The collision of global markets and social mood

Wednesday, April 5, 2017

Wednesday -- China Rally, Shipping Shock, Panera's Premium, GPIF Out Of JGBs?

S&P E-mini Futures:
Modestly green.

Markets:
The Shanghai Composite Index rose 1.48% while Taiwan rallied 1.4%  as both markets reopened after a holiday.


"Little more than 2 1/2 years from now, the global fleet of merchant ships will have to reduce drastically how much sulfur their engines belch into the atmosphere. While that will do good things -- like diminishing the threat of acid rain and helping asthma sufferers -- there’s a $60 billion sting in the tail."

"Lower-emissions rule will strain fuel supply, retrofit expense -- Could halt ships from fleet handling 90% of global trade"

$60 billion is a pretty big potential headwind. With a VAT on the table suddenly, it could add up to a massive global tax on consumption.

Note the new "rule" is imposed by the International Maritime Organization, an unelected UN-agency.

Slippery slope here. Shipping emissions, due to low-grade bunker fuel, are indeed massive. But so are the implications of the UN eventually running our lives.

In this case, low-priced junk from China will cost more while air pollution will decrease globally. Hard to argue with it.

Mood:
Largest ever restaurant deal, at hefty valuations, another sign of peaking social mood.

Privately-owned German company JAB (headquartered in Luxembourg) will purchase Panera Bread for $315 per share -- a 20% premium -- in a deal valued at about $7.5 billion, and an incredible 18x LTM EBITDA.

"If completed, the transaction would mark the largest M&A deal for a US restaurant company, and the second-largest in North America after the 2014 acquisition of Tim Horton's."

Dining out becomes a veritable sport at mood peaks.

FX:
JPY, SEK, and MXN weaker. GBP getting a lift.

Treasuries:
Day Two of price weakness when follow through is needed.

Nikkei -- "Ultralow rate driving Japan's public pension fund out of JGBs"

This couldn't come at a worse time. The Japanese government could soon become the only buyer of JGBs. Dangerous.

Energy:
Recipe for higher prices: "CME Cuts Margin Requirement for Front-Month WTI Oil by 6.9%."

WTI crude up over 1% while NG lower.

We'll see. Oil inventories at 10:30am.

Metals:
Platinum, palladium, and copper are higher along with base metals which are ripping on news that China will develop an economic zone -- another Ghost City? -- in Xiongan, Hebei province.

Commodities such as coking coal, iron ore and steel rebar soared along with zinc, nickel, and iron ore.

Gold and silver down. Gold failed its 1264.90 swing point.

S&P Outlook:
A rally into the S&P 2376-2380 area is still an option, and the NDX 100 closed above a minor swing point. So both are in synch for the time being. NDX has more relative strength, but should be watched closely for any break of it.


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