|MRP||McAlinden Research Partners | DIBS||
Daily Intelligence Briefing - November 13, 2014
In the issue cluster on China for October 20, the Daily Intelligence Briefing observed, "It's the dog that didn't bark. Despite the tumult roiling global markets in the last several weeks, the yuan has been remarkably stable against the US dollar. That could soon change."
Sure enough, the yuan reversed course on October 29 and the currency planners appear to be letting the yuan weaken, prompting MRP to formally expand our roster of themes to include a short on the yuan and long the equities. There's more discussion on that in theOctober 20 DIBS, which we'll refresh shortly in the next theme update.
Source: Bloomberg, McAlinden Research
Today’s Issue Cluster: Currency
- The ruble's plunge is pushing up Russia's corporate hard currency debt, which accounts for 16% of the CEMBI emerging market debt index
- Russia's wealthy citizens are buying up safe deposit boxes to stash hard currency .... other Russians are buying up whatever they can before the ruble drops even more
- The UK pound's drop against the dollar reflects widening short-term interest rate differentials, with the BoE punting the first hike to 3Q
- Australia's dollar is weaker with the central bank edging toward a rate cut
- China has started weakening the yuan, getting on the devaluation bandwagon along with Japan and South Korea
- Argentina's resurgent peso bucks the global trend, with the regulators cracking down on black market trading and the central bank raising short-term rates
Best of the Rest
Ukraine – EU and US weigh further sanctions
UK – House prices show surprise fall in October: Halifax
Ship – Oil Tankers Stream Toward China as Price Drop Sparks Boom
Here's MRP's latest monitors: Macro, Sector and Country
|MAJOR DATA POINTS||Top|
On the other hand, most Russian companies are commodity exporters and, thus, will have dollar revenues. Most also have enough cash to see them through the coming year, analysts following the sector generally believe. R
Currencies – Ruble: Russians Go Shopping to Beat Coming Price Hikes
Wealthier Russians who have savings have scrambled to pull them out of ruble-denominated accounts and switch into dollars or euros, according to bankers. Demand for safe-deposit boxes has also surged among Russians worried about bank failures—the boxes are used to store large sums of cash in dollars or euros, according to bankers. WSJ
Currencies – Pound: Sterling bulls pull in their horns
On Wednesday, in its closely watched quarterly Inflation Report, the Bank of England said it expects the economy to grow 2.9% next year, weaker than the 3.1% expansion seen in August, and it foresees inflation “markedly” below the levels forecast in August over the coming 12 months, at around 1%. The bank said it foresees a first rate increase, which would make the currency more attractive to investors, in the third quarter of 2015. Derivatives contracts linked to future interest rates also now signal a first move in October 2015. FT
Currencies – Yen: Japan actions risk igniting currency war
Though the focus has been on the yen-dollar rate, the trade-weighted exchange rate has yet to fall below pre-financial crisis levels. ... the weaker yen pleases punters. Among MSCI Japan’s top 20 largest constituents, some 40 per cent of revenues, on average, comes from outside Japan. (This group represents a third of the index weighting.) FT
Currencies – Aussie: Slides in Hard Times
Currencies – Argentine Peso: Gets a Reprieve
The peso’s comeback began when a new central-bank president took over on Oct. 1. Since then, the official, Alejandro Vanoli, has stepped up coordination with other entities, including the country’s securities regulator and an anti-money-laundering agency, to crack down on illegal foreign-exchange houses. ... The central bank raised interest rates for small deposits. The rate, which totals around 23% for three-month deposits, led people to deposit 3 billion pesos last month... Given that many economists say inflation totals around 40%, Mr. Setton described the interest-rate move as “timid.” Still, it may have reduced pressure on the dollar by taking those pesos out of circulation WSJ
Currencies – Major economies in no condition to support stronger currencies
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Ukraine – Fears Rise as Russian Military Units Pour In
A senior NATO official confirmed on Wednesday what Ukrainian military officials and monitors from the Organization for Security and Cooperation in Europe have been saying for days now: Russian troops and military equipment are crossing the border into Ukraine... The statement drew stern and dismissive denials from Moscow NYT
“We are repositioning our armed forces . . . My main task is to prepare for military actions,” said Stepan Poltorak, Ukraine’s defence minister. “We see a buildup of force from terrorist groups and from the side of the Russian Federation . . . and, of course, we are expecting unexpected action from their side,” added.
A Nato military officer told the Financial Times that the alliance believed Russia now has around 8 battalions – equivalent to as many as 6,400 men – in a state of high readiness on the border with Ukraine. The number of Russian special forces soldiers operating already inside Ukrainian territory has increased from 300 to between 400-500 in recent days FT / R / AP
Russia will send 82 aid trucks into eastern Ukraine tomorrow, Alexander Lukashevich, spokesman for the Foreign Ministry in Moscow, said in a televised briefing B
Representatives of the EU’s 28 member states and the U.S. are meeting today in Brussels to discuss imposing new penalties on individuals or on the Russian economy for the country’s interference in Ukraine, according to diplomats close to the talks. While no consensus has been reached yet, officials will prepare options for an EU foreign ministers meeting in Brussels on Nov. 17 B
Sanctions require unanimity among the 28 governments, reducing the prospects of new decisions on Monday at the first foreign ministers’ meeting chaired by Mogherini. The ministers could set in motion a decision to expand the 119-name blacklist later next week, an EU official told reporters. B
Ukraine – Putin ally says China cannot replace western financing
Vladimir Milov, an opposition-minded economist and former deputy energy minister, warns that China’s banking sector is not set up to provide large lending to foreign borrowers, but rather to fund China’s economy and exports. It lacks the risk management skills needed to serve Russian entities....
Ukraine – Russia strains to feed and heat Crimea
Crimean authorities insist they can manage with electricity generated by the peninsula’s own gas power plants supplemented by hundreds of diesel generators shipped in from Russia over the summer. But the risks to coal and food supplies are more urgent. Since the annexation, the freight rail from Ukraine, which brought in virtually everything the peninsula needed, have been cut.... Moscow is for now relying on ferries – a lifeline that will become more tenuous as seas turn rough and icy. FT
World – Citigroup, JPMorgan Take Brunt of Currencies Settlement
The fines took the total issued by US regulators this year to $56.5bn, making it the most expensive year for banks since 2007, according to research by the Financial Times. FT / WSJ / NYT
Wednesday's fines bring total penalties for benchmark manipulation to more than $10 billion over two years. R
Some $5.3 trillion changes hands every day on the global foreign exchange market, with 40 percent of trades occurring in London. The market is loosely regulated and dominated by a few elite banks AP / B / FT / FT
UK – Mortgage data show housing market cooling
UK – A new study confirms suspicions about what drives planning decisions
the Institute for Government, a think-tank... looked at English local planning authorities (LAs) between 2001 and 2011 and found that for every additional ten percentage points in the proportion of homes that are owner-occupied, 1.2 percentage points were knocked off growth in the housing stock. Average growth was 8.8%, so the effect was marked. ... A rough calculation suggests that, without the NIMBY effect, one million more homes would have been built during the period....
In 2004, a government report by Kate Barker, an economist, found that 240,000 new homes were needed every year. Only 138,000 homes were built in 2013. Due to the shortfall, houses are eye-wateringly expensive and, since 1952, home ownership has become a more distant prospect for almost every new generation E
UK – Canary Wharf’s home-building builds a buzz
|TRADE & TRANSPORTATION||Top|
Rail – Accuracy of Bakken Volatility Tests Face More Challenges
a study by the North Dakota Petroleum Council, a lobbying group for energy producers... found Bakken crude was no more volatile than other so-called light crudes commonplace in Texas and elsewhere. But that finding may reflect a problem with the methodology, which could have allowed flammable gases, or light ends, to escape in the process of collecting and handling the crude samples. This means that tests aimed at determining how explosive crude is within a tank car might be significantly underestimating the risk of combustion.
Rail – California oil volumes drop
Gold – Demand Loses Some Shine
Gold – End of fix heralds shift for London
Silver – Mom-and-pop investors loading up despite price drop
Nickel – Can it recover from boom and bust?
|ENERGY & ENVIRONMENT||Top|
Carbon – Obama Faces Obstacles to Emissions Deal With China
Some environmental groups said China’s pledge won’t allow its emissions to peak soon enough, while the U.S. pledge was seen as no more ambitious than its previous trajectory of regulations and targets. “We need a peak emissions goal from China that’s five or 10 years sooner than what they proposed,” said Kyle Ash...
Meanwhile, India and oil exporters including Russia and Venezuela appear unlikely to offer deep emissions cuts through the international talks. WSJ / FT
The new targets mean that emissions in the U.S. and China will converge by 2030 at 12 tons per capita, more than double the global average today, according to India’s Centre for Science and Environment. “If this is the benchmark set by the world’s two biggest economies -- and two biggest polluters -- we are on a completely catastrophic path,” CSE Deputy Director-General Chandra Bhushan, said B
China may already be closer to its 2030 target for emissions to level off than even the government thinks, analysts say. Data on coal consumption for the first three quarters from the China Coal Industry Association indicate a 1.1% slip from a year ago. If the full year shows a contraction, as analysts widely believe it will, China will have its first such decline in 14 years. AP
Carbon – China’s Goals Won’t be Hard to Hit
Most of those trends are already well under way. The hardest to achieve might be the continuous improvement in energy efficiency and pollution intensity once the low-hanging fruit – for example shutting down obsolete facilities – has been picked. On the other hand, a sharper than expected slowdown in economic growth or in the most polluting industries such as steel, mining, cement, glass or petrochemicals might result in a decline in Chinese emissions much earlier than expected. WSJ / FT / R / q
Carbon – An uneven deal
The agreement gives both sides plenty of wiggle room, referring to the countries’ “best efforts” and intentions to reach their targets. And because it is not a treaty, it does not have to be ratified by Congress E / NYT
|LABOR & EDUCATION||Top|
US – To Fill Holiday Jobs, Retailers Reach Out Through Social Media
The national unemployment rate fell to 5.9% last month, the lowest reading since 2008. Holiday hires last year surpassed their prerecession peak and the National Retail Federation expects companies will match or exceed that level this year. But while the demand for retail workers is exceeding prerecession levels, the scramble for seasonal hires hasn’t led to more pay. WSJ
US – Why Are So Many Workers Still Part Time?
For the retail and hospitality sectors, the number of involuntary part-time workers in October was nearly double its prerecession level. For construction, mining and manufacturing work, by contrast, the share of such part-time labor was just 9% above its pre-recession level. WSJ
data from the Labor Department shows that the decline in the number of those working part-time for economic reasons has resulted from fewer workers who are part time because of slack business conditions. Meanwhile, the level of workers who are part time because they can’t find full-time work is actually higher now than it was before the recession. wsj
London neighbourhoods based on eight different categories
Warren Hatch, PhD, CFA
Portfolio Management and Global Investment Strategy
McAlinden Research Partners
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