillated between 1.5 and 0.5 for a century and a half.

Gold does best when the stock market’s performance is nondescript, real rates are trending lower and the US dollar is weak. That is not generally the best time for the earnings yields to grow because secular bears generally mean excesses from the previous stock market bull cycle are being unwound.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Dollar eases, Megacaps rebound, China supports yuan, Japan eases, India new all-time high, gold steady. 

Norway – breaking on the upside, not only because of firmer oil prices but several of the country’s primary businesses are doing well from oil services to tankers, fish farming and tech. 
 

The supercomputer, designed to handle massive amounts of data in training driving systems, may put Tesla at “an asymmetric advantage” in a market potentially worth $10 trillion, said Jonas, and could make software and services the biggest value driver for Tesla from here onward. 

The next version of Tesla’s full self-driving system, expected by year-end, and the company’s potential Artificial Intelligence Day in 2024 are worth watching, he added. Tesla has not formally announced an AI Day for next year. 

It looks like Tesla is finally getting some credit for its AI expertise. The company is further along in providing autonomous driving than any other company. Quite whether the final product launch will depend on the individual computing power of the car and its sensors and/or instant connectivity with a supercomputer remains to be seen. 

Lithium Americas shares rise more than 6%, one of the leading gains on the S&P/TSX Composite index, after research and media reports suggest that the company’s Thacker Pass project is located on a US lithium deposit that could be among the largest in the world.

Lithium reserves in the McDermitt Caldera, located along the Nevada-Oregon border, could contain between 20 and 40 million metric tons of the metal, according to findings from Lithium Americas volcanologists and geologists in an Aug. 31 research report.

Lithium Americas has been in discussions with the US government about sourcing federal funding to build its Thacker Pass mine. In service to the goal they are in the process of splitting up. The North American company will contain the Thacker Pass mine, while the existing production in Argentina will be renamed Lithium International. The US government is insisting on no foreign interest in the resource base before they are willing to supply funds. 

Prasad said he is dropping his recommended mid-cap portfolio as he has “largely run out of options” in trying to pick stocks that offer further upside potential. His view echoes sentiment from JPMorgan Chase & Co., whose India strategist Sanjay Mookim told Bloomberg earlier this month that the outperformance of smaller companies is in “extreme territory”.

In contrast, HSBC Securities Strategist Amit Sachdeva last week said that the rally in Indian mid-cap stocks had only progressed about half way, based on past cycles. And Goldman Sachs Group Inc. notes that mid-caps are becoming more popular with investors in Indian stocks, showing confidence in the market even despite concerns over high valuations.

The Nifty Index touched the big psychological 20,000 level for the first time today. Renewed enthusiasm about India’s growth prospects and its ability to attract inward investment following the G-20 meeting are the likely catalyst for the rebound over the last two weeks. 

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As the cost of private capital is higher and there’s just less of it around, will consumers end up struggling?

Something that deserves acknowledgment is how smooth this volatility has been for consumers. In 1994, when interest rates spiked, there was a lack of credit that made the Fed cut rates by July of ’95. This year, we’ve had both bank failures and rapid interest rate increases. And now we are seeing a symbiotic relationship between banks and private credit, where lending gaps are being filled instantaneously.

From my perspective, it’s been remarkable that we haven’t had a larger contraction of credit at the consumer level. That’s probably one of the things encouraging a lot of people to change their calls to a soft landing – if credit was unavailable and with the consumer being two-thirds of the economy, we might have a different outcome. 

The volatility of the asset backed securities markets this year and last year also contributed to more companies turning to private lenders. But is the trend here to stay?

The public ABS market is a great option for originators to distribute risk and raise capital. But we are talking with companies and banks who use ABS about how to diversify their funding models. We’ve bought loans from these firms, be it consumer or other types of loans, when the securitization markets were active. 

The volatility in the ABS market last year reinforced what we’ve supported for a long time: The importance of having a diversity of funding sources such as securitization, forward flow and balance sheet. Partnering with private credit managers that can provide capital from longer-dated insurance liabilities is a great way to achieve this, where there isn’t the dynamic of demand deposits that can disappear overnight. We believe that every originator should be thinking this way.

Two primary factors tend to drive a bull market in financial companies. These are new product offerings and the absence of regulation. Together, enterprising salespeople have the capacity to grow the leverage in a sector to unimaginable scale.

In the early 2000s credit derivatives were a new product and securitisation was not well understood. That allowed leverage to reach dizzying heights. It was not until the global financial crisis that the risk inherent in these structures became obvious. The focus of subsequent regulation focused on ensuring banks would not be able to take those kinds of risks again.

The Pro+ similarly emerged without the typical marketing and fanfare surrounding a major product launch. A brief teaser video posted to Huawei’s Weibo account showcased a device very similar to its lesser cousin, with the same outsized back-camera array.

The new devices have spurred an outpouring of nationalist sentiment on Chinese social media and were picked up by domestic news outlets that touted Huawei’s advances as a victory against sanctions.

The big question many media outlets are pondering is why Xi Jinping stayed home from the G-20. Perhaps he has bigger concerns. The currency is at a new low, government bond yields are rebounding from their lows and the stock market is straining under the threat of a property sector mishap.

Inditex has entered the second quarter with momentum and strong execution, and that should have continued throughout the quarter, making it comfortably the most consistent outperformer of the sector over this period, analysts at UBS say in a note. The Spanish fashion retailer's business model inspires confidence, and there is further upside in the shares to be expected, according to the analysts. In this context, the second quarter should again show that the company stands out among peers, the analysts say. Its differentiated sourcing model and focus on full-price sales should ensure stable gross margins, they add.

The retail apocalypse entered a new stage during the pandemic because stores had to close and move online. With reopening, many stores have become order fulfilment stations, return locations while also selling new lines of merchandise. That’s a heady mix and difficult to get right. There are some clear winners and losers.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Apple drops but firms in late trading, Chinese stocks and bonds falling together and Renminbi breaks lower, India firms, commodity currencies under pressure, growth shares display interest rate sensitivity, 

Feeder Cattle breaking higher and leading the livestock sector while lean hogs begin to find support.

“With inventories relatively low, the prospects of further stimulus measures triggered restocking across commodities, which should keep demand strong in the short term,” ANZ Group Holdings Ltd. said in a note after Chinese customs released its latest trade figures on Thursday.

Still, the country’s recovery from the pandemic has fallen well short of expectations and confidence among households and businesses is fragile. Deflationary pressures in the economy and a weaker currency have added to the headwinds faced by importers, although fears that the yuan will slide further may have motivated some to front-load purchases.

A jump in Chinese demand for industrial commodities would normally be cause for celebration among miners. China’s demand growth has been one of the primary reasons investors have been willing to give credence to the view that a new secular bull market in commodities is unfolding. The problem is the narrative does not match up with the price action.

Orsted’s warnings are the most concrete example yet of the limits of the IRA, which was hailed as a key driver for America’s nascent offshore wind industry. While the law provides at least $370 billion in grants, tax credits and other incentives for climate and clean energy projects, that’s proving no match for rising inflation and borrowing costs. And by dangling higher incentives for companies sourcing US-made parts, it’s fueling demand before the domestic supply chain catches up, driving prices higher still.

“The irony here is that the Inflation Reduction Act probably has had some part in stoking inflation for some of the green goods that it intends to encourage,” said Kevin Book, managing director at ClearView Energy Partners LLC. The IRA is already spurring construction of new US factories to manufacture critical clean-energy gear, but that’s lagging behind renewable project development, exacerbating the issue in the short term. “It takes a long time to stand up a factory. It takes a long time to replace a foreign-sourced supply chain.”

This is a great example of how governments getting involved in the free market often introduce inefficiencies that drive up prices for everyone. Energy infrastructure is capital intensive. That’s an acceptable risk when companies have a clear vision of what works and have a captive demand pool of consumers.

The challenge for new energy companies is they come with an implied risk premium. The technology is unproven, longevity is questionable, and the competitiveness of supply is subject to political whim. That implies an interest rate sensitivity that is underappreciated by most investors.

Thaysen will need to decide how to proceed with Grail, a company Illumina acquired in 2021 that sells a blood test to identify dozens of types of cancer at earlier stages than typically diagnosed. Antitrust regulators in the US and Europe are trying to unwind the deal, which Illumina has vowed to defend despite steep costs, including a nearly $500 million fine in Europe. 

Meanwhile, Illumina’s DNA-sequencing business faces more competition than ever. The company started shipping its latest machine earlier this year to help maintain its hold on the market. That investment has in part crimped profitability, something Illumina pledged to fix during its proxy fight with Icahn.  

Grail is turning into a poisoned chalice for Illumina. The decision to ignore the EU’s antitrust concerns not only means Illumina is accepting a fine and foregoing access to the market, but it sullies the company’s reputation with regulators.

Illumina is a highly cyclical company. Every time they have released a new machine in the past, sales have boomed and the share took a leap higher. It has then tended to range in a volatile manner until their next new machine is released. Illumina’s machines have been instrumental in compressing the cost of genetic sequencing from thousands to hundreds of dollars.

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Dollar strength carries over to Asia, Apple pulls back on China risk, central bank total assets approaching potential support just as personal savings run out. oil prices continues to rise fuelling inflationary perceptions. 

The Dollar continues to breakout against a host of currencies across geographies. The most notable are the Mexican Peso, Japanese Yen, Indian Rupee, Singapore Dollar, Canadian Dollar, Swedish Krone and Chinese Renminbi.



 

A very interesting commentary today, Eoin. Several of your comments resonated with me. Most important was Mrs Treacy’s observation about Chinese social media reaction to Japanese radiation, and the response from the CCP that the Chinese should stop the negativity - followed by the thought that the negativity will be rapidly removed from the social media records. OMG. I am currently re-reading George Orwell’s book 1984. That’s exactly what he predicted; history rewritten constantly to support Big Brother’s narrative of the day. We should all read 1984 again and contemplate if the West is heading in the same direction.

China also was one of the highlights of Apple’s results last quarter, helping offset a generally sluggish period. The company is preparing to unveil its latest iPhones next week, setting the stage for a holiday quarter that is invariably its biggest sales period of the year. 

Low stockpiles are driving an “incredibly strong” diesel structure, signaling market tightness, said Ben Luckock, co-head of oil trading at Trafigura Group.

It’s becoming more expensive to fund normal refining projects, Alex Grant, senior vice president for crude, products, and liquids at Equinor SA, said in an interview. Existing refineries will operate at the highest rates they can, with refining margins staying high, he said.

The refining system is “crying out” for fresh investment with oil demand still growing, especially in Asia, said Sri Paravaikkarasu, director of market analysis at Phillips 66. Refiners need to cater to it, while also accounting for the green energy transition, she added.

It is almost impossible to raise funding for new refineries. These are long-life assets that depend on secure order flow to justify the enormous capital expense of construction. Since investors are often precluded from investing in emerging infrastructure that cuts off a potential source of capital. The additional concern is oil demand has peaked in China so why take the risk of building additional supply capacity.

A link to today's video commentary is posted in the Subcsriber's Area.

Some of the topics discussed include: Japan relative strength and rearmament, Country Garden makes coupon payment, Dollar breaking out against a host of currencies, bonds yields extend advances but oil and soft commodities firm, gold and silver retreat. 

Dow Jones Industrials Average – downside key reversal on Thursday and beginning to follow through on the downside. That suggests a peak of at least near-term significance.

GMB Organiser, Michelle McCrossen, said: “Today’s announcement is a humiliating admission of failure on the part of Birmingham City Council’s officials and leadership.

“Not only are they responsible for creating this crisis through years of discriminating against their own staff, but even they no longer believe themselves capable of fixing it.

“For decades the Council has stolen wages from its low-paid women workers, running up a huge equal pay liability that has brought Birmingham to the brink." 

They said today's news will be worrying for staff and residents. 

Equal pay cases are happening across retail as well.  

We revealed leaked documents that show a boost for the 55,000 claimants taking on Asda - where male dominated distribution centres have higher wages than the shop floor.

Disputes about equal pay seem out of character with the times we live in. Surely everyone doing the same job is offered the same pay? The reality is, they are. That is not what this issue is about. The GMB union’s successful gambit is council officials are incapable of defending their job description methodology in court. That’s especially true when many people are no longer capable of differentiating between genders in public life.

“North Korea did not leave the Cold War; it still has that production, and it has ordinance of the same Soviet/Russian calibres copycats, so that can actually provide Russia with things that the Russian military needs on the front line,” Felgenhauer said.  

Buying munitions from North Korea would be a violation of UN resolutions, which were supported by Russia, that ban all arms trading with the isolated country. But now that it faces international sanctions and export controls over its war in Ukraine, Russia has been seeking weapons from other sanctioned countries, such as North Korea and Iran.

And

It’s unclear whether Russia would be willing to provide North Korea with advanced technologies related to nuclear weapons and ICBMs, Cha said. Russia has always tightly guarded its most important weapons technologies, even from key partners like China, he said.

Only last month Ukraine sourced arms from South Korea. Now Russia is reportedly sourcing similar armaments from North Korea. That’s not much more than tit for tat reaction.

Speculation around whether Russia is willing to give North Korea advanced missile technology may already be moot. The country tested ICBCs in July with a capability of reaching the USA, so this is not news. 

So China's largest oil company Sinopec is already seeing a drop in demand, from which it doesn't expect to recover. Previous predictions placed peak demand somewhere in 2025, but at a conference in Zhengzhou in August, Bloomberg reported that one Zhou Yan, from Sinopec’s retail sales division, said EVs were already displacing some 15 million tons of Chinese oil product sales in 2023, and that the company is forecasting that 2024 and subsequent years will see declining demand.

According to the International Energy Agency, Chinese demand accounted for more than 70% of global oil market growth in 2023, so while global oil product sales are at record highs of around 102.2 million barrels per day in 2023 (up around 2.2 million barrels per day over figures from 2022), and gasoline for passenger cars is only a percentage of total oil product demand, it'll be interesting to see how China's rapid EV uptake affects predictions for global peak oil demand.

The IEA released its forecast in June, estimating that peak global oil use for transport will arrive around 2026, but strong demand from the petrochemical and aviation sectors would continue to support overall market growth, albeit at slower rates, at least as far out as 2028.

Saudi Arabia and Russia remain eager to extend their supply cuts for good reason. They both need high prices to supplement their budgets. They also face the uncertain prospect of demand growth tapering to a standstill in some of their largest export markets, sooner than expected.

That also helps to explain why Saudi Arabia is exploring the sale of an additional $50 billion stake in Saudi Aramco. They would sell at a high price when demand is still strong rather than wait and risk battery technology makes a major leap forward at some point in the next decade.

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Some of the topics discussed include: China recovery gains more traction, uranium firms, oll steady, Indonesia firms, India steady, Europe soft, lithium prices attempting to find support.  

It’s highly unlikely Chinese chipmakers can squeeze more out of old tools to get them beyond 5nm, which means they’ll be stuck while foreign rivals continue to advance. And if they do make further breakthroughs, the US and its allies have plenty of ways to tighten up their curbs, including broadening the scope of the equipment ban and adding materials to the list. 

Predictability in the semiconductor sector ended in 2017 when the International Technology Roadmap for Semiconductors was last published. Instead of 18 months it now takes around 30 months to deliver the next generation of chips. That’s what the end of Moore’s Law amounts to.

As the physical limits of silicon are approached, the difficulty of cooling a chip becomes exponentially more difficult. A silicon atom has a diameter of around 0.2nm, so transistors with a diameter of 3nm are already very close to the physical limits of the atom. This has created a bottleneck in chip innovation because totally new technology will be required to deliver fresh innovation.

The reason new computers come with both a CPU (central processing unit) and GPU (graphics processing unit) reflects that bottleneck. Nvidia’s success is based on providing chips designed specifically for a dedicated task. That limits potential but maxes out utility for that single use case. The model works well because most chips are only used for a small number of similar functions.

The initial promise of peaking Indonesia’s power sector emissions by 2030 at no more than 290 million tons of carbon dioxide, about 20% below a baseline level for the year, looks out of the question. An alternate scenario laid out in the draft plan would raise the target maximum to 395 MT of CO2, to account for the construction of new captive plants to serve growing industrial power needs.

Officials have said they are aiming to have a revised—perhaps final—investment plan before COP28 begins in Dubai at the end of November, taking on public feedback. But to do that, they will need to come to agreement on at least three major, interrelated issues: the money, the emissions target and the mechanics of the coal phaseout, including changes to Indonesian laws and policies that hold back wider green progress.

And

But there may not yet be enough in either bucket. There is just $289 million in grants, with half earmarked for technical assistance—funding for experts, consultants and advisors to model and support the energy transition. Almost all of the rest is loans, at interest rates to be determined later.

Talk is cheap. This is not the first time we have seen photo ops for politicians, and headline- grabbing promises of large capital infusions, only for reality to intercede a couple of years later. There is no getting around the fact that coal is cheap, available, and easy. Every other alternative is either more expensive, intermittent, or imported.

Developing countries have no time for handwringing. They have large young populations demanding improved living standards now. Moreover, European, and North American consumers are in no mood to write cheques, when their own living standards are declining and public services are under pressure.

A deal would cement the stunning rise of the Australian lithium sector, where the share prices of newly founded and previously little-known companies have soared more than 10-fold amid surging demand for the metal. The race for lithium has mining heavyweights, battery manufacturers and automakers from Rio Tinto Plc to Tesla Inc. chasing deals with firms with even early stage or pre-production projects.

Liontown, based in Perth, owns one of the most promising early-stage lithium projects in Australia, the world’s top exporter of the metal. It has supply agreements with major automakers including Tesla and Ford Motor Co.

US-based Albemarle, which already owns stakes in lithium mines in Australia and has a processing plant there, offered to acquire all of Liontown’s equity at A$3 a share. That follows a bid of A$2.50 in March.

Mercedes Benz threw down the gauntlet today by announcing it is willing to compete on range with Tesla. It’s 450-mile quick charging model is expected to be on sale by early 2025. That story represents the promise of the lithium sector. Most automakers expect to release large numbers of new EV models over the next several years. That’s a demand driver for lithium.

The challenge for the lithium sector is there has been a significant mismatch between supply and demand over the last decade. The first wave of new vehicles surprised miners. The surge of new supply outstripped demand for EVs. Then the surge of demand during the pandemic surprised miners. Now, China’s slow recovery has resulted in demand undershooting expectations. The result has been incredible volatility in lithium prices.

One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary on a daily basis until there is a change.

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Summers also reiterated his concern about the widening US fiscal deficit, and the need for Washington to wrestle with raising the government’s revenue over time. One reason why the economy has been so strong in the face of high interest rates has been a fiscal swing of “perhaps 3%” of gross domestic product this year compared with 2022, he said.

Shutdown Warning

“It would be helpful if we could get to more realistic views about the fact that we’re going to need more revenues,” he said. He also warned lawmakers against failing to enact annual appropriations bills that are needed to keep the federal government funded after the start of the new fiscal year on Oct. 1.

A shutdown caused by an impasse over spending bills “doesn’t save any money, and further serves to disillusion people with Washington,” he said.

The hiring and wage figures were encouraging today while inflation figures remained elevated in the Wednesday report. That gives the superficial impression that inflation will been overcome as hiring moderates. This is where the backward nature of economic figures and the forward looking nature of markets comes into conflict.

Operating conditions in the exchange market “have returned to adequate levels” of liquidity and depth, Banxico said in the statement. “Credit institutions and other economic agents have the conditions to cover their risks related to the exchange rate directly in the exchange market.”

The shift is “a clear sign that the peso might be too strong,” said Benito Berber, chief economist for the Americas at Natixis.

Hedges will be rolled over once and for 50% of the current amount starting next month. For six-month operations, the term will be reduced to one month with the renewal only applying to 50% of amount. Operations with nine and 12-month terms will be left to expire.

Mexico having one of the strongest currencies in the world for two years in the row is not something anyone is accustomed to reading. In fact, this trend of outperformance is the longest time the Peso has traded above the 1000-day in decades. It’s natural that the central bank wishes to slow down the pace of appreciation so a reversion towards the mean is underway.