GBPUSD H4 | Potential For Bounce!

Type: Bullish BounceKey Levels:Resistance: 1.33004Pivot: 1.31219Support: 1.3058Preferred Case:Prices are on bullish momentum and abiding by our ascending trendline support. We see the potential for a bounce from our Pivot at 1.31219 in line with 50% Fibonacci retracement towards our 1st resistance at 1.33004 in line with 78.6% Fibonacci projection. RSI are at levels where bounces previously occurred.Alternative Scenario:Alternatively, prices may dip towards our 1st support at 1.3058.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/gbpusd-h4-or-potential-for-bounce4"
via IFTTT

What went wrong for Barclays with its £450m structured notes loss?

Investors in Barclays got a nasty shock this week when the bank revealed that a US paperwork blunder will cost it around £450m. Put simply, Barclays messed up the administration requirements around the issuance in the US of financial products called structured notes and exchange-traded notes (ETNs). 

So what went wrong? Any financial securities sold to the public in the US have to be registered with the US financial regulator, the Securities and Exchange Commission (SEC). As Bloomberg’s Matt Levine explains, this is usually done via a blanket “shelf registration statement”, which contains a “very large arbitrary number for how many securities you might sell”. In 2019, Barclays registered to sell just under $20.1bn of securities in a statement. The trouble is that apparently it forgot to keep track of how much of this $20.1bn capacity it had used, and ended up issuing a combined $36bn securities or so – around about $15bn in the last year – instead of $20bn, before realising its error.

A minor mystery solved

The error does appear to explain why Barclays stopped issuing new shares in two of its most popular ETNs – one tracking the Vix volatility index (VXX) and the other tracking crude oil prices (OIL) – a couple of weeks ago. This was at the height of market volatility around Russia’s invasion of Ukraine. The decision resulted in dramatic price moves for both the VXX and OIL products. The inability to issue new shares meant the ETNs could no longer track their underlying indices. Instead they become more like an investment trust – where the price is driven by supply and demand for the shares, and so can trade at an entirely different price to the value of the underlying assets – which, needless to say, is not the point of an ETN.

The £450m cost is due to the fact that, because the securities were issued in error, holders have “a right of rescission”. In other words, Barclays has to buy them back at the original sale price. Of course, anyone who made a loss on their structured notes, or perhaps on these two ETNs, will almost certainly exercise this right and get their money back at Barclays’ expense. As you’d expect, the bank is conducting a review into what went wrong.

We suspect that few MoneyWeek readers trade ETNs, and we’ve also railed against structured products often enough to dissuade you from them too. And in this rare case, investors may well have benefited from the error rather than lost out. But it’s another very good demonstration of why you shouldn’t invest in anything that you don’t understand thoroughly. If even a banks’ back office can’t get it right, what hope do you have?

from Moneyweek RSS Feed https://moneyweek.com/investments/investment-strategy/604650/what-went-wrong-for-barclays-with-its-ps450m-structured
via IFTTT

Three Asian growth stocks to invest in the world's fastest growing markets

Pictet’s Asia ex-Japan strategy is a long-only, high conviction and fundamentally driven portfolio. We focus on cash-generative businesses and invest in both structural compounders and cyclical-inflection opportunities. Asian equities are attractive due to the strong earning potential of companies and appealing valuations, especially relative to developed markets. A focus on stock selection has been the driver of outperformance and the holding period for each stock is typically three to five years.

Asia remains the fastest-growing region in the world. It is among the most advanced in terms of e-commerce and fintech. The companies below showcase three of the most interesting picks across a variety of sectors.

A key player in renewables

Innovation across the region is on show in the renewable energy sector. Sungrow (Shenzhen: 300274) is a key player in the renewable energy manufacturing chain. It supplies inverters to solar module makers, as well as energy storage solutions (ESS) to solar farm operators. The company is looking to expand its inverter market share from both global and domestic leaders, such as Huawei.

Sungrow has benefited from strong tailwinds from global solar farm growth and the accompanying need to capture and store solar energy via its ESS business, as well as from China’s long-term policies of increasing green energy.

We believe current energy prices are likely to accelerate the renewables roll-out. What seem to be high near-term multiples (a forward price/earnings (p/e) ratio of 30 times estimated 2023 earnings) belie the value in the name due to its long-term, structural growth.

A safe play on China’s real-estate rebound

Midea (Shenzhen: 000333) is a white-goods manufacturer whose main product is air conditioners. We believe the company has been unfairly punished due to its exposure to the Chinese real-estate market and, more recently, to rising input costs. However, in our view Midea has managed past surges in input costs (copper) well and will now look to mitigate adverse effects on margins through efficiency gains, price increases and product mix.

We also believe that in order for China to reach its growth targets, it will have to address the real-estate market’s issues tactically and adjust policies so that buyers come back into the market. With Midea’s strong cash flow and net cash position, this should be a safe way to gain exposure to a Chinese property market rebound. At 10.6 times forecast 2023 earnings and a 4.3% dividend yield, it provides both the safety of value and the upside of growth in an otherwise difficult market.

Asia’s best insurer

We view AIA (Hong Kong: 1299) as Asia’s best insurer. A policy of financial liberalisation means there is a strong long-term structural tailwind to growth in the Chinese insurance market. Although the stock has been affected by Covid-19, with the added difficulty of its agents being less able to meet clients in person, we are now seeing the beginning of loosening restrictions in Hong Kong.

Given AIA’s strong presence across Asia, we consider the stock a good way to play an opening up of travel in mainland China and Hong Kong. In addition, valuations should be considered reasonable at 1.7 times 2021 book and 13.5 times earnings.

from Moneyweek RSS Feed https://moneyweek.com/investments/stocks-and-shares/growth-stocks/604647/three-asian-growth-stocks-to-invest-in-the
via IFTTT

Oil Futures H4 | Potential For Pullback

Type: Bearish BreakoutKey Levels:Resistance: 94.39Pivot: 92.55Support: 85.13Preferred Case:Prices are approaching a pivot. We see the potential for a dip from our Pivot at 92.55 which is an area of Fibonacci confluences towards our 1st support at 85.13 in line with 23.6% Fibonacci retracement. RSI is at levels where dips previously occurred.Alternative Scenario:Alternatively, prices may climb towards our 1st resistance at 94.39.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/oil-futures-h4-or-potential-for-pullback"
via IFTTT

USDCHF, H4 I Potential Rise

Type: Bullish BounceKey Levels:Resistance: 0.69889Pivot: 0.68752Support: 0.68332Preferred Case:On the H4, with price expected to bounce off the support of the Ichimoku cloud, we have a bias that price will rise to our 1st resistance at 0.69889 in line with the swing high resistance from our pivot at 0.68752 in line with the horizontal overlap support, 50% Fibonacci retracement and 100% Fibonacci projection.Alternative Scenario:Alternatively, price may break pivot structure and head for 1st support at 0.68332 in line with the 138.2% Fibonacci extension and 61.8% Fibonacci retracement.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/usdchf-h4-i-potential-rise4"
via IFTTT

USDCAD, H4 I Potential Drop

Type: Bearish ReversalKey Levels:Resistance: 1.25908Pivot: 1.25304Support: 1.24513Preferred Case:On the H4, with price moving below the Ichimoku cloud, we expect to see a potential for bearish drop from our pivot of 1.25304 in line with the 23.6% fibonacci retracement and 61.8% Fibonacci projection towards our 1st support level at 1.24513 in line with the swing low support.Alternative Scenario:Alternatively, If price breaks out, it can potentially move towards our 1st resistance level at 1.25908 which is in line with the 38.2% Fibonacci retracement and 100% Fibonacci projection.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/usdcad-h4-i-potential-drop4"
via IFTTT

Daily Market Outlook, April 4, 2022

Daily Market Outlook, April 4, 2022 Overnight Headlines Russia: Talks Had Not Progressed Enough For A Leaders' Meeting Ukraine Official: Draft Treaty Documents At 'Advanced Stage' EU Prepares More Sanctions After Apparent Atrocities Near Kyiv Chinese Vice Premier Calls For Greater Effort To Stabilise Foreign Trade China Finds New Virus Subtype As Daily Cases Exceed 13,000 Two Chinese mRNA Covid Vaccines Move Toward Clinical Trials Entire Tech Hub Mega City Of Shanghai Placed Under Lockdown China Removes Key Hurdle To Allow US Full Access To Audits Australian Job Ads Numbers Suggest Steady Jobless Rate Drop Fed’s Daly Says Case For Half-Point Rate Rise In May Has Grown Fed’s Williams Sees Sequence Of Steps To Raise Rates To Neutral ECB’s Schnabel: Expects To Hike Rates After Ending Bond Buys In Q3 Euro Weighed Down By Talk Of Fresh Russia Sanctions Oil Extends Losses On Reserves Release And Yemen Truce Iran Says Agreement to Revive Nuclear Deal With US Is Close German DefMin: EU Must Discuss Import Ban On Russian Gas Deliveries Stocks Up Amid China Step To Ease Dispute With US Over Audit Spat CanSinoBIO's mRNA Covid Vaccine Candidate Cleared For Trials In ChinaThe Week Ahead Geopolitical tensions continue to simmer while markets are likely to focus on assessing central banks' position toward stagflation risks as the Federal Reserve and European Central Bank release minutes this week, while Australia's central bank delivers a policy decision. Day-to-day updates in the Russia-Ukraine crisis are impacting markets less, but major developments will still matter. Reports over the weekend hinted at direct talks between the countries' leaders, but were tamped down by Russia. There should be a relief rally for the EUR, support for equities and lower energy prices if that pans out. The Reserve Bank of Australia will likely remain on hold Tuesday, but the market is looking for any hints the bank might finally commence its tightening cycle. A 15-basis point hike has been priced in for June and for the cash rate to be 2.0% higher by end-2022. Some Reuters poll respondents expect tightening to begin in June, but most foresee an August start. The Fed will release minutes from their March meeting at which they hiked rates for the first time in over three years. Anticipate confirmation of the hawkish turn in expectations and more detail on plans to shrink the balance sheet. BoJ To Keep Rates Low As Strong, Not Weak, Yen Still Kuroda's Enemy No. 1. Sources familiar with the bank's thinking and people close to Kuroda, whose decade in charge ends next April, said he is likely to protect his legacy by avoiding tweaks to a monetary policy that continues to treat a strong yen as enemy No. 1. The BOJ's dovish signals may give markets a chance to drive down the yen further, as prospects of steady policy tightening by the Federal Reserve widen the Japan-U.S. interest rate gap. "The BOJ looks at inflation, not yen moves, in guiding policy," one of the sources saidCFTC Data Bullish positioning in the USD improved for a third consecutive week to its highest aggregate long since early-January thanks to an USD2.8bn increase to USD16.4bn, according to analysis provided by Scotia Bank. The rapid improvement in speculative sentiment in the USD since dropping to a seven-month low of USD5bn in early-March coincided with solid gains in the dollar against the JPY, GBP, and EUR over the month The JPY’s losses to the 125 yen per USD mark last week were met with a sharp deterioration in the already large JPY bearish position; the yen was the worst performing major currency over the period with a 1.7% decline. Accounts took the JPY’s net short to USD10.4bn, a four-month-high, with a USD2.3bn move against it as longs were heavily cut (from 37k to 15k contracts) while outstanding shorts held relatively steady. The CHF’s position also worsened with a USD425mn move against the franc to take its aggregate short to USD1.5bn. The haven currencies experienced the largest positioning moves (be it bearish or bullish) of those covered in this report. Investors warmed up somewhat to the MXN as it led all the currencies tracked here over the period with a 1.5% gain. The small MXN short was reduced to USD206mn with investors placing a net USD239mn bet in favour of the peso in a week where the exchange rate breached the key psychological level of 20 pesos per USD. The MXN traded this morning at its strongest level in seven months. Accounts reversed a small part of last week’s large net bet against the CAD of USD1.8bn, trimming the small short to practically neutral at USD123mn on the back of a USD270mn adjustment in the CAD’s favour; while small, this was the biggest net bullish bet this week. Its commodity peers, the AUD and NZD, saw mixed results, with the net AUD short slightly falling by USD99mn to USD3.7bn (still the second largest short after the JPY’s) and the NZD’s small long was trimmed by USD236mn to a small net short of USD60mn. Sentiment in the EUR and GBP weakened over the week as speculators wagered against both currencies, in net terms, with the net EUR long clipped by USD325mn and the sizable net GBP short rising by USD192mn. Negative positioning in the GBP—which beat only the JPY this week with its 1.3% depreciation—is now at a 13-week-high of USD3.3bn after the pound’s failed test of the 1.33 zone last week. The decline in the net EUR long this week to USD3.0bn follows the currency’s failure to hold a 1.11 handle around mid-month and erases around half of last week’s move of USD713mn in its favour. G10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls ) EUR/USD: 1.0800 1.2b, 1.0975 485m, 1.1000 1.1b, 1.1100 767m USD/JPY: 122.50 604m, 123.00 305m, 123.50 749mTechnical & Trade ViewsEURUSD Bias: Bearish below 1.12 Bullish above EUR/USD dipped to 1.1026 early Asia after closing Friday at 1.1047 USD gave back early gains and EUR/USD drifted higher into the afternoon It is settling above 1.1050 -around the session high at 1.1053 Despite fall late last week, EUR/USD is in a bullish set-up The 5, 10 & 21-day MAs in bullish alignment and tilting higher A fall below the 21-day MA at 1.1010 would negate the bullish set-up Resistance is at Friday's 1.1076 high and break increases upward pressureGBPUSD Bias: Bearish below 1.3350 Bullish above. -0.05% in a tight 1.3098-1.3120 range - busy as Asia fully opened then quiet Sterling will be led by external factors, risk, the USD and yield spreads Soft markets, E-mini S&P -0.1%, US2YT=RR +2bp to 2.484%, Brent -0.55% Charts; momentum studies edge higher - 10 & 21 DMAs slide gently lower 21 day Bollinger bands contract - modest net negative signals First major support is 1.3000 lower 21 day Bollinger band and the 2022 low 1.3146 London high Friday, then last week's 1.3181 high initial resistance Weekly charts remain bearish as 5, 10 & 21 week MAs track southUSDJPY Bias: Bullish above 120 Bearish below From 122.73 EBS in early trading, USD/JPY slumps to 122.28 into Tokyo fix Move down on low volume and met by good Japanese importer, other demand Bounce since to 122.69, confirms pair in consolidation mode Tokyo players eye 122.00-123.00 range for now $604 mln in option expiries today at 122.50 exert some gravitational pull BoJ YCC JGB 10s cap intact, BoJ offers to buy more long bonds Higher US yields post-US jobs report supportive, Tsy10s @2.415% TradeWeb Japan investors turning to front-end on inverted Tsy curve, 2s @2.484% Tokyo risk mood neutral, Nikkei around par at @27,626, E-Minis too @4533AUDUSD Bias: Bullish above .7300 Bearish below Moves higher as buyers emerge after early dip AUD/USD eased to 0.7483 in early Asia after closing Friday at 0.7497 AUD resilient as it was best performing major currency on Friday Buyers emerged at the lows and it tracked higher through the morning Heading into the afternoon it is just below the session high at 0.7513 Resistance is at the March 28 high at 0.74540 and Oct trend high at 0.7555 Support is at the 21-day MA at 0.7400 and 38.2 of 0.7165/0.7540 at 0.7396 AUD/USD may see some volatility around RBA decision tomorrow RBA to remain on hold with focus on statement

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/daily-market-outlook-april-4-2022"
via IFTTT

Elvira Nabiullina: Putin's central bank chief blindsided by Russia's war on Ukraine

Elvira Nabiullina, known for her symbolic outfits, fittingly wore “funereal black” as she warned, ashen-faced, a month ago, of the devastating hit to the Russian economy from Western sanctions. The Russian centralbank governor left it open to speculation what she really thought about the war. But now we have a better picture, says Bloomberg.

Reports suggest that Nabiullina sought to resign in the chaotic days after the invasion, “but was told to stay” by Vladimir Putin – reinforcing the narrative that the conflict was orchestrated by a relatively small cadre of Kremlin officials. Despite her reported closeness to the president, Nabiullina was apparently blindsided. She had conscientiously run through “every kind of stress test”, a senior former official told the Financial Times. “But not a war.”

Building Fortress Russia

Nominated this month for a new five-year term, Nabiullina, 58, is now left “to manage the fallout from a war that’s quickly undone much of what she accomplished in the nine years since she took office”, says Al-Jazeera. It looks a deeply unappealing task for a central banker who, until this year, had pulled off the tricky feat of becoming highly respected in the international community while retaining Putin’s trust.

Nabiullina had her mettle tested early by the sanctions following Putin’s 2014 annexation of Crimea. Defying sceptics (and, reportedly, death threats), “she fought against capital controls and set the rouble free” – later succeeding in getting inflation down to the lowest in Russia’s post-Soviet history. It was a brave call to hike interest rates to 17.5% and plunge the country into recession, says the FT. But Nabiullina – one of Russia’s few senior female officials – showed “steely determination” and stuck to her ultraconservative monetary policy”.

It paid off big time. Under her stewardship, the central bank amassed one of the world’s biggest stockpiles of foreign currency and gold – a $643bn war chest that underpinned Putin’s “Fortress Russia” strategy. But Nabiullina also wooed the West – taking what steps she could to open up the economy, while waging an effective crackdown on corrupt Russian banks.

Publications including Euromoney and The Banker hailed her as one of the world’s best policymakers. Having started her career at the USSR Science and Industry Union, Nabiullina moved to the Ministry for Economic Development and Trade before going into private banking; by the turn of the millennium she was CEO of Sberbank.

Putin appointed her as minister for economic development and trade in 2007. In 2013, she was installed at the central bank. “She brought the central bank up to absolutely international standards,” says one economist. In 2018, European Central Bank chief Christine Lagarde – a fellow opera-lover then at the IMF – likened her qualities to those of “a great conductor”.

Brooching the question

Apparently “soft-spoken” in person, Nabiullina communicates not just through words but through her clothing, says The Observer. She’s particularly keen on using brooches to drop hints about her policy thinking. In May 2020, as the government urged people to stay at home to combat Covid-19, she wore a houseshaped brooch. A month later, after cutting rates, she chose a dove.

Amid increasing hardship at home, Russians will be studying Nabiullina’s “rotating collection of brooches” even more closely than usual, says the FT. She has let it be known that her priority is protecting Russian citizens. But tension is mounting, says The Daily Telegraph. “With cracks emerging” in Putin’s “inner circle”, Nabiullina is coming under increasing pressure from the West “to change sides” and defect. That would be a huge blow to Putin’s war efforts. But it’s frankly a dangerous position to be in.

from Moneyweek RSS Feed https://moneyweek.com/investments/stockmarkets/emerging-markets/604656/meet-putins-central-bank-chief-who-was-blindsided
via IFTTT

How salary sacrifice can help mitigate against National Insurance rise

There is less than a week to go until national insurance contributions increase, but there is still time to take action to mitigate the tax rise. In last week’s spring statement, chancellor of the exchequer Rishi Sunak refused to backtrack on his plans for a 1.25% increase in national insurance. But salary sacrifice schemes, offered by many employers, are a great way to reduce the impact of the increase, which comes into effect from 6 April.

In a salary sacrifice scheme, you give up some of your salary in return for your employer giving you a benefit of the same value. The most obvious example is a contribution to your pension plan, but some employers also offer benefits ranging from childcare support to the cycle-to-work scheme. In many cases, these benefits are not taxable. As a result, by entering into a salary sacrifice scheme, you are reducing the amount of income on which you will be taxed.

This is particularly valuable as national insurance contributions go up. For someone earning £50,000 a year, the 1.25% national insurance increase will add around £200 to their annual bill for the 2022-2023 tax year. However, by using salary sacrifice to increase their pension contributions by £100 a month, they could wipe out around £160 of that increase, without reducing the total value of their benefits at all.

Not all employers offer salary sacrifice and those that do may offer you the option of making pension contributions in the traditional way, rather than through this route. But where you have the option of joining a salary sacrifice arrangement, the national insurance increase boosts the case for doing so.

There could also be an income-tax benefit. Before the spring statement, the chancellor had announced that income-tax thresholds would be frozen until at least 2024. So as your salary rises each year, there is an increased chance of you moving into a new income-tax band and paying higher rates. Salary sacrifice schemes could mitigate this impact.

Do the sums before you commit

There are some reasons to tread carefully. Many employers offer staff free life insurance, but this is usually calculated as a multiple of your salary; by reducing that salary in a sacrifice scheme, you are therefore reducing the amount of life insurance you’re getting through work.

Another potential issue is reduced mortgage affordability. Lenders making calculations about how much they are prepared to lend you will typically take account of your salary, so by sacrificing some of it, you may be limiting the amount you can borrow. Also, you may need to check what salary sacrifice might mean for benefits such as statutory maternity pay, which is also calculated with reference to your salary.

Still, it is worth doing the sums. If your employer offers a salary sacrifice scheme, it will be able to give you a detailed breakdown of what joining will mean for your take-home pay and your tax bill. You can then make an informed decision about joining.

The good news is that employers have an incentive to offer these schemes. Their tax bills are rising too, since employers’ national insurance contributions are also increasing on 6 April, so they’re looking for ways to save money. Some may even choose to share their national insurance savings with staff who join such schemes.

from Moneyweek RSS Feed https://moneyweek.com/personal-finance/pensions/604651/how-salary-sacrifice-can-help-mitigate-against-national-increase
via IFTTT

Four options for the sale of Chelsea FC

The sanctioning of Roman Abramovich, the Russian oligarch who has controlled Chelsea football club for nearly 20 years, and who started the flood of foreign money into the game, resulted in the club going up for sale. By the time you read this we might know who has bought it.

Potential bidders for an asset that was expected to command well over £3bn included a consortium led by the owners of the LA Dodgers; another led by the Ricketts family who own the Chicago Cubs; a team led by the property developer Nick Candy; and one or perhaps two others who may yet make the final round. An offer from Amazon, Netflix, Disney, or Sky’s owner, Comcast, would really shake things up – there could well be a surprise before the deal is finalised.

But whoever ends up buying it, there was a missed opportunity here – this could have been the moment to reinvent the way one of the UK’s most successful industries is run.

Britain’s Hollywood

The UK government is, quite rightly, vetting all the bids. It has said that all the money from the sale will go to charity, with much of it ultimately dedicated to helping the refugees flooding out of Ukraine. 

But why are we selling it to another foreign multinational sports franchise? The Premier League is a great UK commercial success. It is the most popular sporting contest in the world; in many ways it is an asset as valuable to the UK as Hollywood is to the US.

But its ownership is a mess, dominated by an odd mixture of Gulf States, absentee American sports conglomerates, or Asian or Russian billionaires. Only a handful of clubs still have British owners.

None of them have any links to the towns where the teams are based and many owners are using the clubs simply to improve their reputations.

They have no interest in the towns where they are located, or even the long-term success of the sport. The sale of Chelsea in such strange circumstances is a chance to try something new. Here are four options we should be thinking about.

First, give it away. The club could simply be placed in the hands of a supporters’ trust, with anyone who had held a season ticket for five consecutive years given a share. After that, it would be up to the fans to decide what to do with it. They could run it as effectively as they pleased. They could list it on the stockmarket, or if they really wanted to they could sell it to someone else. Sure, it would not have as much cash to spend on transfers as it might with another mega-rich owner. But there is plenty of money in football these days. Free of debt, there is no reason why Chelsea should not be self-sufficient financially and still do well.

Second, donate it to Chelsea. One share could be given to every resident in the Royal Borough of Kensington and Chelsea. With 156,000 of them, and a £3bn price tag for the club, that would come to almost £20,000 per person. Alternatively, why not give a share to everyone in London? Either way, the club would be owned by its local community.

Experimenting with ownership

Third, turn it into a national asset. The club could be put into a new company owned by the government and then floated. The money raised would be enough for at least a small temporary tax cut, which might help with the cost of living crisis. Finally, it could be placed in the hands of a broadcaster. Folded into the BBC, ITV or Channel 4, it could be the basis for a new sports streaming service, and at virtually zero cost. If streaming is the future, as many experts believe, that could create a powerful new UK company.

There may be other options, but the point is this: there is nothing necessarily wrong with foreign owners and global sports franchises. Over the last two decades they have brought a lot of money into the game and turned it from a domestic into a global contest. But the Premier League could use some different forms of ownership. The sale is a chance to try something new, creating models that might work better. We should take some time to debate that – not just flog it off as fast as possible.

from Moneyweek RSS Feed https://moneyweek.com/economy/uk-economy/604644/what-are-the-options-for-the-sale-of-the-chelsea-football-club
via IFTTT

Why investors may need to pivot from ESG towards carbon-intensive industries

The road to hell is paved with good intentions. Fears of global warming have created massive enthusiasm for “green investing” over the past few years. Industries that furthered the goal of cutting emissions – such as renewable energy – have found it easier to raise capital. Financial institutions have allocated more money to environmental, social and governance (ESG) strategies in general. Funds claiming to follow ESG principles now manage $6.1trn, representing 10% of worldwide fund assets, mostly in Europe.

Asset managers have shown that they are willing to use their power to structurally shift our economies. The five largest investment managers – BlackRock, Vanguard, UBS, State Street and Fidelity – hold a combined $22.5trn in assets, giving them an enormous amount of clout if they act together.

Last year we saw an example of them doing so, when several backed an activist hedge fund in voting three directors off the board of oil major Exxon Mobil. Meanwhile, banks and insurance companies are making “net zero” commitments not just at company level but also at the portfolio level – which is affecting where they are willing to invest and lend.

There is an obvious problem with this. Many of the industries being shunned by ESG-conscious investors and lenders remain crucial to the way the world works. Sectors that emit large amounts of carbon dioxide (directly or indirectly) include energy, mining, heavy industries such as metals and chemicals, farming and transport. We may not like this, but we can’t immediately replace them: 80% of the energy consumed in the world is still generated from fossil fuels.

The consequence of several years of lower investment in these out-of-favour sectors was already becoming apparent in the second half of 2021: the Bloomberg Commodity Spot index hit an all-time high in October as rising demand collided with tight supply. The Russian invasion of Ukraine brought matters to a head.

We need affordable, secure energy

Investment in oil and gas has been depressed over the past six years and discoveries are at the lowest for the last 75 years, according to Rystad Energy, a Norwegian energy-intelligence firm. Surging oil and gas prices have huge consequences financially – Citigroup estimates the primary energy bill for Europe will reach $1trn this year, close to the record levels of 2007 and 2011. It also has both energy security and environmental implications.

The UK and Europe have to import liquefied natural gas (LNG) from the US – gas that was produced using highly polluting fracking techniques. Reducing European reliance on Russian oil and gas will require intensive capital expenditure in other geographies, not least because all types of oil are not the same and supplies need to be matched to refinery capacity – light, sweet (low-sulphur) crude is easier to refine than heavy, sour (high-sulphur) oil.

Despite the obvious need for more investment and the likelihood that oil prices will remain elevated, the shares of European oil majors have remained flat since the beginning of the year, unlike their American counterparts. That may reflect their exposure to Russia, but also probably, at least in part, the fact that oil is now a taboo sector for some increasingly ESG-conscious investors – ie, today’s equivalent of tobacco.

Firms such as BP and Total offer interesting value in a world where energy is more scarce. However, the most risk-seeking investor may look at the extremely cyclical offshore oil drilling sector, where consolidation is under way and major companies such as Odfjell Drilling and Maersk Drilling should emerge stronger. Canada’s oil sands produce some of the world’s most carbon-intensive crude, but shares of Imperial Oil and Canadian Natural Resources are rising, reflecting renewed interest from investors in the sector.

Of course, it’s not just oil. The transition to die Energiewende (a long-term renewable energy and climate strategy) favoured by Germany has been close to a disaster this winter. Back in October, several European countries warned of potential blackouts and electricity prices shot up due to low wind power generation.

Prices of natural gas for gas-fired power stations – the back-up for wind – soared as well, and stocks fell to all-time lows. The uncertainty of whether Russia (which supplies 40% of Europe’s gas) could turn off the tap at any moment has really demonstrated the fatal flaws in European energy policy.

On the European continent, some factories had to stop or limit production – compounding supply-chain issues – while others began acquiring their own fuel generators to get off the grid immediately. Poland took a different approach.

The government decided that it would continue to exploit the Turow coal mine near the border with the Czech Republic – and would ignore a €50,000 daily fine levied by the European Union to do so. Coal and cheap but highly polluting lignite (brown coal) generates 75% of Poland’s electricity, and the transition to nuclear energy will take some years.

Poland is not the only country deciding that it would rather increase pollution than run short of energy. China, which has tripled its production of coal since 2000, announced a ban on coal exports and is increasing investments in mining to ensure energy security. The reality is that annual world coal consumption still stands at 8.5 billion tons and has not declined much in recent years.

That is why miner Glencore is betting that coal will still be relevant. Its share price is up by 50% year on year as investors come round to the same view. The other big winner may be nuclear energy, which provides about 30% of the world’s low-carbon electricity. France and the UK are both now planning to expand their nuclear capacity to produce carbon-free electricity and meet climate objectives. 

This will benefit uranium miners such as Cameco and Energy Fuels. In contrast to coal – which is hard to greenwash – nuclear is undergoing a makeover. The EU now plans to label some nuclear projects – and even some gas ones – as green. You can argue about whether any power that leaves toxic waste to be stored for thousands of years can really be environmentally friendly, but this decision illustrates both the limits of ESG semantics and the risks to our economies of running out of affordable energy.

An electric economy

still needs metals Meanwhile, metals such as aluminium, copper and zinc have all reached elevated levels. Some of this is due to speculation and more recently to sanctions on Russia, and these levels may not be fully sustainable, but there is a real lack of supply. This has been exacerbated by rising demand for some metals caused by the electrification of the economy – another key green theme where the impact on raw materials has been underestimated.

Large miners such as Rio Tinto, BHP and Glencore offer exposure to various metals. Other peers look even cheaper. Anglo American trades on an enterprise value (EV – market capitalisation plus debt) of only 4.1 times earnings before interest, tax depreciation and amortisation (Ebitda) and carries nearly no debt. It regrettably spun off its coal business, Thungela Resources, under ESG pressure last year.

Thungela’s share price has shot up fivefold since its initial public offering in June. Glencore shareholders should probably hope that their company can resist any similar pressure to get rid of its coal operations. Many other miners are also trading at depressed valuations – for example, Nexa Resources, which extracts zinc in Latin America, is on an EV/Ebitda ratio of three and generates 28% Ebitda margins.

Though gold and silver pulled back last year because markets expect a series of increases in interest rates, prices are now resilient and gold miners are priced extremely cheaply. Many are poorly managed and operate in difficult geographies (such as Mali, Peru and Russia), but some generate healthy and steady cash flows. I favour Barrick Gold. 

Makers of metals such as steel, aluminium or zinc have different dynamics to miners or energy – their fortunes depend on whether demand and prices for their finished products outstrip raw material costs (metal ores and energy). If we start to see shortages in output here at the moment, it’s not – broadly speaking – about a shortfall in capacity, but rather a shortage of affordable inputs (specifically energy, which is hurting many producers in Europe).

Nonetheless, the market value of steel companies is historically broadly correlated to commodity prices, according to consultancy McKinsey, albeit to a lesser extent than primary producers (there’s a 64% correlation for the steel sector, compared with 84% for oil and gas, and 93% for miners). Steel makers such as ArcelorMittal and Ternium are seeing their shares rally, yet trade at EV/Ebitda ratios of less than two, while generating strong profit margins. This is a notoriously cyclical industry and investors are right to treat it with caution – but today’s aversion to energy-intensive, carbon-spewing sectors may still leave it cheaper than fundamentals would suggest.

Conditions are hurting aluminium producers more: aluminium smelting is extremely energy intensive (and carbon intensive) and so rising energy prices have slashed margins. Unable to fully pass on prices, producers have been shutting down some capacity, which was already leading to tighter supply. The war in Ukraine has now upended matters: Russia is the second largest producer of aluminium outside China, with around 6% of global production, and this may be taken out of the market due to sanctions. Thus shares of efficient producers such as Alcoa, which had been steadily recovering from its 2020 lows, are holding up despite the headwinds.

How gas prices caused a fertiliser crisis

Refineries and petrochemical plants are not the ESG investor’s best friend, either: they take in oil or gas and produce a range of often polluting products. These sectors are often ignored, in part because they are complex. As with metals, returns depend on input costs (eg, oil or gas feedstock) and demand for the products they produce. Prices and margins on some products tend to be fairly closely linked to oil or gas prices; for others, the connection is looser. Local conditions can play a big role: US refiners such as Marathon Petroleum and Valero Energy are doing well now, because the Ukraine crisis has pushed up global prices for products such as diesel (which can be traded internationally), even while US prices for natural gas – a key cost – remain much lower than for European refineries. Petrochemical producers tend to suffer more from high oil and gas prices: the shares of European firms such as BASF and Evonik are now holding up noticeably worse than US firms such as Dow and Dupont, because the latter again enjoy lower feedstock costs. In general, companies producing complex and specialised chemical products generate higher margins (and are more attractive to investors), which explains last week’s move by Belgian firm Solvay to split into two companies: one focused on basic chemicals considered as commodities and the other focusing on speciality chemicals.

There are opportunities for knowledgeable investors to take advantage of input and output price trends, but one product stands out as more crucial than others right now. The rising price of ammonia – made from natural gas and hence hit by higher gas prices – has led to quintupling of fertiliser prices. That will affect food production. Food prices have already increased by 22% in 2021 according to the World Bank, and they are not likely to fall back this year given prices of fertiliser and seeds. Crops such as wheat and maize require regular fertilisation – too much, in many cases. The UK, for example, consumes 100kg of fertiliser per acre, according to the United Nations Food and Agriculture Office – 60% more than in the EU. The efforts made in Europe to reduce usage of fertiliser to preserve the environment and protect aquifers from run off have been considerable, but farmers do not have much room to cut consumption further, especially if they are trying to keep crop yields up.

Indeed, farming is surprisingly a major source of pollution: it is responsible for 17% of global carbon emissions. In Europe, the sector has been hit by heavy environmental regulation, and two years ago the EU agreed to reform farm practices further as part of its drive to hit net zero by 2050. The changes would have led to a further cut in production. Soaring food prices and geopolitical threats will reportedly cause those plans to be reassessed, with greater focus on food security. If so, it will be yet another example of how hard it is now proving to square going green with continuing to meet the world’s essential needs

from Moneyweek RSS Feed https://moneyweek.com/investments/investment-strategy/esg-investing/604658/why-investors-may-need-to-pivot-from-esg
via IFTTT

EURUSD H4 Potential for Bullish Bounce

Type: Bullish BounceKey Levels:Resistance: 1.11886Pivot: 1.10567Support: 1.09501Preferred Case:We see the potential for a bullish bounce from our pivot level at 1.10567 in line with 78.6% Fibonacci projection and 50% Fibonacci retracement towards our 1st resistance at 1.11886 in line with 100% Fibonacci projection and 61.8% Fibonacci retracement. Our bearish bias is supported by price trading below the Ichimoku cloud indicator.Alternative Scenario:Alternatively, price might continue to drop to the 1st support level at 1.09501 in line with a graphical low support.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/eurusd-h4-potential-for-bullish-bounce"
via IFTTT

How a retreat from globalisation will affect the world economy

What’s happened?

A growing number of big investors, including bosses at BlackRock, Oaktree Capital Management and Allianz Global Investors, have gone public with predictions that the war in Ukraine will prove an inflection point in the global economy. “The Russian invasion of Ukraine has put an end to the globalisation we have experienced over the last three decades,” wrote Larry Fink, chief executive of the world’s largest asset manager, BlackRock, in his annual letter to shareholders last week. The isolation of Russia from capital markets will promote a trend everywhere towards national independence and hasten the development of rival economic blocs led by the US and China. A world in which cheap offshore manufacturing and smooth global supply chains hold costs down will be replaced by “a large-scale reorientation of supply chains”, and that will be inflationary, says Fink. That implies lower growth and lower returns for investors.

Is Larry Fink right?

One metric that offers a reasonable proxy for “globalisation” is international trade as a share of global GDP. That share surged from 25% in 1970 (World Bank figures) to 50.7% in 2000 and peaked at 61% in 2008. This was an era when Western policymakers believed that trade and investment would bring the world closer together politically. From 1992 to 2008, Russian gas exports grew tenfold. Between 1985 and 2015 Chinese goods exports to the US rose by a factor of 125. And in the 1990s annual global flows of foreign direct investment rose by a factor of six.

So what went wrong?

In the wake of the financial crisis, global trade fell sharply before bouncing back a bit. But it has never again hit that 61% – instead trending lower and falling to 51.6% by 2020. Meanwhile, global flows of long-term investment fell by half between 2016 and 2019. The Ukraine war follows hard on the supply-chain shocks of the US-China trade war, the Covid-19 pandemic, and the semiconductor shortages – all of which have focused attention on supply-chain sovereignty and domestic production. In other words, globalisation has been in retreat for some time, as John Micklethwait and Adrian Wooldridge point out on Bloomberg “But Russia’s invasion of Ukraine marks a bigger and more definitive assault than the previous ones.”

Why is this retreat happening?

Two main reasons, say Micklethwait and Wooldridge. First, because “geopolitics is definitively moving against globalisation” and towards a world dominated by two or three great trading blocs (an Asian one led by China, perhaps with Russia as its energy supplier; a US-led bloc; and perhaps a third centred on the EU). But just as important is a change in mindset. CEOs now understand they are in a world where political matters trump economic logic. They are recalculating accordingly, shifting from a “just-in-time” mentality to “just-in-case” – by preparing to bring production closer to home in case their foreign plants are cut off, for example. Historians may well decide that “the definitive moment globalisation died was when China, India and South Africa all abstained on the United Nations vote condemning Putin’s invasion”, says Robert Peston in The Spectator.

What will that look like in practice?

Already, French president Emmanuel Macron has committed his country to self-sufficiency in pharmaceuticals. The EU has vowed to wean itself of Russian gas, oil and coal by 2027. Joe Biden has promised to “make sure everything from the deck of an aircraft carrier to the steel on highway guardrails is made in America from beginning to end”. But this “fetishising of domestic manufacturing over advancing crossborder trade in services and networks” is ironic, argues Adam Posen in Foreign Affairs. In fact, it is the latter sectors that have truly advantaged the West over Russia in implementing effective sanctions, and that have deterred Chinese businesses from bailing Russia out. Sadly, the retreat from globalisation will diminish both innovation and the return on capital in the world economy, and “it will do so on every side of the economic divide”, says Posen.

Growth will suffer then?

Yes. It will lead to higher prices for inputs, already seen most dramatically in the oil and gas price surges, but also in soft commodities and metals, as Emma Duncan points out in The Times. Higher input prices push up consumer prices and reduce output, thus hitting employment and wages. The other “source of economic pain will be lower demand, as markets are closed off to each other”. World trade will fall – hurting the global economy, and Britain (an open, trading, service-based economy) more than most. “About 63% of our GDP is traded, compared with 26%, 36% and 49% of America’s, China’s and Russia’s respectively.” Globalisation is in retreat, and we are “going to miss it when it’s gone”.

What can be done?

For policymakers, deglobalisation adds to the fiscal pressure of a low-growth world. Rishi Sunak’s spring statement fiddled with tax rates. But arguably far more important, says James Heywood on CapX, was his promise of a major review of how the tax system creates incentives for investment. That could prove crucial to reinvigorating growth and productivity. Meanwhile, we’ll have to learn to invest in an inflationary environment that compresses multiples and shrinks profits, says asset manager Thomas Friedberger. Investors will have to position themselves to “take advantage of these mega trends: energy transition, cyber security and digitalisation”, he told the FT. Monica Defend, head of the Amundi Institute, suggests a focus on sectors such as energy and defence that will benefit from “strategic autonomy”. Virginie Maisonneuve, of AllianzGI, believes the shift could “drive innovation” by linking renewable energy with artificial intelligence to enhance efficiency, for example.

from Moneyweek RSS Feed https://moneyweek.com/economy/global-economy/604655/how-will-a-retreat-in-globalisation-affect-the-world-economy
via IFTTT

Why Latin American stocks are attractive right now

Latin America is proving “a darling destination for investors in 2022”, say Anisha Sircar and Rodrigo Campos for Reuters. Low valuations and soaring commodity prices have given the region’s stocks a boost. Currencies in Brazil, Colombia, Peru and Chile are the “four best-performing across emerging markets against the dollar” so far this year.

Stronger local currencies help flatter gains for foreign investors. The MSCI Emerging Markets Latin America (LatAm) index has gained 25% in dollar terms year-to-date, even as the broader MSCI Emerging Markets (EM) index has dropped 8%.

That spurt of outperformance is welcome after a long spell of disappointment. In the three years up to 14 March, the MSCI Latin America index fell 4.7%, compared with a 9.8% gain for the MSCI Emerging & Frontier Markets index, says Kathleen Gallagher for Investment Week.

Brazil, the region’s biggest economy, fell into a severe recession in the middle of the 2010s. It was barely recovering before Covid-19 struck.

Yet with commodity prices rising, prospects are now looking up. Data from the Institute of International Finance shows that “on average, 72% of total exports in the largest Latin American countries were linked to commodities last year”.

With Russian supplies disrupted, the world is especially desperate for Brazilian crops, Colombian oil and Chilean copper. The region’s markets are closely correlated with commodity price movements; the last big boom coincided with the great commodity supercycle of the early 2000s.

Brazil is back in fashion

Brazil plays an outsize role in the landscape, since its stocks account for 62% of the MSCI LatAm. The local Ibovespa index has gained 15% so far this year. “High yields” and “cheap stocks” are drawing in investors, says Vinicius Andrade on Bloomberg, with $14bn of net inflows by foreign investors since mid-December. “Even after the recent rebound, the Ibovespa is trading at
7.7 times forward earnings, below its ten-year average of 11.7 times.

Not everything is rosy, says The Economist. Generous pandemic fiscal help and the “worst drought in 90 years” have combined to drive Brazilian inflation up to 10.5%. Incumbent president Jair Bolsonaro is a “fiscal chameleon” and is splurging public money in a bid to boost his flagging support.

That plan isn’t working. Polls suggest that Bolsonaro is on course to lose to former president Luiz Inácio Lula da Silva in elections this autumn. Leftwing Lula’s victory in 2002 “spooked the markets, but he was reasonably responsible in his spending in his first term, at least”. The rally shows investors are confident that Lula will “govern moderately” should he triumph again.

from Moneyweek RSS Feed https://moneyweek.com/investments/stockmarkets/emerging-markets/604654/why-latin-american-stocks-are-attractive-right-now
via IFTTT