While You’re Looking, Have You Seen My Bitcoins? by RichardsonGMP
Markets are a little squishy this morning with Asia off the most, Europe down a tad and our futures down….hmmm….a smidge. Oil is steady to up a bit after a number of big down days. We will see US inventory data at 10:30 this morning. Bond and currency markets appear rather quiet. Must be a week in the summer.
Something is gonna give. The S&P 500 rallied off Brexit and has been trading in the skinniest range over the past few weeks. We measured the variance between the high of the past 2 weeks and the low is 0.52% (as of yesterday). So it is gonna go one way or the other. We looked back to 1971 and looked at how many days had a 2 week variance below 1.0%. The count was 154 out of 11,500 days. Drop the limit to 0.75% variance and the occurrences drop to 32. Drop it to 0.52% as was the reading on July 29 and August 1, you guessed it, those were the only two readings this low going back to 1971. Sometimes too little volatility can be scary too.
Hot off the press, our Q3 2016 Market Outlook Quarterly. 2016 has been a year of surprises. Oil traded at $26 a barrel, the Canadian dollar touched 68 cents. China weakness sidelined the Fed, the UK voted to leave the EU. Oh, and Trump is actually running for President. Sure, lots of bumps along the way but as we transition through the summer doldrums, markets have actually been rather kind. Click below to read our thoughts on what might surprise us in the coming quarters. Q3 2016 Market Outlook Quarterly
The big Canadian headline is that Vancouver has slapped a 15% tax on foreign home buyers in an effort to cool down the real estate market and appease the populous who are getting priced out of their own city. Well, that’s the story to appease the masses. In reality it’s more than likely just good news for Vancouver lawyers. Probably not that prohibitive to pay some more legal fees, add a middleman, perhaps in the form of a domestic LLC or LP and avoid the tax all together. As long as a foreign national does not ‘control’ the legal entity, the entity in question is not subject to the tax. Note, I’m not lawyer, but I sometimes play one on T.V. This bill, is the Canadian version of political theater. At least Canadian politicians don’t seem to have anything against crying babies.
For those with even a cursory interest in Bitcoin, you likely would have been impressed with the impressive gains over the year, often mirroring the big moves in gold. Well, the correlation between the two classic dollar debasement trades broke down terrifically over the past couple of days as the world’s largest digital exchanges for the cryptocurrency was hacked and lost over $65 million in bitcoin. Quartz has more on the theft. It’s still small compared to the 2014 loss at Mt. Gox, then the world’s largest exchange which totaled around $460 million. Though currency is nothing but ones and zeroes the losses for the owners are very real. Whatever happened to good old fashioned heists, the kind Hollywood loved. Hard to see an Oceans 11esque type movie center around a hacker working out of his mom’s basement.
“Masters and Johnson Q&A” – Investment Outlook from Bill Gross – August 2016.
Bill Gross answers important questions about today’s economy and financial markets.
Diversion: China actually built that crazy traffic-straddling bus. Via Gizmodo
Husky came to an agreement with CNOOC last night regarding the joint venture with the Liwan gas project. The stock should outperform the peer group today based on the terms of the deal which are only 13% lower than before, better than most were expecting. Enbridge is teaming up with Marathon to expand their Bakken midstream operations. They are buying a pipeline system off of Energy Transfer Partners and Sunoco Logistics for $2bb. Finning missed street expectations for the quarter blaming the wildfires in Alberta. HSBC is up big in premarket after announcing a $2.45bb stock buyback plan while keeping the dividend at the same level. The bank did remove their guidance of getting a 10% return on equity.
Oil prices are trading below $40 at time of writing this morning, close to the lowest level in four months as the global supply glut remains. Iran approved an outline for foreign investment yesterday. This should open the door to even further expedite production growth of oil. Brent entered a bear market yesterday joining WTI prices. Zinc prices are falling after reaching the highest level in over 14 years. Investors seem to be taking profits on this year’s best performing industrial metal.
Fixed Income And Economics
Private sector hiring as indicated by the ADP Employment survey rose by +179K during the month of July to beat the consensus for a +170K gain and improve from the +176K print prior. All of the gains came in the service sectors with goods-producers falling by -6K (fourth straight month of declines). Big box corporations (those with at least 500 employees) added +50K workers last month for their largest increase since February. Private construction work fell by -6K but was more than offset by the +27K increase in trade/transports and +59K pick-up in the professional and business services categories. Manufacturing work rose by +1K employees to snap five consecutive months of losses. Based on this, we’re hoping for a continued resurgence in the more important non-farm payroll release this Friday where +180K Americans are expected to have found work last month.
Utility company Enbridge Gas Distribution Inc. came to market for the first time in almost a year yesterday launching a new 10 year senior unsecured note. The $300MM raise of 2026 bonds priced with just a 2.50% coupon for a +143.6 basis points spread over Canada’s. Compare that to the 3.31% coupon and +182.7 basis point spread on the then 10 year notes raised in September 2015. The A rated deal sold quickly in the currently starved market for issuance, and this resulted in the secondary trade tightening by five basis points on the break. Note this deal comes in advance of this morning’s partnership with Marathon Petroleum Corp. to spend $2 billion in a combined joint venture to acquire a 49% in the Bakken pipeline system.
Overseas, we got some negative data out of England post-Brexit with the Markit/CIPS U.K. Construction Purchasing Managers’ Index (PMI) inching down to +45.9 in July from +46.0 in June — the lowest reading since June 2009 and well below the +50 mark that divides expansion from contraction. Further, the survey of 170 construction companies showed firms cut staffing at the fastest rate since November 2012 with this component of the index falling to +49.3 from +52.5 in June (bear territory again). Also, prices paid for raw goods and materials for both construction and manufacturing increased at the sharpest pace since March 2015. Gilts were