Sunday, 13 December 2015

Stories we should be thinking about

A few finance and related stories we need to be thinking about before Monday morning:

Macro matters:

Lots of 2016 previews around.  I see that in Barron's... strategist was expecting a lower index level in 2016!  As @JeffMacke noted in the graphic below whilst a 10% increase in the S&P500 is not different from the return reality...note that the average difference versus the reality outcome is also 10%.  Nice and confusing! 

And to add to the excitement...correlations are rising meaning the next iteration surely is greater deviation and bigger position selection / active management opportunity...

(h/t @PlanMaestro)

And how about the bond market signals?  The Sunday Times notes that:

'Investors are fleeing the bond market after the shutdown of two high-profile funds intensified fears of a fresh credit crisis...Third Avenue Management barred investors from making withdrawals from a $788m fund that invests in company debt, and Stone Lion Capital did the same with a $400m credit fund'.  

Note the volume spike in the iShares High Yield bond index (HYG).  Opportunity or threat?  Got to think that there are going to be credit specific opportunities building...

(h/t @EricBalchunas)

Meanwhile other higher profile market observers are concerned:

One of the biggest stories over the weekend was the global climate agreement.  As this article noted:

'While the deal is being described as legally binding, countries can withdraw from it without consequences, as Canada did from the Kyoto Protocol'

(h/t @Alex_Verbeek)

Meanwhile none of this is costless of course and as noted here the compliance bill is big:

'Targets outlined in the agreement on Saturday, involving 195 countries, will require $16.5 trillion of spending on renewables and efficiency through 2030, according to the International Energy Agency. To accomplish that, governments will have to offer incentives for clean energy production, scale back support for fossil fuels like oil, make emissions more costly, and reduce deforestation'

In short: more renewables continuing a trend we have seen over recent years: 
(h/t @MaxCRoser)

I wonder if the French authorities in their discussions with various countries used this fascinating report to adjust their negotiating tactics (link here):

(h/t @HarvardBiz)

Back to general markets.  Some interesting Greek observations over the weekend including this from the European Stability Mechanism:

in there could be some partial refinancing from the markets by end of 2016 if program is fully implemented

Still feels like the equivalent of kicking the can down the road...

The energy markets got hit hard on Friday and have been under pressure for most of 2015 to date.  Are we seeing however a start of a shift back to OPEC?

Undoubtedly this has been assisted and influenced by the lower US oil rig count:

Lots of chat about China and whether they are musing re a shift to a blended FX tracking mechanism for the yuan versus the current US dollar peg.  The below chart shows some of the rationale for a broader metric as global trading peers weaken against the dollar/yuan: 

This is big as @WorthWray noted: As gets closer to full-on a , here are the 4 risks & laid out over a year ago

Maybe greater robotisation may help!

Meanwhile Chinese macro data released over the weekend was solid enough relative to expectations:

Industrial production 6.2% (est 5.7% prev 5.6%) Retail sales 11.2% (est 11.1% prev 11%)

So all eyes on the US dollar then. Fortunately this week is likely to be about the US and whether the Federal Reserve raises interest rates or not.  Kind of agree with the observation by @georgemagnus1 that: 
'Why ppl are exaggerating this week's Fed meeting to silly extremes'

A final couple of thoughts on the US political economy.  First a striking wage survey (surely that helps the likelihood of a Fed rate rise)...

...and second Trump is still leading Republican voting intentions:

Company-related observations:

Kind of interesting about corporate balance sheets:

(h/t @GordonTLong)

Lots of takeover style stories in The Sunday Times:

'Whitehall is on alert over American interest in Rolls Royce after a series of profit warnings that have erased more than half the aero-engine maker's market value...ValueAct (activist investor) is believed to be keen on a sale of the struggling marine engines business so the company can focus on aerospace'

'A Russian billionaire has quietly built a large minority stake in Petropavlovsk, fanning speculation that he could launch a bid for the gold miner'

'The South African government has become the single biggest shareholder of Lonmin after intervening in the bailout of the world's third-largest platinum producer...the Public Investment Corporation...holding of at least 25% but short of the 30% threshold that would require a full takeover offer' 

As the world prepares to go Star Wars film crazy an interesting observation on Disney

A good indication of geographic brewery leadership...and an indication that some divestments from the proposed AB-InBev / SABMiller combination highly likely (as has already been indicated): 

AstraZeneca is in advanced talks to buy privately held cancer drug developer Acerta Pharma for more than $5B, WSJ reports. Acerta does not yet have any drugs on the market, but its acalabrutinib compound is similar to a blood-cancer drug from AbbVie and Johnson & Johnson that analysts expect to be a multibillion-dollar seller, and has shown promise in early clinical trials (via Seeking Alpha). 

Fascinating via Bespoke Invest on Amazon

Are Wal-Mart learning from the above?  This report suggests so:

Walmart's Everyday Low Prices Face Amazon's Dynamic Price Push...Report Shows the Retailers Were Neck-and-Neck on Black Friday Dynamic Pricing

And finally...

Are you planning to watch The Big Short in cinemas over the holiday period?  Fascinating report on 'bankability' and return on investment here:

The amount of sugar in certain drinks...

(h/t @saltshuller)

Have a good week

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