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Asia Session: Great Expectations

Asia Session: Great Expectations



Financial markets had the chance to reassess some of the great expectations that have underlined the asset price rally since Mid-March. Wall Street endured a torrid session with stocks and energy having their worst sessions in a couple of weeks. Chief amongst the fears, was the rapid increase in Covid-19 cases across the Southern states of the United States. If readers recall, the lackadaisical approach managing the pandemic by many states now at the epicentre of the current wave had been a concern for me. Highlighted by the thousands of Florida residents crammed cheek by jowl onto a bridge to watch the Space-X launch.


What has really spooked investors, is talk emerging from that area of the US, of new or reimposed shutdowns. I fear that the libertarian views of much of the populace though, will make such a solution challenging. Saving people from themselves is a philosophical conundrum Western democracy have yet to fully solve. Other states are now proposing compulsory self-isolation for travellers from the epicentre areas. More concerning for the US, is that this is not even the dreaded “second wave” of infections, merely an ongoing evolution of the first one.


The harsh dose of Covid-19 reality capped a lousy night for the US, and by association, world markets. The Trump administration, fresh from chopping US visa availability, proposed fresh tariffs on an array of European goods, and tariffs on Chinese lobsters. The Défense Department also published a list of Chinese companies with uncomfortably close ties to the Chinese military. Meaning international companies may find doing business with them challenging in the future. Trade disagreements and tensions being precisely what the world does not need right now. 


Canada lost its coveted AAA credit rating with Fitch overnight. Its rating lowered by one notch to AA+ over concerns about government finances. They will surely not be the last though. 


Elsewhere Covid-19 cases continued appearing in New Zealand, Australia, Germany, China, Japan and South Korea, where the outbreaks had supposedly been contained. The Australian clusters in Victoria being particularly concerning, involving as they do, community and not imported transmission. Anyone heavily invested in airlines on “travel-bubble” hopes, should probably reign in that enthusiasm. 


Great expectations of a v-shaped recovery that alongside central bank monetary largesse, is one of the engine rooms powering the global recovery rally in asset markets these past three months. Those same expectations that Covid-19 in the developed world had done its worst must also be re-examined. Trade issues, and the propensity of the US White House to engage in populist policies, can no longer be dismissed either. The further that President Trump fall s behind in the polls, the more likely they are to increase. 


The overnight price action has introduced some welcome two-way price volatility into a previously one-way market. That dose of reality is a thankful development. The longer, the gnomes of Wall Street felt that buying everything was a 100% certainty to untold riches had gone on, the harder the eventual correction would have been. The price of investments can rise or fall says the usual disclaimer on just about any financial product anywhere, and so is.


Investors should not panic overtly at this stage, however. The central pillar of the buy everything rally, the worlds’ central banks, and notably, the Federal Reserve, have still got your back via monetary policy. Those same central banks are buying everything with you. There has been a massive amount of fitting facts to the narrative going on overnight. Most of these facts are unchanged. They were wholly ignored by financial markets until last night, as they did not fit the price action or the narrative the buy-everything herd wanted to see. 


Covid-19 still can undo the work of the tsunami of fiscal and monetary policy easings of the past few months. But it is far too early to call that yet. The negativity sweeping financial markets looks more like a welcome correction to the great expectations of one-way certainty for now, as opposed to a structural change in outlook. In a nutshell, the world is long everything, and momentum has stalled, not reversed.


Asian equities fall but show resilience.


Wall Street has been extremely overbought for some time, and a correction was long overdue. That came overnight as the Nasdaq fell 2.20%, the S&P 500 fell 2.60%, and the Dow Jones fell by 2.70%. In the scale of recent gains though, the overnight price action is a mere flesh wound.


Despite the handwringing of the world’s great and good and the financial press, that the end of days is upon us, Asian stock markets are remarkably resilient. Stock markets across the region are lower, but not apocalyptically so. That may reflect Asia’s reluctance in recent times, to slavishly follow the V-shaped herd’s optimism in North America.


The Nikkei 225 is 1.50% lower, with the Kospi down 2.0%. The Australian ASX 200 is down 1.70% with the All Ordinaries 1.20% lower. Chinese Mainland markets are modestly higher today, having refused to fully buy into the previous day’s rallies around the world. The Shanghai Composite is 0.30% higher, and the CSI 300 is up 0.40%. 


Elsewhere in Asia, the falls have been modest. Singapore and Jakarta are down 1.0%, with Hong Kong and Kuala Lumpur down only 0.50%.


US stock index futures are marginally lower today, which is adding some support to regional markets. Having moved aggressively lower overnight, that should set European stocks up for a modest rebound in a few hours. Overall the price action is suggestive of a long-overdue bull market correction.


US Dollar rebounds on risk aversions.


The US Dollar staged an energetic session overnight, rallying across the board versus major and developing market currencies. Much of those flows were likely haven related, with the price action hinting that some deeper corrections to recent winners could be on the cards. The dollar index rose by 0.54% to 97.17.


The Australian and New Zealand Dollars endured the most torrid evening, being proxies for world growth and amongst the largest beneficiaries of the rotation out of US Dollars. The AUD/USD fell 0.90% to 0.6870. Only a loss of 0.6800 at this stage, would imply a more drawn-out correction is upon us. The NZD/USD looks more vulnerable, though. NZD/USD fell 1.20% to 0.6420 overnight, helped by a dovish Reserve Bank of New Zealand. It has critical support nearby at 0.6385, and a daily close below opens up a much deeper correction for the Kiwi. 


The offshore Chinese Yuan remains a picture of calm after successive stronger fixings by its onshore equivalent in recent times. USD/CNH has risen to 7.0870 today but is still comfortably within the June trading range between 7.0400 and 7.1000. Overall, it appears that Chinese authorities are determined to maintain China markets as a bastion of calm, despite the volatility internationally.


Currency markets are quiet in Asia, with regional and major currencies almost unchanged from the New York session. That stability is probably due to the limited fallout in stock markets, but also because US real yields are negative across the curve to 30-years. That underlying fact should mean that Asian currencies are well placed to weather any storms from stock and energy market corrections.


Oil stabilises in Asia after a torrid New York session.


Oil prices tumbled overnight, as Covid-19 fears along with a very long short-term market, conspired to undermine confidence. Much noise was made about the modest rise by 1.4 million barrels in US crude inventories driving prices lower. That, however, is just bad timing, coming as it did, just as price momentum had stalled in recent days, with a speculative market very long near the highs. Markets had previously ignored much higher inventory numbers in recent times when momentum was strong. In other words, the facts have been fitted to the narrative the market wanted to see.


Brent crude tumbled by 5.90% to $40.20 a barrel, and WTI retreated by 6.10% to $37.95 a barrel. In Asia though, oil has stabilised somewhat, both contracts lower by 25 cents to $39.95 and $37.70 a barrel respectively. Only a modest fallout on Asian equity markets is helping oil prices today. There also appears to be plenty of physical buyers in the region, happy to scoop up oil on dips.


Brent crude has significant support at $37.50 a barrel, its 100-day moving average and June lows. WTI has support at its June lows around $34.50 a barrel. With the speculative market heavily long, some welcome two-ay risk is a welcome and necessary development. As long as both contracts remain above those support levels, the sell-off is merely an aggressive dose of trading reality, and not a structural turn in outlook.


Gold weathers the sell-off storm.


Gold has clung onto its recent gains by the skin of its teeth overnight. Having tested $1780.00 an ounce, it sank 17 Dollar to close at $1763.00, wilting as investors rush to cash in other asset classes, spilt over into long gold positioning as well.


That said, in recent times, similar scenarios have seen much steeper drops in gold, and the fact that it finished almost unchanged overnight, is a positive outcome. Negative real interest rates across the US yield curve are clearly supportive of gold, and any short-term correction is likely to be a slow grind lower, and not a rush for the exit doors.


Gold’s price action remains constructive, although today’s stock market correction may delay its long-awaited test of the long-term resistance at $1800.00. That level is formidable, and although the outlook for gold is positive, it will have to find new drivers of momentum to break it.  


Gold is unchanged in early Asian trading; its direction will be dictated by how far Asian stock markets choose to follow Wall Street lower. Gold has initial support at $1760.00 an ounce and should find plenty of willing buyers on any fall towards the key $1745.00 an ounce level.


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Yom Kippur is coming soon – what does Judaism actually say about forgiveness?

Many religions value forgiveness, but the details of their teachings differ. A psychologist of religion explains how Christian and Jewish attitudes co…




Two women embrace before a Yom Kippur service held outdoors during the COVID-19 pandemic in Los Angeles. Al Seib/Los Angeles Times via Getty Images

The Jewish High Holidays are fast approaching: Rosh Hashana and Yom Kippur. While the first really commemorates the creation of the world, Jews view both holidays as a chance to reflect on our shortcomings, make amends and seek forgiveness, both from other people and from the Almighty.

Jews pray and fast on Yom Kippur to demonstrate their remorse and to focus on reconciliation. According to Jewish tradition, it is at the end of this solemn period that God seals his decision about each person’s fate for the coming year. Congregations recite a prayer called the “Unetanah Tokef,” which recalls God’s power to decide “who shall live and who shall die, who shall reach the ends of his days and who shall not” – an ancient text that Leonard Cohen popularized with his song “Who by Fire.”

Forgiveness and related concepts, such as compassion, are central virtues in many religions. What’s more, research has shown that it is psychologically beneficial.

But each religious tradition has its own particular views about forgiveness, as well, including Judaism. As a psychologist of religion, I have done research on these similarities and differences when it comes to forgiveness.

Person to person

Several specific attitudes about forgiveness are reflected in the liturgy of the Jewish High Holidays, so those who go to services are likely to be aware of them – even if they skip out for a snack.

In Jewish theology, only the victim has the right to forgive an offense against another person, and an offender should repent toward the victim before forgiveness can take place. Someone who has hurt another person must sincerely apologize three times. If the victim still withholds forgiveness, the offender is considered forgiven, and the victim now shares the blame.

The 10-day period known as the “Days of Awe” – Rosh Hashana, Yom Kippur and the days between – is a popular time for forgiveness. Observant Jews reach out to friends and family they have wronged over the past year so that they can enter Yom Kippur services with a clean conscience and hope they have done all they can to mitigate God’s judgment.

The teaching that only a victim can forgive someone implies that God cannot forgive offenses between people until the relevant people have forgiven each other. It also means that some offenses, such as the Holocaust, can never be forgiven, because those martyred are dead and unable to forgive.

Many people dressed in black and white stand in a courtyard between ancient walls.
Thousands of Jewish pilgrims attend penitential prayers at the Western Wall in Jerusalem ahead of the Jewish High Holiday of Rosh Hashana. Menahem Kahana/AFP via Getty Images

To forgive or not to forgive?

In psychological research, I have found that most Jewish and Christian participants endorse the views of forgiveness espoused by their religions.

As in Judaism, most Christian teachings encourage people to ask and give forgiveness for harms done to one another. But they tend to teach that more sins should be forgiven – and can be, by God, because Jesus’ death atoned vicariously for people’s sins.

Even in Christianity, not all offenses are forgivable. The New Testament describes blaspheming against the Holy Spirit as an unforgivable sin. And Catholicism teaches that there is a category called “mortal sins,” which cut off sinners from God’s grace unless they repent.

One of my research papers, consisting of three studies, shows that a majority of Jewish participants believe that some offenses are too severe to forgive; that it doesn’t make sense to ask someone other than the victim about forgiveness; and that forgiveness is not offered unconditionally, but after the offender has tried to make things right.

Take this specific example: In one of my research studies I asked Jewish and Christian participants if they thought a Jew should forgive a dying Nazi soldier who requested forgiveness for killing Jews. This scenario is described in “The Sunflower” by Simon Wiesenthal, a writer and Holocaust survivor famous for his efforts to prosecute German war criminals.

A color photograph of an older, balding man in a blue shirt and striped tie.
Simon Wiesenthal at the White House during the Reagan administration. Diana Walker/The Chronicle Collection via Getty Images

Jewish participants often didn’t think the question made sense: How could someone else – someone living – forgive the murder of another person? The Christian participants, on the other hand, who were all Protestants, usually said to forgive. They agreed more often with statements like “Mr. Wiesenthal should have forgiven the SS soldier” and “Mr. Wiesenthal would have done the virtuous thing if he forgave the soldier.”

It’s not just about the Holocaust. We also asked about a more everyday scenario – imagining that a student plagiarized a paper that participants’ friends had written, and then asked the participants for forgiveness – and saw similar results.

Jewish people have a wide variety of opinions on these topics, though, as they do in all things. “Two Jews, three opinions!” as the old saying goes. In other studies with my co-researchers, we showed that Holocaust survivors, as well as Jewish American college students born well after the Holocaust, vary widely in how tolerant they are of German people and products. Some are perfectly fine with traveling to Germany and having German friends, and others are unwilling to even listen to Beethoven.

In these studies, the key variable that seems to distinguish Jewish people who are OK with Germans and Germany from those who are not is to what extent they associate all Germans with Nazism. Among the Holocaust survivors, for example, survivors who had been born in Germany – and would have known German people before the war – were more tolerant than those whose first, perhaps only, exposure to Germans had been in the camps.

Forgiveness is good for you – or is it?

American society – where about 7 in 10 people identify as Christian – generally views forgiveness as a positive virtue. What’s more, research has found there are emotional and physical benefits to letting go of grudges.

But does this mean forgiveness is always the answer? To me, it’s an open question.

For example, future research could explore whether forgiveness is always psychologically beneficial, or only when it aligns with the would-be forgiver’s religious views.

If you are observing Yom Kippur, remember that – as with every topic – Judaism has a wide and, well, forgiving view of what is acceptable when it comes to forgiveness.

Adam B. Cohen does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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EasyJet share price has collapsed by 53% in 2022. Is it a buy?

The EasyJet (LON: EZJ) share price has hit turbulence as concerns about demand and soaring costs remain. It dropped to a low of 293p, which was the lowest…



The EasyJet (LON: EZJ) share price has hit turbulence as concerns about demand and soaring costs remain. It dropped to a low of 293p, which was the lowest level since November 2011. It has plummeted by more than 82% from its all-time high, giving it a market cap of more than 2.5 billion pounds.

Is EasyJet a good buy?

EasyJet is a leading regional airline that operates mostly in Europe. It has hundreds of aircraft and thousands of employees. In 2021, the firm’s revenue jumped to more than 1.49 billion pounds, which was a strong recovery from what it made in the previous year.

EasyJet’s business is doing well as demand for flights rises. In the most recent results, the firm said that forward bookings for Q3 were 76% sold and 36% sold for Q4. For some destinations, bookings have been much higher than before the pandemic.

EasyJet’s business made more than 1.75 billion in revenue in the first half of the year. This happened as passenger revenue rose to 1.15 billion while ancillary revenue jumped to 603 million pounds. The firm managed to make a loss before tax of more than 114 million pounds. It attributed that loss to higher costs and forex conversions.

As I wrote on this article on IAG, EasyJet share price has collapsed as investors worry about the soaring cost of doing business. Besides, jet fuel and wages have jumped sharply in the past few months. Also, analysts and investors are concerned about flight cancellations in its key markets.

Still, there is are two key catalysts for EasyJet. For one, as the stock collapses, it could become a viable acquisition target. In 2021, the management rejected a relatively attractive bid from Wizz Air. Another bid could happen if the stock continues tumbling.

Further, the company could do well as the aviation industry stabilizes in the coming months. A key challenge is that confidence in Europe and the UK.

EasyJet share price forecast

EasyJet share price

The daily chart shows that the EasyJet stock price has been in a strong bearish trend in the past few months. During this time, the stock has tumbled below all moving averages. It has also formed what looks like a falling wedge pattern, which is usually a bullish sign.

The Relative Strength Index (RSI) has dropped below the oversold level while the Awesome Oscillator has moved below the neutral point.

Therefore, in the near term, the stock will likely continue falling as sellers target the support at 270p. In the long-term, however, the shares will likely rebound as the falling wedge reaches its confluence level.

The post EasyJet share price has collapsed by 53% in 2022. Is it a buy? appeared first on Invezz.

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August data shows UK automotive sector heading for a “cliff-edge” in 2023

With an all-out macroeconomic storm brewing in the UK, the Bank of England (BoE) has been forced to intervene in the tumultuous gilt markets, particularly…



With an all-out macroeconomic storm brewing in the UK, the Bank of England (BoE) has been forced to intervene in the tumultuous gilt markets, particularly towards the tail end of the yield curve (details of which were reported on Invezz here).

Car manufacturing is a key industry in the UK. Recently, it registered a turnover of roughly £67 billion, provided direct employment to 182,000 people, and a total of nearly 800,000 jobs across the entire automotive supply chain, while contributing to 10% of exports.

Just after midnight GMT, data on fresh car production for the month of August was released by the Society of Motor Manufacturers and Traders Limited (SMMT).

Strong annual growth but monthly decline

Car production in the UK surged 34% year-over-year settling at just under 50,000 units. This marked the fourth consecutive month of positive growth on an annual basis.

However, twelve months ago, production was heavily dampened by a plethora of supply chain bottlenecks, work stoppages on account of the pandemic, and a worldwide shortage of microchips. The August 2021 output of 37,246 units was the lowest recorded August volume since way back in 1956.

Although the improvement in output is a good sign, equally it is on the back of a heavily depressed performance.

Source: SMMT

To place the latest data in its proper context, production is still 45.9% below August 2019 levels of 92,158 units, showing just how far adrift the industry is from the pre-pandemic period.

Since July, production in the sector fell 14%.

The fact that the UK is facing a deep economic malaise becomes even more evident when we look at full-year numbers for 2020 and 2021.

In 2020, total output came in at 920,928 units, while 2021 was even lower at 859,575. The last time that the UK automotive sector produced less than one million cars in a calendar year was 1986.  

Unfortunately, 2022 has seen only 511,106 units produced thus far, a 13.3% decline compared to January to August 2021.

In contrast, the 5-year pre-pandemic average for January to August output from 2014 – 2019 stands well above this mark at 1,030,527 units.

With car manufacturers tending to pass price rises on to consumers, demand was dampened by surging costs of semiconductors, logistics and raw materials.

The SMMT noted,

The sector is now on course to produce fewer than a million cars for the third consecutive year.

Ian Henry, managing director of AutoAnalysis concurred with the SMMT’s analysis,

It is expected that by the end of this year car production will reach 825,000, compared to 850,000 a year ago, but that’s 35% down on 2019 and a whopping 50% on the high figure of 2017.

Sector challenges

Other than the obvious fact that the UK’s economic atmosphere is in hot water, the automotive industry (including component manufacturers) has been struggling to stave off the high energy costs of doing business.

In a survey, 69% of respondents flagged energy costs as a key concern. Estimates suggest that the sector’s collective energy expenditure has gone up by 33% in the last 12 months reaching over £300 million, forcing several operations to become unviable.

Although the government enacted measures to cap the price of energy and ease obstacles to additional production, Mike Hawes, the CEO of SMMT, said,

This is a short-term fix, however, and to avoid a cliff-edge in six months’ time, it must be backed by a full package of measures that will sustain the sector.

Due to the meteoric rise in costs across the automotive supply chain, 13% of respondents were cutting shifts, 9% chose to downsize their workforce and 41% postponed further investments.

Bleak outlook

Uncertainties around Brexit and the EU trade deal are yet to be resolved.

Moreover, the energy crisis is poised to get even more acute unless Russia withdraws from the conflict, or international leaders ease restrictions on Moscow. Last week, I discussed the evolving energy crisis here

With global central banks expected to tighten till at least the end of the year, demand is likely to be squeezed further pressurizing British car manufacturers.

Electric vehicles made up 71% of car exports from the UK in August, but robust growth in the sector looks challenging in the near term, in the absence of widespread charging infrastructure, high electricity prices and globally low consumer confidence.

Although energy subsidies could provide some relief in the immediate future, the industry will remain in dire straits while investments stay low and the shortage in human capital persists, particularly amid the push for EVs.

Given the prevailing macroeconomic environment, and severe market backlash to Truss’s mini-budget (which I discussed in an earlier article), the sector is unlikely to turn the corner any time soon.

The post August data shows UK automotive sector heading for a “cliff-edge” in 2023 appeared first on Invezz.

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