As was widely expected, RBNZ remained on hold at +1.75%, yet may have sounded less dovish than expected. Despite the bank being cautious, its forecasts include the official cash rate remaining at +1.75% for 2019 and implied a rate hike in 2020. The bank also expects the core inflation rate to gradually rise to 2% yoy mid-point which necessitates a continued supportive monetary policy. Analysts pointed out that the bank seems to have time at its side, albeit they expect that as the year progresses growth could undershoot the bank’s projections causing for a more dovish stance. Governor Orr in his press conference stated that the chances of a future rate cut have not increased.

Island nations generally tend to have higher interest rates because of the cost of imports, exports and isolation push up inflation. At 1.75% New Zealand’s rates are unusually low from a long-term perspective reflecting the need for a stimulus following the Christchurch earthquakes and the competitive forces of devaluation where just about every other developed economy in the world is running low interest rates.

South Korea’s jobless rate hit the highest level in nine years, adding to evidence that President Moon Jae-in’s minimum wage hikes are doing more to harm employment growth than they are to raise incomes.

The seasonally-adjusted unemployment rate reached 4.4 percent in January, the worst figure since January 2010, when it was 4.7 percent. The median forecast of economists was for 3.8 percent. Meanwhile, jobs growth slowed to 19,000, down from 34,000 jobs in December.

Moon’s administration hiked the minimum wage by 11 percent this year, following a 16 percent increase last year.

South Korea is the world’s 11th largest economy so it does not tend to be factored in when analysts talk about synchronised global economic expansion. However, it is often a lead indicator for the global economy because of the nation’s focus on exports like cars and consumer electronics and its proximity to China. South Korea’s slowdown in late 2017 presaged the global slowdown concerns that animated markets for much of 2018.

The yearlong inquiry uncovered a litany of wrongdoing across the industry, from charging dead people fees to advisers pushing customers into bad investments to meet bonus targets. National Australia staff accepted cash bribes to approve fraudulent mortgages and misled the regulator over a fees-for-no-service scandal.

“I acknowledge that the bank has sustained damage as a result of its past practices and comments in the Royal Commission’s final report,” said Thorburn, who will leave Feb. 28. “I recognize there is a desire for change.”

His replacement will have to restore customer trust in the lender and steer it through a tougher landscape of falling earnings, a sinking housing market and rising funding and compliance costs. The nation’s big-four banks also face more muscular regulators intent on punishing wrongdoers in court.

In further fallout from the inquiry, National Australia said it will delay the planned IPO of its MLC wealth management unit as fee income and commissions come under pressure.

David used to say he would not invest in banks on moral grounds. That is a clear reflection on the rather nefarious reputation of the industry to fall victim to its worst impulses to generate profits. Nevertheless, banks are important sources of credit for the economy; in every country. When they are under pressure either from reputational, regulatory or market risk their ability to create credit is inhibited and that represents a challenge for the market. The integral part they play in supplying credit also contributes to their knack of avoiding hefty fines.

Philip Morris’s patent lawsuit against British American Tobacco in Japan, which is seeking a sales injunction of BAT’s Glo heated tobacco product, is still a risk, but BAT has “several methods of defense” and the earnings impact would probably be modest, Piper Jaffray analyst Michael Lavery writes in a note.

Risk on possible U.S. menthol cigarette ban looks priced in and Piper doesn’t see any operational impact “for years and years”

Also notes that consumers can adapt

Piper doesn’t see any risk to dividend growth, allaying concerns from investors; says BAT’s cash flows don’t seem to be at risk in a way that would hurt the dividend

Upgraded to overweight from neutral; PT kept at GBP30

NOTE: BAT shares down 51% in last 12 months vs 19% drop for Imperial Brands, 31% decline for Philip Morris and 35% fall for Altria

The tobacco sector is not for everyone but it is inherently defensive considering they are selling an addictive product and therefore have reliable cashflows. The performance of defensive sectors is something that is important to monitor in the latter stages of a cyclical bull market because they typically tend to be depressed by disinterest when growth stocks are outperforming but turn to outperformance when investors start to value security.

A link to the full report and a section from it are posted in the Subscriber's Area.

There are two particularly pervasive views among institutional investors right now. The first is that emerging markets are due a period of outperformance and are cheap on relative value measures, particularly versus the USA. The second is the Dollar is going down in a big way from here, which of course would boost the prospects for emerging market currencies

Your copy on global pay-out ride is coming back to earth is timely. The well-regarded fund manager Neil Woodford has given Imperial Brands a significant 8% asset allocation in his flagship income fund. Imperial pays a hefty dividend, growing at 10% rate. It generates good cash, but has huge BBB+ debt outstanding. It has come down quite a bit from its peak, but it’s valued at 17 times earning which may roll back to the 10 times earnings it had around 2000. Is there a case for holding Imperial Brands as primary source for dividends for the long run? I wonder if you could review some good dividend paying companies, net cash global companies with strong balance sheets, that will not get caught in the pending investment grade bond crunch. Thanks!

Thank you for this question which I’m sure is something a number of subscribers are pondering. More than half of all investment grade bonds are rated BBB and approximately $600 billion are up for refinancing this year. Against a background of tightening liquidity conditions that represents a risk some companies are going to have issues sourcing funding at the highly attractive rates which have been on offer for the last decade.
 

Hello Eoin, First of all I would just like to say I have no problem with the way you have organised your video commentaries. I find them very perceptive and thought provoking. I would hazard a guess that 95% of your subscribers are of the same opinion.

On your comments on South Africa, having spent the past 16 years here, I would advise investors not to hold their breath as regards the new president Cyril Ramaphosa instituting much in the way of improved governance here. Corruption in this country is all pervasive and is now penetrating certain personnel in the judiciary. I know this from various contacts I have with regards to the Rhino poaching problem. The Zuma faction still wields huge influence within the ANC. The black economic empowerment policy has led to totally unsuitable and unqualified people being placed in key positions both in government and in the private sector. Given the current state of the world economy, I would indeed be surprised if the ZAR is not the currency to lose most in value among the emerging markets over the next year.

Thank you for this informative email and your on the ground perspective from South Africa.

The simple conclusion reached by investors is Ramaphosa is better than Zuma which is good news. The monumental challenge of tackling corruption is a long-term challenge and if the trend toward deterioration can be allayed that can be considered progress. It is too early to conclude whether the new administration can make progress on that front but I think everyone is aware of just how difficult that could be.

In the new era of prudence, shareholders who’ve enjoyed fatter and fatter dividend checks can rest easy no longer.

IHS Markit Ltd. last week projected a “significant slowdown” in global dividend growth this year, at 5.9 percent, totaling $1.8 trillion, according to a bottom-up analysis of over 9,500 firms. Thanks in part to mounting geopolitical risks, that’s a shift from the 14.3 percent boom in 2018 and 9.4 percent the year before.

The business-information provider reckons about 11 percent of firms will announce a dividend cut this year -- an uptick of almost 100 names relative to 2018.

“I believe that dividends of leveraged companies can suffer more,” said Willem Sels, a London-based chief market strategist at HSBC Private Bank. “The excessive focus on the shareholder
value at the expense of bondholder value will be more muted.”

2017 represented the best of all possible worlds for investors. The tax cuts had been passed and investors got busy pricing that into the market. There was money for everything from buybacks to dividend increases and it was being paid for with tax savings, repatriated profits from overseas and fresh debt.

A link to the full report and a section from it is posted in the Subscriber's Area. 

OPEC’s supply cuts and US shale’s continued growth are already in the market. The question of how fast global growth will be, and therefore the demand outlook, is a movable feast but the trajectory of interest rates and the trade war are obviously important factors.

London home asking prices fell to their weakest level in 3 1/2-years in January as sellers spooked by
Brexit held off putting their properties up for sale.

Asking prices in the capital slipped 1.5 percent from December to 593,972 pounds ($765,000), the lowest level since August 2015, according to Rightmove. New listings in the first two weeks of the year were 10 percent lower than in 2018 as owners were deterred by the cost of moving and concern about the political backdrop, the property website said.

After years of outsize gains in home values, London and its surrounding areas have so far borne the brunt of Brexit, with a lack of clarity over the future relationship with Europe causing both households and firms to hold off on investment decisions.

Listing prices in the capital have declined from a peak of almost 650,000 pounds in May 2016, the month before Britons voted to leave the European Union.

Nationally, values rose 0.4 percent to 298,734 pounds, with the biggest gains in the north of England. Rightmove’s data is compiled from 70,068 properties put on sale by agents across the country from Dec. 9 to Jan. 12.

A separate report by Acadata, which incorporates all house transactions, showed national home prices rose 0.6 percent in the year to December. Excluding London and the south east, values climbed 1.4 percent.

There was another news story today on how Citadel Investment Management’s CEO Ken Griffin paid, a discounted £95 million, for 3 Carlton Gardens which is about half a mile of open park land from Buckingham Palace.

“Brazil is a hot topic for foreign investors,” said Fabio Alperowitch, portfolio manager and founder of Fama Investimentos, a Sao Paulo-based fund manager. “But no one will change their opinion just because of his speech. Investors’ level of skepticism with emerging markets is still high.”

On his long flight to Davos, Bolsonaro will carry the most crucial plan to tackle a budget deficit that hovers around 7 percent of gross domestic product -- a draft proposal to cut pension outlays and save as much as 1 trillion reais over 10 years. Whether he will attract enough congressional support for the bill when lawmakers reconvene in February will be a make or break moment for his administration.

Bolsonaro will not have to compete for airtime at Davos this year. However, as the above article suggests the big test of whether the enthusiasm which greeted his administration is warranted will be in how successful he is in pushing through reform and combatting corruption.

I’ve been discussing the rise of populism, for two years, as a revolt against the status quo which is leading to a lurch to the fringes of political opinion. The clarion call for people everywhere demanding change is “What about me?” The only way governments know how to placate disaffected people is to give them more money. That is why we have seen so many countries pursuing fiscal stimulus/deficit spending measures.

China has offered to go on a six-year buying spree to ramp up imports from the U.S., in a move that would reconfigure the relationship between the world’s two largest economies, according to officials familiar with the negotiations.

By increasing annual goods imports from the U.S. by a combined value of more than $1 trillion, China would seek to reduce its trade surplus -- which last year stood at $323 billion -- to zero by 2024, one of the people said. The officials asked not to be named as the discussions aren’t public.

The offer, made during talks in Beijing earlier this month, was met with skepticism by U.S. negotiators who nonetheless asked the Chinese to do even better, demanding that the imbalance be cleared in the next two years, the people said.

Economists who’ve studied the trade relationship argue it would be hard to eliminate the gap, which they say is sustained in large part by U.S. demand for Chinese products.

On the face of it this is good news because it at least suggests the USA and China are engaging in productive discussions and some initiatives to end of the impasse are being discussed. The stock market continues to unwind the overextension relative to the trend mean as it prices in optimism that a deal with be struck.

A link to the full report and a section from it are posted in the Subscriber's Area. 

The broad global adoption of fiscally stimulative policies is unlikely to be as coordinated as the monetary response to the credit crisis was. The big arbiters of how much liquidity is provided to the global economy and eventually the markets will be in which large countries adopt fiscal stimulus. Germany, China and Brazil are the big additional potential sources of stimulus so it is their political machinations that are most worth watching.

Philippine bulls are on a roll, and who can blame them? The nation’s equities index has started the year beating many global peers, and foreign fund managers are putting back money in a market that was among Asia’s worst in 2018.

Traders at Rizal Commercial Banking Corp. and AB Capital & Investment Corp. are riding the rally by deploying their cash, rather than cutting their stock holdings as they did last year whenever equities went into high gear. The Philippine Stock Exchange Index has rallied more than 6 percent in the first
trading days of January, including a 2.8 percent gain Wednesday.

It closed at an eight-month high, breaking a key resistance level and moving closer to the 8,000 that traders say it could surpass this quarter.

“It’s a good strategy to ride the prevailing positive mood, even if only for the short term,” said Gerard Abad, who manages $380 million as chief investment officer at AB Capital. “We will see a continuation of the improvement in inflation, and it helps that the U.S. Fed has become dovish. That eases pressure on the central bank to raise rates.”

There is no one talking about a secular bull market in emerging markets anymore and that is a good thing from the perspective of a long-term investor. It means it is not a crowded trade.

The Telegraph newspaper cited three unidentified EU sources as saying British officials had been “putting out feelers” and “testing the waters” on an extension of Article 50, which sets out the conditions for leaving the EU.

Brexit Secretary Stephen Barclay denied the report and said London would not seek to extend the divorce while German Foreign Minister Heiko Maas said it was not time to discuss such a course. Ireland, though, said it would not stand in the way if Britain made such a request.

“Certainly from an Irish perspective, if such an ask happens, we won’t be standing in the way on that,” Irish Foreign Minister Simon Coveney told journalists after a meeting with Maas in Dublin.

“If it is the case that at some point in the future that the British government seeks an extension of Article 50, then that is something that will have to get consideration at an EU level,” Coveney said.

Ireland’s economy would be hit hard by a disorderly Brexit and the most contentious part of May’s deal is an insurance plan aimed at preventing a hard border between the Irish Republic and Northern Ireland.

May is said to intend to “move swiftly” if her deal is voted down in parliament, as seems likely. The UK is due to leave the EU on March 29th so 80 days from now. One is reminded of Phileas Fogg’s race around the world but perhaps the more appropriate literary comparison is with Don Quixote and tilting at windmills, but this time in the Low Countries.

Indonesia is often seen as an emerging market bellwether with its high yields, strong economic growth and a reformist government, with foreign investors holding about 40 percent of local-currency bonds. The direction of its markets may provide clues as to whether the stress that swept developing nations last year may be coming to an end.

Federal Reserve Chairman Jerome Powell’s comments on Friday indicating a possible pause in rate hikes, an easing in China’s monetary policy, and hopes of improvement in trade tensions between Beijing and America have all combined to boost emerging markets on Monday.

“The rupiah looks to be on that nice catch-down trade given the Goldilocks’ moment that markets are reveling in,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore. “Fed’s Powell humming all the right notes out of the markets song book has gone a long way” in boosting the rupiah, he said.

Indonesia is a commodity exporter, has a large young population, an evolving manufacturing sector, and while now an energy importer is still an oil producer. With a reform minded administration it has exhibited relative strength this year not least because it got its currency devaluation done in 2015.

A link to the full report and a section from it are posted in the Subscriber's Area. 

In a speech at his swearing-in ceremony in Brasilia on Wednesday, Guedes promised a sweeping overhaul of the country’s state apparatus and business environment to unleash corporate potential and free future generations from debt.

"Private-sector pirates, corrupt bureaucrats and creatures from the political swamp have conspired against the Brazilian people," he said. "Excessive spending has corrupted Brazil." Bolsonaro has tapped Guedes, a graduate of the University of Chicago, to manage economic policy in a country hamstrung by rising debt, a gaping fiscal deficit and slow growth. Bolsonaro won the October election by a wide margin as part of a popular backlash against crime, corruption and economic malaise.

In his comments Wednesday, Guedes highlighted the urgency of the task ahead. "Our business class is chained down by interest rates, high taxes and labor costs," he said, adding that he believed the ideal tax burden would be around 20 percent of gross domestic product, rather than the current rate of 36
percent.

Earlier in the day, the new energy minister, Bento Albuquerque, said Brazil would deliver on plans to capitalize Eletrobras, prompting shares in the state-run company to jump as much as 9.7 percent. He added that he would seek a lower tax burden and few subsidies in the electricity sector.

Markets tend to reward the efforts of right-wing populists because they promise to streamline bureaucracy, cut regulation and boost economic growth; all of which tend to improve sentiment towards asset prices. Bolsonaro’s decision to appoint a University of Chicago economist as his finance minister is a signal, he has growth and employment as his first set of priorities and that is likely to be appreciated by investors.

The big drawdown that began in January represented a major inconsistency for what had previously been an impressively consistent trend. The subsequent ranging belied the churning that was taking place inside the major Wall Street indices as leadership narrowed to focus on the mega-cap technology companies.  Facebook peaked in the summer and Apple in October and that was one of the causal factors in the ensuing sell-off as large cap underperformance weighed on ETFs.



The fact that Advanced Micro Devices was the best performing share on the S&P500 this year is a testament to the extraordinary volatility we have seen in single stock names. The share opened in January at $10.42, peaked in September at $34.14 and closed today close to $18.32.

For all of the previously described reasons, the period that we are now in looks a lot like 1937.

Tightenings never work perfectly, so downturns follow.  They are more difficult to reverse in the late stage of the long-term debt cycle because the abilities of central banks to lower interest rates and buy and push up financial assets are then limited.  When they can’t do that anymore, there is the end of the long-term debt cycle.  The proximity to the end can be measured by a) the proximity of interest rates to zero and b) the amount of remaining capacity of central banks to print money and buy assets and the capacity of these assets to rise in price.  

The limitation in the ability to print money and make purchases typically comes about when a) asset prices rise to levels that lower the expected returns of these assets relative to the expected return of cash, b) central banks have bought such a large percentage of what there was to sell that buying more is difficult, or c) political obstacles stand in the way of buying more.  We call the power of central banks to stimulate money and credit growth in these ways “the amount of fuel in the tank.” Right now, the world’s major central banks have the least fuel in their tanks since the late 1930s so are now in the later stages of the long-term debt cycle.  Because the key turning points in the long-term debt cycle come along so infrequently (once in a lifetime), they are typically not well understood and take people by surprise.  For a more complete explanation of the archetypical long-term debt cycle, see Part 1 of “Principles for Navigating Big Debt Crises” (link).

So, it appears to me that we are in the late stages of both the short-term and long-term debt cycles.  In other words, a) we are in the late-cycle phase of the short-term debt cycle when profit and earnings growth are still strong and the tightening of credit is causing asset prices to decline, and b) we are in the late-cycle phase of the long-term debt cycle when asset prices and economies are sensitive to tightenings and when central banks don’t have much power to ease credit.

Both the Dow Jones Industrials and the S&P500 posted large upside key day reversals yesterday to signal lows of at least near-term significance. Neither followed through on the upside today but they did hold the moves. Considering just how much they fell since early this month there is certainly scope for a rebound but the true test of whether more than near-term support has been found will be in the extent to which they hold their lows.

China has also said it will suspend additional tariffs on U.S.-made vehicles and auto parts for three months starting on Jan. 1, adding that it hopes both sides can speed up negotiations to remove all additional tariffs on each other’s goods.

Bloomberg, citing two people familiar with the matter, reported on Wednesday that a U.S. trade team will travel to Beijing the week of Jan. 7 for talks.

A person familiar with the matter told Reuters last week that talks were likely in early January.

In yet another reconciliatory sign, China issued on Tuesday a so-called negative list that specifies industries where investors - domestic or foreign - are either restricted or prohibited.

The unified list is seen as another effort to address concern among Western investors that there is no level-playing field in China. Investment in key Chinese sectors, however, is still prohibited.

Gao said China would “comprehensively” remove all market access restrictions for foreign investors by the end of March, in areas not included in a foreign investment “negative” list published in June.

China has a lot more to lose from a trade war than the USA. While it is difficult to get accurate statistics on the health of the economy the simple fact that car sales are declining at a rather rapid pace is a clear signal the Chinese consumer is at least holding off on making purchases. Here is a link to an article from the Wall Street Journal covering the story and here is a section: 

In the frenzy, some companies became complacent, assuming growth would be endless and easy to capture, according to Mr. Gong and other analysts. Then the growth evaporated. Sales grew 3% in 2017 and declined 2% in the first 11 months of 2018.

China now has enough factories to build 43 million cars but will produce fewer than 29 million this year, according to consulting firm PwC. While foreign and domestic auto makers alike find themselves under pressure, the slowdown has hit those that misread the market hardest of all.

India’s ascent on the global stage has claimed another victory after its stock market overtook Germany to become the seventh largest in the world.

The Asian giant edged past the equity market of Europe’s largest economy for the first time in seven years, according to data compiled by Bloomberg. That means, after the U.K. leaves the European Union in March, the bloc would have only one country -- France -- among the seven biggest markets.

The move reflects India’s positive returns this year as companies’ reliance on domestic demand enabled them to avoid the meltdown in other emerging markets spurred by Federal Reserve tightening and a trade war between the U.S. and China. It also highlights the challenges facing the EU, including its future relationship with the U.K., a standoff with Italy over budget allocations and separatist clashes in Spain.
 

India is benefitting right now from the decline in oil and other commodity prices as well as the fact its absence of a big export-oriented manufacturing sector insulates the economy from strife abroad.

Here are the Key Takeaways from today's FOMC events:

The FOMC hiked rates a fourth time this year to a decade high, ignoring President Trump’s criticism, and lowered its outlook to two hikes from three next year.

Powell specifically endorsed the dots, citing them in his press conference as a guideline for the committee and a useful tool.

The committee tweaked its guidance to ``some further gradual increases’’ -- a more hawkish development compared with the alternative of dropping the guidance.

Powell said all meetings are live for possible moves next year, but gave no strong hints as to when the Fed would raise next.

There was unanimous support for the hike.

Powell said that Trump's comments had no impact on policy and that the Fed is committed to doing what it thinks is best.

Powell said financial conditions caused a slight downgrade in 2019 forecasts but no real change in the outlook.

Markets took FOMC and Powell as hawkish, with the yield curve flattening and stocks falling.

The dot plots suggest two interest rate hikes next year but Jay Powell basically said they are going to be data dependent next year. The one thing that stood out to me from the press conference was that no one asked questions about the pace of balance sheet run off. That says a lot.

“When the price is good, we have work, but when it isn’t, we have no money to pay the rent, no money for food, no money for the doctor,” said Ms. Poló, 56, standing on the side of the road in Baja California state, where the bus she was riding had broken down about three hours from the border.

Coffee prices have been stuck below the cost of production for the longest stretch since the global financial crisis, leading some producers to abandon crops and some to migrate for new jobs. The shift is being driven by currency fluctuations that are encouraging sales and production in Brazil, the world’s largest coffee producer, spurring a record crop that is driving down prices for other coffee-growing nations.

“We’re now back in real terms to where we were 20 years ago, when farmers abandoned land because they couldn’t make ends meet,” said Paul Rice, president and chief executive of Fair Trade USA, which works with 1 million coffee producers in 42 countries.

A 2017 study by Cornell University for Fair Trade USA placed the average cost of coffee production at $1.40 a pound. Coffee prices have been below that price for 20 straight months, the longest stretch since 2008, according to FactSet data.

When commodity prices fall below the cost of production supply destruction takes place and the lowest cost producer gains market share. For Robusta coffee the question is whether central America can remain competitive with larger producers like Vietnam and Brazil for Arabica.

Moore: We think we're in the later stage of the cycle. So, let's be clear, our barbell approach doesn't mean just hold an anchor in high quality, which we think you should, and then just swing for the fences and lower quality assets that seem to be de-rated.

That would be great if we didn't have any worries about policy — both the monetary side as well as the trade policy to consider. But what we think people should be focused on are companies that have excellent balance sheets, that have business models, that are sustainable through all parts of the cycle.

That's where we're not expecting to see huge amounts of earnings volatility, even if we continue to have a sequential economic growth slowdown. Although again, still above-trend, so still pretty good.

But also think about what areas of the market, whether it's industries or assets, have really fallen out of favor, like emerging markets this year. Places where the fundamentals haven't deteriorated, and be willing to take a bet on some higher-volatility, slightly riskier assets as well. So, this barbelled approach, don't take risk entirely off. But if you need to sleep at night a little bit better, make sure that there's big quality nut to rest on.

Ciolli: We keep talking about the possibility of an economic recession, but it does not seem like it's in your base case for 2019. However, you do mention that the table may be set for something in 2020. Can you outline your recession view and what, if anything, people can do next year to prepare for that if it does transpire in 2020?

Moore: I think actually it's consensus at this point that 2019 is not the year that we have the US-led recession.

I also just want to note something here. A lot of times when we talk about recession in our outlook, and then also talk about recession in the market, it does tend to be a little US-focused. And that we need to recognize that different regions and countries and markets are at different points in their cycle. I think about this a lot as an equity person. The profit cycle is really different, region from region. And we had seen some profits recessions in non-US markets, even while the US continued to make new highs.

So, that aside, in 2020 and onwards, we think that recession probability increases for the US. Part of that is because we are just at the later stage of the cycle. We also know that it takes some time for tighter monetary policy to really play out in the economy and have an impact. It's possible that we'll see a slowdown in activity at that point, or greater inflationary pressure, frankly, from higher wages feeding through. It's not our base case at this moment, but it's a non-zero probability.

We recognize that investors need to be positioned for that eventual slowdown, well in advance. As you know, equity markets tend to price in these changes in economic growth far before we would actually get the data. We just want to have quality portfolio construction and make that a significant thing that we're focused on in 2019. So that we don't get to 2020, when the economic data starts to soften a little bit, and find ourselves flat-footed.

There has been a clear rotation out of the most aggressively priced portion of the market and into clearly defensive sectors. Talking about the clear benefits of investing in high quality balance sheets is a hard sell when growth stocks are powering ahead. However, when the lustre comes off the shiniest new economy names investors rediscover cashflows and dividend discounting.

Europe’s retail crisis is spreading from bricks-and-mortar stores to e-commerce as Asos Plc plunged the
most in 4 1/2 years after warning that Christmas shopping got off to a disastrous start.

The gloomy update from a U.K. online retailer that competes with Amazon.com Inc. and has furnished fashions to the likes of Meghan Markle shows that retail weakness is widespread in the runup to the holidays.

Asos fell as much as 43 percent Monday in London, wiping more than 1.4 billion pounds ($1.8 billion) off the market value. The news dragged down other online retailers like Boohoo Group Plc and Zalando SE, as well as store operators like Marks & Spencer Group Plc and Next Plc.

“This goes against the script,” said Stephen Lienert, a credit analyst at Jefferies. “It was supposed to be bricks and mortar that’s dying and online is the future, but that headline gets ripped up today.”

Brick and mortar and online retailers share one common factor. They both rely on consumers to be ready to buy what they are selling. That works well when the economy is doing well but Europe’s economies are under pressure at just the same time the ECB has ended its quantitative easing program.

The impact of sterling’s depreciation has been underwhelming for a few reasons. For one thing, firms are locked into global supply chains and rely heavily on foreign inputs. Half the components in a “British-made” car come from abroad. If exports rise, so do imports.

The economy is also highly geared towards high-value-added stuff like pharmaceuticals. Buyers of these goods and services are insensitive to price changes. Not all industries fit this mould, notably tourism. Dollars buy more rides on the London Eye than before. In June visits by foreigners (including businesspeople) were up by 7% year on year. Yet visitors seem to be economising: their overall spending in real terms is no higher than before.

Optimists maintain that the benefits of a depreciation take a long time to filter through. Firms need to get finance together and seek out new markets to exploit their new competitive advantage.

The case of Dr Fox’s ice-cream industry, however, suggests that exporters are in no rush. Though export revenues have risen, this largely reflects the fact that with a weaker pound a given quantity of foreign-currency sales leads to higher sterling revenues. In the first half of 2017 firms exported about the same quantity of ice cream (600m scoops, by our reckoning) as in the same period the year before. Firms seem to be using sterling’s weakness simply to bank bigger profits, rather than to move into new markets.

It is a similar story across the private sector. Profitability is near record highs yet investment is stalling. Last year non-financial firms stuck an extra £74bn ($96bn) in their bank accounts, by far the largest figure on record. Firms’ tentative behaviour should be a wake-up call for ministers, who expect them to lead the charge of a reorientation of British trade away from the EU after Brexit.

All other factors being equal a depreciating currency boosts the prospects for exporters because they gain competitiveness. The bigger the domestic export sector the more immediate the boost. In the UK’s case the domestic manufacturing sector has been in decline for decades, so not only will it take time to rebuild confidence enough so that entrepreneurs become more ambitious but the devaluation would need to persist.

After a relative tech IPO dry spell of 2015 and 2016, there’s less of a stock feeding frenzy around each new tech listing now. Snapchat’s valuation has moved from outlandish at its IPO to tame.(1) Most other tech companies that went public in the last couple of years also trade relatively in line with their older peers. That shows investors have grown more discriminating about when to pay a rich price for fast-growing companies. I think that temperance will carry over to IPOs for Lyft and Uber. 

Ultimately, though, Uber and Lyft have more to worry about than IPO order. Uber in particular has yet to prove its basic business model makes sense after 10 years of history. Economic and market conditions are deteriorating. In the U.S., people are openly talking about the “R-Word” — recession. Those are all good reasons to hurry and go public. But Uber and Lyft shouldn’t overthink the advantages of hitting the stock market first.  

At The Chart Seminar we ask this question; when is the best time to sell your company? The answer is simple when you think about it. When you can get more for it than you think it is worth. The founders and early investors in multi-billion Dollar unicorns have a clear incentive to diversify exposure by seeking to sell when the going is good, because it will obviously be a more difficult prospect when the going is bad.

Economists say such consumption taxes that reduce pollution and other harmful effects are an efficient way for the government to raise revenue. But the planned move sparked the worst riots to hit Paris in decades on Saturday, leaving the city’s shopping and tourist center dotted with burning cars and damaged storefronts. Protesters vandalized the Arc de Triomphe, rattling Mr. Macron’s administration and the country.

The rise in French tax revenues was in line with a longstanding trend across wealthy countries. The average tax take across the organization’s members edged up to 34.2% of GDP in 2017 from 34% in 2016 and 33.8% in 2000 as governments continued efforts to narrow their budget gaps and limit the rise in their debts that followed the global financial crisis.

Of the 34 countries for which 2017 figures are available, 19 saw a rise in tax revenues relative to the size of their economy, with Israel reporting the largest increase. Mexico continued to record the lowest tax take at 16.2% of GDP, down from 16.6% in 2016.

Social democracy is broken when a non-progressive tax like putting duty on fuel is considered a good idea by an administration that is made up of ex-socialists. Transportation is as much a necessity for the majority of people as clothing and food so why should it be singled out for oppressive taxes? The powers that be, will argue it is aimed at cutting pollution but the reality for most people is simply less money left over at the end of every month. Meanwhile, the well-off, who have luxury of having to commute less or can afford electric vehicles don’t pay the tax.

You have mentioned that the graph showing central bank assets is one of the most important. Consequently, I wondered how the fact that they are reducing this tied in with your moderately optimistic views on the stock market. Do you think the US Fed Reserve will continue to reduce its balance sheet given recent market turmoil?

Thank you for this question which I believe is of general interest and is something I have also been pondering. There are two reasons the chart has been contracting since March. The first is because the Federal Reserve is reducing the size of its balance sheet and other central banks are reducing infusions. The second is the strength of the Dollar has flattered the contraction by reducing the relative value of other currencies held on global central bank balance sheets.

A link to the full report is posted in the Subscriber's Area. 

By this stage subscribers much be wondering why I am posting so many reports that express a bearish view. The simple fact of the matter is I am reposting these reports in an effort to highlight the fact that the last time my inbox was so filled with bearish reports was in the immediate aftermath of the credit crisis.

It seems that the one thing every analyst has learned from the credit crisis is to be hyper alert to any sign of trouble lest they miss out on calling the next big decline. It occurs to me that the investment community is falling into the trap of fighting the last war all over again, even though we are now in uncharted territory in terms of both monetary policy and the quantity of debt outstanding.

A link to the full report is posted in the Subscriber's Area. 

How neutral is neutral is the question Fed watchers are asking this morning. If the ephemeral neutral level is between 2.75% and 3.5% then the middle of the band is over 3% but the lower end of the band is not far from where the rate is set right now and will be even closer after the December hike. That leaves the Fed with the scope to declare “job done” or not as circumstances dictate.

A link to the full report is posted in the Subscriber's Area. 

As if the Fed’s quantitative tightening were not enough, the Chinese economy which is the destination for a good proportion of Europe’s exports has been slowing. That’s before we even begin to think about the threat represented by the Italian populists or the ongoing Brexit saga. With the ECB ending its quantitative easing program is it any wonder European markets have been underperforming.

A link to the full report and a section from it is posted in the Subscrober's Area. 

Emerging markets have been under the most acute pressure from quantitative tightening not least because of the quantity of US Dollar loans outstanding. The US Dollar has been the key variable in the lack of appetite for emerging market assets. Therefore, any sign of waning demand for the Dollar or increased supply, stemming from a slowing pace of balance sheet run-off would be welcomed by emerging markets. 

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities.

2018 has represented a loss of uptrend consistency for the S&P500 following a particularly impressive and persistent advance in 2016 and 2017. Many people are therefore asking whether this is a medium-term correction or a top. There is perhaps no more important question so let’s just focus on that for the moment.

Glad you had a good meeting in London the week before last. Would have been there, but still recovering from breaking a femur in June.

Two things that might interest you.

First, from a John Mauldin letter:

Quick anecdote from my time in Frankfurt. I spoke for fund manager Lupus Alpha to approximately 250 pension fund managers, representing most of Germany’s retirement monies. I asked for a show of hands on whether they liked being part of the European Union. Almost everyone raised their hands. I then asked if they thought participating in the euro was a good thing. Probably 80% raised their hands. When asked who doesn’t like the euro, maybe 10% of the hands went up.

Then the money question. I asked if they would be willing to take Italy’s debt and all the debt of every eurozone member and put it on the European Central Bank balance sheet, with caveats about controlling national budgets. Fewer than 20% of the hands went up.

I then engaged the audience further, saying, the last two questions were essentially the same. If you want to keep the euro, you’ll have to do something about the imbalances between the countries and debts. No monetary union in history has ever survived without becoming a fiscal union as well. Even reminding them that failure to do this might cause the euro to break up and bring back the Deutschmark didn’t seem to change many opinions. I reminded them that a Deutschmark would mean a serious recession/depression in Germany as it would raise the price of all German exports by at least 50%. Mercedes and BMWs are expensive enough for Germany’s customers, let alone at a 50% price hike.

This audience should have easily accepted the argument for putting all European debt on the ECB balance sheet. Imagine if I asked the typical German voter, especially those in rural areas. That tells me Europe could have a bumpier future than I thought.

Second, a piece from the FT (as an attachment) about whether property is still a long-term bet for retirement. Conclusion: it's not.

Thanks for all great recent pieces. I really liked the Ray Dalio discussion.

Have a great Christmas.

Thank you for this informative email and I am delighted you are enjoying the Service. The simplest way to summarise the contradiction at the heart of the Eurozone question is “you can’t be half pregnant” The EU is heading towards federalism or it will break up. The status quo is already being challenged and it will continue to be challenged as a long as millions of people endure lower standards of living.

A link to the full report is posted in the Subscriber's Area.

US Corporate Profits spent about four years ranging between 2012 and the end of 2016 and then broke out on the upside. The measure is reported in arrears with a one quarter lag so we will not have another reading until the end of this year and that will reflect the third quarter.

Bannan agreed and said the current macro environment is very strong, with high rates of GDP growth, low inflation and a large trade surplus.

‘The government has undertaken a lot of reforms over the last decade to open up the economy and encourage investment in vital infrastructure.

'This has allowed Vietnam to industrialise and attract huge amounts of FDI with a lot of production relocating from Northern Asia to Vietnam,’ said Bannan.

'As the Vietnamese move from virtually subsistence existence in rural areas, where 65% of the population still live, to work at these FDI invested factories there is a monumental shift in household wealth. I have experienced these developments first hand, having spent 5 years living in Saigon.'

Vietnam is a beneficiary of reshoring from China regardless of the outlook for deteriorating trade relationships with the USA because wages are so much cheaper there. The nation’s Communist Party is more akin to China’s thirty years ago than the organisation today and with a large young population Vietnam is hungry for growth.

Perhaps the most interesting part of the discussion focuses on the rate at which the cost of producing batteries is accelerating to almost 20% per annum.
 
That holds out the prospect of batteries becoming commoditised in the same way as solar cells when production comes on lines. For the shares of battery producers that is likely to represent a challenge but not quite yet considering the supply inelasticity argument that still prevails within the market.

Nasdaq Biotechnology Index encounters resistance in the region of the trend mean and will need to bounce from the above the October low near 3200 to confirm support building is underway.

Volvo Cars is shaking up production plans for much of its lineup in an effort to dodge tariffs the U.S. and China have slapped on auto imports.

The Swedish automaker owned by China’s Zhejiang Geely Holding Group Co.has canceled plans to export S60 sedans from its first U.S. plant to China, just months after starting production. Volvo also will stop importing XC60 sport utility vehicles and dramatically reduce shipments of S90 sedans from China to the U.S.

Volvo will pivot to mostly exporting S60s from its factory near Charleston, South Carolina, to focus mostly on supplying the American market, according to Anders Gustafsson, the president of the carmaker’s U.S. unit.

“We’ll go at this change not with a smile, but we know what we need to do,” Gustafsson said. “We have a global manufacturing structure that helps us maneuver in these tough waters.”

Volvo is a Chinese company so the next step will be to deprioritise investment in US based production and to make big decisions about which models to sell where. The automotive industry has long depended on the ease of access to a global supply chain and the ability to manufacture cars in one country and sell them somewhere else. The prospect of the trade war persisting is likely to shape corporate decisions well into the medium term.

On a call with reporters, Hermès executive chairman Axel Dumas dismissed fears about a slowdown in China, which analysts and investors are concerned may come from a trade war with the US. “We are still strong all across the board in China,” said Mr Dumas. “We don’t see any change of pace at this stage.” Comparing the slightly slower third-quarter performance of Asia-Pacific to the overall figures for the region in the first nine months of the year, he said that “the differences for me are not material.”

Earlier this month luxury rival LVMH said that Chinese border authorities are stepping up searches on travellers, looking for luxury items brought back from cities like London and Paris. Mr Dumas said he believes that fluctuations in the euro have a greater impact on Chinese tourists shopping in Europe than fears about tighter border controls.

This month Hermès followed in the footsteps of Louis Vuitton and Gucci by launching its own ecommerce website in China, as the group seeks to increase its exposure to the world’s largest and fastest-growing market for luxury sales.

It is interesting that the company has reported it is seeing now lack of demand for its products in China but the price fell anyway. That is a clear example of the market being a discounting mechanism since what investors probably wanted to hear was that demand was growing strongly.

Mrs H was a fully self-funded retiree, owning a modest home in the outer northern suburbs of a capital city, living off the income from a portfolio of direct shares and some bank deposits. Her assets, other than the home, totalled $650,000, with $50,000 in non-income bearing assets. Of her investments, $500,000 are invested in fully franked dividend paying Australian companies and $100,000 invested in term deposits and cash. Mrs H is ineligible for a part aged pension, since her assets exceed the maximum assets test level (currently $564,000 for a single homeowner).

Mrs H currently has a taxable income of $30,571. The $100,000 in deposits only earns $2,000 in interest, while the share portfolio yielded an average 4% cash dividend providing $20,000. Importantly the dividends were all fully franked, receiving $8,571 in franking credits (these are included in taxable income). With no tax payable due to the Seniors tax offset, Mrs H received a full refund of her franking credits, considerably boosting her cash income from $22,000 to $30,571.

Since Mrs H is not eligible for any pension entitlements, she would no longer receive those franking credits under the ALP proposal. The loss of $8,751 would reduce Mrs H’s income by 28%, reducing her weekly income by $165, from $588 per week to just $423 per week.

This means her income would actually fall below the full aged pension for a single homeowner ($23,889 p.a. or $916.30 per fortnight /$458.15 per week).

Full franking on dividends is the number one topic of conversation that comes up when I have conducted The Chart Seminar in London. It has been one of the primary factors in Australian investors tending to favour their domestic market’s dividend paying stocks. Significant changes to the tax structure for dividends and pension could have a significant knock-on effect for the banks in particular because so many investors own them for income.

Yesterday’s article in The Wall Street Journal raises an interesting issue that may be interesting for discussion (see attached and the link - https://www.wsj.com/articles/octobers-market-rout-leaves-investors-with-no-place-to-hide-1540978259 ).

“Adding to the stock market’s anxieties has been a rare simultaneous drop in bond prices that has pushed yields near their highest levels in years. The dual breakdown in stock and bond prices has upended investors’ traditional safety tool kit of buying Treasurys during periods of volatility, leaving many with losses.”

Traditional investment portfolios of 60% equities and 40% bonds lost more than 3% in October and are down 1.2% this year, on pace for a rare annual loss that was last seen in 2008, as well as during volatile periods in 1990, 2001 and 2002, said Luca Paolini, chief strategist at Pictet Asset Management, which manages $191 billion. Even investors who are heavier on fixed income would still be in the red, with allocations of 75% bonds and 25% equities falling more than 2% this month to drag their performance down 1.1% for the year… Declines in bond prices, meanwhile, have exacerbated investors’ pain. Annualized losses among U.S. Treasurys and investment-grade bonds are at 9.7% and 4%, respectively, the third-steepest declines since 1970, according to a recent Bank of America Merrill Lynch report.”

Portfolio with 60% equities and 40% bonds allocation has been the most traditional advice for individual investors for decades. But I just thought, those were decades of the secular, almost 40-year bull trend in the bond market. If, as you and David often say, we are now witnessing the beginning of the secular bear market in bonds, then this 60-40 allocation represents troubles ahead. Bonds will probably stop being the same safe haven they were in the past. Yes, they will continue to provide some stability to a portfolio in a sense that they won’t fall 10% as equities but instead of rising in times of turmoil, they will also slump.

If this is the case, how allocation can be changed and where investors will look for safe heavens?

As always, it would be interesting to know your view.

In a period of disinflation or deflation fixing the interest rate you receive works wonderfully because its value increases over time. That has been one of the primary tailwinds for fixed income portfolios for decades. If on the other hand you are looking at a time of rising interest rates and rising yields then floating rate instruments become more attractive.

Cross-border e-commerce1 has developed into a large, quickly growing ecosystem – and has become a great success story for many e-tailers, meaning retailers and manufacturers selling their products over the Internet directly to end consumers.

This success can be shown in real numbers: in 2015, the cross-border e-commerce market accounted for USD 300 billion GMV2, about 15% of e-commerce overall. This rapid growth, however, has just begun and will continue: the cross-border market is expected to grow by about 25% annually until 2020 – nearly twice the rate of domestic e-commerce and a growth rate that most traditional retail markets would dream of achieving. In 2020, it is expected to account for about USD 900 billion GMV, translating into a roughly 22% share of the global e-commerce market. This growth momentum yields unrivaled opportunity for retailers and manufacturers. As this report will show, crossborder e-commerce is not an e-commerce giant story – all types of manufacturers and retailers will be able to successfully go global.

Even beyond 2020, all evidence shows that demand for products from abroad is not going to recede. That said, considering the patterns according to which e-commerce companies expand their regional footprint today, one could assume that every e-commerce purchase will eventually become a local purchase. This is mainly due to the higher cost efficiencies that localized fulfilment and the quicker shipments that shorter distances naturally promise at first glance. However, even e-commerce giants such as Amazon, Alibaba, and Zalando, which already operate local distribution centers in several countries, ship a significant part of their sales cross-border. This is driven by, for instance, the enormous number of stock-keeping units (SKUs) offered by some of these players. But having slow-turning SKUs sitting in inventory everywhere – a prerequisite for pure local fulfilment – is much more costly than shipping a certain share of orders cross-border. And in order to fulfill consumers’ wishes for faster delivery, many e-tailers offer premium international shipping options to their customers, e.g., for a surcharge. This is testimony that cross-border is not a passing phase or trend, but rather a significant staple in the e-commerce market that requires premium shipping.

A link to the full report is posted in the Subscriber's Area.

The global postage and shipping industry represents a number of competing trends right now. On the one hand you have companies like Amazon which is prevailing on its largest sellers to expand internationally by making their products available in countries like Canada, Mexico, UK, Germany, France and Spain. That requires bulk shipping of inventory to its international fulfilment centres and often requires an increased compliance cost to manage multiple sales tax regimes.

More long nights lie ahead. Brazil’s nascent recovery from the worst recession in history hinges on his success, and the nation’s benchmark index has climbed 13 percent since mid-September -- close to its all-time high -- on optimism Bolsonaro would win, giving Guedes a chance to implement business-friendly policies. They include dozens of privatizations, a massive reform of the pension system and a revamp for the nation’s byzantine tax code.

Bolsonaro, who’s admitted he has only a “superficial understanding” of economics, has said he’s placing full control over the nation’s finances in the hands of Guedes, who was trained at the University of Chicago and founded both a private equity firm and a think tank for liberal economic theories. Yet for all that success, he’s had zero experience in implementing public policy.

“One thing’s for certain: Guedes is the guarantor of Bolsonaro’s alleged conversion to liberalism, and if for any reason he leaves the government, there will be an earthquake in markets,” said Ricardo Lacerda, chief executive officer of Sao Paulo-based boutique investment bank BR Partners.

How big an earthquake? One top market analyst said Brazil’s benchmark stock index could tank as much as 40 percent, reaching levels not seen since the 2016 impeachment of Brazil’s former president, Dilma Rousseff. While that’s probably overstating things, it’s the kind of hyperbole that’s characterized Brazil’s election rhetoric ever since polls made it clear in recent months that Bolsonaro was heading to victory.

 

It’s a truism but the market likes market friendly administrations. The potential for Bolsonaro to tackle engrained corruption, grant the central bank independence and streamline regulations have resulted in the Real rallying to test the region of the trend mean. Investors are probably now likely to wait and see what the new administration’s program for government will be before getting more bullish.

BASS: You know, the Chinese are in the worst financial situation they’ve been in, in the last 17 years because they operated domestic economy where they control the printing press, they control the press narrative, they control the price level and they control their people as we’ve seen them detain over a million of them in Jingjang for their religious preference. So they can change a lot of things domestically, but their -- the arbiter of the Chinese plan is their cross rate or their exchange rate with the rest of the world. China Inc.’s working capital account is now going South because they’re running what we believe to be a structural and more permanent deficit on the current account. And so, i.e., their working capital, their dollar balance whether it’s dollars, euros, yen or pounds, it’s mostly dollars. And their dollar balances is headed south. And so, the U.S. is in a very particularly interesting negotiating position today. We are in the strongest negotiating position we’ve ever had against China. They’ve kind of leveled the playing field a little bit more with their, let’s say, subversion of WTO rules, their intellectual property theft and basically everything they’ve done to take advantage of the U.S. over the past 15, 17 years.

China has the domestic economy on lock down and has an epic local government debt issue. It also has some of the largest deposits of any banking sector as well as large sovereign reserves. The only clear way to match liabilities with assets while also depreciating the currency, to support the export sector, is to avoid capital flight.

The global environment remains positive, although growth is moderating due to the poorer performance of emerging economies. The impact of protectionism is so far limited

In Argentina, a new round of capital flight and currency depreciation in August led to a further fiscal adjustment, the revision of the agreement with the IMF and the abandonment of the inflation target regime, which means an end to the economic program of President Macri’s first two years

The new monetary-exchange rate scheme seeks to control FX volatility by absorbing all surplus liquidity in pesos and targets holding the nominal monetary base constant until June 2019 setting up broad bands within which the FX can float, with limited intervention by the Central Bank outside this band

In 2019 the government will attain primary fiscal equilibrium with spending cuts and a new tax on exports, and the programme with the IMF ensures that the financial programme can be met with limited roll-over

The currency crisis and the new monetary and fiscal tightening lead us to revise our forecast for GDP growth in 2018 and 2019 downwards and our estimates of inflation upwards. The sharp real depreciation of the peso and the recession will result in rapid correction of the current account deficit

A link to the full report is posted in the Subscriber's Area.

When is the best time to buy into an emerging market? That is a question I think a lot of people will be contemplating at the moment because emerging markets are trading at a substantial discount to developed markets and particularly Wall Street.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

The problem for pro-Brexit camp in May’s Cabinet is that what is agreed as a fix for the Irish border could morph into a long-term status quo for the whole U.K. Businesses have long called for the U.K. to remain in the customs union to ease trade with the bloc, an option EU chief negotiator Michel Barnier has repeatedly offered as a way out of the stalemate. In parliament, the main opposition Labour party is also pushing for a customs union.

The thorny question of how to avoid a hard border between the U.K. and the Irish Republic has held up progress in Brexit talks since March. Time is running out for the EU and the U.K. negotiating teams to settle the terms of the divorce and sketch out the future trading arrangements before Britain leaves the bloc on March 29.

A summit of EU leaders in Brussels this week had been billed as the moment when the exit agreement would be struck but instead broke up with major issues still unresolved. The key question remains how to come up with a backstop for the Irish border.

UK business needs have to have some confidence in what its trading relationship with the EU is going to be post Brexit. The EU needs to blunt the threat the UK will set itself up as a freewheeling capitalist enclave that would compete and win inward investment. Therefore, both parties have a clear interest to reach a deal but the result of the negotiations are not going to be what many people thought they were voting for when the approved Brexit.

The withdrawal is part of a concerted push by Mr. Trump to counter China’s dominance and punish it for what the administration says is a pattern of unfair trade practices. The move is expected to be announced on Wednesday, according to senior administration officials.

The Universal Postal Union treaty, first drafted in 1874, sets fees that national postal services charge to deliver mail and small parcels to countries around the world. Since 1969, poor and developing countries — including China — have been assessed lower rates than wealthier countries in Europe and North America.

While the lower rates were intended to foster development in Asia and Africa, Chinese companies now make up about 60 percent of packages shipped into the country, taking advantage of the lower rates to ship clothing, household gadgets and consumer electronics. Many websites now offer free shipping from China, in part because of the cheap postal rates, administration officials say.

Privately-owned Chinese companies are among the largest third-party sellers on major internet venues like eBay and to a lesser extent Amazon. A US based seller pays a minimum of $2.66 for a small package with tracking from the US Postal Service. Sellers from China pay domestic local rates on international shipping. It might take longer to arrive but there is no way to beat Chinese sellers on price and particularly for small-sized goods.

“The eyes of the world are on Canada and Canadians should feel very proud, because people have been fighting for decades to make this moment a reality,” said Brendan Kennedy, chief executive officer of Tilray Inc., the largest cannabis company by market value.

After running up dramatic gains in the lead-up to legalization, cannabis shares failed to join the party Wednesday. Aurora Cannabis Inc. had slumped as much as 15 percent by 10:17 a.m. in Toronto for the worst drop since February, before paring losses. Canopy Growth Corp. was down 3.4 percent at 1:15 p.m. and Tilray Inc., the world’s largest pot company by market value, fell 6 percent.

Medical marijuana has been legal in Canada since 2001 but it’s only been about four years since the first cannabis companies began to list on Canadian exchanges. In that short time, about 140 pot companies have gone public in Canada, with a combined market value of more than C$60 billion ($48 billion).

I’m reminded of Mark Twain’s quip that reports of his death are greatly exaggerated. There was certainly some evidence of buy the rumour, sell the news today as some people took the day of legalisation as an opportunity to realise profits but the declines seen need to be put in the context of the advances seen over the last couple of months and the broad consistency of the medium-term trends.

A link to the full note and section from it is posted in the Subscriber's Area.

There is no one factor that investors can point to that offers a clear reason for why the market pulled back so sharply on Wednesday. Instead a confluence of events triggered stops which has resulted in a significant number of US large cap shares closing what were somewhat overbought conditions relative to their respective trend means.

Lula, Dilma and the labor party known as Partido Trabalhista PT, ruined Brazil. They robbed state companies and pension funds blind and ruined them. They instituted massive corruption as a means to collect funds in order to stay in power. They used the Development Bank BNDES to finance tin pot dictators in Africa and Latin America so as to be able to siphon off money for the party. PT caused Brazil’s worst recession in history, the highest rate of unemployment ever and a large reduction in GDP per capita. Wide spread corruption in all three branches of government and large scale hiring of public servants for electoral purposes were made a state policy. Public schools and universities were used for ideological purposes. Their quality dropped to astonishing levels, such that students are science ignorant and can neither interpret a text nor think clearly. They are unemployable. Laws were put up for sale. Of 1000 Medidas Provisorias (express approval laws) proposed by PT, 900 correspond to the sale of privileges (exemptions, subsidies, etc) The media was put under control through the tap of state publicity so that PT and sympathizers control TV, newspapers all NGOs and opinion pollsters. PT allied itself with Organized Crime which now controls Rio, is a major threat all over the country and recently tried to murder Bolsonaro. All this has caused a massive revolt, so that the Bolsonaro vote is far more an expression of anti-PT disgust than for the candidate himself. He was the only one to voice matters clearly. By far the least bad choice.

Thank you for this on ground perspective from Sao Paolo. A bull market paves over a lot of cracks in people’s willingness to tolerate declining standards of governance. No one was worried about all of the issues you detail above when commodity prices were surging and there was money for everything. It was only when commodity prices collapsed and funding evaporated that the extent of corruption was revealed. This is about as close to Warren Buffett’s adage “you don’t know who has been swimming naked until the tide goes out”.

The more recent manipulation is different from the one described in the Bloomberg Businessweek report last week, but it shares key characteristics: They’re both designed to give attackers invisible access to data on a computer network in which the server is installed; and the alterations were found to have been made at the factory as the motherboard was being produced by a Supermicro subcontractor in China. 

Based on his inspection of the device, Appleboum determined that the telecom company's server was modified at the factory where it was manufactured. He said that he was told by Western intelligence contacts that the device was made at a Supermicro subcontractor factory in Guangzhou, a port city in southeastern China. Guangzhou is 90 miles upstream from Shenzhen, dubbed the `Silicon Valley of Hardware,’ and home to giants such as Tencent Holdings Ltd. and Huawei Technologies Co. Ltd.

The tampered hardware was found in a facility that had large numbers of Supermicro servers, and the telecommunication company's technicians couldn’t answer what kind of data was pulsing through the infected one, said Appleboum, who accompanied them for a visual inspection of the machine. It's not clear if the telecommunications company contacted the FBI about the discovery. An FBI spokeswoman declined to comment on whether it was aware of the finding.

There is an air of “shutting the barn door after the horse has bolted” to this reporting since the revelations date from earlier this year and whatever data was available has likely already been stolen. It is reasonable to assume that China has as much data about everyone in the West as it could want and that cyberwarfare is certainly going to be a part of any future conflagration.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities. 

For others, Italy’s euroskeptic government is just the embodiment of the populist sentiment taking root across Europe, which could threaten the bloc’s future and weigh on the euro for the months or even years to come.

Borghi, head of Italy’s lower house budget committee and a well-known euroskeptic, said in an interview on Radio Anch’io that “Italy, with its own currency, would be able to resolve its problems.”

“The comments about Italy having its own currency have touched a sore point,” said Jane Foley, head of foreign-exchange strategy at Rabobank International. “While the return of the lira would be almost impossible and hugely inflationary even if it could happen, the fact that the remarks can be read as anti-EMU sentiment are worrisome.”

The response of the market to the Italian government’s decision to splurge on its budget has been predictable and yields broke out to new recovery highs today. Populist rhetoric has been very vocal in saying they are not afraid of the spread but they have not yet had a taste of what higher borrowing costs will mean for the economy.

Australia’s property slump has reached the one-year mark as the nation’s two major cities have become the biggest drag.

National dwelling values dropped 0.5 percent last month, weighed by declines in Sydney and Melbourne, according to CoreLogic Inc. data released Monday. Prices in the two east coast cities, which make up more than half of the national value of housing, have fallen 6.1 percent and 3.4 percent respectively from a year earlier.

“Sydney and Melbourne are now the primary drag on the national housing market performance,” taking over from regions that were impacted by the mining downturn, CoreLogic’s head of research Tim Lawless said. Values have fallen greatest among the most expensive properties as lenders curb their appetite for high debt to income ratio lending, he said.

The RBA has been reticent to raise interest rates because the Australian mortgage market is dominated by floating rate loans. With prices already elevated and private sector debt as a percentage of GDP among the highest of any developed market the fate of the property market is a major arbiter in how well Australia’s economy can be expected to perform.

Mr Di Maio hailed the agreement as a “historic day”. “We made it!,” he said as he emerged from a balcony at Rome’s Palazzo Chigi, where the meeting took place.

“Today we have changed Italy! . . . For the first time the state is on the side of the citizens,” he said as ministers and members of parliament from his party hugged each other on the square outside.

Matteo Salvini, leader of the hard right League, part of the coalition and deputy prime minister alongside Mr Di Maio, also welcomed the agreement on spending, saying he was “fully satisfied with the objectives achieved”, which would include his party’s pledges for tax cuts and a reversal of unpopular pension reforms dating back to 2011.

Mr Tria, who is not affiliated with either party and was installed only after Italian president Sergio Mattarella rejected the coalition’s first choice for finance minister, had been pressing for a deficit number as low as 1.6 per cent of GDP going into the meeting.

A 2019 deficit of 2.4 per cent of GDP would represent a significant fiscal expansion from the 1.6 per cent target for this year agreed by the last centre-left government, and would be three times the 0.8 per cent number previously planned for next year.

Italy’s debt is BBB, which is still investment grade, but the yield trades like it is rated BB which is not investment grade. The populist administration has stated they are not afraid of the spread but one wonders if they have any conception what a downgrade to junk would do to demand for Italian debt. Large pension funds which have been gobbling up Italian debt to capture the higher yield would be forced to sell in the event of a downgrade. Meanwhile the ECB is winding down its purchase program so there will be a hole in demand for the bonds.

H&M’s inventories have been a persistent problem, rising steadily as the Stockholm-based fast-fashion chain failed to keep up with consumers’ tastes and was struck by logistics woes.

The company says it’s working through the excess stocks and will be able to scale back discounting as a result, even as it irons out its supply problems. “We are in a better position now than we were last year,” CEO Karl-Johan Persson said on a conference call Thursday. “We’re buying less and being smarter about our purchases.”

The shares soared as much as 13 percent in Stockholm trading. Analysts at RBC Capital Markets pointed to H&M’s forecast that fourth-quarter markdowns will be about flat with last year’s, as well as a third-quarter gross margin that beat estimates.

Fast fashion has relied on footfall at its stores but faces the twin challenges of discounters like TJMaxx and Ross Stores as well as the evolution of online sales like Amazon’s own brand goods and Stitch Fix. The challenge for the sector is not simply to ensure they are on trend but to contain prices in order to remain competitive. That has represented a painful challenge for companies like H&M and Inditex.

China is said to be planning to cut the average tariff rate it charges on imports from the majority of its trading partners as soon as next month. On Wednesday, Premier Li Keqiang his government wouldn’t devalue the currency in order to boost its exports amid the trade war.

“When we get days where there isn’t trade and tariffs escalation, which is in the news with us every day, market participants can focus more on fundamentals, and fundamental drivers continue to paint a pretty equity picture,” Leo Grohowski, chief investment officer at BNY Mellon Wealth Management, said by phone. “We’re striking a nice balance between good economic news and not becoming concerned yet about inflation.”

The Dow Jones Industrials Average hit a new high and the Dow Jones Transportations Average is trading within striking distance of another new high. While Dow Theory does not tend to get a lot of coverage these days it would be hard to argue that we are presented with anything other than at least a short-term bullish environment.

The market views a 25 basis point Fed rate hike next week as a near certainty, based on fed fund futures. Contracts on Thursday showed more than 45 basis points of total tightening by the end of 2018. Focus is increasingly shifting to the outlook for next year, with investors moving closer to the central bank’s projected path of three rate hikes for 2019.

That won’t be enough to prop up the greenback, according to Noelle Corum, an Atlanta-based portfolio manager in Invesco Ltd.’s fixed-income group. As global growth improves and market participants start to speculate about policy changes from the European Central Bank and Bank of Japan, the dollar’s support from Fed hikes and trade tensions will wear off, she said.

“Going into year-end, we would expect fundamentals will begin to drive markets again, and this will drive the dollar weaker,’’ said Corum, whose group manages $235 billion. She forecasts the greenback will depreciate to $1.20 per euro and weaken to 104 yen per dollar by year-end.

US Treasury yields popping above 3%, not least because of the dearth of demand following the front loading of pension contributions that ended on September 15th, has been a catalyst for both bond and Dollar weakness this week.

A link to the full report is posted in the Subscriber's Area. 

A link to the full report and section from it are posted in the Subscriber's Area.

Governance is Everything and this is doubly true in emerging markets. The Mahathir administration has made a point of trying to recoup some of the losses due to graft, not least 1MDB, and is taking a more forthright stand against the debt trap infrastructure projects the last government signed with China. These are positive outcomes and suggest standards of governance are improving.

Food manufacturers have been early adopters of new technologies from canning to bread slicers, and vision automation has been used for many years for tasks such as reading bar codes and sorting packaged products. Leaders now are finding the technology valuable because robot eyes outpace the human eye at certain tasks.

For years, Tyson Foods Inc. used sensors to map chicken fillets so they could be cut to the precise specifications required by restaurant customers that need them to cook uniformly. But exposure to the high pressure, high temperature water there kept causing equipment failures.

Now technical improvements, tougher materials and declining prices mean the company can integrate vision technology in facilities including the new $300 million chicken-processing plant in Humboldt, Tenn., said Doug Foreman, who works in technology development at the Springdale, Ark.-based food company. The technology could help optimize the use of each part of the bird, he added.

Robotics, artificial intelligence and computer vision all need to work seamlessly together in order for computers to fulfil the same tasks as humans. Creating systems that work together in such a manner is a time-consuming process but progress has been underway for decades and the breadth of what is now possible has improved considerably.

There is an increasing number of commentators in Italy that have drawn to the conclusion that the current government (still supported by a vast majority of Italians, ~60% according to latest polls) is determined to leave the Euro area and the EU. I am now convinced about this too.

Since there is no legally viable way of achieving this, the path to be followed will be that of an "accident" on the financial markets: the delivery of the promises of universal income and lower taxation, will push the fiscal deficit to "breaking point", while the ECB (unelected enemy of the people #1) will start withdrawing the bond buying program. 

With the spread uncontrollably high and seized credit (banks are also notorious enemies of the people), the only solution left (so the people will be told) will be the reintroduction of the Lira, overnight. The country will default and withdraw from international markets. Most activities nationalised. 

The motivation for doing this for those currently in power is clear: seizing unrestrained power (forget ideology, or patriotic instincts... those are facades). A country with universal income (assuming that functions) ceases to be a democracy anyway. The sponsor for all this comes from the East.

Interesting (Venezuelan) times ahead. 

The conclusion: don't touch Italian domestic names, not even with a barge pole from far away. 

Thank you for your interpretation of a potential outcome to the introduction of a populist coalition in Italy which I think we can both agree is a doomsday prediction for Italy, the ECB and the nations responsible for funding the central bank. Let’s take the argument back to first principles.

Tony Lee’s Sintai Furniture Co. makes outdoor furniture and other products sold at Costco , Home Depot and other U.S. stores that would be subject to tariffs in the expected $200 billion round. He is moving one-fifth of production to Vietnam for his U.S. exports, and keeping production for European and other markets at his factory in Dongguan.

Mr. Lee said the company will incur higher costs in worker training and material shipment in the short term, but he expects the move will save money in the long run. “The supply chain and capability in Vietnam takes time to build,” he said. “Once it is built up, Vietnam will be cheaper than China.”

China is moving up the value chain in terms of manufacturing and the increasing automation of production lines is a trend which has been underway for a decade. Simultaneously, rising wages have had an impact on apparel and footwear exporters which have migrated to places like Vietnam, Cambodia, India, Ethiopia and Kenya.

The new networks are expected to enable the steering of driverless cars and doctors to perform complex surgeries remotely. They could power connected appliances in the so-called Internet of Things, and virtual and augmented reality. Towers would beam high-speed internet to devices, reducing reliance on cables and Wi-Fi.

At the Shenzhen headquarters of Huawei Technologies Co., executives and researchers gathered in July to celebrate one of its technologies being named a critical part of 5G. The man who invented it, Turkish scientist Erdal Arikan, was greeted with thunderous applause. The win meant a stream of future royalties and leverage for the company—and it marked a milestone in China’s quest to dominate the technology.

At a Verizon Communications Inc. lab in Bedminster, N.J., recently, computer screens showed engineers how glare-resistant window coatings can interfere with delivering 5G’s superfast internet into homes. A model of a head known as Mrs. Head tested the audio quality of new wireless devices. Verizon began experimenting with 5G in 11 markets last year.

Nearby, in Murray Hill, N.J., Nokia Corp. engineers are testing a 5G-compatible sleeve that factory workers could wear like an arm brace during their shifts to steer drones or monitor their vital signs. The company began its 5G-related research in 2007.

You might remember a great deal of enthusiasm about the internet of things or the internet of everything a few years ago. Everything has gone quiet on that front of late not least because in order to reach commercial utility the billions of connected devices planned to enter service are going to need to be able to connect to the internet on a constant basis and current networks are incapable of handling the load. That means a whole new architecture is required to enable the next iteration of connected devices and 5G is the answer. 

“We see that light at the end of the tunnel, but we’re still kind of in the darkness ourselves,” Citi’s Peng said. Investors need more concrete catalysts before they step in to buy stocks. “So that’s the challenge for money managers.”

“We are looking to be more constructive on Asian equities in the next quarter, if the current correction continues. Valuations will be more attractive and worth a look then,” said Jason Low, senior investment strategist at DBS Bank Holdings Ltd.

“The good news is that valuations are looking more attractive now and technicals are oversold, which suggest that Asian stocks could be poised for a rebound in the next few months,” Jasslyn Yeo global market strategist as JPMorgan Asset Management.

Among the top 18 holdings in the iShares MSCI Emerging Markets ETF, 9 are from China. The addition, first of overseas Chinese companies and Hong Kong listed companies followed by mainland listed shares has represented a significant reweighting of the basket over the last decade. Since so many commodity producers rely on Chinese demand growth for exports the country’s influence is even greater than might initially be apparent.

Finland’s HEX Index remains in a consistent medium-term uptrend and bounced impressively from the region of the trend mean two weeks ago to test its May peak today. While somewhat overbought in the short-term a sustained move below the trend mean would be required to question medium-term uptrend consistency.

There’s one substantial difference between Battle for Azeroth and the trajectory previous expansions have followed, however. In the past, getting into World of Warcraft meant buying the base game and paying a monthly fee. The monthly fee is still in place — WoW hasn’t gone F2P — but the only expansion you need to pay for is the latest one. If you want to play through the base game, up to and through the Legion expansion, it’s just $15 per month.

One possible reason for the change is that Blizzard might be trying to woo players into coming back and trying content they missed without requiring them to pony up a lot of cash up front. Two players recently returned to my guild for this reason — once Battle for Azeroth went live and Legion became free, they signed up to play through the expansions they’d missed and experience the content. Granted, it’s not exactly the same content as it used to be — repeated “stat squishes” to keep player HP and damage under control, combined with repeated tweaks to accelerate the leveling experience, give areas a different feel than they had the first time around, even when you’re ostensibly playing through the same content. In some ways, it’s a much better game — World of Warcraft today is far more respectful of your time than it was 10 years ago — but now that I’m leveling an alt for the first time in many years, there are moments when I miss the older game and its slower but more dangerous pacing. The lack of difficulty spikes makes for fewer teeth-clenching rage spasms, but it also makes the game easier to predict.

The 3.4M sales that Blizzard is claiming set a launch record for BfA were impressive, but not much larger than previous cycles. Both Legion and Warlords of Draenor reportedly sold 3.3 million copies in their first 24 hours. This suggests initial launch sales don’t have much prediction power when it comes to how much of the player base will stick around and for how long — Legion, which was easily WoW’s strongest expansion in years, seemed to do a good job retaining players based on how many old friends I saw show back up and stick around for years, if not the entire expansion. We’ll see if the Battle for Azeroth holds players’ interest the same way.

The free to play model for computer games is challenging legacy subscription model games like World of Warcraft where you paid a steady monthly rate for hours of running around with friends completing various tasks.

When emerging-market stocks trade this cheap relative to U.S. equities, a rebound is normally in order.

The MSCI Emerging Markets Index has traded at a discount to the Standard and Poor’s 500 Index since 2006, but for the past five years its relative valuation has held within a range, with its price-earnings ratio fluctuating between 25 percent below the U.S. gauge at the best of times and 33 percent during the worst.

The index, the benchmark gauge of developing-nation equities, typically bounces back in a matter of weeks once it reaches the floor. That was certainly the case on three previous occasions: at the height of the Russian currency crisis in 2014; in the wake of the Federal Reserve’s December 2015 decision to raise interest rates for the first time in almost a decade; and at the end of the technology sell-off last year.

The index closed at a valuation ratio of 66.37 percent on Friday, or a discount of 33.63 percent to U.S. stocks based on price-to-estimated earnings. On Monday, it rallied 1 percent, the best one-day gain in six weeks.

Still, past rebounds are no guarantee of future performance and the environment remains fragile for emerging markets.

Investors can’t know how ugly the U.S. trade war might get, how deeply Fed interest-rate increases will affect developing-nation currencies or where the next political shock will come from.

But for those convinced of the investment case for emerging markets and willing to wait for the right valuation to resume buying, this could be the moment. Stocks are as cheap now as at any time in the past five years.

Relative comparisons are always tempting to look at because of historic comparisons but ratios can self-correct in a number of different ways. To say emerging markets are at close to record lows against Wall Street today say as much about how high Wall Street is as it does about the rout in emerging markets.

Policy makers left Turkey's key interest rate unchanged at 17.75 percent when they met last month, compared with economists' forecasts for an increase to 18.75 percent.

With inflation running at 15.85 percent, that leaves the real interest rate below 2 percent -- an inadequate response to consumer prices accelerating at three times the central bank's target rate.

The stakes are high. Turkey's domestic institutions have more than $40 billion of dollar- and euro-denominated bonds and loans maturing by 2020, according to data compiled by Bloomberg Intelligence. Every lurch lower in the lira makes servicing those debts more expensive.

Meantime, foreign banks have exposure to Turkey worth about $224 billion, according to data from the Bank for International Settlements. If the U.S. imposes economic sanctions in retaliation for Turkey's refusal to free American pastor Andrew Brunson, arrested almost two years ago and accused of supporting terrorism, they may be forced to cut those exposures.

Turkey had, at least until recently a GDP of $850 billion, but its total of external debts has been trending higher for years and now sits at $467 billion. That’s an external debt to GDP ratio of 55% which is before domestic debts are considered.

After Chinese President Xi Jinping consolidated his leadership position with the removal of a two-term limit on the presidency and Putin won re-election in March, “the basic building blocks for future cooperation on security issues are somewhat more solid”, said Elina Sinkkonen, a senior research fellow at the Finnish Institute of International Affairs.

“Such language, together with the US sanctions on Russia and trade issues with China certainly influence top level calculations in Moscow and Beijing,” she said.

Alex Gabuev, a senior fellow at the Carnegie Moscow Centre, said the two neighbours had also seen their interests becoming increasingly overlapped in areas ranging from security in Central Asia to the future of Afghanistan, Africa and North Korea.

“Both countries want to keep each other in the loop, explain their intentions and cooperate when possible”, he said.

The enemy of my enemy is my friend is about as old an adage in geopolitics as I can think of.

This was another highly enjoyable and educative trip to China for the Treacy family. One of the reasons we love visiting Guangzhou is because it is close to the factories Mrs. Treacy deals with but is also the gastronomic capital of China. The city is replete with wonderful dining options and the quality of food on offer is of a high standard. I’ll write a separate review of restaurants on another occasion.

This poster is in just about every public space from railway stations to the tube, to the barriers around building sites in Guangzhou. The first question I asked myself is why it needs to be in English as well as Chinese. Internet searches using English language terms do not return results even if one is using Baidu or other Chinese search engines and the vast majority of the domestic population does not read English. Therefore, the message is meant for a wider audience or the use of English is intended as a form of legitimisation of the ideals expressed.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

We expect GDP growth in the euro zone to stabilize in the second half in range of around +0.4% to +0.5% q/q. The recent weakness in the euro should support export growth, even though the trade dispute is certain to weigh on foreign trade. A sustained steady uptrend in credit growth in the household and corporate sectors should support growth in domestic demand and investment spending in H2. We are forecasting GDP growth of +2.3% for the euro zone in 2018. 

We expect consumer price inflation in rise moderately in 2018 to an average of +1.6%. Considerable uncertainty remains regarding the extent to which the ongoing recovery will be reflected in higher core inflation rates. The trend in core inflation was at times below expectations, inter alia due to the regional fragmentation of the labor market.

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It is arguable whether the European Union is ready for the end of quantitative easing but the ECB is ending its quantitative easing program anyway. It has legitimate concerns about the distorting influence of negative yields on both the economy and the bond market. However, it is quite likely that the end of purchases will have deleterious effect on the economy and most particularly for the peripheral economies.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

I realise this summary at 4600 words is getting rather lengthy which is why I decided to right another book to more fully explore the issues represented by the rise of populism and what that means for markets and the global economic order. I’ve agreed an August/September deadline so hopefully it will be available this year.

"Our way of competing successfully is to look at all the players, see what they have that we think is great, and if we can incorporate that into our model, we will, but mostly play our game," Galperin said while speaking from Allen & Co.’s Sun Valley conference, and musing about this year’s global soccer championship. "As you know, we’re looking at the World Cup -- we try to play our game and use our advantages and our strengths. We have a great network of sellers, a great brand, we’re investing very heavily, we already have scale."

Shares of MercadoLibre gained as much as 2.2 percent in New York, the most intraday in almost a week.

It’s also betting on brick and mortar investments to improve service. Earlier this year, MercadoLibre announced a partnership for a 38,000-square meter distribution center in the greater Buenos Aires area. In addition, the company, which is providing loans to merchants and payment processing platforms, is working on a digital wallet that offers returns on whatever money is left, Galperin said. Infrastructure -- notoriously poor in Latin America -- is also a priority.

Many commentators have made the point that social media companies require broadband by either mobile or fixed line access to generate income from a market and therefore have an interest in promoting internet access. However, that is equally true of online retail. Wherever ubiquitous internet access is available online retail flourishes, along with its disruptive influence on the conventional retail sector. These maps of the internet’s pervasiveness may be of interest. 

Netflix’s accolades follow a rapid ascent in the television world. After its start two decades ago as a DVD-by-mail operation, the company has become a Hollywood powerhouse, signing popular producers, comedians and actors for original content. The company spends about $8 billion a year on new shows and films, far exceeding HBO and other competitors.

“Netflix has proven to be a welcoming home to A-list talent,” said Bloomberg Intelligence analyst Paul Sweeney. “And they have the checkbook to back it up.”

Other streaming services are getting more Emmy recognition, includingAmazon.com Inc. and Hulu. “The Handmaid’s Tale” contributed to 27 nominations for Hulu, while “The Marvelous Mrs. Maisel” helped Amazon collect 22.

Netflix is another company that has gone for scale ahead of profitability in the hope that it will be able to garner critical mass and market share before its competitors in the legacy sector of cable and theatres sector have time to catch up. So far, the strategy has worked and many people, myself included, have traded their cable/satellite TV for the convenience of Netflix.

Relax, says Goldman Sachs -- enough has changed that a replay is unlikely. Bulls should take heart, says David Kostin, the firm’s chief U.S. equity strategist, because whatever euphoria infected markets in the first part of the year has long ago dissipated. Hedge fund clients who were aggressively positioned heading into April are more conservative now, with exposures sitting near the bottom of their 12-month range.

“Going into Q1 earnings season, it was peak optimism,” Jeff Schulze, an investment strategist at ClearBridge Investments in New York, said by phone. “Now you have exactly the opposite situation where that optimism has been converted to pessimism.

As long as companies can hit those estimates, I think the market will reward those, rather than punishing them.”

Fundamentally, the second quarter will look a lot like the first as far as results go. S&P 500 companies are forecast to report 20 percent growth from a year ago and sales are likely to rise 8 percent, mirroring the previous period, which was the best since 2011.

The media’s number one story today has been the tariffs and the prospect of an all-out trade war between China and the USA. At the same time the USA is entering into this situation while engaged in fiscal stimulus while China is tightening to close out speculation in the shadow banking system. That has contributed to very different performance in their respective stock markets.

This time last year art was almost at the back of the Knight Frank Luxury Investment Index (KFLII), but 12 months later it has moved through the field to overtake wine and claim first place with growth of 21% to Q1 2018. Salvator Mundi, a work by the Old Master Leonardo da Vinci, turbo charged the headlines when it was sold for a staggering $450m last year, but paintings by less well-known artists have also been notching up multi-million dollar results, says Sebastian Duthy, of Art Market Research. “Prices for works by Impressionists and post-war artists have dominated auction sales for the past two decades. But this picture has been changing, with works by some contemporary artists appreciating rapidly in the last few years. “In March, artist Mark Bradford hit the headlines when his painting ‘Helter Skelter I’ was sold by ex-tennis star John McEnroe for a record $10.4m at Phillips in London. In May, rapper Sean Combs, aka P Diddy, paid $21.1m at Sotheby’s for a painting by artist Kerry James Marshall. The figure represents an 800-fold increase on the $25,000 paid for the same work in 1997.”

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Asset price inflation has been the singular success story generated by quantitative easing. The upward trend in the price of collectibles is a function both of growing economies but also of the quantity of money chasing a limited number of items. Since inflation has not been a major factor over the course of the last decade then money supply growth and the rise of a new wealthy class, not least in China, has fueled this market. With central bank balance sheets now contracting, it is a big question whether this growth will consider next year.

The rise of a new entrant in the U.S. and last year’s 18 percent decline in the cigarette market in Japan, where heated-tobacco devices have become popular, have investors worried that an industry known for steady profit growth faces an increasingly uncertain future. Imperial’s shares have fallen 17 percent in the past year.

Cooper told investors this week that Japan was the only market where she expects rapid disruption for the tobacco industry and that the popularity of e-cigarettes in the U.K. and the U.S. means overall nicotine consumption is growing there.

Juul gives vapers a hit comparable to that of a cigarette because it contains benzoic acid, which makes it easier to deliver nicotine at a lower temperature without being harsh to the throat. After its success in the U.S., the startup vape brand is expanding internationally. To fund that effort, the company is said to be raising $1.2 billion in a financing round that would value it at $15 billion. Juul’s slim device, which looks like a flash memory drive, has captured the imagination of young consumers as word spreads via social media.

Defensive sectors tend to do well at the end of cyclical bull markets because the reliability of their dividends suddenly become attractive when growth stocks eventually lose their lustre. 

“I thought [the repair} was a pretty standard procedure,” Ash told CBC News. But after the repair was completed, when he went to drive the car, “It was actually pulling me into oncoming traffic. … it was a startling feeling to have the steering wheel actually pulling you into traffic.” Ash said he was able to control the car and get it back into lane.

According to Ash, a technician at the glass shop pointed at the camera, but Ash doesn’t recall hearing that person suggesting having the camera re-calibrated, which would most likely be at the dealership. Ash told CBC there was fine print in the invoice that talked about having the camera re-calibrated — fine print being the thing almost no one ever reads until there’s a problem. And the manual, which many people do read, says nothing about this.

It is to be hoped that assassinating the driver for using an independent vendor is a bug rather than a feature of self-driving cars. On a more serious note the obvious path to profitability for car companies is to make money on maintenance and repairs if they are constrained by the profitability of the vehicles. That is particularly relevant for electric cars where companies are losing money on every vehicle.

The most troubling and tragic threat to Mexico’s democracy is violence. Since campaigning began in September 2017, 132 politicians (jpg), including 48 official and aspiring candidates, have been killed, according to Ellekt, a consulting firm.

The most recent murder happened on June 25 in the southern state of Oaxaca. Emigdio López Avendaño, a candidate for local representative from AMLO’s party, MORENA, was gunned down along with four of his supporters.

The level of violence represents a huge spike from the run-up to last presidential election, in 2012, when less than a dozen politicians were killed, according to Ellekt. The firm’s director, Rubén Salazar, attributes the increase to state governors’ waning control over municipalities. Thanks to free elections, voters have been kicking out incumbents from governor’s offices around the country—a step forward for democracy. But at the municipal level, it’s had the perverse result of clearing the way for local strongmen to hijack the election process, sometimes at gunpoint.

“These changes have happened faster than the transformation of the political and democratic culture at the local level ,” he said in an interview in Artistegui Noticias (link in Spanish).

The three primary tenets of improving governance that we look for in an investment destination are that it have respect for minority shareholder interests, an independent judiciary and a free press. Those attributes increase the potential that economic growth will flow through to the stock market and that you will be able to get your money out when it comes time to sell.

Thank you for your superb service. Can you please advise your views on how vulnerable do you think the pharmacy shares are in the US after Amazon's entry to the field? Thank you in advance.

There are obvious fears that the introduction of Amazon’s business model to the pharmacy sector will have the same effect it had on the big retailers. However, I suspect the most profound effect will be felt among the smaller independent pharmacies that command about half the total US market. Here is a section from an article by bizjournals.com that may be of interest:

There are currently about 22,500 independent pharmacies in the United States, and these pharmacies dispense nearly half of the nation's retail prescription medicines, Norton says.

All told, independent pharmacies are an $81.4 billion marketplace annually. They fill 1.38 billion prescriptions a year — about 201 a day, per pharmacy — and employ 314,000 people on a full- or part-time basis.

This weekend’s vote was, in short, a surprise. Contrary to predictions, Erdoğan won decisively, and his new presidential system has received a seal of approval from the electorate. However, the AKP’s failure to secure an absolute majority in parliament is an important message for Erdoğan. It remains to be seen whether Erdoğan will take this as an opportunity to address the long list of challenges facing Turkey and reconstruct its democracy and economy, and regain the respect that he once enjoyed internationally. The March 2019 municipal elections will be the next test of his performance.

The strength of a nation’s public institutions is what separates failed states from those that can evolve and weather a period of economic peril. Erdogan is an aspiring despot who wants to rule for life. The fact that Turks approved of his presidency but did not give his party an absolute majority suggests they favour limitations on presidential power which is in keeping with any democratic country’s constitution.

Later this week, the U.S. Treasury Department is expected to release fresh rules on Chinese investment in technology companies, Bloomberg reported on Monday, putting additional pressure on China -- which hit back against the plans. Chinese investment has provided jobs and tax income for the U.S., and it should view commercial activities “objectively,” Foreign Ministry spokesman Geng Shuang told reporters in Beijing on Monday.

The U.S. is due to impose tariffs on $34 billion of Chinese imports from July 6, and Trump has threatened to impose levies on another $200 billion of Chinese goods. If that threat is realized, it could cut as much as half a percentage point off China’s economic growth, and also hit the American economy, economists have said.

Anxiety over the economic fallout is cutting deep in financial markets, with China’s yuan sliding to a six-month low Monday. The S&P 500 Index fell to the lowest since May and the Dow Jones Industrial Average sank for the ninth time in 10 sessions.

As if to reinforce concerns about the economic outlook, the Dutch Bureau for Economic Policy Analysis on Monday published its latest trade monitor, showing world trade momentum dropped in April to the lowest since 2015. The measure has fallen sharply since hitting a seven-year high at the start of 2018.

The EU’s export-oriented economies along with China have been some of the greatest beneficiaries of globalisation and therefore are also likely to be the primary defenders of the “multilateral trading” regime. Nevertheless, the rise of populism which I describe as a revolt against the status quo represents a challenge to that system which is currently being led by the Trump administration but represents a significant theme in an increasingly large number of countries.

“Many states will pick up on those details and incorporate them into their own regulatory regimes,” said Eric Citron, an attorney who represented South Dakota. He said he expected nearly every state with a sales tax to move legislation or regulations to enforce collections. “Complete compliance will become the norm within the next year or two,” he said.

Amazon originally set up its business model to avoid state sales taxes, limiting its physical presence to a handful of warehouses. But it changed strategy to build more warehouses closer to consumers as it has relied more on its Prime two-day shipping offer—and started charging sales tax on items it sells directly.

Amazon hasn’t collected the taxes for most independent merchants who sell on its platform. About $200 billion in sales originated with independent merchants selling on Amazon world-wide last year, according to Factset analyst estimates, compared with about $116 billion in direct sales by Amazon. The company declined to comment on the ruling.

The cost of compliance is rising in just about every sector. Since the credit crisis the burden of regulatory compliance has been a significant headwind for the banking sector and it has changed the nature of how they do business. The UK’s Retail Distribution Initiative resulted in the cost of doing business rising for financial advisors. The EU’s drive to introduce GDPR has seen some company email lists drop from hundreds of thousands to the tens of thousands. Asking online retailers to monitor how much and how often they sell into each state will increase compliance costs regardless of whether tax is then due.

Rude Health
“There’s been a few shots on the trade side, but nothing has fully broken out,” said Dermot Ryan, a fund co-manager at AMP Capital in Sydney. “Ultimately, the stock market looks at the valuation and health of the sectors. The resources sector is in rude health at the moment.”

Not as Sensitive
“Australia sometimes acts as an EM by proxy, but with one key difference: it’s not as sensitive to the potential negative impact from increasing tariffs on Chinese and U.S. goods,” said Kerry Craig, global market strategist at JPMorgan Asset Management in Melbourne. “We’re not as crucial in the supply chain as many north Asian economies. While there would be some impact on the materials sector if Chinese growth was expected to take a hit and metals demand fell, it’s more than likely that China would respond by increased infrastructure spend to keep the ship steady.”

Pretty Cheap
“The banks look pretty cheap,” for a longer-term investor, said Don Hamson, managing director at Plato Investment Management in Sydney. “It’s been a bad 18 months, but maybe we’re coming toward the end of it.”

The Australian financial sector has been under a cloud because of the Royal Commission's focus on overcharging in the small to medium sized enterprises sector. However, the hearings are about to refocus on relations between financial firms and people living in remote areas such as Aboriginal peoples. While that is likely to represent some political risk, it is less likely to have a large impact on the stock market.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Here is a summary of my view at present:

That would mean scrapping the EU’s 10% tax on auto imports from the U.S. and other countries and the 2.5% duty on auto imports in the U.S. As a prerequisite, the Europeans want Mr. Trump’s threat of imposing a 25% border tax on European auto imports off the table.

Over the past few weeks, Mr. Grenell has held closed-door meetings with the chiefs of all major German automotive companies, including bilateral meetings with the CEOs of Daimler AG , BMW AG and Volkswagen AG , which operate plants in the U.S. Overall, Germany’s auto makers and suppliers provide 116,500 jobs in the U.S., according to the Association of German Automotive Manufacturers.

During these talks, which the ambassador initiated, the managers said they would back the scrapping of all import tariffs on trans-Atlantic trade in automotive products as the keystone of a broader deal covering industrial goods. The German government is on board and Mr. Grenell promised to support the idea, according to U.S. and German officials.

Trade tensions are ebbing and flowing on almost a daily basis. Efforts led by the German auto manufacturers to defray risks to their US business obviously highlight how seriously companies are taking the threat of trade friction and what it could mean for their businesses. That is particularly true in the aftermath of the diesel cheating scandal which continue to make headlines.

So I'm paying more attention to the weak comparable sales guidance the company offered for the third quarter, and the factors it says have been weighing on sales of late.

Executives said Tuesday that in the U.S. market, Starbucks struggled to draw customers in the afternoons. This has been an ongoing problem for Starbucks, and executives haven’t demonstrated they have a clear solution. They've recently put up some TV advertising emphasizing Starbucks as an afternoon destination, and perhaps we'll soon see payoff from that.

But it'd have an easier time luring people for more than just their morning caffeine fix if it could establish itself as more of a go-to for food, not just beverages. And speaking of its menu, the chain has work to do on its signature drink offerings, too. Look at what has happened to Frappuccino sales:

Perhaps this shouldn't come as a shock, given that Frappuccinos pack a lot of calories and customers are increasingly looking for healthy choices. But Starbucks needs some new hits to give people a reason to come back through its doors, especially with so many insurgent and boutique coffeehouses chasing the same customers.

Starbucks generates approximately 70% of its revenue from North America while 15% comes from China. The company’s mix of coffee, sweet and/or fatty treats and free Wi-Fi was a winning strategy before the evolution of 4G and ubiquitous web access. It used to be that you would go to Starbucks to sit down, look cool and show off your new gadget while accessing the Wi-Fi. That’s just not enough to inspire users any more.

Pressuring companies through bureaucratic means “is a practice that the Chinese have used for a long time and our companies are on guard,” William Zarit, chairman of the American Chamber of Commerce in the People’s Republic of China, said on Bloomberg Television. “This is definitely a concern.”

South Korean and Japanese companies have all felt this effect, with their businesses in China hurt as part of a dispute between states.

In 2017, following the Seoul government’s decision to deploy an anti-missile system that China opposed, China forced South Korean retailer Lotte Shopping Co. to suspend operations at many of its hypermarkets in the country for alleged violations of fire-safety rules. The company eventually decided to pull out of China, but still can’t sell all its units and continues to rack up losses. In total due to the dispute, Lotte Group lost an estimated 2 trillion won ($1.8 billion) in the year from March 2017, according to Yonhap News Agency.

The backlash also led to boycotts, with consumers shunning cars from Hyundai Motor Co. and cosmetics from Amorepacific Group. Chinese tourists cancelled Korean vacations, forcing airlines to scrap flights and hotels to slash rates. The Bank of Korea estimated that 0.4 percentage point was cut from 2017’s gross domestic product.

China has such a wide trade surplus with the USA that it is going to be hard to meet the increased level of tariffs the USA is proposing, without greatly increasing the levels on the goods it does import. However, there are additional measures the country can take to express its dissatisfaction.

“It’s not a great set-up for emerging markets,” James Sullivan, head of Asia ex-Japan equities research at JPMorgan Chase & Co., told Bloomberg TV from Singapore.

“We’ve still only priced in about two thirds of the U.S. rate increases we expect to see over the next 12 months. So, the Fed is continuing to get more hawkish, but the market still hasn’t caught up.”

While many emerging-market investors and analysts have praised Asian economic fundamentals, pointing to world-leading growth rates and political stability, some are starting to raise red flags as global liquidity starts to shrink. The Bloomberg JPMorgan Asia Dollar Index sank to a 2018 low on Monday, extending two weeks of declines after the Fed and European Central Bank both took steps toward policy normalization.

Yet some still remain optimistic. Bank of America Merrill Lynch expects some of the regional currencies including the baht and the Philippine peso to appreciate slightly by the end of the year, a research note sent Monday showed. Six of 10 best- performing emerging currencies so far this year are in Asia, led by the ringgit’s 1.2 percent advance and the Chinese yuan’s 1.1 percent gain.

By tightening monetary policy after leading the world in easing, the USA is effectively exporting its monetary policy to the rest of the world. More than few of the more troubled emerging markets have had to move aggressively to support their currencies but continued selling pressure suggests they probably have more work to do to shore up investor confidence.

While trucker protests in China have occurred in the past amid complaints of road tolls, fuel prices and excessive fees, Geoff Crothall, spokesman for the labor monitoring group, said he couldn’t recall trucker protests of a similar scale. He estimated thousands of truckers participated.

As they have the world over, gas prices have risen in China this year, by 8.6%, according to data from the Ministry of Commerce. Taxes and other fees generally make gas more expensive in China than the U.S., and on top of that the government sets the prices, lagging changes in international oil markets by 10 days or more.

China’s National Development and Reform Commission, which sets those prices, announced Friday that it would cut the retail price of gasoline and diesel by 130 yuan ($20.29) per ton for gasoline and 125 yuan per ton for diesel. The new prices, effective this past Saturday, reflect a recent retreat in global oil prices. In the central province of Anhui, a transportation hub where protests occurred, gasoline now costs $3.99 a gallon, and diesel $4.04 a gallon.

Rising fuel costs have elsewhere prompted worker frustrations to spill over, most notably in Brazil, where protesters blocked highways and halted shipments of food, fuel and medicine before the government called in the military to help end the strike. Other trucker protests have also recently broken out in Iran.

Trucking has been all over the news recently with strikes in China and Brazil over high fuel prices and low pay while the USA is in dire need of 50,000 drivers.  These trends point to the fact the USA is close to full employment so attracting workers is becoming an issue while all three countries share upward pressure on wages. Higher shipping rates are inflationary because it will put pressure on companies to cover the increasing costs by raising prices for the end customer.

Turkey and Brazil intensified efforts to protect their currencies from speculative attacks by investors as emerging markets face their biggest test since the 2013 taper tantrum.

Turkey surprised analysts by tightening monetary policy Thursday for the third time in less than two months, while Brazil’s central bank sold extra foreign-exchange swap contracts for the second time this week, boosting investors’ protection again further declines in the currency. The lira surged and the real briefly pared losses after the actions.

Thursday’s actions are the latest in a series of efforts to shore up defenses in developing nations as policy makers from Argentina to India try to cope with higher U.S. interest rates, growing budget deficits, accelerating inflation and political instability. Emerging markets haven’t been in this precarious a position since five years ago, when concern the developed world was pulling back on monetary stimulus sparked a rout in stocks and currencies.

"The failure to act preemptively to address macro imbalances has forced those central banks to take desperate measures to stem the pressure on their currencies," said Delphine Arrighi, a money manager at Old Mutual in London. "The risk is a tightening of financial conditions in EM that could ultimately impact growth negatively."

Turkey raised its one-week repo rate by 1.25 percentage point to 17.75 percent, a bigger increase than any analyst surveyed by Bloomberg had predicted. The move signaled policy makers trying to clamp down on double-digit inflation are willing to stand up against political pressure to keep borrowing costs low.

“Is this the start of a new era of Turkish central bank policy -- actually moving ahead of the market? Let’s hope so,”

Generally speaking when a central bank intervenes to support its currency it has to persist in that policy until it achieves success, lest it be accused of wasting money. So far, Turkey’s efforts to stave off an additional near-term Lira decline have been successful and the currency has stabilized below TRY5 to the US Dollar.

Apartment construction to fall sharply
We have significant evidence to show that new apartment projects are struggling to get finance approved, and therefore total residential construction is expected to slow in H2 2018. Dwellings approved but not yet commenced have already increased to the highest level on record, driven by apartment project approvals

Apartment default rising
Liaison with industry contracts indicates that settlement defaults for some of the major developers have increased, particularly in relation to offshore buyers. The resale market is considered healthy enough at this juncture for most developers not to be materially impacted, however there is a strong likelihood that residential construction activity will now fall

Employment growth to fall
Construction now directly employs just under 1.2 million persons in Australia, recently capturing a record high in absolute terms and, at 9.6 per cent of employment, the construction sector is at its most bloated in approximately a century4.

About ¾ of construction jobs are accounted for by the residential sector5. There is significant potential for employment growth to slow sharply over the next 12 months

The Royal Commission has been a major source of uncertainty for the banking sector in Australia over the last year as rampant overcharging across a broad swathe of their businesses has ben brought to light.

The S&P/ASX 300 Banks Index hit all-time peak in 2015 and following a rebound has been trending lower since last year. It is now approaching the 2016 lows and while oversold in the short term a break in the progression of lower rally highs will be required to question supply dominance.

The Original Sin index ranges from zero (“sinless”) to one (“sin-full” or fully dependent on foreign currency debt). We focus on sovereign and corporate bond issuance in ASEAN and India, and track how the index behaved during the Quantitative Easing periods and after the taper tantrums. 

We detect increases in “original sin” in Indonesia and the Philippines in recent years, but find no visible increase in Thailand, Malaysia or India (see Figures 4 to 9). 

Indonesia’s original sin index has been steadily rising, with a peak of 0.41 as of May 2018 (see Fig 5). This suggests that Indonesia corporations and the sovereign are borrowing more in foreign currencies in recent years, as the Fed normalizes policy rates. For Philippines, the original sin index rebounded in 2018 to 2009 levels after declining for the past two years (see Fig 7). This suggests that the financial stress is a more recent phenomenon, as investors are more worried about the peso risks (on higher inflation and widening current account deficit). 

On the other hand, Malaysia and India have seen a decline in their original sin index, suggesting a gradual reduction in their foreign currency exposure in recent years (see Figures 6 & 9). Thailand’s index has been very low since the early 2000s, barely reaching 0.1, reflecting its low interest rates and abundant domestic liquidity, given the massive current account surplus (see Fig 8).

A link to the full report is posted in the Subscriber's Area.

The ASEAN sector has been under pressure of late but not nearly to the same extent as Turkey, Argentina and Brazil. The rising US Dollar has pressured many emerging markets because as interest rates appreciate and Wall Street remains in a reasonably stable bull market environment, the relative attraction of US assets improves. That has resulted in repatriation of carry trades.