Tuesday, 27 October 2015

A few macro thoughts today

A few macro thoughts today...

Merkel/refugee crisis - ‘But the refugee crisis that has broken over Germany is likely to spell the end of the Merkel era. With the country in line to receive more than a million
asylum-seekers this year alone, public anxiety is mounting — and so is criticism of Ms Merkel, from within her own party. Some of her close political allies acknowledge that it is now distinctly possible that the chancellor will have to leave office, before the next general election in 2017. Even if she sees out a full term, the notion of a fourth Merkel administration, widely discussed a few months ago, now seems improbable’ – fascinating read here (albeit it behind the FT paywall)

My thoughts - unfortunately another sign of tensions within Europe which are way beyond pure economics.  The solution is radical supply side change but I read an article like this one and muse that just maybe it is not going to happen (to the shame and negative economic trade-off for all). 

Greece – so a story circulating that the Greek bank recapitalisation will be lower than the initial forecast of Euro25bn…which I guess is good news.  But then I read stories like ‘Greek creditors refuse to pay next tranche of Euro3bn’ financial support.  Remains interesting times re Greece...

UK and Europe – David Cameron is looking at rebranding his new deal for Britain in the EU as “associate membership” – in a bid to save his flagging renegotiation. The PM fears his current demands from Brussels may not be enough alone to convince voters to stay at a landmark referendum’ (link here). 

China - Chinese industrial profits posted their slowest pace of decline in 4 months (-0.1%).  Meanwhile as the 5 year plenum continues Ma Jun, chief economist of the People’s Bank of China's research thinks the key economic conclusions will be: Interest and exchange rate reform, Realizing yuan convertibility under the capital account, Freer use of the yuan, Developing multi-level capital market, Encouraging financial innovation, developing inclusive finance (h/t this article). 

Interesting on recent Chinese growth & margin evolution cited by Fast FT today:

The month-to-date gain for the Shanghai and Shenzhen indices is still 11.2 per cent and 16.5 per cent, respectively, as investors bet on easing in the weeks leading up to the decision.

The level of margin outstanding in Shanghai has risen in 12 of the past 13 sessions. At Rmb625bn ($984m), that level is nearly 60 per cent below the peak in June, so it's certainly not a worrying level.

Breaking more stimulus a-coming as I read that... 'Chinese gov announced to launch a plan to inject pension funds into capital markets in 2016 with estimated size of 2 trillion RMB!'

The Shanghai bourse still creep, creep, creeping from that 3,000 point support level: 

Commodities and commodity stocks - 

The iron ore price fell for a seventh consecutive session overnight, extending its decline to the lowest level seen since mid-July...

Meanwhile this chart via @Callum_Thomas shows some of the challenges still in the materials space...

Note energy stocks are better however...and interesting that just half an hour ago BP reiterated their big dividend following cost cuts.  Important signalling...I still see opportunities in these areas (more on BP later).  

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