Yields continue to track lower on the day

US Treasury 10-year yields down by nearly 5 bps to 1.585%


The risk-off mood looks to stay the course ahead of European trading and this should set up a softer start for risk in the session ahead.
The track lower in yields is also pushing the yen higher as we see USD/JPY inch towards session lows of 109.78 as sellers threaten a break of the 100-hour moving average.
The latest economic data from China isn’t helping in that regard, with CAAM also warning that auto sales and production figures in February will be “bad”.

SNB leaves policy rate unchanged at -0.75%

SNB announces its latest monetary policy decision – 12 December 2019

  • Prior -0.75%
  • Sight deposits rate unchanged at -0.75%
  • Remains prepared to intervene in markets if needed
  • Risks to the global economy remain tilted to the downside
  • Franc remains highly valued; FX market remains fragile
  • Willing to intervene in FX market as necessary, while taking overall currency situation into consideration
  • Negative rates and willingness to intervene should counteract attractiveness of the franc and ease upward pressure on the currency
  • 2019 GDP forecast seen at around 1.0% (previously 0.5% to 1.0%)
  • 2020 GDP forecast seen between 1.5% to 2.0%
  • 2019 inflation forecast seen at 0.4% (unchanged)
  • 2020 inflation forecast seen at 0.1% (previously 0.2%)
  • 2021 inflation forecast seen at 0.5% (previously 0.6%)
No key changes by the SNB in their language as they continue to keep rates well in negative territory and reiterated that the Swiss franc remains “highly valued”.
Despite mounting skepticism over its negative rates policy, it doesn’t look like it will come to an end any time soon although the pressure on lenders and the public may still keep the central bank sidelined further for the time being.
That said, if trade risks materialise and the global economy suffers a more profound slowdown next year, it’s only a matter of time before they will have to step in and take action.

Barkindo: OPEC’s challenge has always been to depoliticise oil

Sure, and what exactly is a monopoly again?

  • The world is becoming unpredictable in terms of economic outlook and geopolitics
  • Saudi attack is almost behind us thanks to swift response
  • Number one issue we face today is the risks to the global economy
There is no doubt that the bloc still has a strong hold over the oil market but it has been quite the fall from grace ever since fracking and shale oil made its entrance in 2014.

Trump reacts to the ECB decision to cut rates

Trump tweets on the European Central Bank

Via twitter:
European Central Bank, acting quickly, Cuts Rates 10 Basis Points. They are trying, and succeeding, in depreciating the Euro against the VERY strong Dollar, hurting U.S. exports…. And the Fed sits, and sits, and sits. They get paid to borrow money, while we are paying interest!
Aside from the random capitalization, he’s accurate about the impacts. I’m not sure he wants the eurozone economy though.

US nonfarm payroll data due 1230GMT on July 5 2019 – preview

The headline for the June NFP is at median consensus of +160K, after the previous in May at +75K.

for the unemployment rate
  • expected 3.6%, prior 3.6%
Average hourly earnings
  • expected 0.3% m/m, prior 0.2%
  • expected 3.2%, prior 3.1%
Average weekly hours worked expected unchanged on the month at 34.4

This now via Westpac from a Friday note, in brief:

  • anticipated to bounce back after a soft read in May (+75k in the month and the previous level revised down by 75k). Consensus for Jun is for a 160k increase in employment with the unemployment rate holding at 3.6%. 
  • The trend lower in average hourly earnings is seen to stabilise, edging up to 3.2%yr from 3.1%yr in May

Global chip supply at risk as Japan and South Korea feud

Japan’s new export controls on South Korea, a country that produces the bulk of the world’s memory chips, threaten a ripple effect that spreads beyond the two wary neighbors to electronics manufacturing globally.

The restrictions announced Monday mark the latest setback in a bilateral relationship fraught with colonial-era grievances. The move prompted Seoul to say it was considering retaliatory measures and left chipmakers to confront an immediate supply challenge.

Starting Thursday, Japanese suppliers must seek approval for individual exports of three semiconductor industry chemicals to South Korea. Japan’s government expects export reviews to take about three months. But South Korean chipmakers typically keep only one to two months’ worth of parts and materials in stock.

A source at chipmaker SK Hynix told Nikkei the company does not have three months of inventory. The chipmaker would have to halt production if it cannot procure necessary materials from Japan for that long, the source said.

Top memory chip maker Samsung Electronics said it was assessing the situation, without elaborating.

The impact could spread worldwide. South Korean players control 70% of the global market for dynamic random access memory and 50% for NAND flash memory. Samsung leads the global chip market by revenue, with SK Hynix in third.

These chips go into devices such as Apple’s iPhone, rival models from Huawei Technologies, personal computers made by HP and Lenovo Group as well as televisions from Sony and Panasonic.

A representative at a major Japanese electrical equipment maker expressed concern that the new controls could backfire.

“If supplies of things like memory from South Korea are delayed and production of Apple’s iPhone falls [as a result], there could be an impact on our provision of parts,” the representative said.

Lesser-known Japanese companies hold leading market shares in the three restricted materials. Polyimides are used to make flexible organic light-emitting diode displays. The others are used in forming circuit patterns: resist — a coating substance — and etching gas. These companies include JSR, Showa Denko and Shin-Etsu Chemical — all of which are a third or more owned by foreign investors.

Japan also plans to remove South Korea by August from an export “whitelist” of 27 friendly countries that includes the U.S., Germany and France, meaning that shipments of products with potential military applications will require government approval. No country has ever been dropped from the list.

Tokyo cited a deteriorating relationship with Seoul as the reason for the controls, seemingly referring to a long-running dispute over compensation from Japanese companies to South Koreans for wartime labor.

The move follows Tokyo’s increase in inspections of some South Korean seafood that began last month, reportedly in retaliation for continued curbs on imports of food from areas affected by Japan’s 2011 Fukushima Daiichi nuclear disaster.

“It’s become difficult to manage exports based on a relationship of trust with South Korea,” Japanese Deputy Chief Cabinet Secretary Yasutoshi Nishimura told reporters Monday. Continue reading »

Assume Nothing; Question Everything; Verify All

“The market can remain irrational longer than you can remain solvent.”
Not John Maynard Keynes

I am reading a pretty good book by an industry expert that (like so many others) is a semi-autobiographical mix of business and personal history. The introduction to the book is a broad, throat-clearing exercise, outside of their expertise.

And I begin to notice a few errors.

Little things at first: dates, market levels, valuations. The narrative history about the GFC. It jars. I got a sense a publisher/editor type scanned the book and declared “This needs an intro.” Thus, a section gets written without the same love as the main (more interesting) story. As far as I can tell, the heart of the book (which is outside my area of expertise) is error-free. But these small misstatements are revealing about the industry: Publishers have morphed into mere copy shops, shadows of their former selves, no longer bothering with editing, fact-checking, etc. They have become glorified, spell-checking, xerox machines.

The errors are about things within my area(s) of expertise. It gnaws at me. So much so that when I come to the famous Lord Keynes quote above within the context of this throwaway chapter, it bothers me. This forces me to question whether it too is wrong.

Full disclosure: I have used that quote too many times to count. Mostly verbally, sometimes on social media, occasionally in print. Never once was I self-motivated to see if it was truly written by Keynes.1 My assumption was that it was Keynes, simply because every utterance of his has been poured over and annotated since the day they were made.

We have all used that line because it is a brilliant insight into the madness of markets, a reveal of human psychology, and the ugly reality that you can be right and still lose money. Of course it was by Keynes! Who else is wise enough could to utter such pithy insight about the human condition as manifest in capital markets?

Despite everyone knowing this was John Maynard Keynes, I wanted to confirm these were really his  words. I cannot say why it felt wrong to me, it just did. Read enough media, books, news, etc. and your Spidey-sense will tingle about these things. Continue reading »

China Manufacturing PMI for May came in under April and missed estimates

Here is the full suite:
Manufacturing Purchasing Managers Index (PMI), 49.4

  • expected 49.9, prior was 50.1

Non -manufacturing (services) Purchasing Managers Index (PMI), 54.3

  • expected 54.3, prior was 54.3

Composite Purchasing Managers Index (PMI), 53.3

  • prior was 53.4

On the manufacturing PMI, not only did it come in a sharp drop on the month and below the central estimate, it also came in below all estimates (from the Bloomberg survey). Its a terrible result.

The PMI data leaked out early:
Some of the detail from the manufacturing PMI :
  • Output 51.7 (vs. 52.1 in April)
  • New Orders 49.8 (51.4)
  • New Export Orders 46.5 (49.2)
  • Order Backlog 44.3 (44.0)
  • Finished Goods Inventories 48.1 (46.5)
  • Input Prices 51.8 (53.1)
  • Output Prices 49.0 (52.0)
  • Employment 47.0 (Apr 47.2)