Chinese GDP or employment data, meh.
These days the only data that really matters are Chinese FX reserve statistics. The latest month’s position is due to be released overnight, and Daniel Tenengauzer of RBC Capital Markets expects we could be in for another episode of declining coffers:
We believe China will continue to post outflows for two reasons. First, interest rate differentials against the US declined by 200-250bp since January 2014. Even assuming no imminent lift-off in the Unites States any time soon, the flows will likely pull USD/CNY higher. We believe there is about USD400-500bn of pipeline demand in short-term international claims just to reverse some of the flows observed since 2010.
We estimate that in August there were about USD100bn of outflows. As global FX reserves accumulation turns around, the same things FX reserve managers aimed to buy in the past ten years or so will also turn around as well; this includes a variety of short duration fixed income products and alternative currencies to diversify trade weighted index baskets.
Glencore has put out a funding fact sheet on Wednesday in a bid to settle nerves over the scale and scope of its market-dependent leverage.
You can find the statement here.
The notable points are:
Terms and conditions, related to committed, unsecured facilities
No financial covenants, no rating events of default or rating prepayment events, no material adverse change events of default or material adverse change prepayment events.
Everything, essentially, is at the goodwill of the market. But there’s also a section worth reading about how the funding of Glencore’s “readily marketable inventories” (RMI) works: Read more
From a speech by Cyril Roux, deputy governor of the Central Bank of Ireland on Sept 30 (our emphasis):
The risk/reward trade-off for cybercrime is very attractive. Cybercriminals know there is a low likelihood of being detected, caught or prosecuted and many attack strategies can be executed cheaply. This has led to a substantial broadening of the attacker base. Due to the proliferation of the cybercrime-as-a-service business model, the cybercrime industry is no longer just the domain of highly skilled IT people.
Could industry+”tech” be the most annoying portmanteau since Jennifer Lopez combined with Ben Affleck to form Bennifer? We think so.
A quick list of some current entries:
- It’s not biology, pharmaceuticals or science, it’s biotech or healthtech.
- It’s not financial e-commerce anymore, it’s fintech.
- It’s not advertising, it’s adtech.
- It’s not food provision, it’s foodtech.
- It’s not media, it’s mediatech.
Back in 2012, we argued that:
“The simple fact of the matter is that in a negative carry world – or a flat yield environment for that matter – there is no role or purpose for banks because banks are forced into economically destructive practices in order to stay profitable.”
Which was short for: banks and zero interest rates don’t get on. Read more
When is a yieldco actually a money-printing device? And when is it not?
Or put differently: how sensitive are yieldcos to interest rate and tax changes?
[Yieldcos are pitched to investors as dividend growth-oriented companies which distribute predictable cash-flows to investors on tax efficient terms.]
Simply amazing exploding crude inventory charts from BNP Paribas:
McKinsey have warned banks are facing a wipeout scenario in some financial services because of the challenger threat from fintech.
As the FT’s Martin Arnold reported this week: Read more
Elsewhere on Wednesday,
- UBS made some suspicious margin loans in Puerto Rico.
- Wealth inequality may be hiding in tax havens.
- And generally likes to hide.
- The future of journalism. Read more
Just in case Glencore’s stock slide and general market volatility have distracted you from fully digesting the significance of this Saudi Arabia funding story from the FT’s Simeon Kerr in Dubai…
We thought we’d reiterate the really important bit about the rate at which the Kingdom is pulling funds from global asset managers:
Nigel Sillitoe, chief executive of financial services market intelligence company Insight Discovery, said fund managers estimate that Sama has pulled out $50bn-$70bn over the past six months.
“The big question is when will they come back, because managers have been really quite reliant on Sama for business in recent years,” he said.
ESG stands for Environment, Social, Governance.
And it’s an increasingly big thing in the asset management world.
The basic premise is that if you can get the biggest investment managers to collectively commit to ESG-focused principles in their strategies — whether that be through active engagement as shareholders or divestment strategies — capital will eventually be pulled from the type of corporations that routinely undermine or undercut the standards society judges to be important — from pollution and environment, to labour rights and fraud — forcing them to adapt their behaviour.
The idea is to send bad corporates to capital-unavailable Coventry. Read more
You may remember BitPay, the bitcoin payments processor, on account of its proud assertion back in May 2014 that it was (at that point) the world’s most well-funded Bitcoin company.
Well, it’s only been a year since BitPay managed to raise $30m from investors including PayPal founder Peter Thiel, Hong Kong billionaire Li Ka-shing and Sir Richard Branson — reportedly valuing the company at $160m — and yet, seemingly, much of that cash may by now be gone.
Talk of the Reddit forums on Friday was news that BitPay had not only u-turned on some of its free service promises, but was also letting staff go. Read more
Who leads whom in the interest rate market?
Or as Eugene Fama asked it in a paper in 2013, does the Fed really control interest rates?
The University of Chicago economist’s work concluded that there are a lot of forces affecting rates, where the Fed is only one small part. In fact — as this Chicago Booth comic illustration of the entire debate neatly summarises – his research concluded that up to 83 per cent of the Fed’s target rate is influenced by other short-term rates in the market. Read more
You may have seen our work on the hypothetical eventuality of no more petrodollars, eurodollars, sweatdollars and all other forms of offshore recycled dollars here, here and here.
You may also have seen our coverage of the technical overvaluation of the yuan and the upcoming capital outflow problem here, here and here.
And last of all, you may have seen how we think it all connects together here. Read more
Tim Pike, from the Bank of England’s inflation report and agency intelligence division, notes the following about the impact of e-commerce on the consumer sector and labour productivity in a Bank Underground blog post on Wednesday:
The need to stack the shelves of substantially more retail space over the past decade has hit productivity performance. My estimates of labour productivity for the aggregate of Tesco, Sainsbury, WM Morrison, John Lewis Partnership and Marks & Spencer (where output is proxied by turnover deflated by the official retail sales deflator) show that following growth averaging nearly 3% per annum from 2004/05 to 2009/10, labour productivity was broadly static in the next five years. That is partly because multi-channel approaches including e-tailing can reduce labour productivity — especially for the sale of low-value items such as groceries as it is very labour intensive for the retailer to “pick” the goods off the shelf. Official data show that “predominantly food stores” accounted for about 15% of on-line retailing in 2014.
In movie parlance, 21 grammes is said to be the weight of the soul.
Keep this in mind as we explore 21 Inc’s big product reveal this week — a $399.99 Raspberry Pi that’s also a “bitcoin computer” — which, according to endorsements from Larry Summers (he of secular stagnation fame), Marc Andreessen and others, could be as big as the internet if not a solution to world peace. Read more
Thanks to Matt Levine at Bloomberg, we all know “people are worried about bond market liquidity” — especially coming into a Federal Reserve rate-hiking cycle.
But did you know that people were also worried about bond market liquidity in the late 1930s? Read more
Traders! Abandon your Yahoos and your Bloomberg IMs and behold Symphony, the new messaging tool being brought to you (via Silicon Valley) by the banking consortium that is Goldman Sachs, Deutsche Bank, Credit Suisse and Bank of New York Mellon a.k.a Symphony Communications Services.
It’s snoop-free, fully-encrypted and allegedly free of all backdoor vulnerabilities — especially the sort that might provide the platform’s architects insight into your price-sensitive private conversations. Read more
Here in the UK, the BBC’s Panorama programme staged a deep dive into the subject of artificial intelligence and robotics on Monday, thoroughly spooking most of this particular correspondent’s friends and family list, taking as it did the subject firmly into the mainstream.
But, before anyone gets too freaked out, it’s worth taking some time to digest the following new research paper by William D. Nordhaus from Yale University’s department of economics, by way of the NBER working paper series (our emphasis): Read more
Citi’s Willem Buiter and team’s main scenario for 2016 is now a global recession in which China’s slowdown drags down other emerging markets and eventually the advanced economies as well.
In a note this week, the team state that while a sufficient policy response from China and among developed market central banks should provide support, recent rhetoric suggests the Fed is still dead set on raising rates. Read more
Here’s a paper from Dan Bogart at the University of Irvine about the East Indian Monopoly and why it was deemed justifiable to the British sovereign to grant all this power to a private company.
As the following extracts from the paper note, the rationale was largely as follows (emphasis ours): Read more
In their latest research note out this Friday, Goldman Sachs’ commodity analysis team headed by Jeff Currie is now so bearish on oil they think even investment grade E&Ps may have to cut production if any sense of balance is to be restored.
As GS note:
Oil prices have declined sharply over the past month to our $45/bbl WTI Fall forecast. While this decline was precipitated by macro concerns, it was warranted in our view by weak fundamentals. In fact, the oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016 on further OPEC production growth, resilient non-OPEC supply and slowing demand growth, with risks skewed to even weaker demand given China’s slowdown and its negative EM feedback loop.
The monthly IEA oil market report puts things about as simply as they can be put:
Remember the days when investment bank credit-rating changes used to be top of the financial news agenda? And then the days when sovereign credit-rating changes were?
Well, today, it’s all about commodity traders. Read more
Where did Russia’s 2014 crisis really come from?
City University’s Anastasia Nesvetailova has penned a fascinating paper looking at the question in the context of the country’s growing aspiration to reposition itself within the global economic balance. Read more
Everyone has been trying to figure out why the PBoC shed a record $94bn in FX reserves in August.
But did you know their own spokesman has been offering an explanation to the market directly? Read more
In our Christmas podcast and this post, we warned of the eery similarities between the oil market of today and the oil market of JR Ewing and Blake Carrington in the 1980s.
We even predicted that if history tells us anything we might soon be blessed with a modern equivalent of a Dynasty and Dallas TV series, something along the lines of “North Dakota Millionaires”. Read more
Moody’s observes this week that off-shore financial centres such as the Isle of Man are facing economic challenges due to the international community’s general clampdown on global tax avoidance.
In the case of the Isle of Man specifically there’s the added uncertainty surrounding the outcome of the Isle’s negotiation with the UK government on the customs and excise agreement, which determines a substantial portion of the island’s excise. Read more
Many shale producers outspend cash flow and thus depend on capital market injections to fund ongoing activity.
That’s from Citi’s Richard Morse and Edward Morse (related?), plus team, on the way capital markets rather than cartels are driving commodity prices these days. The note is titled: “From Cartel to Capital Markets: Investors Join OPEC Shaping Oil Market Dynamics.”
This of course relates to our point on Monday that even the big commodity traders have been forced to turn to market-based funding in lieu of a dearth of bank finance in the sector. Read more
Banks have been pulling out of direct dealings in physical commodity markets ever since the Senate Report on Wall Street Bank involvement in the market outed a spree of systemic risks, competitive advantages and general concerns last November.
The question is, has this had any impact on commodity prices or even the ability of major commodity traders to get financing? Read more