Comment of the Day
Video commentary for October 17th 2022
A link to today's video is posted in the Subscriber's Area.
Some of the topics discussed include: China supports stock market ahead of Xi's confirmation of a 3rd term. Dollar eases on UK fiscal recalibration, Bond yields rebound from intraday low, gold fails to hold the intraday highs, Latin America currencies steady.
Mini-Budget Torched, Now Hunt Must Balance the Books
This article from Bloomberg may be of interest to subscribers. Here is a section:
Our latest assessment, taking on board the change in borrowing costs since Hunt’s announcement and the policies in the statement, is that a further £13 billion will still need to be found to just get debt falling relative to GDP. It would take more like £36 billion of consolidation to put it on the same trajectory as we projected before the mini-budget was published in September.
Debt Still On Explosive Path
Finding a package of spending cuts that are politically viable and deliverable will be extremely challenging -- much of the low-hanging fruit has already been picked. Hunt faces an uphill struggle to win the faith of markets as he formulates a budget, to be delivered on Oct. 31.
Hunt also said that the universal household energy price cap will be replaced from April 2023 with more targeted measures. It’s not clear what those measures will be but removing the government cap altogether and reverting to Ofgem’s methodology from April would imply a 75% rise in energy bills for households. Inflation would jump to 11.6% in April, against 6.4% under the cap.
The combination of austerity and less support for households next year means the risks to our forecast for a 0.4% drop in GDP in 2023 have shifted to the downside.
Eoin Treacy's view - Jeremy Hunt introduced a reset over the weekend which puts the UK government’s finances back to where they were two weeks ago. As a result the Pound is back to where it was on September 20th. Deficits are wide but the assumption is the universal energy price cap is assumed to be temporary. The reality is price controls are difficult to remove once installed and are always expensive to maintain.
Email of the day on name changes and courier services
It seems Royal Mail changed its name to International Distributions Services PLC (LSE:IDS) (IDS.L). I would be grateful if you would kindly share your views on the implications of this change to the price of the share and the health of the company. As always thanks for your great service.
Eoin Treacy's view - The official name change was announced several months ago but went into effect on the 5th. The main reason posted was to highlight that Royal Mail has two businesses, domestic and international. At the time the name change was announced the company said there would be no transfers between the international and domestic businesses. In other words, they are intent on pushing through significant rationalization of the domestic mail and package service which is still called the Royal Mail.
Eoin's personal portfolio: profit taken on Index short October 13th
One of the questions subscribers ask most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.
China Seeks to Boost Stock Market as Xi Speech Disappoints
This article from Bloomberg may be of interest to subscribers. Here is a section:
Chinese regulators are ramping up efforts to support the stock market, which saw little reprieve from President Xi Jinping’s speech amid continued pressure from geopolitical tensions and the Covid Zero policy.
A series of market-supporting measures are in the pipeline, including proposals to encourage companies to buy back shares and to ease curbs on short-term transactions by overseas mutual funds. In a sign that private firms are heeding the government’s efforts, at least eight mutual funds announced plans on Monday to invest in their own equity products.
The benchmark CSI 300 Index ended up 0.1%, reversing earlier losses as investors weighed Xi’s speech against the prospect of measures. The Hang Seng Index climbed 0.2%, while a gauge of Chinese stocks trading in Hong Kong also eked out gains.
Stock investors have been looking for fresh market impetus after suffering losses that have been among the worst in the world. Xi’s renewed pledge for tech self-reliance trigged a rally in the sector’s stocks, but the overall market reaction was muted as he defended the Covid Zero policy and fell short of promising further support for the property sector.
Eoin Treacy's view - The Chinese authorities will be eager to ensure the market and society at large are deeply supportive of President Xi’s third term in office as well as the economic agenda laid out over the weekend. That suggests at least a near-term low for the CSI 300 has been reached.