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Long Lost Bond Vigilantes Sighted, Gives Dollar Fillip

Overview: It as if the bond vigilantes were pushed too far.  US inflation is accelerating more than expected, and it cannot all be attributed to the base effect, and the Federal Reserve, to many investors, is tone-deaf.  With powerful fiscal stimulus,…



Overview: It as if the bond vigilantes were pushed too far.  US inflation is accelerating more than expected, and it cannot all be attributed to the base effect, and the Federal Reserve, to many investors, is tone-deaf.  With powerful fiscal stimulus, nominal growth above 10%, and the economy re-opening, albeit unevenly, does the monetary accelerator need to be fully engaged?  The US 10-year yield jumped, providing a nice concession at the quarterly refunding and lifted the dollar broadly.   Stocks got hammered, and still no safe-haven bid for Treasuries.  Near 1.70%, the yield is almost 25 bp above the post-jobs disappointment low.  The sharp sell-off in US shares, which continues today, with the futures indices off 0.3%-0.5%, knocked Asia Pacific bourses 1%-2% lower and the MSCI Asia Pacific Index is now nearly flat on the year.  Europe's Dow Jones Stoxx 600 appeared resilient yesterday but is off about 1.3% today to bring the week's drop to almost 3%.  Bonds have yet to see safe-haven demand. The US 10-year yield is steady, near 1.69%, while European yields are 2-5 bp higher, with benchmark yields at the high for the year.  The dollar is mostly firmer, but the yen and Swiss franc are posting minor gains.  The euro steadied in Asia Pacific turnover but found sellers in the European morning.  Emerging market currencies have a clear downside bias today. The JP Morgan Emerging Market Currency Index is lower for the fourth consecutive session, which would be the longest losing streak in a couple of months. After four days of approached but unable to push above $1850, rising yields sapped gold, which fell to nearly $1810 in Europe.  News that the US pipeline will re-open took the bid from crude oil.  The June WTI contract reached nearly $66.65 yesterday and is now below $64.50 and poised to test the 20-day moving average around $63.90.  It has not closed below that moving average in a month.  

Asia Pacific

China continues to appear clumsy on the international stage and is alienating regimes that seem somewhat friendly.  Beijing's foreign policy is counter-productive.  It has been harassing Taiwan and has been encroaching on waters of the disputed islands that Japan also claims.  However, reports suggest over 300 vessels have gathered around islands claimed by the Philippines.  Philippine President Durterte has been perhaps the closest friend of China's in the region.  He recently called China a "benefactor" and sought to end the Visiting Forces Agreement with the US.  In March, when the Philippines first protested the Chinese incursions, Beijing said they were "taking shelter from the wind." Since then, the number of vessels has risen by a half.  Some suspect China is probing and seeking to test the US resolve.  

There are two developments to note in Japan.  The first is what did not happen.  Although Japan's Topix has experienced its sharpest three-day decline since last June, the BOJ has not stepped into the market to buy ETFs.  Recall that the BOJ ended its JPY6 trillion (~$55 bln) annual target and opted to act only in times of "heightened market instability."  It has only bought stocks once (April 21) since the new rules came into effect on April 1.   Second, Japan reported a smaller than expected March current account surplus (JPY2.65 trillion vs. JPY2.76 median forecast in Bloomberg's survey and JPY2.92 in February).  However, the trade surplus itself was larger than projected (JPY983 bln vs. JPY788 bln forecasts and JPY524 bln in February).  The primary income surplus, which tracks the flow of profits, interest, dividends, and worker remittances, fell by JPY835 bln to JPY1.44 trillion.  

The dollar reached its best level in a month in Tokyo near JPY109.80 today but is trading broadly sideways and is holding above JPY109.40.  Although resistance around JPY109.65 was frayed, a convincing move above it is needed to signal another try at the year's high set at the end of March near JPY111.00.  The Australian dollar peaked near $0.7890 on Monday before reversing lower.  It found support yesterday near $0.7720, and today, it slipped below $0.7700 briefly. The low from earlier this month was closer to $0.7675.  Initial resistance is now seen in the $0.7720-$0.7740 band.  Note that there is a A$980 mln option at $0.7750 that expires tomorrow.  The greenback traded in a particularly tight range against the Chinese yuan, consolidating yesterday's gain.  It briefly traded at new highs for the week (~CNY6.4580) and steading straddling little changed levels.  After some deviations from expectations, the PBOC set the dollar's reference rate at CNY6.4612, tight to what the bank models projected in Bloomberg's survey.  


The rise in European bond yields is challenging ideas that the ECB would slow its bond-buying next month.  Recall that the surge in US yields helped pull European yields higher earlier this year. The ECB responded in March by stepping up its purchases under the Pandemic Emergency Purchase Program. However, the hawks at the central bank have been arguing that it was not needed anymore, and a decision is expected next month to reduce the buying.  The new staff forecasts were expected to give them cover.  Yesterday, the EU raised its GDP forecasts for the eurozone to 4.3% and 4.4% for this year and next, respectively, from 3.8% in both years.  The ECB is likely to follow suit next month.  It had projected growth of 4.0% this year and 4.1% next.  

The Bank of England's chief economist Haldane, who is stepping down next month, continues to have among the hawkish rhetoric of any major central banker presently.  A week after the Bank of England agreed to reduce its weekly bond-buying, Haldane argued with inflation likely above the 2% target (medium-term) by the end of the year, "tightening the tap" may be necessary to "avoid a future inflation flood." However, he does not appear to have persuaded any of his colleagues.  The December short-sterling futures contract (three-month interest rate futures) remains in its trough where it has been stuck since the end of February, implying a yield of about 14 bp. The December 2022 contract implies 42 bp, matching the highest level since last April.

The euro extended yesterday's slump to nearly $1.2050 trendline support.  A break signals a test on the $1.2000 level, the (38.2%) retracement of the rally from the March 31 low (~$1.1705).  The next retracement is around $1.1950, by where the 200-day moving average is found.  There is an option at $1.21 that expires today for 1.36 bln euros and a smaller option (~715 mln euros) that expires tomorrow at $1.20.  Sterling's losses have also been extended today to test the (38.2%) retracement of this month's gain seen near $1.4025.  The next retracement (50%) is found near $1.3985.  There options for GBP320-GBP360 mln at $1.40, expiring today and tomorrow.  


Yesterday's US CPI shock is followed by today's PPI report.  Economists had projected a 0.3% increase on the headline rate and 0.4% on the core rate in Bloomberg's survey, but there is much talk about an upside surprise.  Yet, if such a surprise does materialize is cannot be, well, as unexpected.  Yesterday's CPI, which the Fed's Vice Chair Clarida admitted was surprising, seems to be the third such surprise for the central bank in a short period.  The surge in US yields in March was said to have caught officials' attention, and last week's hugely disappointing employment report surely surprised officials as much as it did the market.  The annualized rate of CPI this year is so far running a little north of 6%.  This is not about the base effect but about the re-openings and supply chain, and shortage issues.  Vehicle prices rose, and the 10% surge in US used car prices accounted for a third of the headline increase in CPI.  Hotel accommodation and airfares were set low during the pandemic and registered what appears to be record gains last month.   

In addition to the PPI today, the US reports weekly initial jobless claims.  Recall that last week's report showed the first drop below 500k since the pandemic struck.  The median forecast looks for a small decline, though there is some talk of a reading closer to 450k (from 498k).  The jump in US yields yesterday gave the 10-year note auction a concession, and the sale was solid with a higher bid-cover than the previous auction though the yield was nearly identical (~1.68%). Fed Presidents Barkin and Bullard speak today, as does Governor Waller.  While Canada has a light economic diary, the central banks of Mexico and Peru meet.  Although Banxico would like to cut rates, its hands are tied by the strong gains in inflation, which remain well above target.  Peru's reference rate is at 25 bp, and its inflation is above 2%.  The sol has fallen by about 2.7% this year, and the lion's share has taken place over the last several weeks.  

The US dollar posted a potential key reversal against the Canadian dollar yesterday by falling to new multi-year lows (~CAD1.2045) before rebounding and settling above Tuesday's high.  Follow-through dollar buying saw it approach CAD1.2160.  A move above there targets CAD1.2200-CAD1.2235.  An option for $605 mln at CAD1.2110 expires today.  The greenback had traded a little below MXN19.83 on Tuesday and jumped to MXN20.1850 yesterday.  No follow-through dollar buying has emerged yet today, but the intraday technical indicators seem to favor it.  Last week's highs were set near MXN20.3450 and are the next targets.  


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After a near 10% rally this week can the Netflix share price make a comeback?

The Netflix share price rallied by nearly 10% (9.6%) this week after co-CEO Ted Sarandos confirmed the film and television streaming market leader is to…



The Netflix share price rallied by nearly 10% (9.6%) this week after co-CEO Ted Sarandos confirmed the film and television streaming market leader is to introduce a new ad-supported, cheaper subscription. The company also announced it is to lay off another 300 employees, around 4% of its global workforce, in addition to the 150 redundancies last month.

Netflix has been forced into a period of belt-tightening after announcing a 200,000 subscriber-strong net loss over the first quarter of 2022. The U.S. tech giant also ominously forecast expectations for the loss of a further 2 million subscribers over the current quarter that will conclude at the end of this month.

netflix inc

The company has faced increasing sector competition with Paramount+ its latest new rival, joining Amazon Prime, Disney+, HBO Max and a handful of other new streaming platforms jostling for market share. A more competitive environment has combined with a hangover from the subscriber boom Netflix benefitted from over the Covid-19 pandemic and spiralling cost of living crisis.

Despite the strong gains of the past week, Netflix’s share price is still down over 68% for 2022 and 64% in the last 12 months. Stock markets have generally suffered this year with investors switching into risk-off mode in the face of spiralling inflation, rising interest rates, fears of a recession and the geopolitical crisis triggered by Russia’s invasion of Ukraine.

Growth stocks like Netflix whose high valuations were heavily reliant on the value of future revenues have been hit hardest. No recognised member of Wall Street’s Big Tech cabal has escaped punishment this year with even the hugely profitable Apple, Microsoft, Alphabet and Amazon all seeing their valuations slide by between around 20% and 30%.

But all of those other tech companies have diversified revenue streams, bank profits which dwarf those of Netflix and are sitting on huge cash piles. The more narrowly focused Meta Platforms (Facebook, WhatsApp and Instagram) which still relies exclusively on ad revenue generated from online advertising on its social media platforms, has also been hit harder, losing half of its value this year.

But among Wall Street’s established, profitable Big Tech stocks, Netflix has suffered the steepest fall in its valuation. But it is still profitable, even if it has taken on significant debt investing in its original content catalogue. And it is still the international market leader by a distance in a growing content streaming market.


Source: JustWatch

Even if the competition is hotting up, Netflix still offers subscribers by far the biggest and most diversified catalogue of film and television content available on the market. And the overall value of the video content streaming market is also expected to keep growing strongly for the next several years. Even if annual growth is forecast to drop into the high single figures in future years.

revenue growth

Source: Statista

In that context, there are numerous analysts to have been left with the feeling that while the Netflix share price may well have been over-inflated during the pandemic and due a correction, it has been over-sold. Which could make the stock attractive at its current price of $190.85, compared to the record high of $690.31 reached as recently as October last year.

What’s next for the Netflix share price?

As a company, Netflix is faced with a transition period over the next few years. For the past decade, it has been a high growth company with investors focused on subscriber numbers. The recent dip notwithstanding, it has done exceedingly well on that score, attracting around 220 million paying customers globally.

Netflix established its market-leading position by investing heavily in its content catalogue, first by buying up the rights to popular television shows and films and then pouring hundreds of millions into exclusive content. That investment was necessary to establish a market leading position against its historical rivals Amazon Prime, which benefits from the deeper pockets of its parent company, and Hulu in the USA.

Netflix’s investment in its own exclusive content catalogue also helped compensate for the loss of popular shows like The Office, The Simpsons and Friends. When deals for the rights to these shows and many hit films have ended over the past few years their owners have chosen not to resell them to Netflix. Mainly because they planned or had already launched rival streaming services like Disney+ (The Simpsons) and HBO Max (The Office and Friends).

Netflix will continue to show third party content it acquires the rights to. But with the bulk of the most popular legacy television and film shows now available exclusively on competitor platforms launched by or otherwise associated with rights holders, it will rely ever more heavily on its own exclusive content.

That means continued investment, the expected budget for this year is $17 billion, which will put a strain on profitability. But most analysts expect the company to continue to be a major player in the video streaming sector.

Its strategy to invest in localised content produced specifically for international markets has proven a good one. It has strengthened its offering on big international markets like Japan, South Korea, India and Brazil compared to rivals that exclusively offer English-language content produced with an American audience in mind.

The approach has also produced some of Netflix’s biggest hits across international audiences, like the South Korean dystopian thriller Squid Games and the film Parasite, another Korean production that won the 2020 Academy Award for best picture – the first ever ‘made for streaming’ movie to do so.

Netflix is also, like many of its streaming platform rivals, making a push into sport. It has just lost out to Disney-owned ESPN, the current rights holder, in a bid to acquire the F1 rights for the USA. But having made one big move for prestigious sports rights, even if it ultimately failed, it signals a shift in strategy for a company that hasn’t previously shown an interest in competing for sports audiences.

Over the next year or so, Netflix’s share price is likely to be most influenced by the success of its launch of the planned lower-cost ad-supported subscription. It’s a big call that reverses the trend of the last decade away from linear television programming supported by ad revenue in its pursuit of new growth.

It will take Netflix at least a year or two to roll out a new ad-supported platform globally and in the meanwhile, especially if its forecast of losing another 2 million subscribers this quarter turns out to be accurate, the share price could potentially face further pain. But there is also a suspicion that the stock has generally been oversold and will eventually reclaim some of the huge losses of the past several months.

How much of that loss of share price is reclaimed will most probably rely on take-up of the new ad-supported cheaper membership tier. There is huge potential there with the company estimating around 100 million viewers have been accessing the platform via shared passwords. That’s been clamped down on recently and will continue to be because Netflix is determined to monetise those 100 million viewers contributing nothing to its revenues.

If a big enough chunk of them opt for continued access at the cost of watching ads, the company’s revenue growth could quickly return to healthy levels again. And that could see some strong upside for the Netflix share price in the context of its currently deflated level.

The post After a near 10% rally this week can the Netflix share price make a comeback? first appeared on Trading and Investment News.

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Aura High Yield SME Fund: Letter to Investors 24 June 2022

The RBA delivered a speech this week indicating faster monetary policy tightening is to come in the near-term with the aim of curbing the rate of inflation….



The RBA delivered a speech this week indicating faster monetary policy tightening is to come in the near-term with the aim of curbing the rate of inflation.

Inflation and Monetary Policy 1,2

This week, RBA Governor Philip Lowe spoke about the department’s monetary policy intervention to tackle inflation in the evolving economic environment. Over the last six months, similar factors have continued to put pressure on food and energy prices – namely the war in Ukraine, foods on the East coast, and Covid lockdowns in China. The ongoing lockdowns in China are causing disruptions in manufacturing and production and supply chains coupled with strong global demand that is unable to be met. These pressures have forced households and businesses to absorb the rising cost of living.

To demonstrate the rise, the RBA reporting this week on Business Conditions and Sentiments saw:

  • Almost a third of all businesses (31 per cent) have difficulty finding suitable staff;
  • Nearly half (46 per cent) of all businesses have experienced increased operating expenses; and
  • More than two in five businesses (41 per cent) face supply chain disruptions, which has remained steady since it peaked in January 2022 (47 per cent).

* The Survey of Business Conditions and Sentiments was not conducted between July 2021 to December 2021 (inclusive)

Inflation is being experienced globally, although Australia remains below that of most other advanced economies sitting at 5.1 per cent. The share of items in the CPI basket with annualised price increases of more than 3 per cent is at the highest level since 1990 as displayed in the graph below.

With additional information on leading indicators now on hand, the RBA has pushed their inflation forecast up from 6 to 7 per cent for the December quarter, due to persistently high petrol and energy prices. After this period, the RBA expects inflation will begin to decline.

We are beginning to see pandemic-related supply side issues resolve, with delivery times shortening slightly and businesses finding alternative solutions for global production and logistic networks. Whilst there is still a way to go in normalising the flow in the supply side and the possibility that further disruptions and setbacks could occur, the global production system is adapting accordingly, which should help alleviate some of the inflationary pressures.

The RBA’s goal is to ensure inflation returns to a 2-3 per cent target range over time, with the view that high inflation causes damage to the economy, reduces people’s purchasing power and devalues people’s savings.

Household Wealth 3

Growth of 1.2 per cent in household wealth, equivalent to $173 billion, was reported in the March quarter. The rise was a result of an increase in housing prices in the March quarter. Prices have started reversing since that read.

Demand for credit also boomed, with a record total demand for credit of $218.8 billion for the March quarter. The rise was driven by private non-financial corporations demanding $153.2 billion, while households and government borrowed $41.9 billion and $17.5 billion respectively. 

We will likely see a significant shift in household wealth and credit demand in next quarter’s report given the rising interest rate environment, depressed household valuations and elevated pricing pressures. 

Portfolio Management Commentary

A lag in leading economic indicators has shifted the RBA’s outlook, with an increase in the expected level of inflation to peak at 7 per cent and rate rises to come harder and faster in the near term. From a portfolio standpoint we are not seeing any degradation in our underlying portfolio and open dialogue with our lenders has us confident in their borrowing base. We are maintaining a close eye on the economic environment to ensure we maintain the performance of our Fund and ensure our lenders are in a position to maintain performance and strive to capitalise off the back of economic shifts.

1 RBA Inflation and Monetary Policy Speech – 21 June 2022

2 RBA Inflation and Monetary Policy Speech – 21 June 2022

3 Australian National Accounts: Finance and Wealth

You can learn more about the Aura High Yield SME Fund here.

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The Sussex researchers who used international collaboration and 3D printing to stem PPE shortages in Nigeria

Researchers at the University of Sussex and their partners in Nigeria used open-source designs and 3D printing to reduce personal protective equipment…



Researchers at the University of Sussex and their partners in Nigeria used open-source designs and 3D printing to reduce personal protective equipment (PPE) shortages for a community in Nigeria during the Covid-19 pandemic – tells a recently published academic paper.

Credit: Please credit Royhaan Folarin, TReND

Researchers at the University of Sussex and their partners in Nigeria used open-source designs and 3D printing to reduce personal protective equipment (PPE) shortages for a community in Nigeria during the Covid-19 pandemic – tells a recently published academic paper.

In their paper in PLOS Biology, Dr Andre Maia Chagas from the University of Sussex, and Dr. Royhaan Folarin from the Olabisi Onabanjo University (Nigeria), explain how their collaboration led to the production of  over 400 pieces of PPE for the local hospital and surrounding community, including those providing essential and frontline services. This included face masks and face shields, at a time when a global shortage meant it was impossible for these to be sourced by traditional companies. 

In their collaboration, they leveraged existing open-source designs detailing how to manufacture approved PPE. This allowed Nigerian researchers to source, build and use a 3D printer and begin producing and distributing protective equipment for the local community to use. Plus, it was affordable.

One 3D printer operator and one assembler produced on average one face shield in 1 hour 30 minutes, costing 1,200 Naira (£2.38) and one mask in 3 hours 3 minutes costing 2,000 Naira (£3.97). In comparison, at the time of the project, commercially available face shields cost at least 5,000 Naira (£9.92) and reusable masks cost 10,000 Naira (£19.84). 

Dr Maia Chagas, Research Bioengineer at the University of Sussex, said: “Through knowledge sharing, collaboration and technology, we were able to help support a community through a global health crisis. 

“I’m really proud of the tangible difference we made at a critical time for this community. As PPE was in such high demand and stocks were low, prices for surgical masks, respirators and surgical gowns hiked, with issues arising around exports and international distribution. 

“We quickly realized that alternative means of producing and distributing PPE were required. Free and open-source hardware (FOSH) and 3D printing quickly became a viable option.

“We hope that our international collaboration during the pandemic will inspire other innovators to use technology and share knowledge to help address societal problems, which were typically reliant on funding or support from government or large research institutions. 

“With open source designs, knowledge sharing and 3D printing, there is a real opportunity for us to start addressing problems from the ground up, and empower local communities and researchers.”

Dr. Royhaan Folarin, a Neuroscientist and lecturer of anatomical sciences at Olabisi Onabanjo University in Nigeria, said: 

“During the pandemic, we saw the successful printing and donation of PPE in the Czech Republic by Prusa Research and it became a goal for me to use the training I had received in previous TReND in Africa workshops to help impact my immediate community in Nigeria.”

The international collaboration came about as a result of the TReND in Africa network, a charity hosted within Sussex which supports scientific capacity building across Africa. 

After initial use, testers provided feedback commending the innovativeness, usefulness and aesthetics of the PPE and, while the team’s 3D printer was not built for large-scale serial manufacturing, they identified the possibilities for several 3D printers to run in parallel, to reduce relative production time. During the pandemic, this was successfully demonstrated by the company Prusa Research, which produced and shipped 200,000 CE certified face shields. 

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