FIG Topics of Interest

 

11/02/18

President Donald Trump wants to reach an agreement on trade with Chinese President Xi Jinping at the Group of 20 nation’s summit in Argentina later this month and has asked key U.S. officials to begin drafting potential terms, according to four people familiar with the matter.
https://www.bloomberg.com/news/articles/2018-11-02/trump-said-to-ask-cabinet-to-draft-possible-trade-deal-with-xi-jnzjeqx4?srnd=premium

The push for a possible deal with China was prompted by the president’s telephone call with Xi on Thursday, the people said, requesting anonymity to discuss internal deliberations. Afterward, Trump described the conversation as “long and very good” and said in a tweet that their discussions on trade were “moving along nicely.”

Click here to download a pdf of this article, Missile.pdf
 
 

11/01/18

India and South Korea agreed with the U.S. on the outline of deals that would allow them to keep importing some Iranian oil, according to Asian officials with knowledge of the matter.
https://www.bloomberg.com/news/articles/2018-11-01/india-korea-said-to-agree-outline-of-iran-oil-waiver-with-u-s?srnd=premium
No final decision has been made and an announcement is unlikely before U.S. sanctions on Iran are reimposed Nov. 5, the officials said, asking not to be identified because the information is confidential. That opens the possibility that the terms could still be modified or the deals scrapped entirely.
India’s payments for the Iranian oil will go into a local escrow account, which can be used for barter trade with the Middle East producer, one of the people said. No money will directly go to Iran, according to the person.

While the waivers would signal an easing of Washington’s hard-line stance that buyers cut purchases to zero, the limiting of payments to an escrow account would mean the U.S. can maintain economic pressure on Iran by squeezing a critical source of its revenue.

Click here to download a pdf of this article, Missile.pdf
 
 

10/30/18

The Commerce Department said it’s blocking sales of American components to Fujian Jinhua Integrated Circuit Company Ltd., recalling a similar ban that brought telecoms gear giant ZTE Corp. to a virtual standstill. Jinhua “poses a significant risk of becoming involved in activities that are contrary to the national security interests of the United States,” the agency said.
https://www.bloomberg.com/news/articles/2018-10-29/u-s-to-restrict-exports-to-chinese-chipmaker-fujian-jinhua
“Placing Jinhua on the Entity List will limit its ability to threaten the supply chain for essential components in our military systems,” Commerce Secretary Wilbur Ross said in the statement. The Chinese company wasn’t available for comment, and calls to the main number listed on its website went unanswered.
Derek Scissors, a China expert at the American Enterprise Institute, said the company was one of the country’s potential national champions and is in a dispute with its main competitor, U.S. chipmaker Micron Technology Inc.While the Commerce decision helps Micron in the short term, the administration is trying to set a precedent for how it treats Chinese state-owned enterprises in the long run, he said.
Micron has accused Jinhua of stealing its intellectual property, something the Chinese firm denies. Accusations that China unfairly acquires technology however are at the heart of U.S.-Chinese tensions, along with a plan by the world’s second largest economy to achieve supremacy in a plethora of future technologies. In July, a court in Jinhua’s home province banned sales of some Micron products, inciting the American firm’s outrage. Micron executive vice president Manish Bhatia said on Friday that technology leaks were “definitely a concern.”

Click here to download a pdf of this article, Missile.pdf
 
 

10/29/18

Add share buybacks to the long list of measures that China’s announced to stem a rout in its stock market, the worst performing in the world this year.
https://www.bloomberg.com/news/articles/2018-10-29/china-turns-to-share-buybacks-as-latest-weapon-to-rescue-market
After a faster-than-usual revision to law, companies can repurchase shares with approval from at least two-thirds of the board if deemed necessary to protect shareholders’ interests, or if it’s for convertible bonds exchange, the National People’s Congress said Friday. Firms were previously only allowed to buy back shares for purposes including stock incentives, and it was mandatory to go through shareholder meetings for approval.
Many are already jumping in. Real-estate company Xinhu Zhongbao Co. surged as much as 8.9 percent after saying late Sunday it will repurchase more shares, while Meisheng Cultural & Creative Corp. soared 10 percent as it pledged to buy back up to 200 million yuan ($28.8 million) of stock. Not all were lifted -- drugmaker Tonghua Dongbao Pharmaceutical Co. dropped to a three-year low despite promising repurchases.

Click here to download a pdf of this article, Missile.pdf
 
 

10/24/18

In one of Beijing's latest interventions, the Securities Association of China announced Monday night that 11 securities firms will form a $100 billion yuan ($14.5 billion) asset management plan to take some pressure off "share pledges" for companies with good development prospects.
https://www.cnbc.com/2018/10/24/china-stocks-share-pledge-loans-pose-risk-to-equity-markets.html
In share pledge financing, companies use a percentage of their equities as collateral to obtain loans. If the stock price falls far below a level that was agreed upon, the lender will sell the shares to obtain funds, leading to the destabilization of equity markets.
Despite Beijing's latest move and other recent measures to support local businesses, stocks closed sharply lower Tuesday, giving back some gains from the rally in the previous two sessions.

Click here to download a pdf of this article, Missile.pdf
 
 

10/23/18

Whatever form his 10 percent plan takes, it’s tacit acknowledgement that the 2017 tax overhaul isn’t proving as popular as Republicans had hoped -- and isn’t the boon for middle-class families that was promised.
https://www.bloomberg.com/news/articles/2018-10-23/top-earners-could-save-in-trump-s-tax-push-to-help-middle-class?srnd=premium
Trump first floated the middle-class tax plan on Saturday after a rally in Elko, Nevada, which caught Republican lawmakers off guard. The president said Monday a plan would be unveiled in the next week or so that would entail “a middle-income tax reduction of about 10 percent.” He added that Congress would vote on it after the November elections.
A White House spokeswoman said Trump wants his middle-class proposal to be added to a separate package of tax bills the House approved in September dubbed Tax Reform 2.0 that would make all changes for individuals in last year’s tax law permanent. The Senate hasn’t shown any interest so far in taking up the House tax bill.

Click here to download a pdf of this article, Missile.pdf
 
 

10/22/18

“I want to stress that it is completely wrong to use China as an excuse for pulling out of the treaty,” Foreign Ministry spokeswoman Hua Chunying told reporters Monday in Beijing. “We hope relevant countries can cherish the hard-won achievements over the years, prudently and properly handle issues related to the treaty through dialogue and consultation, and think twice about withdrawing from the treaty.”
https://www.bloomberg.com/news/articles/2018-10-22/china-says-u-s-should-think-twice-about-leaving-missile-pact?srnd=premium
President Donald Trump said Saturday he planned to pull out of the Intermediate-Range Nuclear Forces Treaty, known as INT, claiming that Moscow had breached the agreement on intermediate-range conventional and nuclear weapons. The New York Times reported the move was in part to enable the U.S. to counter a Chinese arms buildup in the Pacific.
Without the restrictions of the 1987 treaty, China has had a free hand developing and deploying intermediate-range nuclear missiles of its own, including missiles designed to take out U.S. aircraft carriers patrolling the waters of the Western Pacific. Exiting the accord would free the U.S. to deploy new weapons in the Indo-Pacific to respond to China’s attempt to erode its post-World War II dominance.
“China hasn’t signed the agreement and has been producing mid-range missiles and so-called carrier killers to asymmetrically increase the costs of an American-led naval containment strategy,” said Stephen Nagy, a senior associate professor at the International Christian University in Tokyo. “The U.S. is likely withdrawing to send a message to Beijing that the U.S. can and will produce mid-range nuclear weapons that can erode away China’s existing asymmetric advantage.”

Click here to download a pdf of this article, Missile.pdf
 
 

10/19/18

Investors had also been jittery after China's GDP numbers were released, showing that economic growth slowed to 6.5 percent year-over-year in the third quarter. That missed expectations for 6.6 percent growth, according to analysts polled by Reuters. Friday's print was the weakest pace since the first quarter of 2009.
https://www.cnbc.com/2018/10/19/china-gdp-misses-but-stock-markets-surge-as-regulators-pledge-support.html
But on Friday morning, the heads of the People's Bank of China, the Securities Regulatory Commission and the Banking and Insurance Regulatory Commission all issued statements expressing support for the stock market and positive economic fundamentals.
China's securities regulator unveiled a series of measures to aid the country's struggling stock market, which had been on a downward trajectory all year. It said it would encourage funds to help ease liquidity difficulties at listed companies, and would support share buy-backs.
However, Hao Hong, head of research and chief strategist at Bank of Communications (International), said China was already poised for an "oversold rebound" — even without the supportive comments from the regulators.
"The market is oversold anyway, the market is so oversold it's not funny," he told CNBC on the phone.
"If you want to make a speech to support the stock market now may be the right time," Hong said, noting that would give "more bang for your buck."

Click here to download a pdf of this article, Missile.pdf
 
 

10/18/18

“President Trump deserves tremendous credit for the administration’s focus on eliminating the anti-US manufacturer subsidy China receives from the U.S. Postal Service,” Jay Timmons, the president of the National Association of Manufacturers, said in a statement. “This outdated arrangement contributes significantly to the flood of counterfeit goods and dangerous drugs that enter the country from China.”
https://www.bloomberg.com/news/articles/2018-10-17/trump-is-said-to-plan-withdrawal-from-china-shipping-treaty
President Donald Trump plans to withdraw the U.S. from a 192-nation treaty that gives Chinese companies discounted shipping rates for small packages sent to American consumers, another escalation of his economic confrontation of Beijing.
U.S. officials said the administration sought to revise the treaty in September and was rebuffed by other nations, prompting the decision to withdraw. The State Department will deliver a notice to the Universal Postal Union in Switzerland Wednesday, White House Press Secretary Sarah Huckabee Sanders said in a statement.
Under the union’s framework it takes a year for a country to withdraw, during which rates can be renegotiated. The officials, who briefed reporters on condition of anonymity, said postal rates wouldn’t change for at least six months, and that the U.S. would prefer to stay inside the union’s system.

Click here to download a pdf of this article, Missile.pdf
 
 

10/17/18

“These low-yield bonds pack a pretty big punch after hedging,” said Jim Caron, a fund manager at Morgan Stanley Investment Management, which oversees $474 billion. Caron is using the strategy to buy euro bonds and highlighted Spain, where he can get effective yields of nearly 5 percent on 10-year notes. “We do this across all of our portfolios. This is a lucrative quirk.”
https://www.bloomberg.com/news/articles/2018-10-17/bond-traders-get-paid-big-to-dump-u-s-treasuries-and-go-abroad?srnd=premium
But more than just being a savvy trade idea, it underscores how the longstanding and popular narrative of the U.S. as a go-to destination for yield-seeking bond investors is little more than an illusion.
While U.S. investors have few incentives to stay at home, the sky-high cost for foreigners to hedge the dollar means they have little cause to buy Treasuries. In some cases, their effective yields can fall below zero. Any letup in demand could drive up U.S. borrowing costs, at a time when the government can ill-afford to lose investors as it raises ever more debt to meet its widening budget deficits. (Of course, bond investors can always opt not to hedge, though making a bet on the direction of currencies entails an added risk.)
The trade works like this: A dollar-based investor buys euros, which currently sell for $1.1574, to invest in euro debt. To hedge against currency swings, she simultaneously enters into a forward contract to sell back the euros in three months at a fixed price, currently $1.1668 per euro. That transaction normally incurs a marginal cost. But now it produces a return of 0.81 percent, or nearly 3.3 percent annually -- the most since the euro’s inception in 1999.

(A similar pattern holds true for cross-currency basis swaps, a hedging strategy used predominantly by multinationals and central banks.)
Profits from hedging the euro have persisted for years, but they’ve gotten so large in recent months that more and more U.S. investors are taking advantage.

Click here to download a pdf of this article, Missile.pdf