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Comments of the Day
15 November 2019
Video commentary for November 14th 2019
Eoin Treacy's view
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: Wall Street leading on the upside, China the epicentre of risk, industrial commodities and commodity currencies weak, negative rates increase scope for competitive currency devaluation, gold steadies.
Sputtering China Growth Underscores Need for Trade Reprieve
This article from Bloomberg news may be of interest to subscribers. Here is a section:
The investment data shows how cautious private companies have become, with their spending in the first 10 months of the year at the lowest level since 2016. The continued stability in spending by state-owned firms is preventing an even stronger drop in the headline data.
Investment in the property market is one bright spot, with spending by the manufacturing sector barely above the record low recorded in September. Infrastructure investment growth continued to bounce along around 4% as it has all year.
“Im quite concerned with property investment, the only stable element in fixed-asset investment now,” according to Xue Zhou, analyst at Mizuho Securities Asia Ltd in Hong Kong. “Monetary policy needs to be more supportive on economic growth and there should be more cuts to banks reserve ratios to help smaller banks.”
Eoin Treacy's view
The first couple of months of the year are when the Chinese financial system gets its annual quota for lending and generally makes its full allocation by around Chinese New Year. That sends a surge of liquidity into the market in January and February but the broader question is how much of that is already priced in considering it is so predictable.
Luckin Coffee's Stock Shoots Up After Revenue Rises Above Expectations
This article from Marketwatch may be of interest to subscribers. Here is a section:
Shares of Luckin Coffee Inc. (LK) shot up 7.6% in premarket trading Wednesday, after the China-based coffee seller reported wider third-quarter loss but revenue that rose above expectations. The net loss was RMB531.9 million ($74.4 million), or RMB3.60 per American Depository Share, after a loss of RMB484.9 million, or RMB2.24 per ADS a year ago. Excluding non-recurring items, the adjusted per-ADS loss was RMB2.08, compared with the FactSet consensus for loss per ADS was RMB2.75. Revenue rose to RMB1.54 billion ($219.6 million) from RMB240.8 million, to beat expectations of RMB1.47 billion. Average monthly items sold were 44.2 million, up from 7.8 million a year ago, while the average monthly transacting customers grew to 9.3 million from 1.9 million. "During the third quarter, sales from freshly-brewed coffee drinks continued to maintain very strong growth, and we believe we will reach our goal to become the largest coffee player in China by the end of this year," said Chief Executive Jenny Qian. The stock. which went public on May 17, has tumbled 22.7% over the past three months, while the S&P 500 has gained 5.7%.
Eoin Treacy's view
I wanted to try a Luckin Coffee while in Guangzhou over the summer but I was voted down by my daughters who could not get enough of boba tea. Since they discovered smores frappacinos the two alternatives are more balanced but they will always still choose a boba tea over a trip to Starbucks.
Wall Street Is Wrong About Negative Interest Rates
This article by Ferdinando Giugliano for Bloomberg may be of interest to subscribers. Here is a section:
Finally, theres little evidence that negative rates have held back lending. A recent ECB working paper shows deposits with commercial lenders have increased since the central bank introduced negative deposit rates. At the same time, companies with large cash holdings have cut their deposits and invested more. Thats exactly the goal of this policy.
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