The financial week in five charts - Yenterventions, refinery windfalls, and SpaceX's splurge
Open Interest (ROI), every Friday, distills the previous five days' financial data into five charts that highlight the major trends, surprises, and overlooked movements.
1. JOINT YENTERVENTION
JAMIE MCGEEVER is a columnist for ROI Markets. The U.S. Treasury has not made its first FX intervention, and it won't make its last. It was a very unusual move. Not least because of the preparations, which included the "to-do list" of U.S. Treasury Sec. Scott Bessent for the yen purchases. The Treasury purchased the yen using euros, not dollars. This could be a sign that Washington is unwilling to sell any dollar-denominated assets, even in small quantities, when long-dated Treasury rates are already at their highest levels in 19 years. The Fed's "FIMA", which is a repo facility that relieves pressure on Tokyo, could be a result of concerns about the bond markets. Investors should not 'get complacent' about the latent risks that have long been present in the U.S. Bond Market. A major creditor such as Japan could be forced into liquidating a large portion of its enormous holdings of U.S. Government debt, which would quickly drive up borrowing costs.
Does this seem likely? Markets are currently facing a perfect storm, with a weak yen, a stress in Japanese government bonds and some parts of the Treasury Curve, as well as credibility issues from the Federal Reserve and Bank of Japan. It is therefore advised to exercise caution.
2. HOT MARGINS RON BOUSSO: The Iran War and its knock-on effect have reduced global refining capacities by approximately 5 million barrels a day compared to pre-war levels. This has given refiners considerable pricing power - driving margins of gasoline, jet fuel, diesel, etc., to record highs.
This has helped oil majors boost their second-quarter earnings. However, the gains will not last because they are a result of lost capacity and not stronger demand.
3. OVERSTIMULATED MIKE DOLAN: Although the headline inflation adjusted U.S. Gross Domestic Product (GDP) figure may not be impressive, the nominal U.S. GDP clocked an annualised growth rate of almost 8% during the second quarter. This rate was exceeded twice in the last three years, and is nearly twice the average for the past 25 years. It is yet another sign that America's economy is gaining steam and could overheat. It is becoming more and more urgent to tighten the policy, but if not from the Fed then it could come from bond markets.
4. IS THIS A SIGNATURE OF WHAT'S TO COME?
GAVIN MAGUIRE is a columnist for ROI Energy Transition. Several countries have increased their imports of Chinese Electric Vehicles (EVs) while simultaneously reducing their gasoline imports.
Correlation does not equal causation. The negative impact of the Iran War on fuel imports has a clear role to play. When the same pattern is seen across different regions and income levels it becomes less of a coincidence and more indicative of a structural change. It is possible that China's surge in EV exports is reshaping global gasoline trade flows.
5. SPACEX - SPLURGE ANNA SZYMANSKI is the Editor-in Charge of ROI. On Tuesday, SpaceX reported a second-quarter revenue figure of $7.8 Billion, exceeding analysts' expectations. However, the stock price fell on Wednesday, as investors focused their attention on the huge increase in capex relating to 'the company's AI build-out. The total spending in the quarter was $18.4billion, with $15.8billion of that amount going to AI. After the first lockup period ended on Thursday for insiders, the shares may 'eventually' come under more pressure. This could put the iron stomach of retail investors to the test. Opinions are the sole responsibility of their authors. These opinions do not represent the views of News. News is committed to the Trust Principles and to maintaining integrity, independence, as well as freedom from bias.
(source: Reuters)
