Brussels presses plan to bundle eurozone debt.
Brussels is pressing for sovereign debt from across the eurozone to be bundled into a new financial instrument and sold to investors as part of a proposal to strengthen the single currency area.
A European Commission paper on the future of the euro, seen by the Financial Times, advocates the launching of a market of “sovereign bond-backed securities” — packaging different countries’ national debt into a new asset.
Officials hope that the plans would boost demand for debt issued by governments with relatively weaker economies, and encourage banks to manage their risks better by diversifying their portfolios, while avoiding old political battles over whether the currency bloc should issue common bonds."
The Business of Litigation Finance Is Booming.
More funding means more lawsuits—increasingly filed by corporations.
The buying and selling of lawsuits—a decade-old practice in the U.S. known as litigation finance—continues to expand.
Speaking of cheer, there’s plenty of it at Burford Capital, the titan of litigation finance. Its new investments in courtroom combat totaled $378 million in 2016, up 83 percent. There’s no reliable measure of the overall size of the litigation finance market, but Burford alone has more than $2 billion in capital invested or available to be invested, according to the firm’s chief executive, Christopher Bogart.
“Corporate law departments and their law firms increasingly want to finance their litigation, just as other parts of the corporation finance their activities,” says Bogart.
Foes of litigation finance, led by the legal arm of the U.S. Chamber of Commerce, focus on the Chevron case to make the argument that such funding increases the volume of expensive, distracting, and sometimes-dubious lawsuits."
Greater availability of automated/natural language processing for document review probably makes screening more economic. That said, NLP has some ways to go, at least for hackers (see tech news below).
Consultants Deliver Aviation Assets Warning.
German asset manager KGAL Real Investments said in a report last week that twenty-eight percent of investors... planned to make an initial or increased allocation to aviation. That compares with 25 percent of investors planning the same for infrastructure, 17 percent for real estate and 17 percent for renewable energy.
Aircraft leasing can deliver a yield of more than 8 percent, compared to infrastructure assets which are typically between 4 percent and 5 percent, according to Tony Foster, a senior investment manager at Aberdeen Asset Management."
CPPIB Reaches C$316.7 Billion in FY 2017 – One of Largest Increases of the Fund.
The biggest gains for the year came from CPPIB’s investments in equities and real assets. It earned 19.2% from its Canadian public equities, compared to a loss of 6.4% in 2016, and saw a return of 18.9% from both foreign and emerging pubic equities, which had lost 2.8% and 8.7% respectively the previous year. Foreign private equities returned 15.8%, compared to gains of 8.8% in 2016; and natural resources and agriculture investments rose 16.8%, compared to a loss of 7.7% last year."
German pension reform back on track after coalition agreement.
The German government’s pension reform package is back on track after the coalition parties came to an agreement on the proposed legislation last week, leaving untouched a proposed ban on guarantees for new defined contribution plans.
The “social partner” model is a central pillar of the BRSG. It means sector-wide collective bargaining parties – including unions and employers – can introduce defined contribution (DC) or “defined ambition” pension schemes, with neither the employer nor the pension provider allowed to provide guarantees. Both these aspects were heavily debated by the coalition in preceding weeks. Defined contribution pensions have not been possible in Germany so far."
Bain Capital enters China with $200m NPL portfolio purchase.
Bain Capital said on Monday it has agreed to buy a portfolio of non-performing loans worth $200 million in principal from a Chinese asset management company, the latest move by international investors seeking a piece of the booming market for distressed debt in the world’s second-largest economy.
Bain Capital Credit made the investment as part of its special situations strategy in Asia, the company said in a statement. The portfolio of real estate-related loans, including loans linked to commercial retail assets, hotels and industrial assets, was Bain’s first purchase in China, said a person familiar with the deal who declined to be identified because details of the transaction are not public.
The loans were previously with China’s biggest distressed debt manager China Huarong Asset Management Co Ltd, the person said."
NPLs continue to rise, totaling 1.51 trn (US$219b) RMB as end of 2016, an increase of 18.7% compared to end-2015. Both non-performing loans (NPLs) and a broad measure of NPLs including special mentioned loan ratio registered a quarter-on-quarter decline in Q4 2016, the first time since 2012."
The Daily Shot: 31-May-17
The United States
1. Let’s begin with Tuesday’s inflation report from the Bureau of Economic Analysis (BEA).
• Similarly, the “trimmed mean” PCE inflation, an indicator the Fed tracks closely, also declined.
2. Despite softer inflation readings (above), the Fed is on target to hike next month. However, the jury is still out on what happens after the June hike. The probability of a third rate increase this year is below 50%.
3. The Conference Board consumer confidence came in below economists’ consensus.
4. US consumer spending bounced last month. Here is the total month-over-month spending change as well as the same index excluding food and energy (core).
On a year-over-year basis, core consumer spending slowed a bit but is still above 4%.
5. With the US consumer confidence off the highs and spending improving last month, the divergence between this specific set of “soft” and “hard” data has narrowed.
6. US housing price increases from S&P/Case-Shiller came in above expectations as inventories remain tight.
Source: @lenkiefer; Read full article
Current housing completions remain below the long-run demand.
7. Freight indices point to a recovery in shipping – a helpful index to gauge the overall economic activity.
Source: Source: Cass Information Systems, Inc.
8. Will we see an improvement in auto sales when the report comes out next month? So far this year, it’s been a disappointment.
9. Texas manufacturing activity is off the highs but remains robust.
• The overall index:
10. The Atlanta Fed’s GDPNow forecast for the second quarter GDP remains optimistic at 3.8%.
11. The chart below compares the GDP growth forecasts from Moody’s, the CBO, and the White House. As discussed previously, US demographics make the 3% annual growth target quite challenging (second chart).
Source: Moody’s Investors Service
In fact, Tuesday’s BEA report estimates the US population growth below 0.7% per year – the lowest in recent history.
12. Balancing the budget will be tough without touching the entitlement programs. Here is the latest budget pie-chart showing a relatively small non-military discretionary spending slice. And few will want to cut budgets for institutions such as the National Institutes of Health.
Source: Moody’s Investors Service
Indeed, the US trade deficit with Germany is much higher than with most other countries, including Mexico. However, it’s unclear what, if anything, can be done without impacting the overall US trade with the EU.
The Treasury curve has flattened further, and speculative accounts are positioning for this trend to continue.
Source: BMI Research
1. Bank stocks are narrowing their outperformance since the elections, as the curve flattening (above) threatens interest margins.
2. Kinder Morgan shares took a hit on the shift in the British Columbia politics.
This event, combined with softer energy prices, sent MLP prices lower.
3. E&P share underperformance widens as investors remain skeptical on oil prices.
4. Pharmaceuticals are underperforming the S&P 500 by over 20% percent again (from the previous year).
5. Utilities are rallying with longer-dated Treasuries.
6. Tech remains the market leader as Amazon shares break $1,000.
7. Finally, insider selling hit the highest level in seven years.
1. Munis continue to rally, as the risk of the GOP implementing meaningful personal tax cuts recedes.
2. This chart shows the global issuance of CoCos over time.
Source: Moody’s Investors Service
3. Earnings growth of companies that issued leveraged loans has stalled.
4. Here is the distribution of student debt amounts (per person) for graduate and undergraduate students.
Source: @hamiltonproj, @josephncohen
5. In this recovery, private sector leverage has shifted from households to corporations.
US natural gas prices tumbled on cooler temperatures reducing demand for power.
1. The Bloomberg Agriculture Subindex hit the lowest level since 2008. This does not bode well for US farm credit and potentially some lenders in this space.
Here are the soy futures.
2. Cocoa futures saw the biggest one-day increase as Ivory Coast crop sales exceeded forecasts.
1. Moody’s put Brazil on negative watch in response to the political mess.
Source: Moody’s Investors Service; Read full article
While the real has recovered some ground, it remains firmly below the “pre-scandal” levels.
2. Chile’s industrial production declined by the greatest percentage in years.
3. Hong Hong’s stock market continues to rally ahead of Xi Jinping’s visit.
4. China has changed the methodology it uses to determine the yuan (USD/CNY) trading range. It seems that Beijing wants to keep the nation’s currency more stable versus the dollar (now that the dollar rally has conveniently stalled).
Source: Nikkei Asian Review
Canada’s industrial output inflation continues to climb.
1. Mario Draghi remains extremely dovish, perhaps in an attempt to jawbone the euro lower.
2. The Eurozone inflation rate seems to have peaked – which is giving Draghi room to keep the QE going.
• Spain’s consumer inflation:
• Germany’s consumer inflation:
• Germany’s import prices:
3. The risk of snap elections in Italy combined with lower bond yields has been a problem for European banks.
4. French consumer sentiment hit the highest level in a decade.
The nation’s GDP growth exceeded expectations.
5. Portugal’s industrial production growth dipped into negative territory.
However, the nation’s consumer sentiment continues to climb.
Sweden’s GDP growth surprised to the downside, sending the Swedish krona lower against the euro.
Separately, Sweden’s retail sales seem to be picking up momentum again.
Data dump cont'd.
VIX at 10.38.
Bitcoin at US$2,255.
The nation’s GDP growth exceeded expectations. 7.5 percent year-on-year in April of 2017, compared to a 9 percent increase in March. It was the eighth straight month of increase in producer inflation but the weakest since December 2016 as costs went up at a slower pace for most sectors.
USDCNY decreased to a 16-week low of 6.8022.
Industrial production in Thailand declined by 1.7 percent year-on-year in April of 2017, following an upwardly revised 0.01 percent rise in March and missing market expectations of a 0.6 percent drop. It was the fastest fall in factory output since July 2016, due to weaker production of automobiles and jewelry.
Bank loans in Singapore increased to SGD 631.3 billion in April of 2017 from SGD 627.9 billion in March and reaching the largest amount on record. Consumer loans went up further to SGD 251.8 billion (from SGD 251.4 billion). Also, loans rose for transport, storage and communication (SGD 22.9 billion from SGD 21.6 billion); business services (SGD 8.7 billion from SGD 8.4 billion). In contrast, loans decreased for: building and construction (SGD 122.3 billion from SGD 123.0 billion) and general commerce (SGD 65.2 billion from SGD 65.9 billion). Compared to April 2016, bank loans rose by 7 percent from SGD 589.8 billion.
The official Non-Manufacturing PMI in China rose to 54.5 in May of 2017 from 54.0 in April. New orders rose at a faster pace and business expectations strengthened markedly while new export orders contracted less than in a month earlier. In addition, employment fell more and selling prices declined again. Also, orders in hand dropped further and suppliers' delivery time eased. The services sector accounted for over half of the country's economy last year.
The official NBS Manufacturing PMI in China stood at 51.2 in May of 2017, the same as in April but above market consensus of 51. While new orders were steady and output rose at a slower pace, new export orders grew for the seventh straight month amid strengthening business confidence. Meantime, buying quantity eased and employment declined at a slower rate. Also, orders in hand fell less than in a month earlier and factory prices dropped for the second consecutive month while suppliers' delivery time slowed.
Hang Seng increased to a 22-month high of 25750.
Industrial production in Japan rose 4.0 percent month-on-month in April of 2017, compared to a 1.9 percent drop in March but below market estimates of a 4.3 percent rise, preliminary figures showed. It was the fastest growth in industrial output since June 2011, mainly due to an increase in the production of transport equipment, general-purpose, production and business oriented machinery and electronic parts and devices. In contrast, output fell for information and communication electronics equipment; pulp, paper and paper products and petroleum and coal products. On a yearly basis, output went up 5.7 percent, faster than a 3.5 percent gain in March.
Construction output in South Korea increased 19.4 percent year-on-year in April of 2017 after an upwardly revised 18.5 percent surge in the previous month. Building activity jumped 29.0 percent (vs 27.3 percent in March), while civil engineering contracted 3.1 percent after a 0.7 percent rise. On a monthly basis, construction output went down 4.3 percent compared to 3.8 percent climb in the previous month.
Industrial production in South Korea increased by 1.7 percent year-on-year in April of 2017, following an upwardly revised 3.3 percent climb in March and lower than the 5.0 percent expected. Manufacturing output advanced 1.7 percent as well, compared to an upwardly revised 3.4 percent jump in the previous month. On a monthly basis, industrial production fell by 2.2 percent (compared to +1.2 percent in March and worse than expectations of a 0.8 percent rise).
Consumer confidence in the United Kingdom rose to -5 in May of 2017 from -7 in April, beating market expectations of -8. It is the highest value in four months as personal finances were assessed more positive (4 from 2) and the major purchase index also went up by 2 to 9. In contrast, the index for the economic situation in the next 12 months was steady at -21.
The Mexican peso dropped 1.2 percent around 4:00 p.m. NYT, as investors sold the peso ahead of a key gubernational election on Sunday that could force the president’s party (PRI) out of the State of Mexico (13.2 percent of the country’s electoral roll) for the first time in 88 years of undisputed power. The peso’s decline was the sharpest in the region, followed by a 0.4 percent dip in the Colombian peso as oil prices continued to head south.
Natural gas decreased to a 5-week low of 3.137 USD/MMBtu.
Germany 10 Year Government Bond Yield decreased to 0.292%.
Japan 10 Year Government Bond Yield decreased to 0.038%.
Portugal 10 Year Government Bond Yield increased to 3.109%.
Netherlands 10 Year Government Bond Yield decreased to 0.506%.
Rice increased to a 49-week high of 11.095 USD/cwt."
Random tech news.
WannaCry ransom notice analysis suggests Chinese link.
Researchers from Flashpoint looked at the language used in the ransom notice.
They said the use of proper grammar and punctuation in only the Chinese versions indicated the writer was "native or at least fluent" in Chinese.
The translated versions of the ransom notice appeared to be mostly "machine translated"."
Banking On Fintech: Where Incumbents Are Making Investments In Wealth Tech.
Deals to wealth tech startups hit a record of 30 investments in Q1’17 amid a number of new early-stage entrants globally. In particular, robo-advisors have been gaining prominence and taking on incumbents in nearly 20 countries around the world.
Recognizing wealth tech companies as a viable threat, many incumbents in the banking industry have begun to partner with wealth tech companies and make investments in these startups."
Mall Madness: Where Top Retail Real Estate Companies Are Investing.
As retail takes a beating and mall traffic continues to decrease, a handful of operators are looking to private markets to spur innovation.
Of the 15 top US retail real estate groups, very few are active in private markets. Only 6 have made an investment or acquisition since 2010."
Amazon is giving playwrights $5 million to create stories for Audible.
Amazon is throwing money at young playwrights to spur new original stories for Audible, the audiobooks company it bought in 2008.
This isn’t Audible’s first move into original content. Like Netflix, Apple, and Amazon’s Prime Video, Audible already markets its own “Originals,” including recordings from Martin Sheen, Nick Offerman, and Lewis Black."
Laser Weapons Edge Closer to Battlefield Use.
The toy-like drones destroyed during an Army field exercise at Fort Sill, Okla., last month weren't anything special; however, the way they were brought down -- zapped out of the sky by lasers mounted on a Stryker armored vehicle -- might grab people's attention.
The drone-killing laser was relatively low energy -- only 5 kilowatts -- but the Army has tested much more powerful weapons. A 30-kilowatt truck-mounted High Energy Laser Mobile Demonstrator shot down dozens of mortar rounds and several drones in November 2013 at White Sands Missile Range, N.M.
The laser generates its beam through fiber optic cables like those used by telecom companies, said Robert Afzal, a senior fellow for laser and sensor systems at Lockheed.
"We demonstrated that we could combine large number of these fiber lasers and link them to a weapons system," he said.
Fundamental implications for ordnance/missiles and capital ships (armor (or different paint) may be useful a
gain - at least with current storage/discharge), especially in conjunction with ultra-speed cameras and computer vision/processing. But maybe mosquitos first. At least it works for shiny salmons.
What Happened to the Mosquito-Zapping Laser That Was Going To Stop Malaria?"
"A laser-wielding robot will help salmon farmers shoot their way out of the problem."
"Series B gap a pain point in SE Asia from a Silicon Valley perspective: Rakuten."
Very informative interview about VC considerations in SE Asia.
'Random Place' today - Niesenbahn.
Events on 5/31 (ET).
Switzerland, UBS Consumption Index, 2:00 AM ET
Germany, Retail Sales, 2:00 AM ET (0.3% M/M, 2.2% Y/Y consensus)
France, PPI, 2:45 AM ET
Italy, CPI, 5:00 AM ET (-0.2% M/M, 1.4% Y/Y consensus)
Eurozone, Unemployment Rate, 5:00 AM ET (9.5% consensus)
India, GDP, 8:00 AM ET
Canada, GDP, 8:30 AM ET
US, PMI, 9:45 AM ET (57.5 consensus)
US, Beige Book, 2:00 PM ET
Japan, PMI Manufacturing, 8:30 PM ET
Australia, Private New Capital Expenditure & Expected Expenditure, 9:30 PM ET
Australia, Retail Sales, 9:30 PM ET (0.3% M/M consensus)