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Comments of the Day
07 February 2020
Video commentary for February 6th 2020
Eoin Treacy's view
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: will the coronavirus spur inflationary forces, continued monetary and fiscal stimulus spur stock markets, bond yields, gold steady, palladium weak. Europe, China, Japan firm.
Wall Street Warnings Grow Louder for Investors Defying Virus
This article by Cecile Gutscher and Anchalee Worrachate for Bloomberg may be of interest to subscribers. Here is a section:
“Pretty much every client we talk to wants to buy the dip,” wrote Tobias Levkovich, Citigroup Inc.‘s chief U.S. equity strategist in a note. “And that is not comforting.”
The S&P 500 edged higher Thursday, extending the week’s gains to more than 3.5%, as the Stoxx Europe 600 Index climbed to a record and stocks soared in Asia. A gauge of European credit risk hit its lowest since 2007.
Yet the battle against the virus could suffer a setback as factories reopen in China in the coming days and more people come into contact with each other. On the other hand, if factories fail to reopen, the economic impact could prove much more severe.
At Robeco, money manager Jeroen Blokland is eyeing the rally warily. The head of multi-asset funds at the Rotterdam-based firm recently cut an overweight allocation to stocks to neutral because of the spread of coronavirus. He says it’s not yet time to dive back in.
“Every investor is looking for the bottom and wants to find it a little bit earlier than his neighbor,” he said. “We need a little bit more confirmation that the outbreak will be contained before moving again.”
Eoin Treacy's view
The stock market responds to liquidity because that has an influence on all asset prices and regardless of other short-term factors the Treasury yield is below that of the S&P500 which is generally supportive of the buy the dip strategy. Nevertheless, the stresses coming to bear as a result of the Wuhan Acute Respiratory Syndrome (WARS) are significant and need to be taken seriously.
Japan Seen Needing U.S. Help to Check China's Digital Yuan
This article by Yuko Takeo, Emi Urabe and Toru Fujioka for Bloomberg may be of interest to subscribers. Here is a section
“We sense the digital yuan is a challenge to the existing global reserve currency system and currency hegemony,” said Nakayama, a top member of the ruling party group that drafted the proposals. “Without the U.S., we cannot counter China’s efforts to challenge the existing reserve currency and international settlement system.”
The comments indicate the heightened concern among policy makers in Japan over the likely impact of a digitized yuan expected for later this year. China’s plan and Facebook’s efforts to launch its own Libra currency have sparked central banks around the world to get up to speed on how digital currencies would function and what their impact could be.
“There are 1.4 billion people in China, so within the one belt, one road digital economic framework, the digital yuan has a high likelihood of becoming the standard within that digital economy,”
Eoin Treacy's view
There is no telling just yet how serious China is about setting up a digital currency system but the security and supply elasticity in how it is set up, together with how much it is used on the mainland will be determining factors is whether it is ultimately a success.
Goldman's Currie Likes Palladium on Potential Deficit in China
This article by Elena Mazneva, Francine Lacqua and Tom Keene for Bloomberg may be of interest to subscribers. Here is a section:
Palladium could be an interesting trade given potential supply disruptions to China because of the coronavirus, Jeffrey Currie, head of global commodities research at Goldman Sachs, told Bloomberg TV.
“The one I like right now that we are watching in the commodity market is palladium -- when palladium gets so tight that you actually start to shut down auto manufacturing.”
Yet, “you don’t know when you hit one of these physical shortages until you actually hit them.”
NOTE: Spot palladium traded near $2,412/oz Thursday, heading for a ~5% weekly gain after dropping a week earlier from record highs.
Currie said last month he sees the potential for palladium to test $3,000/oz, then slide.
Eoin Treacy's view
With auto manufacturers shutting down production because of a lack of Chinese manufactured intermediate parts, the most bullish forecasts for palladium are being questioned.
Email of the day on currency exchange sites:
Can you please add Trade Desk, TTD NAS, to the Chart Library? Any ideas on good economical services to use for transferring money (from AUD to GBP & the reverse)? (I suspect some sectors of the UK post Brexit economy to do well. Also, I've a son studying in Cambridge.)
Eoin Treacy's view
- Congratulations on your son at Cambridge. Our family have spent the last few months applying and interviewing at high schools for my eldest daughter. The range of offerings and the difference in ethos between the schools is dizzying. It has occupied more time that I bargained for but thankfully we had our last interview today.
Our family’s income comes from both British Pound and US Dollar sources. Managing exchange rates is therefore something we are more than familiar with. One of the primary reasons Mrs. Treacy set up her online business was so she could recycle Pounds into inventory and sell it for Dollars which was a handy way to earn a return on devalued Pounds following the Brexit referendum.
The service I use to transfer money is CurrencyFair.com. It is a peer to peer matching service and has the tightest spreads for the quantities I deal in, I have been able to find.