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Lyxor’s green bond ETF tops €525m as assets almost treble in 2020

Lyxor’s pan-European-listed green bond ETF, the Lyxor Green Bond (DR) UCITS ETF (CLIM FP), has cruised to more than €500 million in assets under management thanks to approximately €330m of new money allocated to the fund so far this year.
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Lyxor’s pan-European-listed green bond ETF, the Lyxor Green Bond (DR) UCITS ETF, has cruised to more than €500 million in assets under management thanks to approximately €330m of new money allocated to the fund so far this year.

Lyxor’s green bond ETF tops €525m as assets almost treble in 2020

Lyxor’s green bond ETF has surpassed €500m in assets on the back of robust and accelerating investor demand.

The fund appears to be on track to chalk up a clean sweep of monthly inflows in 2020 – twelve months of back-to-back positive flows.

At its launch in 2017, the fund was the world’s first ETF to offer dedicated exposure to green bonds.

In the ensuing years, it has seen its assets swell in synchronization with the growth of the underlying green bond market, which has accelerated this year.

The fund debuted on Euronext Paris (CLIM FP) but has since been cross-listed to multiple exchanges around Europe including the London Stock Exchange (CLIM LN / CLMU LN), Xetra (KLMT GY), and Borsa Italiana (CLIM IM), among others.

It is linked to the Solactive Green Bond EUR USD IG Index, an index co-developed by Lyxor in partnership with Solactive and the Climate Bonds Initiative.

The index universe comprises all USD and EUR-denominated investment-grade bonds that have been defined as green bonds by the Climate Bond Initiative. Floating-rate notes, inflation-linked bonds, convertible bonds, and municipal bonds are excluded from selection.

To be included in the index, bonds must have at least €300m or $300m outstanding for bonds denominated in euros or US dollars, respectively, with remaining time to maturity of at least 12 months. Index components are weighted by market value outstanding with corporate issuers and government issuers capped at 5% and 10% respectively.

Green bonds are essentially bonds that are issued primarily to finance projects aimed at combating climate change, with typical investments focused on the clean energy, green buildings, and clean transportation industries. Recent issues include Société du Grand Paris, Iberdrola, the Dutch State, E.ON, Verizon, Hong-Kong MTR.

According to the Climate Bonds Initiative, the market for green bonds reached a new record in Q3 2020, with issuance peaking at $73bn, the highest volume in any third quarter period since market inception in 2007 and the second-highest amount on record in any single quarter. Cumulative issuance volume since inception reached $954bn and is expected to breach the $1 trillion milestone in Q4.

The market is benefitting from the convergence of several market drivers: rising investor demand for green assets, an increasing number of companies looking to transform their operational and product model to reduce carbon emissions and achieve carbon neutrality by 2050, as well as a new regulatory framework and a host of stimulus measures designed to stem the Covid-19-induced global recession such as the EU’s Next Generation Recovery Plan – all of which make for an environment conducive to increased green bond issuance.

Reflecting the increasing expansion of this market, the number of green bonds tracked by the index has quadrupled to 440, making it an increasingly diversified fund.

François Millet, Head of ETF Strategy, ESG and Innovation at Lyxor Asset Management, commented: “We are proud that our pioneering Green Bond ETF has reached this important milestone and we are convinced of the power of indices and ETFs to reallocate capital at scale towards a carbon-neutral economy. This conviction also led us to launch this year the first ecosystem of climate ETFs tracking the EU’s Climate-Transition and Paris-Aligned benchmarks, designed to meet the Paris Agreement goals”.

Manuel Adamini, Senior Advisor at Climate Bonds Initiative, added: “We congratulate our long-time Climate Bonds partner Lyxor Asset Management for this important achievement. This is exactly what we need on a global scale, reorienting capital towards climate-relevant projects and assets to achieve Paris Agreement objectives. Passive products pick up a powerful trend in investment management, the ongoing demand for green opportunities, channeling capital away from a fossil-fuel-based past into a low carbon and sustainable future, and – most importantly – doing so at minimum cost and friction for investors. The growth that Lyxor is experiencing is a reflection of this momentum gathering in the market.”

The fund has a total expense ratio of 0.25%.

Lyxor Green Bond (DR) UCITS ETF

Lyxor Green Bond (DR) UCITS ETF

The post Lyxor’s green bond ETF tops €525m as assets almost treble in 2020 first appeared on ETF Strategy.

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Spread & Containment

Type of ultraviolet light most effective at killing coronavirus is also the safest to use around people

UV lights come in a variety of different wavelengths, but not all are equally effective at disinfection. Researchers tested a number of commercially available lights to find the best.

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UV light at most wavelengths can kill COVID–19. andriano_cz/iStock via Getty Images

Scientists have long known that ultraviolet light can kill pathogens on surfaces and in air and water. UV robots are used to disinfect empty hospital rooms, buses and trains; UV bulbs in HVAC systems eliminate pathogens in building air; and UV lamps kill bugs in drinking water.

Perhaps you have seen UV wands, UV LEDs and UV air purifiers advertised as silver bullets to protect against the coronavirus. While decades of research have looked at the ability of UV light to kill many pathogens, there are no set standards for UV disinfection products with regard to the coronavirus. These products may work to kill SARS-CoV-2, the virus that causes COVID-19, but they also may not.

I am an environmental engineer and expert in UV disinfection. In May 2021, my colleagues and I set out to accurately test various UV systems and see which was the most effective at killing off – or inactivating – SARS-CoV-2.

A diagram showing UV light breaking down a strand of DNA.
When UV light enters a cell, it breaks the bonds that hold DNA or RNA together. NASA/David Herring via WikimediaCommons

How does UV light kill a virus?

Light is categorized by wavelength – the distance between peaks of a wave of light – and is measured in nanometers. UV wavelengths range from 100 to 400 nanometers – shorter in wavelength than the violet hues in visible light – and are invisible to the human eye. As wavelength shortens, photons of light contain higher amounts of energy.

Different wavelengths of UV light work better than others for inactivating viruses, and this depends on how well the wavelengths are absorbed by the virus’s DNA or RNA. When UV light gets absorbed, the photons of light transfer their energy to and damage the chemical bonds of the genetic material. The virus is then unable to replicate or cause an infection. Researchers have also shown the proteins that viruses use to attach to a host cell and initiate infection – like the spike proteins on a coronavirus – are also vulnerable to UV light.

The dose of light matters too. Light can vary in intensity – bright light is more intense, and there is more energy in it than in dim light. Being exposed to a bright light for a short time can produce the same UV dose as being exposed to a dim light for a longer period. You need to know the right dose that can kill coronavirus particles at each UV wavelength.

A man with sunburned shoulders sitting on a beach.
Sunburns are caused by UV light damaging skin cells. Ian Hooton/Science Photo Library via Getty Images

Making ultraviolet lights safe for people

Traditional UV systems use wavelengths at or around 254 nanometers. At these wavelengths the light is dangerous to human skin and eyes, even at low doses. Sunlight includes UV light near these wavelengths; anyone who has ever gotten a bad sunburn knows just how dangerous UV light can be.

However, recent research has shown that at certain UV wavelengths – specifically below 230 nanometers – the high-energy photons are absorbed by the top layers of dead skin cells and don’t penetrate into the active skin layers where damage can occur. Similarly, the tear layer around eyes also blocks out these germicidal UV rays.

This means that at wavelengths of UV light below 230 nanometers, people can move around more freely while the air around them is being disinfected in real time.

A diagram showing a lamp above a sample of water containing the coronavirus.
Researchers used this setup to test multiple different UV lights at various doses to see what it took to kill SARS-CoV-2. Karl Linden, CC BY-ND

Testing different wavelengths

My colleagues and I tested five commonly used UV wavelengths to see which work best to inactivate SARS-CoV-2. Specifically, we tested how large a dose is needed to kill 90% to 99.9% of the viral particles present.

We ran these tests in a biosafety level three facility at the University of Arizona that is built to handle lethal pathogens. There we tested numerous lights across the UV spectrum, including UV LEDs that emit light at 270 and 282 nanometers, traditional UV tube lamps at 254 nanometers and a newer technology called an excited dimer, or excimer, UV source at 222 nanometers.

To test each device we spiked a sample of water with millions of SARS-CoV-2 viruses and coated a petri dish with a thin layer of this mixture. We then shined UV light on the petri dish until we achieved a specific dose. Finally we examined the viral particles to see if they could still infect human cells in culture. If the viruses could infect the cells, the dose was not high enough. If the viruses did not cause an infection, the UV source at that dose had successfully killed the pathogen. We carefully repeated this process for a range of UV doses using the five different UV devices.

While all of the wavelengths we tested can inactivate SARS-CoV-2 at very low doses, the ones that required the lowest dose were the systems that emit UV light at a wavelength of 222 nanometers. In our experiment, it took a dose of less than 2 millijoules of energy per square centimeter to kill 99.9% of viral particles. This translates to needing about 20 seconds to disinfect a space receiving a low intensity of short wavelength UV light, similar to that used in our test.

[Get our best science, health and technology stories. Sign up for The Conversation’s science newsletter.]

These 222-nanometer systems are almost twice as effective as conventional UV tube lamps, which are often used in ultraviolet disinfecting systems. But importantly, the winning lamp also happens to be the safest for humans, too. At the same UV light intensity it takes to kill 99.9% of SARS-CoV-2 in 20 seconds, a person could be safely exposed to 222-nanometer light for up to one hour and 20 minutes.

What this means is that widely available types of UV lamp lights can be used to safely knock down levels of the coronavirus with people present.

Better use of existing tech

Many places or organizations – ranging from the U.S. Air Force to the Space Needle in Seattle to Boeing – are already using or investigating ways to use UV light in the 222 nanometer range to protect public health.

I believe that our findings are important because they quantify the exact doses needed to achieve various levels of SARS-CoV-2 control, whether that be killing 90% or 99.9% of viral particles.

Imagine coffee shops, grocery stores, school classrooms, restaurants and concert venues now made safe by this technology. And this is not a solution for just SARS-CoV-2. These technologies could help protect human health in public spaces in future times of crisis, but also during times of relative normalcy, by reducing exposure to everyday viral and bacterial threats.

Karl Linden advises various companies promoting the use of UV light for disinfection. He receives funding from federal agencies and industry to conduct research in his role as a professor at the University of Colorado Boulder. He is affiliated with the International Ultraviolet Association.

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Bonds

Futures Surge To All Time High As Earnings Supercharge Market Meltup

Futures Surge To All Time High As Earnings Supercharge Market Meltup

The wall of worry that preoccupied traders just weeks ago has melted away, and has been replaced with a global market melt up (just as Goldman predicted again this weekend),

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Futures Surge To All Time High As Earnings Supercharge Market Meltup

The wall of worry that preoccupied traders just weeks ago has melted away, and has been replaced with a global market melt up (just as Goldman predicted again this weekend), which pushed US index futures to a new all time high this morning when spoos hit 4,580.75, while propelling European and Asian stocks higher as corporate earnings helped boost sentiment amid lingering concerns about inflation and growth. As of 715am ET, US equity futures were up 0.42% or 19.25 points, Dow Jones futures were up 126 points or 0.35% and Nasdaq futures jumped 0.61%, extending cash market gains boosted by Tesla’s rally to a $1 trillion market value on a big order and Facebook’s results announcement revealing strong user growth and a $50 billion stock buyback. 10-year Treasury yields dropped by 1 basis point while the dollar slid to session lows. Bitcoin traded around $63,000.

The barrage of earnings reports continued on Tuesday morning, with United Parcel Service, General Electric and 3M all gaining in pre-market trading after strong results. Eli Lilly advanced after raising full-year forecasts. Bakkt shares jumped 36% in the U.S. premarket session after more than tripling Monday when Mastercard said it has inked a deal with the firm to help banks offer cryptocurrency rewards on their debit and credit cards.  Facebook also rose after pledging to buy back as much as $50 billion more in stock, with tech heavyweights Twitter, Alphabet and Microsoft reporting after the market close on Tuesday. Here are all the notable premarket movers:

  • Facebook (FB US) rises as much as 2.5% in premarket as analysts stay bullish despite a third-quarter revenue miss and an outlook that was below consensus. Advertising growth is seen improving in 2022.
  • Tesla (TSLA US) gains 1% after stock closed at a record high, boosted by several factors on Monday including a large car order from rental firm Hertz and Morgan Stanley lifting its price target.
  • Creatd (CRTD US) was up 27% adding to a 50% gain over the past two trading sessions amid a rally in a growing number of retail-trader favorite stocks linked to former U.S. President Donald Trump.
  • Redbox (RDBX US) rises as much as 130% after the firm completed a business combination with Seaport Global Acquisition, a special purpose acquisition company.
  • Cryptocurrency-exposed stocks rise, with Eqonex (EQOS US), previously known as Diginex, more than doubling in value after listing Polkadot on its platform and Bakkt (BKKT US) extending Monday’s gains.

Earnings season is helping to counter concerns that elevated inflation and tightening monetary policy will slow the recovery from the pandemic. Some 81% of S&P 500 members have reported better-than-expected results so far, though CitiGroup Inc. warned that profit growth may be close to peaking.

Equity markets are “continuing their recovery and we expect this process to continue past big-tech earnings” and this week’s European Central Bank meeting, where policy makers may flag the end to their pandemic bond-buying program, Sebastien Galy, senior macro strategist at Nordea Investment Funds, wrote in a note.

Still, some analysts voiced caution over the impact of the COVID-19 pandemic on supply chains: “Even though this has been a good earnings season in aggregate we are starting to see more companies with supply backlogs, hiring difficulties, and rising input prices that are eating into profits,” Deutsche Bank analysts wrote.

The debate over price pressures continued when former Treasury Secretary Lawrence Summers said officials are unlikely to deal with “inflation reality” successfully until it’s fully recognized.

The MSCI world equity index, which tracks shares in 50 countries, added 0.1%

European shares hit the highest level in seven weeks: the Stoxx Europe 600 index rose more than 0.5% led by gains in travel stocks and insurers, and edging close to a the record high reached in September while German stocks gained 0.9%. Reckitt Benckiser gained more than 5% after the maker of Strepsils throat lozenges raised its sales forecast. Swiss lender UBS Group AG climbed after posting a surprise jump in profit, while Novartis AG advanced on news it may spin off its generic-drug unit. After a stellar quarter for U.S. and British banks, Switzerland’s UBS rose over 2% on its highest quarterly profit since 2015, helping the financial services sector climb about 1%.

Earlier in the session, the MSCI Asia Pacific Index traded 0.3% higher in afternoon trading, paring an earlier gain of as much as 0.7% which pushed it to its highest level in six weeks.  Asian stocks rose as investors focused on encouraging earnings reports from some of the world’s biggest technology companies. The advance was driven by a subgauge of IT names including South Korean memory chipmaker SK Hynix, which climbed after reporting record sales and forecasting further demand growth. Japanese electronics giants Nidec Corp. and Canon Inc. reported results after Tuesday’s close. “The earnings season so far continues to meet investor expectations and assuage inflationary concerns,” said Justin Tang, head of Asianresearch at United First Partners. Tesla’s order from Hertz, good prospects for the $550 billion U.S. infrastructure bill and the latest talks between U.S. and China officials also helped “inject some risk appetite,” Tang said. Japan led gains among national benchmarks, with the Topix rising more than 1%. The market was helped by a local media report that the ruling Liberal Democratic Party may be able to win a majority of seats on its own in the general elections scheduled for next week. Key gauges in tech-heavy South Korea and Taiwan also jumped more than 0.5%, while benchmarks fell in Hong Kong and China.

In China, Modern Land China Co. became the latest builder to miss a payment on a dollar bond, in a further sign of stress in the nation’s real estate sector. Defaults from Chinese borrowers on offshore bonds have jumped to a record.

Japanese stocks advanced as investors looked toward earnings reports from major companies and political stability after the upcoming election. Electronics makers and telecommunications providers were the biggest boosts to the Topix, which gained 1.2%. Fast Retailing and Tokyo Electron were the largest contributors to a 1.8% rise in the Nikkei 225. Asian stocks and U.S. futures also rose, following the S&P 500’s climb to a record high, amid positive news from Tesla and Facebook. Japanese companies reporting results today include Canon, Nidec and Hitachi Construction Machinery.  Meanwhile, the ruling Liberal Democratic Party may be able to exceed a majority of 233 seats on its own in the general elections scheduled for Oct. 31, a poll conducted by Asahi showed. “There’s a lot of noise out there but for stocks, it’s about fundamentals, which are corporate earnings,” said Hiroshi Matsumoto, head of Japan investment at Pictet Asset Management. “We’re starting to see some pretty good earnings figures, so I’m thinking we’ll see the Nikkei 225 consolidate around the 29,000 level this week.”

In rates, Treasuries were cheaper across front-end of the curve, fading a portion of Monday’s gains even as corporate earnings propel stock futures to new highs. The 10-year TSY yield is lower by less than 1bp at 1.622%; 2-year yields are cheaper by ~1bp on the day while long-end of the curve is richer by ~1.5bp, flattening 2s10s, 5s30s spreads by ~2bp. The TSY curve is flatter with long-end yields richer on the day, unwinding Monday’s steepening move. Treasury auction cycle begins with sale of 2-year notes, followed by 5- and 7-year offerings over next two days. 

In FX, the Bloomberg Dollar Spot Index was mixed but slumped to session lows as US traders walked in. The pound led gains followed by other risk-sensitive currencies such as the Australian and New Zealand dollars. Sterling gained even as overnight index swaps show traders trimmed back bets for BOE tightening, pricing in 14 basis points of hikes in November, down from 15 points previously. The yen was the worst performer as demand for haven assets receded following talks between U.S. and Chinese officials on the economy and cooperation in which some incremental progress was made. The euro inched up after gyrating toward the $1.16 handle; the euro’s volatility skew flattened in the past two weeks, suggesting a rebound in the spot market. Given the latter has stalled at a key resistance area, risk reversals could show downside risks once again. The Turkish lira rallied the most in more than four months after President Recep Tayyip Erdogan dropped his demand for 10 Western ambassadors to be expelled from the country.

China’s offshore yuan gained for a fourth straight day, lifted by a phone call between the U.S. and China on trade and economic issues. Overnight borrowing costs sunk to one-month lows after the central bank boosted cash injections into the financial system. 

In commodities, WTI crude oil was steady around $84 a barrel and Brent traded above $86 as investors weighed the outlook for U.S. stockpiles and prospects for talks that may eventually help to revive an Iranian nuclear accord, allowing a pickup in crude exports.
Gold held above $1,800 an ounce and Bitcoin hovered around $62,500.

Looking at today's calendar, we get the August FHFA house price index, September new home sales, October Conference Board consumer confidence and Richmond Fed manufacturing index. In central banks, ECB’s Villeroy and de Cos will speak. In corporate earnings, we will get results from Microsoft, Alphabet, Visa, Eli Lilly, Novartis, Texas Instruments, UPS, General Electric, UBS and Twitter

Market Snapshot

  • S&P 500 futures up 0.4% to 4,576.25
  • STOXX Europe 600 up 0.6% to 474.91
  • MXAP up 0.4% to 200.93
  • MXAPJ up 0.2% to 662.77
  • Nikkei up 1.8% to 29,106.01
  • Topix up 1.2% to 2,018.40
  • Hang Seng Index down 0.4% to 26,038.27
  • Shanghai Composite down 0.3% to 3,597.64
  • Sensex up 0.4% to 61,232.14
  • Australia S&P/ASX 200 little changed at 7,443.42
  • Kospi up 0.9% to 3,049.08
  • German 10Y yield little changed at -0.12%
  • Euro little changed at $1.1609
  • Brent Futures down 0.3% to $85.76/bbl
  • Gold spot down 0.3% to $1,802.76
  • U.S. Dollar Index little changed at 93.86

Top Overnight News from Bloomberg

  • Traders are wagering on rate hikes of as much as 158 basis points over the next year in countries including the U.K., New Zealand and South Korea amid soaring costs of living and commodity prices. Yet a flattening in yield curves -- historically seen as the market’s assessment of economic health -- indicates rising concern that such a rapid withdrawal of support will hurt the nascent recovery
  • Financial markets have stubbornly ignored recent warnings from ECB policy makers including Chief Economist Philip Lane that they’re wrong to anticipate a rate hike at the end of next year. The task of persuading people otherwise will fall to President Christine Lagarde as she presents the Governing Council’s latest decision on Thursday

A more detailed look at global markets courtesy of Newsquawk

Asia-Pac stocks were lifted by the tailwinds seen stateside, whereby the SPX and DJIA both notched fresh all-time-highs, although the NDX outperformed as Tesla shot past the USD 1000/shr mark and USD 1trl market cap milestone. US equity futures overnight drifted higher with the NQ narrowly outperforming its peers. European equity futures also posted mild gains. Back to APAC, the ASX 200 (+0.1%) was kept afloat by tech names as the sector saw tailwinds from the stateside performance. The Nikkei 225 (+1.8%) outperformed following the prior session’s underperformance, and as the JPY drifted lower during the session. The KOSPI (+0.9%) was also firmer with SK Hynix rising some 3% at the open as chip demand supported earnings. The Hang Seng (-0.4%) and Shanghai Comp (-0.3%) opened flat but the latter was initially underpinned following another chunky CNY 190bln net liquidity injection by the PBoC. The Hang Seng Mainland Properties Index fell almost 5% in early trade, whilst Modern Land noted that it will not be able to meet payments and shares were halted until future notice. Finally, 10yr JGBs were lower amid spillover selling from T-notes and Bund futures.

Top Asian News

  • MediaTek Sees 2021 Revenue Growing by 52%; 3Q Profit Beats
  • UBS Going ‘Full Bull’ on China Despite Outflows, Growth Worry
  • China’s IPO Flops Raise Red Flag Over Shares Pricing: ECM Watch
  • Asian Stocks Rise as Investors Focus on Major Tech Earnings

European equities (Stoxx 600 +0.6%) trade on a firmer footing after extending on the tentative gains seen at the cash open with the Stoxx 600 at its best level in around seven weeks. The APAC session saw some support via the tailwinds seen in the US after the SPX and DJIA both notched fresh all-time highs and the NDX outperformed and Tesla shot past the USD 1000/shr mark and USD 1trl market cap milestone. The Nikkei 225 (+1.7%) led gains in the region alongside a firmer JPY whilst the Shanghai Comp (-0.3%) was unable to benefit from another chunky liquidity injection by the PBoC. Stateside, futures are indicative of a firmer cash open with the NQ (+0.6%) continuing to outpace peers with Facebook +2.4% in pre-market trade post-results which saw the Co. announce a USD 50bln boost to its share buyback authorisation. From a macro perspective, with the Fed in its blackout period and events on Capitol Hill not providing much impetus for price action, the equity landscape will likely be dominated by earnings with the likes of Alphabet, Microsoft, General Electric, 3M, Visa, AMD and Twitter all due to report today. Earnings are also playing a pivotal role in Europe today with Reckitt (+6.4%) top of the FTSE 100 and supporting the Personal and Household Goods sector after Q3 results prompted the Co. to raise its sales outlook. UBS (+0.6%) is off best levels but still firmer on the session after reporting its highest quarterly profits in six years. Countering the upside from UBS in the Banking sector is Nordea (-4.0%) with shares weighed on by Sampo selling 162mlnn shares in the Co. to institutional investors. Novartis (+1.6%) shares are trading broadly inline with the market after opening gains were scaled back post-Q3 earnings which saw the Co. report a 10% increase in operating profits and announce a strategic review of its generic drug unit Sandoz. Telecoms are near the unchanged mark and unable to benefit from the broader gains seen across the region as Orange (-2.7%) acts as a drag on the sector after announcing a decline in Q3 earnings.

Top European News

  • UBS Going ‘Full Bull’ on China Despite Outflows, Growth Worry
  • Adler Sells Real Estate Portfolio Valued at More Than EU1B
  • Europe Gas Extends Gains With Weak Russian Flows, Norway Outages
  • Latest Impact of Europe’s Energy Crisis is a Plunge in Trading

In FX, the 94.000 level remains tantalisingly or agonisingly close, but elusive for the Dollar index, and it could simply be a psychological barrier as a breach would clear the way for a complete comeback from trough to 94.174 peak set last week. However, the Greenback has lost some yield attraction and the broad risk tone is bullish to dampen demand on safe-haven grounds, while chart resistance and option expiries are also preventing the Buck from staging a more pronounced rebound ahead of a busier US agenda including housing data, consumer confidence, several regional Fed surveys and the first slug of issuance in the form of Usd 60 bn 2 year notes. Back to the DXY, 93.965-795 encapsulates trade thus far, and the 21 DMA stands at 93.966 today, just 3 ticks shy of Monday’s high.

  • AUD - In similar vein to its US counterpart, the Aussie is finding 0.7500 a tough round number to crack, convincingly, but Aud/Usd is deriving support from the ongoing recovery in industrial metals awaiting independent impetus via Q3 inflation data tomorrow.
  • JPY/CHF - The Yen and Franc continue to lag their major peers and retreat further vs the Dollar, with the former now struggling to keep sight of the 114.00 handle even though hefty option expiries reside from 113.85 to the big figure (1 bn), and Usd/Jpy faces more at the 114.50 strike (1.1 bn), while the latter is sub-0.9200 and unwinding more gains relative to the Euro as the cross probes 1.0700.
  • GBP/NZD - Conversely, Sterling remains primed for further attempts to extend gains beyond Fib resistance and breach 1.3800, while eyeing 0.8400 against the Euro irrespective of some UK bank research suggesting that BoE Governor Bailey may not back up recent hawkish words with a vote to hike rates at the November MPC. Elsewhere, the Kiwi is still hovering above 0.7150 and defending 1.0500 vs its Antipodean rival with a degree of traction via RBNZ Governor Orr warning that climate change could culminate in a lengthy phase of stronger inflation that needs a policy response.
  • EUR/CAD - Both rather flat, as the Euro continues to pivot 1.1600 and rely on option expiry interest for underlying support (1.5 bn rolling off from the round number to 1.1610 today), but also anchored by the 21 DMA that aligns with the big figure, while the Loonie has lost its crude prop on the eve of the BoC, though should also receive protection from expiries at 1.2400 (1 bn) within a 1.2394-68 range.
  • EM - The Try has reclaimed more lost ground to trade above 9.5000 vs the Usd on a mix of corrective price action and short covering rather than any real relief about Turkey’s latest rift with international partners given another blast from President Erdogan who said statements issued by ambassadors on Kavala target his country’s judiciary and sovereignty, adding that the Turkish judiciary does not take orders from anyone. On the flip-side, the Zar is softer alongside Gold and ongoing issues with SA power supply provided by Eskom.

In commodities, WTI and Brent have been softer throughout the European morning dipping from the initially steady start to the APAC session after yesterday’s pressured; nonetheless, prices haven’t dipped too far from recent peaks. Newsflow for the complex and broadly has been sparse thus far as focus remains very much on earnings and events due later in the week. Specifically for energy, we had commentary from Russian Deputy PM Novak that he wants OPEC+ to stick to the agreement to increase production by 400k BPD at the November gathering, commentary which had little impact on crude at the time. Elsewhere, the weekly Private Inventory report is due later in the session and expectations are for a build of 1.7mln for the headline crude figure; for reference, both distillates and gasoline stocks are expected to post a draw. Moving to metals, spot gold and silver are pressured this morning with initial downside perhaps stemming from a short-lived resurgence in the USD; however, while the metals do have a negative bias, the magnitude of this – particularly in spot gold – is fairly minimal. Separately, base metals are softer with LME copper hindered and still shy of the 10k figure. Again, newsflow this morning has been limited but we did see a production update from Hochschild who confirmed FY21 production guidance of 360-370k gold-equivalent ounces after reporting that Q3 was the strongest period of the year, thus far.

US Event Calendar

  • 9am: Aug. S&P Case Shiller Composite-20 YoY, est. 20.00%, prior 19.95%; 9am: MoM SA, est. 1.50%, prior 1.55%
  • 9am: Aug. FHFA House Price Index MoM, est. 1.5%, prior 1.4%
  • 10am: Oct. Conf. Board Consumer Confidenc, est. 108.2, prior 109.3
    • Present Situation, prior 143.4
    • Expectations, prior 86.6
  • 10am: Oct. Richmond Fed Index, est. 5, prior -3
  • 10am: Sept. New Home Sales, est. 758,000, prior 740,000; MoM, est. 2.5%, prior 1.5%; 

DB's Jim Reid concludes the overnight wrap

If you’ve never seen Lord of the Flies feel free to come round to our house where you’ll get a live performance that gets more authentic the longer this two week half-term holiday we’re in goes on. Yet again working is the safest option. We have the option to “purchase” extra holiday each year but I’m thinking of seeing if I can give some back and take the money instead. They are hard work when put into a room together for any period of time.

It was not only the fighting that was the same as last week, markets were pretty similar yesterday too as we saw fresh equity highs alongside renewed multi-year highs in breakevens. There are a few subtle changes in company reporting trends though. Even though this has been a good earnings season in aggregate we are starting to see more companies with supply backlogs, hiring difficulties, and rising input prices that are eating into profits. Indeed yesterday saw a few consumer staples companies lower full year profit outlooks in their earnings releases.

Nevertheless, major equity indices marched higher, with the small cap Russell 2000 (+0.93%) and Nasdaq composite (+0.90%) outperforming the S&P 500 (+0.47%). Consumer discretionary stocks were the clear outperformer, driven by news of Tesla (+12.66%) receiving a 100k car order from Hertz. Tesla’s big day saw it become the first automaker to cross 1 trillion dollar market cap and also drove the outperformance of the FANG index ahead of Facebook’s after hours earnings release.

Speaking of which, Facebook missed revenue estimates but beat on earnings. Shares were slightly higher in after-hours trading, where they are betting big on virtual reality technology.

Overnight in Asia, the Nikkei 225 (+1.75%) and the KOSPI (+0.61%) are outperforming the Hang Seng (-0.42%) and Shanghai Composite (+0.01%). The sentiment in China is being clouded by the news of another developer, Modern Land China Co., missing a payment on a $250 million dollar bond. This news came as Bloomberg reported that Chinese firms set a yearly record on offshore bond defaults. Another development in the region is that Hong Kong has pushed back against yesterday’s calls for an easing in its virus rules which the banks in particular were calling for. In geopolitics, China’s Vice Premier Liu He and U.S. Treasury Secretary Janet Yellen held a call about trade and economic concerns, boosting sentiment in Asian markets, while the S&P 500 mini futures (+0.24%) is trading higher. The yield on 10y Treasury (+0.7bps) is also up. In data releases, South Korean preliminary GDP for Q3 came in at +4.0% versus +4.3% expected, while Japan’s services PPI for September declined to +0.9%, missing estimates of +1.1%.

Back to yesterday and in fixed income, as mentioned at the top inflation breakevens continued their march higher. In the US, 10-year Treasury breakevens (+2.7 bps) closed at 2.67%, just shy of their widest levels since 10-year TIPS began trading in 1997. 10yr nominal yields were -0.2 bps lower as real yields slipped -2.3bps to their lowest levels since mid-September. European breakevens kept pace, with 10-year German breakevens increasing +1.9bps to 1.93% and UK breakevens increasing +1.2 bps to 4.20%. As was the case with the US, real yields fell as nominal 10-year yields decreased across Europe. Bunds (-0.9bps), Gilts (-0.5bps), OATs (-1.1bps) and BTP (-3.4bps) yields all fell.

Crude oil futures put in a mixed performance. Multiple OPEC+ members signaled they won’t increase supply at their upcoming meeting leading to gains in crude, yet the gains were short lived, as headlines noted that Iran and the EU will stage talks to restore the 2015 nuclear deal, paving a way for Iranian oil supply to return to the market. Brent futures finished +0.54% higher while WTI futures were unchanged. Natural gas prices were on a one-way track higher, however. US natural gas prices had their biggest one-day gain in a year, increasing +11.70%, on the back of a colder forecast for the upcoming winter as supply issues still abound. European and UK natural gas prices were only modestly higher by comparison, increasing +1.27% and +1.86%, respectively. European leaders are gathering in Luxembourg today for an emergency meeting on the energy crisis.

European equities were almost unchanged, with the STOXX 600 (+0.07%) finishing with marginal gains with energy (+1.27%) leading. The German DAX (+0.36%) gained with the help of stronger IT (+1.76%) performance despite Ifo expectations (95.4) coming in below consensus (96.6).

In other data releases, the Chicago Fed National Activity Index came at -0.13 versus 0.20 expected. The Dallas Fed Manufacturing Activity Index (14.6), however, surprised on the upside by coming above expectations (6.0). Delivery times remained elevated in the survey, and a special question showed that labour supply issues got slightly worse.

In virus news, Moderna reported that its vaccine showed a strong immune response for children from 6 to under 12 years old. Meanwhile, China announced in its initial guidelines that unvaccinated athletes at the 2022 Winter Olympics in Beijing would have to quarantine for 21 days, while Hong Kong was pressured by banks to relax its zero-COVID policy.

In today’s data releases, August FHFA house price index, September new home sales, October Conference Board consumer confidence and Richmond Fed manufacturing index are due from the US. In central banks, ECB’s Villeroy and de Cos will speak. In corporate earnings, we will get results from Microsoft, Alphabet, Visa, Eli Lilly, Novartis, Texas Instruments, UPS, General Electric, UBS and Twitter

 

Tyler Durden Tue, 10/26/2021 - 07:47

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Evergrande Fallout: Modern Land Defaults On US$250 Million Bond As Investors Question Chinese Developers’ Willingness To Pay

Modern Land (China) added to a string of defaulters among Chinese property developers after it reneged on a US$250 million bond on Monday, highlighting investor concerns about the willingness to pay within the industry.
The Beijing-based developer…

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Modern Land (China) added to a string of defaulters among Chinese property developers after it reneged on a US$250 million bond on Monday, highlighting investor concerns about the willingness to pay within the industry.

The Beijing-based developer did not repay the principal or interest on the 12.85 per cent bond when it matured on October 25, according to a Hong Kong stock exchange filing on Tuesday. The firm cited unexpected liquidity issues, blaming macroeconomic and industry conditions and the Covid-19 pandemic.

The decision to renege on the offshore debt came after it cancelled a repayment proposal last week. Under the plan first unveiled on October 11, Modern Land had offered to repay only 35 per cent of the face amount on October 25, while delaying the rest by three months.

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"The recent bond defaults have hurt confidence," Industrial Securities said in a report dated October 23. "Given the large amount of maturities in the first quarter next year, investors in dollar bonds sold by Chinese firms expect fluctuations in the property segment to be relatively high."

While the Modern Land subject reignited concerns about widening defaults in China's US$2.7 trillion property market amid China Evergrande Group's distress, it also raised a few questions about Chinese developers' willingness, rather than their ability, to repay offshore investors.

Los Angeles-based TCW Group, for example, has trimmed its holdings in Chinese property debt, according to a Morningstar report, saying recent events have altered the team managers' perspective on the situation and raised doubts about reliability of financial statements in the industry.

"The [emerging-market debt] team members expressed concern at the recent slew of requests by Chinese real estate companies with stated large cash positions to delay payments to bondholders," according to the Morningstar report issued on October 19.

"The managers worry that recent events might be a signal that companies are being urged by the government to use cash to finish projects and pay suppliers at the expense of bondholders."

Modern Land's decision to default came as a bit of a surprise after its chairman and controlling shareholder Zhang Lei and company president Zhang Peng both offered to loan the company 800 million yuan (US$125.4 million) "within the next two to three months", according to a "voluntary announcement" to the stock exchange earlier this month.

Contracted sales grew 52 per cent in the first six months to 21.6 billion yuan from a year earlier, according to its interim report. It received credit lines of more than 100 billion yuan from lenders during the period, citing the stability of its ratings at home and abroad.

It raised US$398 million from a green-bond offering, and got a green loan of HK$100 million (US$12.9 million) from Hang Seng Bank. The group's unrestricted cash and bank balances grew 26 per cent to 13.3 billion yuan on June 30 from December 31 last year. The company last month spent some cash to buy back bonds due in 2022 and 2023.

The defaulted 12.85 per cent bond was indicated at about 35 cents on the dollar as of 12.35pm local time. Its next bond due February 26 was priced at 19 cents on the dollar, according to Bloomberg data. The Hang Seng Properties Index of stocks tumbled 1.9 per cent as of 3.13pm on Tuesday.

"Assessing companies' willingness to pay [not just their ability to do so] could become a much more important factor when analysing the Chinese property sector than it was in the past," Morningstar said, citing the TCW managers. Lower property demand and tight government policies are likely to depress pricing and impact funding for homebuyers and developers, they added.

Modern Land said it was working with its legal advisers at Sidley Austin and will engage independent financial advisers soon to help formulate a plan to resolve its debt.

Property developers assessed by S&P Global Ratings face around 480 billion yuan of both onshore and offshore maturities within one year, it said in a report last month. For Evergrande, a 30-day grace period for an interest payment on a US$1 billion ends on October 29.

China's top economic planning body, the National Development and Reform Commission, has summoned top developers for a meeting in Beijing to discuss issues related to their dollar borrowings.

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