Scott Barlow
A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the Web
The Macro Man investing blog is written by a handful of financial professionals and it's been really, really good lately, at least in my opinion. The latest post "Five bricks in the wall of worry" explains that while the writer is not bearish, the reasons to be pessimistic continue to pile up. Of the "five bricks" – all-time low bond yields, China, the British pound, the UK economy, and Italian banks – the commentary on China was the most insightful,
"Stories circulated yesterday about PBOC agents intervening in the forward market (so as not to draw down stated reserves too quickly), which serves as a useful reminder that capital continues to flow out of China at a solid clip; upside pressure on USD/RMB will only intensify this phenomenon. As we observed last August and again in January, when developed markets notice, good things rarely happen."
"Five bricks in the wall of worry" – Macro Man
"There's a $3 Trillion Pool of Money Set to Extend Treasury Surge" – Bloomberg
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Merrill Lynch foreign exchange strategist Athanasios Vamvakidis is recommending a short position in the loonie ahead of Friday's report on U.S. employment,
"We see asymmetric risks going into Friday's NFP; jittery markets mean a miss would impact sentiment sharply … On balance, being short CAD going into the event has the best risk-reward potential, in our view"
"@SBarlow_ROB ML: "being short CAD going into [NFP] has the best risk-reward potential" pic.twitter.com/2Y0OsdbDa1 " – Twitter (includes research excerpt)
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The steady decline in global bonds gets more unnerving by the day. On Tuesday, the ten-year and 30-year U.S. Treasury yields hit record lows and Switzerland sovereign debt is negatively yielding out to 50 years. To say this is unprecedented is a massive understatement and anyone expecting pension income on retirement is rightfully worried.
Insurance companies and pension managers have responded to low yields by adding investment risk to boost returns risk. In some cases – global infrastructure investment in toll roads, airports and the like – this isn't worrisome. But investments like the Canada Pension Plan's (admittedly small) position in Chinese residential real estate, is indicative of a trend that may bite pension income in the future.
Mohamed El- Erian writes,
"Traditionally, lower yields and a flatter yield curve in the U.S. are strong signals of an approaching recession -- and, in this particular case, they would be signaling a painful downturn, given how far yields have dropped and how flat the curve has become.
"Yet that reading doesn't apply in this case: Rather than being driven by U.S. conditions, the Treasury yield curve has been captured by developments in Europe and, to a lesser extent, Japan -- specifically, the prospects for yet another economic slowdown and the likelihood of additional central bank."
"3 Things to Know About Record-Low U.S. Yields" – El Erian , Bloomberg
"Global stocks and bond yields sink as growth fears set in" – Reuters
"The most unnerving chart in the world right now" – Business Insider
"There's a $3 Trillion Pool of Money Set to Extend Treasury Surge" – Bloomberg
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UBS published a research report suggesting that the bull market in precious metals has just begun,
"'Gold has likely entered the early stages of the next bull run," Joni Teves, an analyst at UBS in London, wrote in a report e-mailed Wednesday. 'This trend should now deepen, attracting more participants and encouraging those who have been hesitating to get more involved.'"
"Gold Climbs to Two-Year High as UBS Sees Start of New Bull Run" – Bloomberg
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Tweet of the day: "@JPCognisantEcon A Chart that should worry you more than BREXIT prometheusblog.com/?p=1383 pic.twitter.com/bxZdMcpWxM " – Twitter
Diversion: "Juno Had a Glorious View During Its Final Approach to Jupiter" – Gizmodo
Scott Barlow