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Morning Notes ( news, and thoughts ) plus an investing idea. ( Scroll to the bottom for Idea) ( 30-3-21)


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Asia stocks drifted and Treasury yields climbed as investors weighed rapid progress in the U.S. vaccine rollout against the risk of further blow-back from the implosion of Archegos Capital Management.
Shares rose in China and Hong Kong while Japan’s index fell, led by banks. Nomura Holdings Inc. said it’s too soon to estimate the impact of losses tied to a U.S. client, identified by Bloomberg as Bill Hwang, head of the troubled investment firm. U.S. futures fluctuated as traders assessed broader Wall Street exposures. Earlier, the S&P 500 Index lifted off lows on President Joe Biden’s announcement that 90% of adults will be eligible for the Covid-19 vaccine next month.
Ten-year Treasury yields rose to 1.74%, and the five-year hit its highest point in a year. Australia’s benchmark yield jumped 10 basis points. The U.S. dollar held steady.
“It’s never better when you are a shark in the water to be buying from a forced sellers,” said Spotlight Asset Group’s Shana Sissel on Bloomberg TV. The chief investment officer is skeptical of the potential for broader market fallout from Archegos. “I find it hard to believe that this would have a systemic massive impact on global markets beyond the few positions that they held.”
Ripples are barely detectable in credit markets so far, though traders are demanding higher rates to hedge potential losses on the debt of banks caught up in the Archegos situation, including Nomura and Credit Suisse Group AG. Archegos said that “all plans were being discussed.”
Investors have been focusing on the strength of the recovery and inflation risks as governments step up spending to spur growth. Later this week, the U.S. president plans to unveil a further stimulus program with a tilt toward infrastructure. Positive news on vaccines is helping risk appetite, with a real-world study from Pfizer Inc. and Moderna Inc. showing their doses effectively prevented coronavirus infections, U.S. government researchers said.
Asian shares were mixed early Tuesday as global investors shook off worries about a hedge fund default that roiled global banking stocks overnight, while rekindled concerns about inflation pushed bond yields higher.
Wall Street pared earlier losses driven by the banking sector on fears that issues with a defaulting hedge fund could spread throughout the banking sector.
In Asia, the MSCI’s broadest index of Asia-Pacific shares outside Japan was marginally higher by 0.08% in early in the session Tuesday.
Hong Kong’s Hang Seng Index was up 0.36% to 28,440 but in Australia a weaker tone emerged when the S&P/ASX200 slid 0.4% to its lowest point for a week.
Mainland China’s CSI300 index is 0.18% higher in early trade while Japan’s Nikkei is off 0.1%.
Nomura and Credit Suisse are facing billions of dollars in losses and regulatory scrutiny after a U.S. investment firm, named by sources as Archegos Capital, defaulted on equity derivative bets, putting investors on edge about who else might be exposed.
The dollar climbed to a one-year high against the yen on Tuesday amid a spike in Treasury yields, as accelerating vaccinations and massive stimulus in the U.S. stoked inflation concerns.
The safe-haven greenback also found support as investors worried about the potential fallout from the collapse of a hedge fund, identified as Archegos Capital, although those jitters had eased as the Asian trading day got under way.
The dollar rose to a cusp of 110 yen in Asia, a level not seen since March of last year. It’s on track for the best month since late 2016, with the end of Japan’s fiscal year this month driving up dollar demand as companies seek to square their books.
Benchmark 10-year Treasury yields rose as high as 1.7450% in Asia, approaching the 14-month high of 1.7540% touched earlier this month. The five-year note’s yield pushed as high as 0.9170% for the first time since March of last year.
Higher yields make a currency more attractive as an investment.
That climb in the shorter-dated yield will keep the dollar’s upward momentum going, according to Chris Weston, the head of research at Pepperstone Markets Ltd, a foreign exchange broker based in Melbourne.
“The USD has moved into a different realm as an investment destination,” he wrote in a client note.
Crude oil futures edged higher during mid-morning trade in Asia March 30 as optimism over the OPEC+ coalition persisting with its supply cuts and expectations of increased downstream products demand supported the market, although a stronger US dollar limited the upside.
At 10:49 am Singapore time (0249 GMT), the ICE Brent May contract was up 16 cents/b (0.25%) from the March 29 settle at $65.14/b, while the May NYMEX light sweet crude contract was 19 cent/b (0.31%) higher at $61.75/b.
Ahead of the April 1 OPEC+ meeting, the market brimmed with optimism that the producer group would roll over its April production quotas to May and keep supply in the market tight. Analysts have said this is the likely scenario, since demand-side concerns have continued to fester due to a resurgence of coronavirus infections in Europe and India.
"OPEC's cautious approach to the demand recovery saw it extend production curbs until April at the last meeting. Since then the outlook hasn't become any clearer," ANZ analysts said in a March 30 note, adding it was unlikely the coalition would raise production given that market sentiment has barely improved.
Despite an almost unanimous agreement among analysts that OPEC+ would defer any increase in production, a Saudi Arabian source told S&P Global Platts that a decision on the status of the cuts had not yet been made and that the speculation in the market was premature.
Abu Dhabi allowed trading of a futures contract linked to its flagship grade of crude for the first time on Monday in a debut that could test OPEC’s grip on oil prices.
Prices for Murban futures rose 0.6% to $63.90 a barrel on Intercontinental Exchange Inc.’s new ICE Futures Abu Dhabi marketplace. Trading was brisk: More than 6,300 lots, equating to over 6.3 million barrels of crude, changed hands by 5 p.m. local time, or 9 a.m. ET.
Futures for Brent crude, the benchmark in international energy markets, edged up 0.6% to $64.98 a barrel after engineers freed the container ship that had blocked the Suez Canal, a thoroughfare for oil and gas. West Texas Intermediate, the main grade of U.S. crude, rose 1% to $61.56 a barrel.
Abu Dhabi plans to relinquish control over prices of Murban to investors and traders, a major step in efforts to fortify its position in the international oil market. The goal is to make Murban more attractive to refiners in Asia, where oil producers are battling for customers as Western governments seek to phase out fossil fuels.
By allowing crude to trade more freely, the emirate could ultimately undermine the sway of the Organization of the Petroleum Exporting Countries over prices. The changes that Abu Dhabi is making will erode the influence of cartel leader Saudi Arabia over time, said Philip Verleger, an energy economist and president of PKVerleger LLC.
The biggest counterparties of Bill Hwang’s Archegos Capital last week discussed ways to limit the market fallout from his collapsing bets on stocks including ViacomCBS, according to four people briefed on the talks, but the effort foundered and paved the way for days of chaotic trading.
Before the troubles at the family office burst into public view at the end of the week, representatives from its trading partners Goldman Sachs, Morgan Stanley, Credit Suisse, UBS and Nomura held a meeting with Archegos to discuss an orderly wind-down of troubled trades.
The banks had each allowed Archegos to take on billions of dollars of exposure to volatile equities through swaps contracts, and Hwang was struggling to deal with margin calls triggered by a plunge in ViacomCBS shares. An orderly wind-down would minimise the market impact and the hit to their own balance sheets as they worked to sell down stakes in companies that Archegos had amassed through the derivatives instruments.
It is unclear whether an understanding was reached but several sources said it was quickly clear that some banks had begun selling to stem their own losses. People familiar with the trading said Credit Suisse and Morgan Stanley both appeared to have unloaded small batches of shares in the market after the meeting.
Goldman Sachs Group Inc. and Morgan Stanley were quick to move large blocks of assets before other large banks that traded with Archegos Capital Management, as the scale of the hedge fund’s losses became apparent, according to people with knowledge of the transactions. The strategy helped limit the U.S. firms’ losses in last week’s epic stock liquidation, they said.
Losses at Archegos, run by former Tiger Asia manager Bill Hwang, have triggered the liquidation in excess of $30 billion in value. Banks were continuing to sell blocks of stocks linked to Archegos Monday, traders said.
“This is a challenging time for the family office of Archegos Capital Management, our partners and employees. All plans are being discussed as Mr. Hwang and the team determine the best path forward,” a company spokeswoman said in a statement Monday evening.
Archegos took big, concentrated positions in companies and held some positions in a mix of stock and swaps. Swaps are a common arrangement in which a trader gets access to the returns generated by a portfolio of shares or other assets in exchange for a fee.
Losses threatened to spill over into the so-called prime brokerage businesses that have been handling the firm’s trading. The group of large Wall Street banks includes Goldman, Morgan, Credit Suisse Group AG, Nomura Holdings Inc., UBS Group AG and Deutsche Bank AG , said people familiar with the firm’s trading.
The European Central Bank must be cautious when it shifts away from its emergency stimulus even if the economy rebounds from the pandemic as predicted, according to outgoing policy maker Vitas Vasiliauskas.
The Governing Council member and head of Lithuania’s central bank, who steps down from those roles next month, said in an interview that the ECB should draw on its earlier experiences of tightening too soon. That means switching back to more-standard monetary tools only gradually.
Even after inflation is back to its pre-pandemic trajectory, policy makers will need to keep quantitative easing in place for “quite a while,” he predicted.
“I don’t think we can allow ourselves to make very sharp changes to our monetary policy, especially having in mind our historic experience,” Vasiliauskas said on Monday. “It would be better to live a little bit longer in the transitional situation.”
ECB officials have been forced to backtrack in the past decade after capping or withdrawing monetary support too soon. They halted bond purchases at the end of 2018 -- only to restart buying within a year as the economy deteriorated -- and were forced to reverse two interest-rate increases in 2011.
South Korean refiners are looking to revive US crude oil purchases over the coming trading cycles as major Middle Eastern suppliers maintain strong discipline over production levels and continue raising their official selling prices, while domestic transportation fuel demand is expected to improve following the launch of the mass vaccination program.
South Korea imported 8.69 million barrels of crude from the US in February, down 28.6% from a year earlier, but the shipments were up 60.2% from 5.43 million barrels received in January, placing the North American producer at the second-highest spot of the suppliers' list for the month, latest data from state-run Korea National Oil Corp. showed.
Middle Eastern crude supply remains tight, while major OPEC producers, including Saudi Arabia, Kuwait, Iraq and the UAE, have been consistently raising their official selling prices, prompting major South Korean refiners to tap into the North American market for top-up spot barrels, according to refinery feedstock trading sources in Seoul and a market analyst at Korea Petroleum Association.
"Depending on OPEC's production cut strategy for the second quarter, while also considering the uptrend in Middle Eastern official selling prices, South Korea may import at least three VLCCs, or around 6 million barrels, of US crude on average per month over Q2 and Q3," a crude oil and condensate procurement manager at a major South Korean refiner said.
Europe
Greece “can do more” to investigate reports it has pushed asylum-seekers back to Turkey, a senior European Union official said on Monday, as Greek authorities pledged a new migrant reception centre on the island of Lesbos would open in time for winter.
The United Nations refugee agency UNHCR has said it has received a growing number of reports in recent months suggesting asylum-seekers may have been pushed back to Turkey at sea or immediately after reaching Greek soil, or left adrift at sea.
Greek officials have always rejected the reports.
“I am very concerned about the UNHCR report and there are some specific cases that I really think need to be looked into closer,” Ylva Johansson, the EU’s home affairs commissioner, said during a visit to the island of Lesbos.
“I think the Greek authorities can do more when it comes to investigating these alleged pushbacks.”
Americas
The Biden administration on Monday unveiled a goal to expand the nation’s fledgling offshore wind energy industry in the coming decade by opening new areas to development, accelerating permits, and boosting public financing for projects.
The plan is part of President Joe Biden’s broader effort to eliminate U.S. greenhouse gas emissions to fight climate change, an agenda that Republicans argue could bring economic ruin but which Democrats say can create jobs while protecting the environment.
The blueprint for offshore wind power generation comes after the Biden administration’s suspension of new oil and gas leasing auctions on federal lands and waters, widely seen as a first step to fulfilling the president’s campaign promise of a permanent ban on new federal drilling to counter global warming.
The United States, with just two small offshore wind facilities, has lagged European nations in developing the renewable energy technology. The administration of Biden’s predecessor Donald Trump had vowed to launch offshore wind as a promising new domestic industry but failed to permit any projects.
“We’re ready to rock and roll,” National Climate Advisor Gina McCarthy said at a virtual press conference to announce the administration’s moves.
U.S. President Joe Biden will outline how he would pay for his $3 trillion to $4 trillion plan to tackle America’s infrastructure needs on Wednesday, the White House confirmed on Monday, a proposal likely to include tax increases first laid out on the campaign trail.
Biden will lay out the plan, which is aimed at rebuilding roads and bridges as well as tackling climate change and domestic policy issues like income equality, in Pittsburgh, Pennsylvania.
“The president has a plan to fix the infrastructure of our country ... and he has a plan to pay for it,” White House spokeswoman Jen Psaki told reporters.
President Biden said Monday his administration is adding new vaccine sites, as he and other officials asked Americans to keep taking precautions and the head of the Centers for Disease Control and Prevention described a feeling of “impending doom” with Covid-19 cases rising recently.
Mr. Biden said the administration is more than doubling the number of pharmacies in the federal program and opening additional mass vaccination sites. He said 90% of adults would be eligible for vaccination by April 19, and 90% will have a vaccination site within 5 miles of their residence. Several states have been broadening their eligibility requirements for vaccine appointments in recent days.
The president also called on governors and local officials to maintain or reinstate mask mandates and said states should pause their reopening efforts.
Although the U.S. has vaccinated more people than any other country, administration officials said the spread of new variants that are more transmissible, an increase in travel and loosened restrictions in several states could lead to a surge
The Biden administration is preparing to issue guidelines that would make it easier for US diplomats to meet Taiwanese officials by adopting some of the changes introduced by Donald Trump, in a move China is likely to see as a provocation.
In one of his final acts in office, Trump significantly loosened constraints that had made it difficult for US diplomats to hold such meetings. Experts were waiting to see if Joe Biden would reverse course.
But the measures under consideration would keep many of the Trump changes in place, according to people briefed on the policy. The limits on contacts between American diplomats and Taiwanese officials had been in effect for decades until Trump loosened them.
One person familiar with the guidelines said they would focus on encouraging US officials to meet Taiwanese counterparts rather than imposing limits on contact. A second person said most of the restrictions on interactions “between US and Taiwanese diplomats . . . will disappear”.
APAC
Japanese retail sales fell for the third straight month in February as households kept a lid on expenditure amid the coronavirus emergency, underscoring the fragile nature of the economy’s recovery from last year’s slump.
Analysts expect Japan’s economy sharply contracted in the first quarter, as lacklustre consumer spending and weakening exports create challenges for policymakers who have already rolled out massive stimulus.
Retail sales lost 1.5% in February from a year earlier, government data showed on Tuesday, a smaller fall than the median market forecast for a 2.8% drop.
But it marked the third straight month of declines following January’s 2.4% fall and a 0.2% drop in December.
“That the coronavirus isn’t subsiding is a major reason to worry about a delay of an economic recovery,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute.
The top decisionmaking body of the Chinese parliament unanimously approved a plan on Tuesday to reform Hong Kong’s electoral system, the South China Morning Post reported citing the city’s sole representative to the body.
The National People’s Congress Standing Committee approved the plan by a vote of 167-0, the paper said, citing comments from Tam Yiu-chung, who represents Hong Kong on the committee.
Middle East
Shipping was on the move again late on Monday in Egypt’s Suez Canal after tugs refloated a giant container ship which had been blocking the channel for almost a week, causing a huge build-up of vessels around the waterway.
With the 400-metre-long (430-yard) Ever Given dislodged, 113 ships were expected to transit the canal in both directions by early Tuesday morning, Suez Canal Authority (SCA) chairman Osama Rabie told reporters.
He said a backlog of 422 ships could be cleared in 3 -1/2 days.
The Ever Given had become jammed diagonally across a southern section of the canal, the shortest shipping route between Europe and Asia, in high winds early on March 23.
Evergreen Line, which is leasing the Ever Given, said the ship would be inspected for seaworthiness in the Great Bitter Lake, which separates two sections of the canal.
“The ship was ready for limited navigation after an initial inspection and not a single container was damaged, but a second investigation will be more precise and if it was affected it will show,” Rabie said.
Iran will not stop its 20% uranium enrichment before the United States lifts all sanctions, Iranian state TV quoted an unnamed official as saying on Tuesday in reaction to a U.S. media report that Washington would offer a new proposal to jump-start talks.
The Biden administration has been seeking to engage Iran in talks about both sides resuming compliance with the deal, under which economic sanctions on Tehran were removed in return for curbs on Iran’s nuclear programme to make it harder to develop a nuclear weapon - an ambition Tehran denies.
“A senior Iranian official tells Press TV that Tehran will stop its 20-percent uranium enrichment only if the U.S. lifts ALL its sanctions on Iran first,” state-run Press TV said on its website.
“The official said Tehran will further reduce its commitments under the 2015 nuclear deal if the U.S. does not lift all sanctions, warning that Washington is rapidly running out of time,” it added.
 
 
Investing Idea( 6 month outlook) 
 
I have added LVS ( Las Vags Sands) to my portfolio , as a way to place the reopening and an acceleration of vaccinations in the US. The idea is as people get more vaccinations , gambling businesses flourish due to increased mobility. Check out the charts below. Looks bullish and the volatility also looks like it may have peaked. I placed a limit order this morning of 1%.  Also Looking at volatility index ( VIX) , it may break towards 22-23 ish, at which point I will add another 1% with a max of 3.5-4%. Let's see how it goes. See below for the charts for volatility and LVS ( I like to buy when vol is high and rising  in small  0.5%- 1% increments).
 

 

LVS .png

vola 30-03-21.png

Edited by Courage
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  • Rintel changed the title to Morning Notes ( news, and thoughts ) plus an investing idea. ( Scroll to the bottom for Idea) ( 30-3-21)
3 hours ago, David30b said:

A lot of info here - but generally like the ideas at the end - thanks for the post

No worries . Will try to do these at least once daily. It’s very important to be macro aware 

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