Month: December 2019

Good news, world! Global manufacturing – according to JPMorgan  – is back in expansion in November, rising to 50.3, a seven-month high.

Output and new orders saw marginal gains, while the trend in employment stabilised after job cuts in the prior six months.

International trade remained a drag on the sector, however, as new export business decreased for the fifteenth successive month.

Eleven of the nations for which November PMI data were available registered expansions, with the strongest growth signalled for Greece, Colombia and Brazil. The USA, China and France were also among the nations seeing an improvement. Germany and the Czech Republic remained at the bottom of the growth rankings.

Business optimism stayed relatively subdued in November, continuing the recent trend of lacklustre confidence. The lowest readings for the Future Output Index (which was first compiled in July 2012) have all been recorded during the past seven months.

Finally, we note that global stocks have perhaps front-run this modest rebound just a little too much on the heels of a year of printing money dangerously…

Source: Bloomberg

Sell the news?

Ukrainian President Volodomyr Zelensky says in a new interview that he and President Trump never discussed a “quid pro quo” – though he was unhappy to have learned that US security aid had been blocked.

“I never talked to the president from the position of a quid pro quo. That’s not my thing,” Zelensky told TIME in an interview published Monday.

“I don’t want us to look like beggars. But you have to understand. We’re at war,” he continued. “If you’re our strategic partner, then you can’t go blocking anything for us. I think that’s just about fairness. It’s not about a quid pro quo. It just goes without saying.“

Allegations that President Trump abused his office are at the heart of impeachment proceedings in the House, as Democrats claim he ‘pressured’ Zelensky to investigate Democratic rival Joe Biden and his son Hunter, as well as a claim that the hacked DNC server was located within Ukraine.

Unbeknownst to Zelensky, nearly $400 million in US military aid had been paused – with Democrats claiming it was used as leverage for the Biden investigation, and the Trump administration claiming that they were concerned about how the money would be used in the notoriously corrupt country.

In 2014, Hunter Biden was hired to sit on the board of Ukrainian gas company Burisma – allegedly to protect its owner, Mykola Zlochevsky, who was under investigation for money laundering, bribery, granting himself drilling permits while he was the Minister of Ecology, and other crimes.

Zlochevsky’s investment in Hunter Biden appeared to pay off, after Joe Biden notoriously threatened to withhold $1 billion in US aid to Ukraine if they didn’t fire the country’s head prosecutor who was leading the investigation.

In short, total malarkey.

Tackling Corruption

Zelensky told Time that he wants to improve Ukraine’s image on the world stage after people – including President Trump, keep referring to it as corrupt.

“When America says, for instance, that Ukraine is a corrupt country, that is the hardest of signals,” said Zelensky. “It might seem like an easy thing to say, that combination of words: Ukraine is a corrupt country. Just to say it and that’s it. But it doesn’t end there. Everyone hears that signal. Investments, banks, stakeholders, companies, American, European, companies that have international capital in Ukraine, it’s a signal to them that says, ‘Be careful, don’t invest.’ Or, ‘Get out of there.’”

Read the rest of the interview here.

Blain’s Morning Porridge, submitted by Bill Blain of Shard Capital

This is probably the last Big Week for markets this decade! The game through to Dec 31st will be to avoid compromising this year’s surprisingly substantial gains, and focusing on how to play the pitch when markets surge again in January.
There are two entirely predictable schools of thought for next year:

• A) There is still too much money sloshing round financial assets, and compliant central banks that will continue to pump in yet more too much money to avoid anything that looks wobbly that might destabilise the too much money financial asset economy. If you buy this scenario, the strategy is buy, buy and buy some more…
• B) Or, some “no-see-um” idiosyncratic event or global slowdown is going to destabilize the whole market driven caboodle. Prices will come crashing down, the bubbles will burst – bond yields will rise, zombie defaults will be unstoppable, illiquidity will leave investors no choice but hit distressed bids, while equity markets will rattle like dried peas in a hollow gourd. In this scenario, the strategy will be to wait, then buy, buy and buy some more. The only question is when to risk holding returnless cash…

Personally, I’m going with something a bit different. I’m still writing my year end strategy note, but it will argue the 2020s are going to be all about sustainable investment.

The defining strategy of the 2010-2019 market was riding the monetary policy mistakes which pumped money into financial assets – it was a brilliant game for those who played it well.

The last 10-years were largely about denial of rationality by piling on risk in what looked to be risk-off markets, holding your nerve in the face of improbable market gains, all of which required a long-term suspension of disbelief.  Do these three things and you did well! It really didn’t require that much skill – just the understanding of why Central Banks could not afford to stop juicing markets via flawed monetary policy.

The next 10-years is going to be very interesting.  Central Banks have smelt the coffee and know it was all a mistake. Fiscal policy is a dangerous thing in terms of unwise government debt loads and badly chosen spending.  

Sustainability is more intriguing – it will embrace climate cure, but also seek to invest on a rational basis across markets to create a more stable, just and fair social and economic base – hence my earlier comments about Education, Law and Order, and Living Standards. I’m shocked how we seem to be regressing: our children’s generation starting their careers crippled by debt, nations burdened by civil service pension loads, and businesses run solely for the enrichment of the few.

The 2020’s are going to be very different as the excesses of the last 10-years are deconstructed. Sustainability is a grown-up version of the ESG card investors have been learning to play the last few years. It will encompass Climate Cure, but also the reality that you can’t sort out the environment if you stop investing in fuels, coal for steel, and keep the global economy expanding to raise living standards. No reason it can’t be done better – and that’s my big theme for the next 10-years. Rational sustainable market solutions to the despair of the last 10-years and the environmental damage done by the last 200!  

The Short-term

The big issues to focus on this week will include:

• How much has Trade shenanigans stifled the global economy?  Will we ever get a deal? China are demanding Trump rolls back tariffs, which is a no-no in election year!
• How much is China hurting? PMIs look stronger, but the stories on defaulting, cross-encumbered, zombie quasi state companies seem to be never-ending.  
• Hong Kong rumbles on like a soggy firecracker that may or may-not go off. Taiwan is going to be “interesting” next year.
• How badly have the Democrats miscalculated the Trump impeachment effort in the face of a suspicious American electorate? Does it spin the electoral calculus for Nov 2020?
• What happens next for UK election – will the Melting block of Ice be no-show shamed by Boris replacing it to do an interview with Andrew Neil? Will T’rump’s London Visit for the Nato meeting prove a disaster for Boris if T’rump says something “Positive” about him.
• What does the recent German SDP shunt to the left mean for Merkel’s final demented years? – The coalition might break down. Macro is smiling sinisterly….
• Ireland’s bond rating  was hiked to AA- by S&P. I’m pretty sure the EU is going to throw Ireland under the proverbial bus once Brexit is done, and they are likely to find little support from a Tory government here.

Sadly, most of these questions are of politics, and I simply don’t know…

The key piece of data will be the US Jobs number on Friday, with markets focused on the likelihood of whether the Fed will cut rates again in the new year. With the US economy sending strong signals – in terms of jobs and growth, it would only be the lack of inflationary threat and the strength of the dollar that would mitigate for further easy policy… but that’s far too logical an argument for a Monday.

Following the latest dismal ISM data which sent US equity markets tumbling, traders were on the prowl for any hints what the US may do over the next major catalyst in the US trade war: the December 15 deadline for more tariffs.

An answer came moments ago when Commerce Secretary Wilbur Ross told Fox Business Network that President Trump will increase tariffs on China if Washington and Beijing can’t reach a trade agreement by the December 15 deadline. 

“Well you have a logical deadline Dec. 15,” Ross told FOX Business’ Stuart Varney in an exclusive interview. “If nothing happens between now and then, the president has made quite clear he’ll put the tariffs in – the increased tariffs.”

Confirming that this is not just a hollow threat, Ross also explained that raising tariffs on Dec 15. won’t “interfere with this year’s Christmas” as retailers have already stocked up, adding that it’s a “really good time if we have to put more tariffs on.”

The fact that with exactly two weeks left until the tariff deadline the US is once again warning China that a deal has to be reached is hardly supportive of “optimism”, especially one day after China made it clear that it would only agree to a Phase 1 deal if the US agreed to roll back tariffs, something which Navarro would never agree as it would both destroy any leverage the US has over China and would crippled Trump’s negotiating credibility.

As a result, stocks which were already near session lows, took another leg lower…

… as did the Chinese yuan which continues to drift ever further away from the “lucky” 7 level.