The Daily Update - Mexico

The Mexican Government’s oil sector liberalisation programme continued with 19 deep-water blocks being successfully auctioned off in the latest January round. Shell was a prominent bidder. Pemex, Mexico’s dominant oil producer and 100% owned by the Government, was awarded 4 blocks, 2 individually. The government will receive USD535m for these blocks and Mexican officials estimate that this could bring in as much as USD93bn in investments, unquestionably a credit positive for the sovereign.

The Daily Update - CPI retail sales bond yields

Yesterday was another painful day for bond investors as CPI for January came in at 0.5% MoM and the ex food and energy measure went from 1.7% to 1.8% YoY, a strong release. We also had the retail sales readings which was largely ignored by the market even though December was revised to 0.00% from 0.4% and January came in at -0.3% versus expectations of +0.2%. Inflation clearly won the day with 10-year Treasury note yield up at 2.92% this morning, a rise of 9bps from early yesterday in London.

The Daily Update - US inflation

The ‘eagerly’ awaited US inflation and retail sales data came out earlier today. An upside shock in these could have further uneased the both bond and equity markets, still teetering in the ‘fear zone’ with the VIX remaining above the 20 level. Whilst a tempered or only slightly stronger-than-expected reading would be enough to convince markets that the Federal Reserve would move ahead with tightening monetary policy at a faster pace than 2017, but without encouraging an inflation scare. US Treasuries ahead of the data release held steady with the 10-years trading around yields of 2.82% and the 30-years around 3.11% both ~7bp off their recent highs.

每日新闻更新-美国通胀 The Daily Update – US inflation

今天早些时候美国公布了众盼已久的通胀和零售数据。通胀走高加重了债券和股市的不安,“恐慌指数”超过20,蹒跚在“恐惧区”。略高于预期的数据足以让市场相信美联储收紧货币政策的步伐将快于2017年,但不会刺激通胀恐慌。在数据公布之前,美国国债保持平稳,10年期收益率约为2.82%,30年期国债收益率约为3.11%,两者的价差都比最近的峰值下跌了约7点。

实际上,通胀超出了预期,一月份核心消费价格指数同比增长1.8%,与12月数据一致,而预期值是1.7%。零售数据出人意料地让人失望,一月份下跌了0.3%,预期会增长0.2%,12月份的销售数据也从早先预期的0.4%进行了下调修改。这造成的初步结果是30年期国债收益率略微上涨了3点,收益率为3.14%,市场对三月份加息的预期从93%增长到100%。对后续加息的预期也略有增长,认为今年至少有一次加息的可能为91%(而在今天的数据公布前,这个数值为86%)。

周二宣誓就职的美联储新任主席杰罗姆·鲍威尔在首次公开评论中提出:“我们正处在利率政策和资产负债表逐步常规化的过程中,美联储将对任何危及金融稳定的风险保持警惕”。如此看来联邦基金利率的短期之路几乎是不可避免的。有评论认为2.1%的消费价格指数高于目标值2%,这不足够让人信服,也不值得焦虑,因为美联储历来更看重波动性较小的核心个人消费支出通胀数据,该数据在12月份为1.5%,远低于目标值。在3月1日公布新的个人消费支出数据之前,关键是持续关注市场反应和美联储评论。

The Daily Update - US budget tourism

Yesterday the US administration released their budget proposal and further details on their infrastructure plan, in a 55 page document, which mirrors and expands on the six page document already leaked to the market last month.

Although the headline figure for investment infrastructure spending is quoted as $1.5tn, the federal cost would be just $200bn which would be used to leverage and encourage private investment. However, the document does not come up with ideas of how this funding should be enacted, although President Trump has made comments regarding raising the tax on gasoline.

The Daily Update - Renminbi-denominated crude futures... tradeable soon

Last week we heard that as of March, 26 China - the world's largest importer of oil (the US was dethroned last year) - is set to list local-currency crude futures on the Shanghai Exchange. In a move to create its own crude benchmark, China’s securities regulator (CSRC) announced that international investors will be able to access oil futures priced in renminbi (RMB) in just over a month. Importantly, aside from further afield foreign participation, futures traded through the exchange could envelop the whole Asia region, which consumes the largest amount of oil.

The Daily Update - Kuwait

S&P recently affirmed its AA long term foreign currency rating of Kuwait with a stable outlook noting ‘Kuwait’s large government and external net asset positions will continue to afford the authorities space to gradually consolidate government finances.’ Fitch also affirmed its rating at AA (stable) at the end of January pointing to ‘continuing fiscal and external strengths’ although they note ‘the slow pace of fiscal reform and economic diversification increases long-term risks to Kuwait's public finances.’ But using Fitch’s estimate of sovereign net foreign assets of 500% of GDP we think Kuwait has time on its side to make the necessary adjustments.

The Daily Update - S&P UK Sovereign debt warning

The rating agency Standard and Poor's (S&P) has warned that a disorderly exit from the EU might lead to further downgrades on the United Kingdom's long-term sovereign debt. The agency warned that the UK should not underestimate the ‘self-preservation’ instincts of the European Union, believing the EU will be keen to avoid a domino effect of other countries looking to leave the bloc if they perceived Britain received a ‘lenient’ post-Brexit trade deal. S&P had previously cut the UK’s AAA rating by two notches to AA with a negative outlook after the results of the mid-2016 vote.

The Daily Update - Political will in Europe

Not that the German economy has fared poorly in the past four months, but the political stalemate that has endured over that period is finally moving forward - with Chancellor Angela Merkel’s conservatives (CDU/CSU) yesterday agreeing terms for a renewed ‘grand coalition’ with Martin Schulz and the SPD. But many on both sides still oppose the pairing which in some ways seems about as unmelodious as the UK’s Clegg-Cameron-Coalition of yesteryear.  So in the typical drawn-out fashion a final vote on the deal, by half a million registered SPD members, is still required and expected by the 4th of March.

The Daily Update - New Fed Chair = Stock market sell-off

It wasn't the best start to Jerome Powell’s first day as Fed Chair yesterday as US equity markets witnessed a sea of red, with US majors broadly closing in negative territory year-to-date. In fact, as we write, global stock markets have continued in the same vein, in a downward spiral and futures have also sold-off, which has seen a number of market players discussing the idea of the next financial crisis.

It could just be a coincidence that the equity market crash began on Powell’s first day, however, there has been a theme in the past: Yellen’s first day saw a 0.9% fall in the S&P 500, Bernanke’s initial day as Chair ended with a 2.2% fall in the index and back in 1987, the stock market sold-off ~35% over the two months following Alan Greenspan’s swearing-in ceremony.

The Daily Update – Cryptocurrency warnings

In what is thought to be a first in the UK, the Lloyds Banking Group has banned its credit card customers from purchasing cryptocurrencies over worries that its consumers would be unable to repay the debts that could amass whilst playing the digital currencies; with the banking group left to foot the bill. The ban, which covers 8 million credit card holders, will apply to all Lloyds Bank, Halifax, MBNA and Bank of Scotland customers. Purchases made by debit cards will still be allowed.

The Daily Update - USTs, US economy and NFP

The move higher in US Treasury yields continued last night with a further bias towards a steepening curve with the 2s10s year spread out at 62bps from the tight levels of early January, of around 50bps. One of the reasons given for this is the massive US borrowing schedule in the first quarter of 2018. The US Treasury is to borrow around $441bn versus the $282bn they borrowed in the last quarter of 2017. However, this huge Q1 refinancing should leave the Treasury with an end-March cash position of $210bn, leading to a meagre $176bn in borrowing during the March/June quarter, and a cash balance of $360bn by the end of June.

The Daily Update - Mexico UK BoE

We continue to observe the political situation in Mexico with the election due 1st July, however, it is still early days and it could still evolve in a number of ways. Broadly, campaigning has not yet officially started, nor has the ruling party PRI candidate officially been confirmed but is widely expected to be Meade. The key issue is whether Meade will connect with the voter base and gain traction – he is unquestionably qualified to do the job and is perceived as honest which is important as corruption and violence are a key issue for voters. Andrés Manuel López Obrador  who stands for the AMLO party, a hard left candidate, has run before.

The Daily Update - Disrupting the US healthcare industry

An investment bank, an online retailer and a conglomerate walk into a bar and ask for a cocktail called a ‘healthcare policy’ that is simple, transparent and reasonably priced. The bartender says, ‘Sorry we’ve only ever served ‘em complicated, murky and expensive’... So the three punters walked out and mixed one up themselves.

This pretty much sums up yesterday’s announcement that JPMorgan, Amazon and Berkshire Hathaway (the three unhappy punters) plan to set up a non-profit healthcare company

The Daily Update - No new western sanctions for Russia

The US Treasury department yesterday met its deadline to report on Kremlin-linked members and the impact of potential new sanctions. Using ‘objective criteria’, 96 Russian oligarchs and 114 political figures were identified and somewhat surprisingly, the Trump-administration announced that no further sanctions would be placed on these individuals, despite the 2016 US election-meddling allegations. The State Department did, however, highlight that the current legislation and the ‘mere threat of sanctions’ have acted as a deterrent, adding that foreign acquisition of Russian defense has been reduced dramatically; thus new sanctions need not be imposed.

The Daily Update - ECB QE / Cryptocurrency heist

Klass Knot, the Dutch Central Bank President, has said in an interview over the weekend that the European Central Bank (ECB) should make it crystal clear how it will end its current bond buying programme that is due to expire in September this year. ‘The program has done what could realistically be expected of it’ he told a Dutch current affairs programme.

The Daily Update - Abu Dhabi

S&P recently affirmed its long-term foreign currency rating for Abu Dhabi at AA with a stable outlook.  They expect that the Emirate’s large net asset position will ‘provide a considerable buffer against the impact of commodity market volatility on the economy’.  The stable outlook reflects their ‘expectation that economic growth will gradually pick up and its fiscal position will remain extremely strong over the next two years, although structural and institutional weaknesses will likely persist.’

The Daily Update - Renminbi strength / Davos

Overnight the Renminbi extended its rally against the US dollar with the onshore currency, CNY, fixing at 6.3724, the strongest level since the 13th November 2015. At time of writing the USDCNY spot is firmer still, currently trading at 6.3294. So far the Yuan has returned 3.2% this year including carry, following its 11.80% return against the US dollar last year. The dollar has been weaker against all its major trading partners following comments made by Treasury Secretary Steven Mnuchin's at the World Economic Forum (WEF) in Davos. The dollar index (DXY), an indication of the value of the dollar versus the major currencies, dipped to 88.805 at one point, its weakest since December 2014.

The Daily Update - Apple US taxes and borrowing in 2018

With the US Government 3-day shutdown resolved earlier this week, at least until the 8th of February, we revisited various facets of the Tax Cuts and Jobs Act of 2017 (TCJA) now a month on from its signing into law. Preliminary estimates from the Congressional Budget Office (CBO) forecast it to add a further $1 trillion to national debt over 10 years (even after macroeconomic feedback effects). This is in addition to the $10tn increase from the baseline forecast and existing $20tn in national debt. How many government shutdowns we shall see in the next decade as US national debt potentially grows to ~$31tn is anyone’s guess.

The Daily Update - Copper and credit

Southern Copper 7.5% 2035 was one of the star performers of 2017 gaining over 20 points and and has now tightened to less than 2 credit notches cheap on a best rating basis. Clearly, 2017 was a great year for copper prices with LME copper up close to 28% since the start of 2017.

While fundamentals are still supportive of copper we see more value in owning the 100% government owned Chilean producer Codelco: for example, Codelco 6.15% 2036 issue trades 3.7 notches cheap according to our models. Not only is this Codelco issue more attractive from a valuation perspective but it also offers the added attraction of being a higher rated credit, A3/A+/A versus Baa2/BBB/BBB+ for Southern Copper by Moody’s/S&P/Fitch respectively.