The Fed 2017

As expected, Yellen & Co. raised interest rates by 25 basis points this week. Turns out, the Fed is the only major central bank among the global “developed” economies whose last policy move was a rate hike.

US policy seems to be normalising.

Central bank madness is still in full swing worldwide. Some developed countries with negative rates are still cutting them further. The

We have three possible scenarios on our hands. If the Fed raises rates three times this year, markets will likely go down. But if the rate hikes don’t come as often or as furious as expected, markets could go higher. Lastly, if we get more than three rate hikes this year, we’ll see bonds drop, commodities drop, and currencies against the dollar weaken.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Sugar Not So Sweet

Europeans’ taste for sugar transformed the world.

West Indies plantations built from the 17th century to feed demand sparked a nexus of commerce, capital and manufacture that fomented the industrial revolution and modern financial markets.

More than three hundred years later, Europe is set to deliver a crippling blow to a trade that once made up almost a fifth of its entire imports, and has sustained developing-country sugar cane farmers since.

The European Union’s decision to remove limits on its own beet-sugar output from October means less demand for cane grown in Jamaica in the Caribbean, to the Pacific island of Fiji, and Swaziland in southern Africa.

“Within a decade or so, I can see the EU market for raw sugar from the Caribbean being all but a matter of history,” said David Jessop, an adviser to companies and governments on trade and investment in the region. “The challenge from the Caribbean perspective is what they can do, if anything, to ensure the future of their industry.”

Jamaica, Belize and Mauritius were among a group of more than 10 nations that benefited from quota- and duty-free access for 1.6 million metric tons of mostly raw-sugar shipments to the EU in 2015-16. The amount, which can vary year-by-year, represented about half the European bloc’s imports of the commodity.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd

Brexit Update

The trigger of Article 50 is the event traders have been waiting for since the U.K. voted to leave the European Union. Yet as Prime Minister Theresa May approaches her end-March deadline for launching Brexit, there is no consensus on what it means for markets.

The pound has slumped 18 percent and the country’s benchmark equities index has rallied about 16 percent since the June 23 referendum. While currency and stock volatility is now calmer ahead of the talks, some analysts are warning markets are too complacent in expecting a smooth path toward an agreement.

Is Article 50 already baked into sterling?
No, says Bank of America Merrill Lynch. “We reject the notion that sterling has fully priced Article 50 and beyond. Risks to the currency remain to the downside on a disruptive start to negotiations,” strategists including Kamal Sharma said in a note to clients on March 2, adding they see a dip before a recovery into the end of the year.

JPMorgan Chase & Co. is also bearish. It recommended on March 3 selling the pound against the dollar at 1.2250, with a stop at 1.2530, as it sees the currency as the most over-valued in the Group-of-10 and investor confidence as vulnerable.

Bank of America’s preferred strategy is to bet on greater swings in the pound, rather than its direction. It has recommended buying three-month forward volatility, a measure of expected swings, with a target for it to gain around 20 percent from current levels. Societe Generale SA also sees opportunity in options, as it expects two-month implied volatility to pick up if cable falls below $1.20.

Meanwhile, Morgan Stanley is more sanguine and thinks the triggering of Article 50 shouldn’t come as a major surprise. “There may be many Article 50-related news headlines in the coming weeks but we believe that a lot of the negativity around Brexit-related economic data weakness is already in the price,” strategists led by Hans Redeker said in a March 2 note.

The bank initiated a long sterling versus the euro trade recommendation last month and is targeting a move to 0.8000, as it sees political risks in the euro zone remaining high.

What are key things to watch during negotiations?

The key question is whether economics or populist politics dominate the negotiations, according to Bank of America economist Robert Wood. It should become apparent relatively early into the formal talks that the U.K. is on course for a harder Brexit, with all of the economic disruption that leaving Europe’s single market is likely to entail, according to JPMorgan.

Traders will focus on what the process means for the financial services industry, a key contributor to the economy, and any signs that banking or broader investment is being relocated out of the U.K. could potentially have a negative effect on the currency, said Viraj Patel, a London-based strategist at ING Groep NV.

ING says it’s worth watching the level of foreign ownership of U.K. bonds as a gauge of sentiment. Foreign ownership of U.K. bonds has slipped in the past two months and “if this becomes a six-month theme that’s telling you something,” said ING strategist Patel.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd

Thank You For Malling

Wall Street speculators are zeroing in on the next U.S. credit crisis: the mall.

It’s no secret many mall complexes have been struggling for years as Americans do more of their shopping online. But now, they’re catching the eye of hedge-fund types who think some may soon buckle under their debts, much the way many homeowners did nearly a decade ago.

Like the run-up to the housing debacle, a small but growing group of firms are positioning to profit from a collapse that could spur a wave of defaults. Their target: securities backed not by subprime mortgages, but by loans taken out by beleaguered mall and shopping center operators. With bad news piling up for anchor chains like Macy’s and J.C. Penney, bearish bets against commercial mortgage-backed securities are growing.

In recent weeks, firms such as Alder Hill Management — an outfit started by protégés of hedge-fund billionaire David Tepper — have ramped up wagers against the bonds, which have held up far better than the shares of beaten-down retailers. By one measure, short positions on two of the riskiest slices of CMBS surged to $5.3 billion last month — a 50 percent jump from a year ago.

“Loss severities on mall loans have been meaningfully higher than other areas,” said Michael Yannell, the head of research at Gapstow Capital Partners, which invests in hedge funds that specialize in structured credit.

Nobody is suggesting there’s a bubble brewing in retail-backed mortgages that is anywhere as big as subprime home loans, or that the scope of the potential fallout is comparable. After all, the bearish bets are just a tiny fraction of the $365 billion CMBS market. And there’s also no guarantee the positions, which can be costly to maintain, will pay off any time soon. Many malls may continue to limp along, earning just enough from tenants to pay their loans.

But more and more, bears are convinced the inevitable death of retail will lead to big losses as defaults start piling up.

The trade itself is similar to those that Michael Burry and Steve Eisman made against the housing market before the financial crisis, made famous by the book and movie “The Big Short.” Often called credit protection, buyers of the contracts are paid for CMBS losses that occur when malls and shopping centers fall behind on their loans. In return, they pay monthly premiums to the seller (usually a bank) as long as they hold the position.

This year, traders bought a net $985 million contracts that target the two riskiest types of CMBS, according to the Depository Trust & Clearing Corp. That’s more than five times the purchases in the prior three months.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd

Aussie Dollar Update

Reserve Bank of Australia (RBA)

Still no policy changes!
For a sixth month in a row since cutting it in August, the RBA’s interest rates remains at 1.50%.

Apparently, Philip Lowe and his gang believe that “holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.” Not really surprising after Lowe has all but said that they’re done cutting rates for now!

The global economy is fine
The RBA barely made any changes from its outlook last month. It still believes that improvements in the global economy have boosted commodity prices, which have provided “significant” boosts to Australia’s income. It’s also still iffy about China’s recovery, saying that the composition of growth and the pace of borrowing still pose risks. Lastly, it recognized that higher inflation rates are partly due to higher commodity prices.

Ditto for the domestic economy
The central bank noted that the economy is “continuing its transition” from the mining boom by growing by 2.50% in 2016. It nodded to exports that have “risen strongly”as well as “non-mining business investment that has risen over the past year.”

The RBA also emphasized that its optimistic outlook is supported by low interest rates and exchange rates. It repeated that the Aussie’s depreciation since 2013 has “assisted the economy” from the mining boom, and that a stronger Aussie would “complicate” the adjustment.”

As for the labor market, the RBA still thinks indicators are mixed, but this time it conceded that employment growth is concentrated in part-time jobs. This, as well as the subdued labor cost growth, is why the central bank expects underlying inflation “to stay low for some time” even as headline inflation is expected to hit above 2.0% in 2017.

AUD bulls saw red
Remember market players were mostly expecting the RBA to strike against the Aussie’s recent gains by jawboning a bit.

But with Lowe and his team mostly maintaining their stance last month, traders have moved on to expect rate hikes from the central bank this year. After the release, futures pricing showed a 33.3% (up from 29.9%) possibility of a rate hike before 2017 while rate cut speculations slipped from 3.4% to 3.3%. Not surprisingly, the Aussie ended the day higher against its counterparts.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Oil Market Movement

Oil’s plunge is bringing some excitement back into the market.

As futures in New York slipped to the lowest since OPEC’s output deal in November, options trading surged and signaled the biggest bias toward a price decline in six weeks. That’s a stark departure from last month, when the West Texas Intermediate benchmark traded at the narrowest price band since 2003.

Futures had been trading between about $50 and $55 a barrel this year as the Organization of Petroleum Exporting Countries and 11 other major producers implemented historic supply cuts to help rebalance the market. But shale producers aren’t helping. A drilling revival in regions like the Permian Basin of West Texas and southeastern New Mexico has pushed U.S. crude inventories to record highs, and production topped 9 million barrels a day.

WTI for April delivery slumped 2 percent to settle at $49.28 a barrel, the lowest level since November 29. On Wednesday, the U.S. benchmark broke below the 100-day moving average, a key technical level, also for the first time since late November. Futures are down 7.6 percent this week.

Options on WTI saw 570,934 lots traded as of 5:01 p.m. in New York, set for the second-highest volume ever, according to preliminary data compiled by Bloomberg. WTI crude futures volume was at about 1.57 million on Thursday, following 1.76 million on Wednesday. The most-active WTI options traded Thursday include April $50 calls, April $48 puts, April $51 calls, April $55 calls and April $47 puts.

For now we would say keep your powder dry but watch this space.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd

IPO ? Think Again

The latest IPO of the next big thing — Snapchat — is not looking so good. True to form, the Wall Street investment banking machine and the financial media hypesters at CNBC whipped the crowd into enough of a frenzy that the stock popped nicely in its first two days of trading.

The stock “went public” at $17 a share. But of course, it was never really available at $17. That’s not how this works. Sure, big important clients at some investment banks might’ve gotten it at $17, but you and me? Yeah, right. Again, that’s not how it works. Individual investors are third on the food chain, maybe fourth…

First there are the venture capitalist guys that buy into hot new companies in the early stages. Then there are the investment banks that come in with some investment capital in order to ensure a piece of the action when IPO day rolls around. Then there are the favored clients that get the cheap shares of the actual offering — which were $17 for SNAP. Then, after all those players get their piece, those shares hit the market.

It’s basically payola, all the way down to when the shares are actually available on the Nasdaq or New York Stock Exchange. Which means when you buy an IPO, you’re paying the favored clientele their profit. You’re paying the investment banks. And you’re paying the venture capitalists. And you’re paying the company insiders…

They are all selling — and you’re buying.

In this case, it probably won’t help you to know that SNAP founder Evan Spiegel is now a 26-year-old who’s worth over $5 billion.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd

The Art Of Losing

A cautionary tale.

It was meant to be one of the world’s top collections of 20th century art, anchored by Amedeo Modigliani nudes and Claude Monet water lilies.

But two years after Dmitry Rybolovlev sued his dealer, alleging he was overcharged by as much as $1 billion, the Russian fertilizer magnate is unloading works he acquired at often record prices. He has already sold three for a loss totaling an estimated $100 million, and is offering five more at Christie’s auctions in London starting next week, some for a fraction of their purchase prices.

Rybolovlev—whose fortune totals about $9.8 billion according to the Bloomberg Billionaires Index—invested about $2 billion in 38 works, from Leonardo da Vinci to Pablo Picasso. They were procured privately by Swiss art dealer Yves Bouvier, better known for creating a network of tax-free art storage warehouses in Singapore and Luxembourg.

Rybolovlev was among new buyers from Russia, China and other emerging economies who drove an unprecedented expansion of the art market in the past decade. Booming wealth created a network of collectors hungry for trophies by top modern and contemporary Western artists and willing to pay almost anything. Between 2003—the year Rybolovlev met Bouvier—and 2014, global sales more than tripled to $68 billion.

Since then, the market has contracted, and some of the art world’s most expensive pieces have been resold for less than their purchase price, mired in lawsuits and investigations.

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The Pinstripe and Bowler Club shares information with MF Solutions Ltd.

Aussie Bull Run

AUD – Large speculators were really bullish on the Aussie, since they added fresh longs while drastically reducing their short bets. Also, this marks the seventh consecutive week that the Aussie has been taking ground from the Greenback. Positioning activity on the Aussie likely shows speculation that Australia’s Q4 GDP report would show a rebound, or even print an upside surprise after the RBA’s meeting minutes said that the “fall in GDP in the September quarter had reflected some temporary factors.” And as we now know, Australia’s Q4 GDP report did print an upside surprise. Other than that, the bullish positioning activity doesn’t really make sense, since most economic reports at the time were disappointing. Construction work in Q4, for example, fell by 0.2% quarter-on-quarter and 7.8% year-on-year. Capital expenditure in Q4, meanwhile, dropped by 2.1% quarter-on-quarter and 15.5% year-on-year.

Also, note that the COT ( Commitment of Traders ) report shows that the Greenback lost substantial ground to the Aussie while having a mixed performance, so positioning activity was therefore very likely being driven by events, reports, and other catalysts specific to each currency as well.

I’d watch this pair for a week so that Trump and Yellen’s wise words can be factored in to the direction which may see a pull back and then another run.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd

 

No End To The Love Of A Nugget

A partnership between Randgold, AngloGold Ashanti Ltd. and state-owned Sokimo, Kibali shipped 642,720 ounces of gold worth more than $700 million in 2015. That helped increase production of the precious metal in the country from almost nothing in 2011 to more than 25 tons a year.

Production last year fell to 585,946 ounces after technical challenges in the first six months, but output is scheduled to peak at 750,000 ounces in 2018 as the underground operation reaches full capacity, Randgold says.

Other miners have been less successful in Congo. Randgold’s partner, AngloGold, suspended operations in 2013 at the Mongbwalu project, also in northeastern Congo, saying that it couldn’t make the economics of the project work. In the past decade, mining majors Rio Tinto Group, BHP Billiton Plc, Vale SA and De Beers have all held and abandoned mining licenses in Congo for different minerals without making headway.

In short, gold has been in demand for thousands of years, is in huge demand right now and gold has a massive future because everybody loves gold.

Cheerio.

The Pinstripe and Bowler Club shares information with MF Solutions Ltd.