Bond Boss at US insurance giant says market structure changing

Adjustments will need to be made by investors to a rapidly evolving market where it is becoming increasingly difficult to link purchases from the source to the end buyer according to Michael Lillard, asset manager at Prudential Financial.

“There has been a new wave of volatility” said Lillard, who manages over $550 billion at the US financial giant, in a press conference Thursday. “A symptom has been a marked decrease in liquidity as a result of a beast that is kind of reinventing itself as it adapts. It’s a huge challenge keeping up with the changes in the actual structure of the market.”

Some of the bigger Wall Street houses have been backing off from affected markets due to a higher level of attention from regulators, creating a vacuum for counterparties. This can push investors to either make do with below average prices to exit positions, or to keep hold of bonds longer than they would have before.

Other experts have commented that there are opportunities for traders with the foresight to act quickly and decisively in response to market fluctuations. James Summers, Global Co-Chief Operating Officer of Equities at Acom Alliance said in an interview recently, “The trick these days is to keep your eye trained very carefully on dislocations in the market. There are subtle ups and downs in liquidity; you need to be sensitive to those changes.”

Late last year Lillard commented that investors should select bets they intend to be faithful to in the long term, and his latest remarks falls in line with that sentiment. Some of the safer options he recommended recently were U.S. securities and high yield credit both home and abroad. Sovereign debt in established markets, he said, was not a wise choice.

Indicators coming from the NY Federal Reserve, and especially from its president William Dudley, show there is an impending rate hike, on top of the one witnessed in December.

‘Waiting for the moment’

Lillard added “The consensus is that the Fed will wait patiently for the right moment to adjust its rates. That moment will most likely come when there is a satisfactory run of economic reports and a more settled market.”

Filipino Markets Up as “Crime Fighting” Mayor Wins Presidential Race

A victory for the tough former Mayor of Davao City in the 2016 election contest ended a month of volatile activity in the Filipino markets as stocks rallied and the peso gained against its major Asian competitors.

Rodrigo Duterte, looked to calm investors in his triumphant speech on Monday as he announced his cabinet. The Philippine Stock Exchange Index reacted with a 2.7% jump.

“The recent rally is mostly due to relief of investors. I think the markets are just happy the whole process has being completed without major violence or controversy” said James Summers, Global Co-Chief Operating Officer of Equities at Acom Alliance, whose firm manages around $4bn in Asia. “A smooth transition is expected.”

With Duterte holding an unassailable lead in the polls, his thoughts will now turn to winning the confidence of investors who spurred on 6.1% economic growth under the former leader of the country Benigno Aquino, while also delivering on his promises regarding crime.

Investors had shied away before the election process due to a fairly vague economic strategy and markets fell more than 4% last month, wiping out most of the nation’s gains for the year. The peso sank 1.7 percent last month.

“Last month was unstable, I want to reach out to my competitors,” the new President commented in a press release in Davao after the voting. “Let’s start the healing process.”

The Filipino Index gained for the first time in three weeks, even though local markets were closed at the start of the week. The peso jumped 0.6% to 46.79 per dollar at the close, after first sinking as much as 0.4 percent from last week. The nations bonds, due in 2041, progressed for a fourth consecutive day.

Duterte said to journalists on Monday that he may bring in Carlos Dominguez as economic minister. Dominguez and Duterte were childhood friends and Dominguez was agriculture minister for the late President Aquino.

Once thought of as Asia’s “poor man,” the country of 102 million has earned accolades from the World Bank as the continent’s “rising star” under Aquino, with its 6.1 percent growth rate outperforming previous decades.

Regardless, poverty rates remained at unacceptable levels and Duterte made the issue a running policy, gaining popular support. Increased growth and 3.5 million jobs created in Aquino’s term resulted in a massive increase in car sales, but also had a negative effect on Manila’s already overworked roads as spending on infrastructure failed to keep pace with the economy.

Trading House Enters Harmonious New Partnership

With corporate banks winding down their involvement in the commodity business due to flagging returns and a rise in regulatory controls, a vacuum has appeared.

Enter trading house Mercuria, a privately held company based in Switzerland, who have become increasingly active over a large spectrum of the global energy markets over recent years and is currently one of the five biggest independent energy traders and asset operators on the planet.

Mercuria Energy Group Ltd, founded in 2004 and partly owned by ChemChina , has now teamed up with Nasdaq Commodities, the financial giant that owns and runs the NASDAQ stock exchange, on power and gas market contracts. Mercuria will offer liquidity and client access mainly through its London office.

The Geneva based firm, which operates in over 50 countries, made a bold move in 2014 when it bought a sizeable portion of JPMorgan Chase & Co.’s commodity unit. Following that $850ml investment it will expand operations in the sector with the new agreement with Nasdaq Inc.

It’s expected the company will become increasingly active acting as middle man between major energy corporations in Europe and U.S. hedge funds as they provide valuable access to new Nasdaq contracts in the physical commodity markets.

“Mercuria have taken on this challenge, and it’s a fantastic opportunity to fill the void left by the big banks who we have seen take a step back from this area over the last few years,” James Summers, Global Co-Chief Operating Officer of Equities at Acom Alliance commented in an email to clients on Thursday. “They have built up a trustworthy reputation and will offer access to large contracts on the continent together with market liquidity on the strength of that reputation.” he added.

New Challenges

All this is a far cry from the ‘bread and butter’ business that trading houses have dominated in the past. Mercuria, along with other big names like Trafigura, are specialists in purchasing and selling goods for other businesses who require international trade experts to handle their stock, and the company would make a profit on this straightforward trading. Diversification has been necessary as margins have shrunk due to tighter competition and many groups have purchased assets, especially in the energy sector, such as oil platforms and other infrastructure. Although Mercuria have been similarly active acquiring assets, they have also looked to diversify as a market creator.

The company are expected to now supply clients with first refusal access to European gas and power contracts connected to Nasdaq, including short and long term options, Summers added that part of Mercuria’s overall strategy would be to create new markets for contracts within its sphere.

Harmonious Connection

“What I like about this move by Mercuria and Nasdaq is that they are providing a harmonious bridge between two massive and vital components of world business. The physical and financial cogs in the global machine are now perfectly in tune” Summers said.

On Bull-Market Crisis, Goldman Jeers as Citi Sees Commodity Increases

With respect to commodity bulls, it may, at long last, be time to heave a sigh of relief.

 

There is a growing number of voices and a surge of financial investment alluding to the fact that the worst of the slump is over. Standing out is Citigroup Inc., the bank that was on the ball in 2012, when their analysts correctly foresaw the end of the commodity super cycle and the end of rising demand and costs.

 

Crude materials are on the edge of a bull market, following five years of value decreases powered by abating Chinese interest and worldwide surpluses for most metals, grains and energy items. Not everyone anticipates that the mists will lift. Goldman Sachs Group Inc. sees no "practical movement in fundamentals" and says higher U.S. loan costs will keep the view bearish. Be that as it may, speculative commodity investments have surged with bets on a rally at their highest since 2014.

 

"It is possible that we've seen a bottom in commodities in general," said James Summers, Global Co-Chief Operating Officer of Equities at Acom Alliance, which manages about $4 billion in assets. “

 

Bull Markets

 

The Bloomberg Commodity Index, a measure of profits for 22 commodities, has ascended as much as 17% from a record low in January. An increase of 20% would meet the basic definition of a bull market. The index surged 8.5% in April, the greatest month to month advance since 2010.

 

Supplies of copper are looking tight. Consolidated stockpiles observed by trades in London, Shanghai and New York shrank 15% from a high in Spring.

U.S. Rates

 

Goldman Sachs' bearish view relies on the opinion that the Federal Reserve will raise interest rates three times this year, contrasted with Citigroup's predictions of 2 increases. Goldman Sachs stated in a recent press release that increased borrowing expenses would prompt a more grounded dollar, putting pressure on gold and copper.

 

Morgan Stanley analysts are negative on energy, stating in a report on April 25^th that a large scale unravelling could bring about extreme selling. Iraq's exports drew to a near record high in April, while U.S. stocks are at their most noteworthy since 1929.

 

For the time being, speculators are supporting Citigroup’s view. Since mid-March, hedges and other cash administrators have multiplied their joint net-long assets across 18 products to 1.09 million options and futures contracts according to U.S. government information.