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Japan’s top 20 startups surpass 1tn yen ($9.2 billion) in total value

  
  Analysis
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Startups are continuing to grow in Japan, with a Nikkei survey finding the estimated corporate value of the 20 leading newer businesses increased 22% to exceed a combined value of 1 trillion yen ($9.2 billion) in the year to September. Growth is especially notable in the artificial intelligence and financial technology, or fintech, areas.

Technological innovations have increased startups’ corporate value, but signs of reservations among investors are also emerging in the wake of SoftBank Group-backed WeWork’s high-profile troubles. Masayoshi Son, who announced on Wednesday that his group’s net loss for the July-September quarter was 700 billion yen, admitted regretting a large investment in WeWork. “My investment judgment was poor in many ways,” he said.

Nikkei conducted the survey jointly with the Japan Venture Capital Association to estimate the corporate value of unlisted startups established up to 20 years ago as of the end of September. The valuation, calculated by multiplying the latest issue price of shares by their total number, corresponds to the market capitalization of listed companies.

The corporate value of 181 startups, among 189 firms that responded to the survey, was estimated, with the top 20 found to be worth a combined 1.19 trillion yen. Top-ranked Preferred Networks, an artificial intelligence developer, and two others were valued at more than $1 billion each. In 2018, there was only one so-called unicorn.

Using deep-learning technology, Preferred has been developing self-driving and other technologies jointly with auto giant Toyota Motor. The assessment of the company has grown also because it has expanded its partnerships with other companies, such as joint studies on automated control of oil plants with JXTG Holdings.

TBM, a Tokyo-based materials startup, was placed second in the survey. The company uses limestone to develop alternatives to plastics for items such as shopping bags, and it plans to start building its first overseas factory in China in 2020.

Fourth-ranked freee helps companies address labor shortages with its automated accounting software. The top 20 startups include seven fintech companies, reflecting strong expectations for innovations in financial services. The number of startups each valued at more than 10 billion yen increased about 30% to 63.

Unicorn candidates have also increased in sectors such as health care. According to U.S. research firm CB Insights, the U.S. has some 200 unicorns, or half the world’s total. Britain and India each boast dozens of them, but the number in Japan remains small.

TBM, which develops alternatives to plastics from limestone, attained the unicorn status. (Photo courtesy of the company)

The startup boom began earlier this decade as the digital revolution made headway, prompting large companies to expand investment in emerging innovative firms in a bid to avoid taking major risks alone.

One focal point ahead is the trend of investment, because the boom is partly attributable to the global glut of money. According to Japan Venture Research, privately held companies in Japan raised a total of 421.1 billion yen in 2018, a fivefold increase from five years earlier.

However, office-sharing WeWork’s woes raise the risk of a knock-on effect on other startups, which may find themseves under extra pressure to demonstrate their technology and business growth potential if they are to continue to attract investment.

Until recently, investors have tended to consider it enough for businesses to simply be expanding to warrant their support, but following the WeWork fiasco, there is a new focus on examining their governance of management thoroughly, according to Gen Isayama, general partner and chief executive of WiL, a U.S.-based incubator.

Softbank Group Chairman and CEO Son also referred to corporate governance during the earnings conference. “We will learn from our mistakes on WeWork, and create solid governance standards regarding business founders.”

Meanwhile, investment in startups in the U.S. has ballooned to 14 trillion yen. Amid the bubble-like situation, WeWork has faltered following the failure of its planned initial public offering, making investors more cautious about investment in new businesses.

Moodys Downgrades UK Outlook To Negative On “Brexit Paralysis”

  
Analysis, Economy
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Moody’s downgraded its outlook on Britain’s debt (currently rated Aa2) to negative from stable after the market close on Friday, saying Brexit had been a catalyst for an erosion in the country’s institutional strength, perceived “material deterioration” in UK governance, and that the country’s ability to set policy has weakened in the Brexit era along with its commitment to fiscal discipline.

The outlook cut represents a catch down to its competitors: the UK is currently rated AA by S&P and AA- at Fitch Ratings, with both companies having the UK on negative watch.

“It would be optimistic to assume that the previously cohesive, predictable approach to legislation and policymaking in the UK will return once Brexit is no longer a contentious issue, however that is achieved,” the ratings agency said adding that “the increasing inertia and, at times, paralysis that has characterized the Brexit-era policymaking process has illustrated how the capability and predictability that has traditionally distinguished the U.K.’s institutional framework has diminished.”

“The decline in institutional strength appears to Moody’s to be structural in nature and likely to survive Brexit given the deep divisions within society and the country’s political landscape,” Moody’s added.

The decision to put the UK on negative outlook even as Moody’s affirmed Britain’s Aa2 long-term issuer and senior unsecured ratings comes one month before an election that is likely to determine the future of Brexit. While the election will have a big impact on Brexit, this week has seen both sides escalate their spending pledges, drawing election battle lines with plans to end a decade of U.K. austerity. (more…)

Here is what’s on the economic calendar in Asia today – almost bare

  
  Analysis
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2350GMT will bring data on weekly flows of securities (stocks/bonds bought/sold) from Japan.

Upon release these tend to have a negligible impact on forex (unless there is some reason for the market to be focused on them at the time).
Apart from some info due from South Korea and Singapore that’s about it.

USD up trend is 99 months old soon. Is it over? No, another 12-24 months still to come

  
Analysis, Forex
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The headline is the in summary version of a client note from UBS on the US dollar.

Its a detailed look at the US dollar trend, but adding to the to the headline points in brief.
When and how the dollar might turn is anyone’s guess
  • longterm dollar trend …  As of last month, it was still levying upward pressure … did not appear to be waning materially
  • medium term trend  …  duration of 2-5 years … more or less mirrors intra business cycle growth surges and slowdowns
  • shorter term one that averages about a year…. seems to relate to shocks caused by politics and supply disruptions to commodities … a modest dollar drag today … could reflect the … trade war coming home to roost and the drag on Chinese leading indicators passing, as fiscal stimulus from tax cuts and modest credit easing have begun to filter through

The bond market isn’t feeling too upbeat on trade talks

  
  Analysis
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Treasury yields fall across the curve to session lows

USGG10YR

10-year yields are down by 2.5 bps to 1.644% as yields slip across the curve to start the European morning. While equities are holding higher, the bond market is sending a different signal with regards to positioning ahead of the trade talks outcome.
Essentially, this is what is holding yen pairs back from moving higher on the day with USD/JPY still seen near flat levels at 108.00.
Markets are mixed and a bit paralysed at the moment as everyone is just waiting to see what happens to talks in Washington later today. I reckon that will remain the case ahead of North American trading before we get more trade headlines to work with.

US auctions off 30 year bond at 2.170% vs WI level of 2.169%

  
  Analysis
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US auctions off $16 billion of 30 year bonds

  • High yield 2.17% versus WI of 2.169%
  • Bid to cover 2.25x vs six-month average of 2.23x
  • Dealers took 22.94%. vs six-month average of 27.3%
  • Directs 18.5% vs six-month average of 18.8%
  • Indirects 58.5% vs six-month average of 67.2%
the US treasury completed its refunding by selling 16 billion of 30 year bonds at a high yield of 2.17%. That was slightly above the 2.169% level at the auction time. The bid to cover was near the six-month average. Dealers took a lower percentage than the average at 22.94% suggesting a distribution of the auction to nondealer participants.
Give the auction the C+ to B-

Order flow levels across major pairs.

  
Analysis, Forex
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Orders in the market seen across major pairs

  • Sell orders on NZDUSD on 0.6480/90 and 0.6360/70
  • Sell orders on AUDUSD at 0.6800/10 and 0.6910/20
  • Sell orders on EURJPY at 120.40/50, 118.70/80

and buy orders at 116.20/10

  • Sell orders on USDJPY at 108.70/80, 108.30/40

and buy orders at  106.00/90 and 105.00/90

Sell orders on GBPUSD at 1.2680/90 and 1.2530/40

and buy orders at 1.2000/90

  • Sell orders  on EURUSD at 1.1010/20

Ahead of the FOMC minutes this week, a forecast of an October rate cut

  
Analysis, US Market
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UBS are citing the US slowdown to potentially arrive sooner than expected

  • Which, they say, opens the door to a Fed funds rate cut in October.
(Federal Open Market Committee meeting is October 29 and 30)
Citing trade tension with China –  a substantial shock to the economy – tariffs causing a slump in private demand
  • tarfifs weakening employment in manufacturing, retail
Following that the bank expects further cuts in:
  • January, March and June 2020
  • And also say that due to the run of recent data there is risk is to the downside for the Fed to cut more.

What lies ahead for the USD?

  
Analysis, Forex
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What is the outlook for the US dollar

What is the outlook for the US dollarThe USD has been steady versus a basket of major currencies since the start of 2019. The dollar index is trading close to September highs, which, in turn, are at the maximum levels since 2017.

The current week, however, hasn’t been very positive for the American currency. So, what future awaits it? In this article, you will find the fundamental outlook for the greenback.

US economy has faltered

Life shows that it’s not possible to fight in trade wars and stay unharmed. The data released on Tuesday showed that the US manufacturing sector is in its worst condition in a decade: ISM Manufacturing PMI dropped from 49.1 to 47.8 in September.

A reading below 50 indicates industry contraction. Given how low the latest number is, it’s certain that even if the underlying picture changes and positive factors come into play, the situation won’t be able to improve fast.

And so far, there are few reasons to believe that the United States and China will achieve a big breakthrough in their negotiations. Representatives of the nations will meet next week on October 10 and 11.

Although soothing comments may cheer the stock market, it will take the mutual renunciation of tariffs to amend the damage done to the economy. If talks fail, there will be more tariff hikes in the following months and hence an even stronger economic pain.

Moreover, recent rumors indicate that Donald Trump is considering limiting American investment flows to China. This step, if taken, would further escalate the trade conflict.

Remember that everything is interdependent in the economic world. Considering the external troubles, it’s now up to US consumers to drive economic growth. For them to be able to do that, they need ample wages.

(more…)

CFTC Commitments of Traders: Canadian dollar buyers bail

  
Analysis, Forex
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Forex futures positioning data for the week ending September 24, 2019 from the CFTC:

Forex futures positioning data for the week ending September 24, 2019 from the CFTC:
  • EUR short 61K vs 69K short last week. Shorts trimmed by 8K
  • GBP short 81K vs 86K short last week. Shorts trimmed by 5K
  • JPY long 13K vs 24K long last week. Longs trimmed by 11K
  • CHF short 11k vs 5k short last week. Shorts increased by 6K
  • AUD short 47k vs 54k short last week. Shorts trimmed by 7K
  • NZD short 36K vs 30K short last week. Shorts increased by 6K
  • CAD long 5K vs 20K long last week.  Longs trimmed by 15K

There were some substantial moves across the board in this week’s data. There was no overarching theme in the US dollar. The loonie has stubbornly held onto longs but I suspect the jump in oil prices and lack of a corresponding climb in the loonie may have sent some specs to the sidelines — that data certainty hasn’t eroded.

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