Monday Digest #105
Weekly summary of finance, economic and tech news. Vision from DreamTeam. With 💜
On Tuesday, January, 17, British Prime Minister Theresa May revealed a plan for the country’s exit from the European Union in details . Paramount in this plan is considered to be the clarificatiob of all controversial issues. The final agreement on Brexit will be put to a vote in both houses of parliament.
Here are the key points:
- Theresa May said that Brexit will contribute to the restoration of parliamentary democracy and the internationalization of Britain.
- The government will gain control over immigration after the Brexit.
- The Government will seek to conclude beneficial free trade agreement with the bloc.
- Access to the single market will not be saved.
- The government will make every effort to make an agreement on free trade with the EU be close to the same conditions.
- Britain will not be required to make large-scale contributions to the EU budget.
- Britain should be able to conclude trade agreements with the countries outside the EU.
- The government hopes to keep the customs agreement with the EU.
- The Government is committed to ensuring that Britain will be able to set its own tariff regimes to the WTO, as well as to remove tariff barriers.
- The government will do everything possible to avoid a rigid adaptation to the new realities, being sure that the gradual separation is in the interest of the country and the EU.
William Dudley, president of the Federal Reserve Bank of New York:
“The U.S. Federal Reserve is unlikely to take actions that would “snuff out” the current economic expansion anytime soon because inflation is “simply not a problem.
The good news is that, while the current expansion is quite old in chronological terms, it is still relatively young in terms of the health of household finances.”
Donald Trump is in favor of the conclusion of the nuclear deal with Russia in the framework of negotiations on mitigation of the sanctions of the West against Moscow.
Donald Trump:
“They [the West] have sanctions on Russia — let’s see if we can make some good deals with Russia. For one thing, I think nuclear weapons should be way down and reduced very substantially, that’s part of it.”
(…)
But Russia’s hurting very badly right now because of sanctions, but I think something can happen that a lot of people are gonna benefit.”
The largest hedge funds of the world, including Guggenheim Partners, Janus Capital and DoubleLine Capital believe that the market of the US national debt has reached a turning point: a trend in the decline of the yield of US bonds,which lasted nearly half a century, that allowed the state government to borrow at increasingly lower rates, end in 2017.
This allowed the US government to increase it painlessly: over the last 8 years, it has doubled the size while the maintenance costs — interest payments — have not changed much.
Investment director at Guggenheim Scott Maynerd:
“Now “the debt Paradise” is at risk. Against the backdrop of increasing rate by the US Fed and the election victory of Donald Trump, profitability of the US government bonds rose by almost a third: on Friday (January, 13) 30-year bonds closed trading at around 2.99% per annum. The rising cost of loans will continue —the turn will be slow, but inevitable because of the Fed’s tightening policy and Trump’s plans to stimulate the economy, which will have to be financed through new debt.”
Goldman Sachs: 3% per annum on 10-year securities is a critical level for the US stock market: if yields rise above, funds and banks will begin to sell shares.
Goldman Sachs Bank calculates the so-called index of financial conditions. As we can see in the chart above, for a sufficiently long time, it had a very high correlation with the stock market, but after the election, the stock market began to live its own life. The question is only when the share prices will go back to reality.
Deutsche Bank: Speculators’ bets on the rise in the yields of the US government debt in the first weeks of 2017 have soared to historic highs. According to DB, 99.4 billion dollars are invested in “the game” on the drop of the biggest market in the world.
Bloomberg: Mozambique will not be able to pay interest on Eurobonds.
On Wednesday, January, 18, the government of the African state was to transfer $ 59.8 million to its creditors, but Mozambique’s Ministry of Finance reported that it had no money.
In a statement, the ministry said that the ability to pay the debt of Mozambique in 2017 is very limited, “and does not allow the country to implement the payment of the interest on the bonds.”
Papers that Mozambique can not now maintain were issued by a total of $727 million, their repayment will be held in January 2023.
Currently Mozambique is negotiating with the IMF on resumption of credit program, which was suspended in April, 2015. In October, 2015 the Ministry of Finance of Mozambique warned holders of Eurobonds on the need to restructure commercial debt.
#macro #finance
Carry trade strategy, in frames of which investors borrow funds in countries with low interest rates to invest in higher-yielding assets in the past year has helped traders to earn more than 20%, borrowing in dollars to buy Brazilian real, the Russian ruble and South African rand. At the end of last year, this strategy has lost some of its appeal, when the growth of the cost of borrowing in the United States has supported the dollar, and the victory of Donald Trump in the elections led to a decrease in risk appetite.
Bloomberg: Carry trade operations with the currencies of developing countries still have the enthusiasm, although with a little contrivance. Due to the volatility of the pound caused the UK’s plans to leave the single European market, investments in assets of developing countries once again seem to be a relatively safe bet for investors.
So now traders are funding long positions in the currencies of developing countries at the expense of the weakened British pound.
Citigroup Inc. on Monday (January, 16) called the opening of the “shorts” for the pound against the ruble the trade idea of the week.
Last year, Maduro raised the minimum wage five times. Last enormous wage increase amounted to 50% — from $12 to $60 in the US dollar terms.
Nevertheless, this measure will not correct the situation, as predictable in Venezuela inflation will compose 1600% (which is not surprising — look at the money supply growth with the arrival of Maduro). Paper money of Venezuela is so impaired that it is no longer counted in the time of purchase. It is weighed. In this connection, on Monday, January, 16, Venezuela began to produce new vertical banknotes to replace banknotes of 100 bolivars, which became virtually worthless due to hyperinflation.
Recall that in order to slow inflation, the government introduced price controls, which has led to the food shortages and hoarding, which were prevented by limitation of the the volume of products that people could buy. As a result, fewer people get food. In order to increase food production, the government forced people to work on farms.
According to IMF estimates, GDP of Venezuela fell by 10% in 2016; Some analysts estimate the drop by 15%.
#Commodities
The collapse in prices that started in 2014, makes itself felt: the level of production in China has suffered a record decline in the last year after the state-owned enterprises shut down wells in mature fields, maintenance of which has become too expensive.
Production fell by 6.9% in the first 11 months of 2016, amounted to about 4 million barrels per day. This is the first decline since 2009 and the largest since 1990.
This plays into the hands of OPEC in its efforts to support the global oil market, forcing China to depend more on imports.
This year, production in China is projected to decline by as much as 7%, which exceeds the record decline in 2016, according to analysts CLSA Ltd., Sanford C. Bernstein & Co. and Nomura Holdings Inc. This is almost equivalent to the volume of cuts planned at the end of last year by Iraq — second-largest producer in OPEC.
Nelson Wang, an analyst at CLSA, who predicts a decline of 7% this year:
“The internal decline of oil production in China will certainly play into the hands of OPEC plan to cut global supplies. The reality is that in the current situation, China will not be able to increase production. “
IEA: last year’s production fell by 335 thousand barrels per day.
This year it is expected to fall further by 240 th. Barrels per day.
With regard to the import of oil to China, then in 2016 it grew at the fastest pace in six years, and the country was the largest consumer in the world in December. This year, China will increase its purchases by 4.8% according to the median estimate of eight analysts’ assessment, surveyed by Bloomberg last month.
General Director of Saudi Aramco Amin Nasser:
“The world needs to invest $ 25 trillion in new capacity over the next 25 years to meet the growing demand. Global demand for oil and gas will continue to grow in the coming decades, so if capital investments are too low, this will create the basis for a sharp rise in prices, which will have a negative impact on the global economy.”
He noted that the global oil and gas industry requires a large amount of investment.
Wood Mackenzie:
“Global investment cycle will show the first signs of growth in 2017, resulting in a devastating two-year investment recession to come to an end. It will be invested about $ 450 billion in the exploration and development in 2017, but the growth will amount to only 3%. At the same time the companies, according to estimates, will get a much better return on such investment, as the internal rate of return increased from 9% in 2014 to 16% in 2017. The number of final investment decisions (FID-x), as expected, will double in 2017, compared with 2016.”
#INTERESTING
The Seasteading Institute (TSI) jointly with the government of French Polynesia began to develop a project in which it is planned to create an archipelago of artificial islands, outside the jurisdiction of any country.
The independent island-states may become a haven for large IT-companies seeking for full independence.
The Institute was founded by Silicon Valley billionaires, which include many businessesmans, including Peter Thiel, the head of PayPal. The idea of autonomous artificial island-states is that located there the companies will be able to get rid of taxes and shall not be subject to different legal restrictions.
Representatives of the Seasteading Institut argue that this archipelago could become the basis of the future society. Liberty, own government, new houses for the poor and a lot of jobs — all of this promises French Polynesia only good, but there are still many outstanding issues.
Parties are going to discuss the first draft of the project at the end of 2018. If all goes well, construction could begin in 2019. The preliminary project cost is estimated at 225 million US dollars, the annual maintenance of each island will cost approximately $8 million.
Amazon: warehouses in airships, drones delivery and more:
- Warehouses in airships
In April of 2016 Amazon filed a patent that describes a system that allows to make warehouses of airships.
The idea of the company is that airships can fly at 13 km altitude above the places where an increased demand for certain products (for example, above the stadiums)is observed. After receiving the order, the airship loads the goods on the drone, and it simply falls to the ground, starting engines only at the last moment to cushion the landing. Then released drones will be coupled to the special shuttles (small aircraft), which will bring them back to the airship.
- Delivery drones
Amazon are not the only ones who are trying to deliver purchases using drones — in 2014, the company “Dodo Pizza” (Syktyvkar) delivered pizza with the help of drone for promotional purposes.
For Amazon the way of shipping by fully autonomous drones is part of the strategy. The first commercial delivery has already begun in Cambridge in December, 2016.
- Underground delivery
At the end of 2016, the Amazon patent application has been published. It was submitted back in 2014 and provides for the delivery of goods undergroud: it is assumed that goods will move on conveyor belts, rails or by pneumomail.
- Information Delivery
In November, 2016 the company announced AWS Snowmobile — data delivery service truck. When it comes to the huge volumes of information (tens of petabytes), it makes sense: hammered by discs container will arrive at the Amazon data center faster than the data will be transmitted over the network.
Natural Machines Company is working to create the 3D Food Printers “Foodini”. This device can print food for a few minutes — the owner only needs to add ingridients required for the to cooking in special capsules and choose the desired dish.
Now Foodini can only print food with a limited number of ingredients.
It can prepare dishes of chocolate, glaze, dough or hummus, but with harder products Foodini, like the rest of the 3D Food Printers, will have problems. Also Natural Machines device is not yet able to bake food — nevertheless, Kuksma argues, that in the future the company will find a way out of this situation.
According to the company’s founder, microwaves caused similar skepticism in society, but eventually have became an integral part of the cuisine. Now 3D Food Printers are in the same position, but their popularity will continue to grow much faster.
#OPINION [dti in the media]
Managing partner at DTI Alexander Butmanov on Kommersant on 18.01.16:
“The weak dollar is advantageous for trade, so Trump is a supporter of the weak dollar, in contrast to its trading partners — China, Europe and the UK. He will, of course, try to make a reasonable tax system for businesses and thereby weaken the dollar. It would seem that the weak dollar is to increase the cost of oil, but the weak dollar hits China, and when China feels bad, it does not buy oil in reserves. The weak dollar is bad for China, weak China is bad for oil.
Therefore, a weak dollar — is a weak ruble. Here’s a paradox.”
Read more: Kommersant (in Russian)
Managing partner at DTI Alexander Butmanov on Kommersant on 20.01.16:
“If you believe that 2017 will be held under the sign of growth, the US and European markets will grow by 15%, then why not buy Russian securities, where yields on bonds are still about 8%. This is much higher than in developed countries. If you think that the developed markets have reached their local limits, then, probably, it is too early to buy Russian securities.”
Read more: Kommersant (in Russian)
