FIG Topics of Interest

 

11/13/18

U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He have resumed talks on trade, and a potential Washington visit by Liu is being considered before the nations’ top leaders meet later this month.
https://www.bloomberg.com/news/articles/2018-11-13/china-s-liu-mnuchin-are-said-to-have-resumed-dialog-on-trade?srnd=premium
The two officials spoke by phone on Friday, according to people briefed on the matter, who asked not to be named due to the sensitivity of the topic. The conversation didn’t yield any concrete results, the people said. The Hong Kong-based South China Morning Post reported Tuesday that Liu was “expected” to visit Washington shortly. The Wall Street Journal first reported the phone call Monday. 
The phone discussion followed a call between President Donald Trump and China’s Xi Jinping two weeks ago -- the first publicly disclosed call in six months. The two leaders are slated to meet at the Group of 20 nation’s summit in Argentina, which is scheduled to take place from Nov. 30 to Dec. 1.

The White House is circulating a draft report by the U.S. Commerce Department over whether to impose tariffs on automobile imports to protect national security, three people familiar with the matter said.
https://www.bloomberg.com/news/articles/2018-11-12/u-s-car-import-probe-advances-as-trump-plans-trade-team-meeting
President Donald Trump is scheduled to meet with senior members of his trade team on Tuesday to discuss how to proceed on the potential tariffs, two of the people said. Speaking on condition of anonymity to discuss internal deliberations, they didn’t give any insight into Commerce’s conclusions.

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

11/09/18

Bob Shanks, Ford’s chief financial officer, said on an earnings call last month that the company is committed to maintaining its investment-grade ratings, and doesn’t intend to lose that status again. The company is “moving with a sense of urgency and taking proactive steps to redesign and restructure the business,” and over time "the market will recognize our progress,” spokesman Brad Carroll said.
https://www.bloomberg.com/news/articles/2018-11-09/it-s-2005-all-over-again-as-ford-teeters-on-the-edge-of-junk?srnd=premium
“There’s a better chance than not it ends up in high yield,” said Henry Peabody, a portfolio manager at Eaton Vance Corp. in Boston. “It’s a combination of a fairly weak strategic position, less than ideal strategic decisions over last handful of years, a smattering of overconfidence and where we’re at in the credit cycle.”

Ford is fighting a “multiple-front war,” Peabody said, citing the company’s slowing sales growth in China and higher costs in the U.S. from global trade disputes.

Debt investors are skeptical. The extra yield that money managers get for holding Ford’s 4.346 percent bonds due 2026 rather than similar Treasuries jumped to levels typical of high-yield companies. The cost of protecting Ford’s debt against default using credit derivatives rose in October to the highest levels since 2012 before settling down again. Moody’s downgraded the company in August to one level above junk, and said further cuts are possible in the medium term.

Ford told investors in July it is launching an up to five year overhaul that could cost it $11 billion, as it focuses on higher margin products like trucks and sport-utility vehicles and exitsbusinesses including its U.S. sedans. However, it has provided scant details on the restructuring plan, and has yet to reschedule an investor meeting that was originally set for September.

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

11/08/18

"US crude oil production was recorded at a new record high, and the largest in the world by far, moving ahead of Russia and closer to the level Saudi Arabia might be able to reach in another six months," wrote Citigroup energy analyst Eric Lee.
U.S. oil production jumped to a record 11.6 million barrels a day last week, and rising U.S. output is a factor that could prompt OPEC members and allies to react when they meet over the weekend.

https://www.cnbc.com/2018/11/07/us-pumps-more-oil-than-russia-and-saudi-arabia-opec-could-strike-back.html

Oil prices have cratered amid concerns of a global supply glut, and the jump in U.S. output to a point where it is now surpassing Russia, in addition to Saudi Arabia, only adds to these concerns. West Texas Intermediate futures are now down 20 percent from the near four-year high reached on Oct. 3.

U.S. production is up a stunning 2 million barrels a day from the same period last year, and 400,000 barrels from the week earlier, based on weekly U.S. government data. Weekly numbers are often revised, but the higher production figure is in line with growing U.S. output expectations. The U.S. government expects October production was 11.4 million barrels a day and expects production can grow to 12.1 million barrels a day on average next year.

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

11/08/18

"US crude oil production was recorded at a new record high, and the largest in the world by far, moving ahead of Russia and closer to the level Saudi Arabia might be able to reach in another six months," wrote Citigroup energy analyst Eric Lee.
U.S. oil production jumped to a record 11.6 million barrels a day last week, and rising U.S. output is a factor that could prompt OPEC members and allies to react when they meet over the weekend.

https://www.cnbc.com/2018/11/07/us-pumps-more-oil-than-russia-and-saudi-arabia-opec-could-strike-back.html

Oil prices have cratered amid concerns of a global supply glut, and the jump in U.S. output to a point where it is now surpassing Russia, in addition to Saudi Arabia, only adds to these concerns. West Texas Intermediate futures are now down 20 percent from the near four-year high reached on Oct. 3.

U.S. production is up a stunning 2 million barrels a day from the same period last year, and 400,000 barrels from the week earlier, based on weekly U.S. government data. Weekly numbers are often revised, but the higher production figure is in line with growing U.S. output expectations. The U.S. government expects October production was 11.4 million barrels a day and expects production can grow to 12.1 million barrels a day on average next year.

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

11/07/18

While the outcome was largely expected, analysts at Morgan Stanley and Credit Agricole SA say it could lead to a gridlocked government during the rest of President Donald Trump’s term, undermining efforts to extend tax cuts and boost infrastructure spending. This could weigh on the greenback, which has outperformed all Group-of-10 peers so far this year.
https://www.bloomberg.com/news/articles/2018-11-07/dollar-reign-at-risk-as-divided-congress-could-stymie-stimulus?srnd=premium
Morgan Stanley: Bearish Dollar

  • Result “supports our longer-term dollar bearish thesis,” write currency strategists including Hans Redeker
  • See EUR/USD rallying and USD/JPY weaker, as Europe and Japan perform better and FX-unhedged positions shift back to home countries
  • “Democrats taking control of the House effectively halts any further progress of the Republican agenda, but does not invite investors to consider meaningfully higher probability of Democratic priorities being enacted beyond 2020,” strategists including Meredith Pickett wrote in a research note
  • Treasuries are likely to be supported in near term as market “probably got ahead of itself” in pricing in a higher probability of Republicans holding the house and implementing more tax cuts
  • However, see the possibility of an unfunded infrastructure spending plan, with the next couple of weeks “critical to forming a more substantive stance on this issue and whether or not it will impact Treasury markets”

Credit Agricole: Weaker Dollar

  • The Democrats’ win in the House “should lessen the prospect of any meaningful new fiscal stimulus, while the Trump Administration’s protectionist stance should remain largely unchanged,” Credit Agricole analysts including head of G-10 currency strategy Valentin Marinov write in a report
  • “Thus, the past boost to U.S. growth from earlier fiscal measures should fade, reinforcing our outlook for a weaker dollar over time”

Citigroup: Buy the Dip

  • Post-election USD sell-off has “likely been more timid than many investors anticipated,” wrote Todd Elmer, senior G-10 currency strategist
    • Any further dollar weakening on election likely to be short-lived as investor appetite to chase the move may be low, midterms do not historically mark a break in currency trends, policy levers for USD depreciation are weak, and dollar-positive implications from the elections may be underplayed
  • Dollar sell-off ultimately present an opportunity to re-enter longs
  • Sees limited scope for dollar selling to extend and favors buying on the dip

MUFG: EUR/USD Support at 1.13

  • “This is no ‘blue wave’ and no resounding rejection of President Trump that many Democrats were expecting -- that will certainly limit the initial decline of the dollar on this result,” say strategists Derek Halpenny and Fritz Louw
    • “It reduces the prospect of any near-term breach of the 1.1300 support level against the euro”
  • “We can now forget about the prospect of additional fiscal stimulus,” but “Trump’s direction in regard to trade policy and China may not change at all”

BMO Capital Markets: Flatter Curve

  • “In general, the passage of a risk event this time around may not translate into higher yields, as the Treasury market appeared most concerned about a bearish surprise in rates,” wrote strategist Jon Hill
  • Return to political gridlock will likely temper growth expectations or moderate the prospect of additional stimulative fiscal policy
    • Don’t anticipate this to dissuade the Fed from continuing to deliberately tighten monetary policy as other areas of the economy maintain very strong momentum
  • See curve moving flatter from here, with any breach above 26.4 basis points on the 2s/10s clearing the way for a new challenge of the cycle flat of 18.3 basis points in coming weeks

Danske Bank: Still Sees 3.5%

  • “We still expect 10-year Treasuries to move toward 3.5 percent in three to six months,” wrote strategists including Arne Lohmann Rasmussen
    • Knee-jerk reaction to the result might be a modest support to U.S. Treasuries and slightly lower yields, as risk of bigger budget deficit and subsequent tighter monetary policy should somewhat abate; any support is expected to be short-lived
  • Still looks for euro-dollar to move below 1.13 before year-end
    • Dollar set to enjoy continued support from U.S. cyclical and carry outperformance

Toronto-Dominion: EUR/USD Floor at 1.13

  • “The double bottom at 1.13 in EUR/USD now looks like a pretty solid floor for the time being,” says Ned Rumpeltin, head of foreign-exchange strategy
    • “The Democrats underperformed in the Senate but not to a game-changing degree -- it is likely to be a slow-burn story for the dollar”
  • “We are likely to revert back to the 1.16/1.18 trading range that has prevailed for much of the last 6 months or so.”
Click here to download a pdf of this article, Missile.pdf
 
 

11/06/18

China’s central bank will step up funding support for private firms including developing an equity financing tool, its chief, Yi Gang, said on Tuesday, the latest step to support a slowing economy pressured by a trade dispute with the United States.
https://www.reuters.com/article/us-china-economy-cenbank/china-to-step-up-funding-support-for-private-firms-idUSKCN1NB1MN?il=0
“The problem of financing difficulties for private enterprises is particularly prominent, mainly because financial institutions’ risk-taking capacity is falling and they are unwilling to take risks,” Yi said.
China’s overall liquidity is ample but more effort is needed to channel cash to private firms and other parts of the economy where support is needed, Yi told the state-owned Economic Daily in an interview.

The PBOC would use a policy mix of “three arrows” to boost bank loans, debt and equity financing for private firms, Yi said.

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

11/05/18

U.S. sanctions lifted as part of the 2015 nuclear accord with Iran snapped back at midnight New York time as President Donald Trump fulfills his vow to ramp up pressure on the Islamic Republic over its “malign” behavior in the Middle East, its ballistic missile tests and its nuclear program.
https://www.bloomberg.com/news/articles/2018-11-05/u-s-sanctions-on-iran-oil-sales-snap-back-as-trump-fulfills-vow?srnd=premium
Key Details

  • Sources familiar with the U.S. move said Japan, India and South Korea are among those getting waivers. China, the biggest purchaser of Iranian crude, was in talks for a waiver, while other requests were expected from Taiwan and Turkey.
  • More than 700 “individuals, entities, vessels and aircraft” will be sanctioned, according to the White House. They include Iranian banks, shipping companies and oil exporters.
  • The U.S. warned that it could target the Swift financial messaging network for sanctions if it doesn’t halt transactions with sanctioned Iranian financial institutions.
  • EU, German, U.K. and French officials last week said in a joint statement that they “deeply regret” the U.S. move and vowed to “protect European economic operators engaged in legitimate business with Iran.”
  • Treasury Secretary Steven Mnuchin on Friday said the U.S. is “intent on ensuring that global funds stop flowing to the coffers of the Iranian regime.”
  • Trump said Friday the U.S. is open to reaching a new, more comprehensive deal with Iran that “forever blocks its path to a nuclear weapon, addresses the entire range of its malign actions, and is worthy of the Iranian people.”
  • The waivers prompted conservative U.S. critics of the administration’s approach -- including Republican Senators Marco Rubio and Ted Cruz -- to say the White House was caving in on its tough line and to vow legislation to close what they consider loopholes.
Click here to download a pdf of this article, Missile.pdf
 
 

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