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Msg  66244 of 69950  at  11/18/2019 9:20:30 AM  by


The Launch Pad

Daily market commentary
The Launch Pad
November 18, 2019
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Markets look to start the week on positive footing. Asian shares are higher, led by Hong Kong, despite continued violent protests. Europe as somewhat mixed and North American futures are pointing to a slightly positive open. The British Pound is the clear winner in the currency market this morning on news that the Conservative Party is maintaining its lead in polls, less than a month before elections.

Bond yields are slightly higher, as bonds sell-off a little following last weeks advance. After nearly passing the 2% market, U.S. 10 Year Bond yields came back down from 1.98% to 1.81%. The near-term trend of rising yields remains intact, but we’ll continue to monitor the technical strength. Presently, they are resting just above the 100 day moving average, which is nearing an inflection point.

In our Chart of the Day we highlight how the Atlanta Feds GDPNow estimate for Q4 GDP moved to just 0.3%, from 1% last week. The poor retail sales numbers and industrial production report from the Fed were the main culprits for the move.

Fear be gone. The VIX is trading back around its lowest level over the past year. Over the course of the past twelve months, each time the VIX was around 12, we saw some sort of increased volatility in the markets shortly afterwards. With a sense of calm enveloping the markets, thanks to continued trade talk and accommodative central banks, we do see a risk of growing complacency. Low VIX levels are associated with extreme price peaks which eventually revert/correct a moderate amount, on average around 5% over the past 12 months.

We continue to see year ahead outlook pieces from major firms. Some are more cautious (rightfully so) while others are all aboard the bull train. One common theme we see from the bulls is that in order to avoid a deeper slowdown trade tensions have to ease, job growth and consumption have to remain robust, and central bank stimulus has to gain traction. The delayed effects of stimulus is a key sticking point. Some believe it will come quickly (1H20) while others forecast a much longer time for stumulus to actually filter its way through the economy. Oh, and Britan needs to find a way out of the Brexit dilemma and Hong Kong needs to find peace. A tall order indeed.

The WSJ published a comprehensive investigation Friday, How Google Interferes With Its Search Algorithms and Changes Your Results, that provides fodder for ongoing or new antitrust investigations of the company, both in the US, and worldwide. The findings go against one of Google’s core defenses, against global regulators about how it wields its tremendous power. It IN FACT does exert editorial control over what we see when we search, specifically when it comes to big businesses, political bias, and online misinformation. Results have been tweaked in recent years to favour big businesses over smaller, has control over websites that cover vaccinations and autism. As an alternative to google for searches and to play around with different results try using DuckDuckGo to reveal more of the web than what Google typically reveals.

News broke out Sunday that Aramco will sell a 1.5% stake in itself and is poised to raise as much as US$25.6-billion, potentially making it the most prolific and valuable IPO in history. Newly released data also exhibited a valuation of US$1.6-trillion – US$1.7-trillion, a figure that fell short of the US$2-trillion mark Crown Prince Mohammed bin Salman had sought. 0.5% would be sold to individual investors, including Saudi citizens, and 1% will be sold to institutions, many of which consist of Chinese and Russian buyers. The listing (according to MBS) would, among other things, also raise capital for the country’s sovereign wealth fund, whose revenue could be used to develop new cities and lucrative projects across the region. The ultimate goal of the listing is likely to diversify the country’s revenue streams away from oil, a commodity which the kingdom has been dependent on for its entirety.

The protests in Hong Kong made headlines again this weekend after a stand off between police and activists at Hong Kong Polytechnic University became heated. Shortly after PolyU called on students and staff to leave campus, the police warned they’d be willing to use live ammunition if they faced attacks while dispersing students. Multiple reporters saw police enter the University leading to a numbers of fires and loud bangs. Police sealed all exits to the University and are making arrests, while protesters attempted to escape.

Diversion: Is Freerunning in Reverse Even Better? The camera tricks on this one are pretty amazing.
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Company news

Yahoo Japan and Line Corp announced over the weekend their intentions to merge, with a final agreement set to be inked next month. The merger would value the combined entity at roughly US$30-billion and would be executed through a JV and tender offer, which is poised to form an online giant with reach in retail services, advertising, and other mobile services such as messaging. Speaking of Softbank-backed companies, WeWork is set to cut ~4,000 people from its work force as it seeks to stabilize its finances. The cuts, according to a source who told the NYT, will likely take place as early as this week and will take place across the company’s global operation. Elsewhere in the tech space, HP Inc. shares fell 5% on Monday after the company rejected a buyout order from Carl Icahn-backed Xerox Holdings and indicated it might instead make its own offer to take over the U.S. printer maker. If you ever wonder what the 80s were like, look no further than this deal spat. In other deal news, Blackstone is continuing talks with Japanese hotel chain Unizo Holdings on a proposed US$1.6-billion takeover bid and plans to make an announcement by this week’s Friday.


Oil prices were steady today, sustaining last week’s gains, with WTI and Brent holding up above US$57/bbl and US$63/bbl respectively; at the time of writing, WTI Crude futures were down -16 bps to US$57.63. Optimistic sentiment regarding a potential trade deal being struck between the U.S. and China are helping support prices today and will likely continue to do so in the near-term. Also adding a lift are expectations for more production curbs from OPEC+ in December. These two events, whether they transpire or not, are seemingly the most pivotal and visible catalysts that traders will be keeping close tabs on. Meanwhile, hedge fund managers are being squeezed out of their short positions in crude as fears of a global recession have seemingly become a thing of the past. Last week, money managers were net buyers of positions equivalent to 41mm bbl. Furthermore, these managers also exited short positions by 31mm bbl while adding 10mm bbl of new long positions. For context, funds have purchased 176mm bbl in the last five weeks after selling 206mm in the previous 3 weeks. The most recent changes in positioning seem to stem from reduced pessimism opposed to any meaningful return in optimism, as indicated by the tilt towards short positions being closed rather than long positions being opened.

Gold, meanwhile, slid on the latest trade news; at the time of writing, the spot price for the yellow metal was down -74 bps to US$1,457.70/oz.

Fixed income and economics

A quiet start in bond land has quickly seen a pick-up in volatility with a breaking news headline from CNBC that is indicating “Chinese officials are pessimistic about the prospect of a U.S.-China trade deal”. The VIX gapped up by +7%, equity futures have turned negative and Treasury yields are lower across the curve as “China is troubled by President Donald Trump saying recently the U.S. would not roll back tariffs as they thought both sides had agreed to do so in principle”, as per the story. Expect to see general choppiness dominate throughout the session as markets try to reassess the veracity of the report which comes at time when the risk-on trade has ruled for most of the month. This of course helps divert some of the attention on China pertaining to the reignition of the protest movement in Hong Kong which took a turn for the worst over the weekend. The nation’s Foreign Ministry is deflecting criticism by rather boldly saying that the protests are all the fault of the U.S. while also cutting their seven-day repo agreement rate by 5 basis points to 2.5%. This follows a USD $26 billion injection of cash into shorter term market operations and the PBOC’s five bps cut its one-year lending facility rate two weeks ago. Ten year yields in Chinese government debt fell a couple basis points in reaction overnight and we’ll see if this helps stabilize a growth rate that has tumbled to decade lows in recent quarters. There’s no economic data to hang our hat on today and the DXY is a couple ticks lower at time of writing.

Chart of the day


Quote of the day

Start with what is right rather than what is acceptable.

- Franz Kafka

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