Higher volatility for govt bonds due to uncertainties


  • Economy
  • Sunday, 12 Jan 2020

Unfortunately, even his creature failed to deliver what was supposed to: theoretically, Bitcoin was planned to be a decentralised peer-to-peer payment network powered by its users with no central authority or middlemen.

HISTORY has shown that the world learns only after they have pulled the triggers or set off the bombs.

It includes not only global wars but also financial catastrophes, like the ones from 1929 and 2008.

People want actual democracy, without being oppressed by either the government or financial institutions.

But the reality is not always consistent with the presumption.

As a result, some people decide to take the initiative and inspire society to act.

One of the most famous examples is the mysterious Satoshi Nakamoto, the creator of Bitcoin.

Unfortunately, even his creature failed to deliver what was supposed to: theoretically, Bitcoin was planned to be a decentralised peer-to-peer payment network powered by its users with no central authority or middlemen.

In reality, it cannot coexist without a third party, at least because you cannot cash it out without using an exchange or platforms like local bitcoin.

Thus, it is true that transactions became way safer and faster with blockchain, however, anonymity remains the dream of many as governments force “decentralised platforms” to work in accordance with established terms and rules, such as KYC procedure or AML checks.

Nevertheless, it did show banks and governments that we need a better alternative to the current system.

As for public listed companies, the understanding comes faster as stocks plummet in value quickly; forcing issuers to take action as fast as possible.

The problem emerges when people understand that commodity prices or financial instruments can be influenced or, should we say, manipulated.

Two German companies, Bayer AG and Wirecard AG have been the centre of attacks, rumours and blame.

In the first case, in December we got the news that lawyer involved in Roundup litigation was trying to negotiate a US$200mil personal fee for a peaceful settlement with more than 42,700 farmers, home gardeners and landscapers who claim Roundup caused non-Hodgkin lymphoma and other cancers.

According to Bloomberg, some of Bayer’s lawyers are warning that Monsanto may be forced to seek bankruptcy protection if favourable deals can’t be reached to wipe out the more than 40,000 cases pending and any future suits, according to the people. In any case, since August of 2019, Bayer stock value increased by 34%.

In the second case, Wirecard is trying to draw a line under allegations that it manipulated its accounts, adding that it expects to be cleared in a Singapore police investigation.

In 2016 the company was already a victim of allegations of financial fraud. As a result, since August of 2019, the company’s stock fell by 26%. The question now is whether Wirecard achieves to prove its innocence.

Meanwhile, financial markets keep suffering from geopolitical tensions.

After an increase in oil prices, caused by the US airstrike attack on Qassim Suleimani, commander of Iranian forces, commodity decreased one more time as fears of a wider U.S.-Iran confrontation disappeared and U.S. crude inventories grew.

To be more precise, according to US energy information administration, US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 1.2 million barrels from the previous week.

At 431.1 million barrels, US crude oil inventories are at the five-year average for this time of year.

Still, it is important to remind that investors do not like uncertainty, so government bonds may experience higher volatility if this persists.

Important macro releases of the week:

• The ISM Manufacturing Index fell to 47.2 in December, vs. 48.1 in November. New orders, production, and employment contracted for the fifth consecutive month.

The Conference Board’s Consumer Confidence Index edged down to 126.5 in the initial estimate for December, vs. 126.8 in November (revised from 125.5). As Lynn Franco, director of economic indicators at The Conference Board said, “While the economy hasn’t shown signs of further weakening, there is little to suggest that growth, and in particular consumer spending, will gain momentum in early 2020.”

• Non-farm payrolls increased by just 145,000 (exp. 160,000) but the unemployment held again 50-year low at 3.5%

What to monitor:

• Gold

• Oil

• US Dollar

• Protests in France

• Phase 1 trade deal between the US and China

• Brexit progress

• The yield curve and bank relative performance

• The ISM Non-Manufacturing Index (Tuesday)

• The Employment Report (Friday)

Weekly world indices recap:

The Dow Jones Industrial Average Index increased 0.7% over the past week, S&P 500 gained 0.9%, Nasdaq improved 1.8%, Volatility S&P 500 Index lost 19.41%, Nikkei 225 increased 2%, Hang Seng Index 0.7%, whereas Euro Stoxx 50 gained 0.4%. The Moex Russia Index improved by 2.55%.

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