The South African rand has emerged as the one of the biggest casualties of the fall in commodity prices and the strength of the US dollar, as investors sent the currency to its weakest level in more than four years.

South Africa’s currency fell nearly 2 per cent against the US dollar to hit its lowest level since the bottom of the global equity market in March 2009, after the economy expanded at a slower rate in the first three months of the year.

Investors sold the rand after figures showed the South African economy grew just 0.9 per cent in the first quarter from the previous quarter, down from expectations of a 1.6 per cent expansion. The dollar hit R9.786 after the data were released. >> Read More

Brazil central bank meets Wednesday, and consensus is a 25 bp hike to 7.75%. Brazil will also report May IGP-M wholesale inflation and Q1 GDP on Wednesday, followed by April budget data on Friday. Consensus for GDP growth is a pick up to 2.3% y/y from 1.4% y/y in Q4. Fiscal policy has been loosened even as inflation remains at the top of the 2.5-6.5% target range. This has fed into some calls for a 50 bp hike this week, including us. USD/BRL traded at a new high for the year above 2.06 today, and we do not think policymakers are unhappy with this bout of currency weakness. So far, the central bank has not come in with swaps to protect the 1.95-2.05 range, suggesting that it may not be in effect if the range is broken due to widespread dollar gains. >> Read More

 China’s factory activity shrank for the first time in seven months in May as new orders fell, a preliminary survey of purchasing managers showed, adding to concerns that a recovery in the world’s second-largest economy is sputtering.

The flash HSBC Purchasing Managers’ Index for May fell to 49.6, slipping under the 50-point level demarcating expansion from contraction for the first time since October. The final HSBC PMI stood at 50.4 in April.

A sub-index measuring overall new orders dropped to 49.5, the lowest reading since September, suggesting China’s domestic economy is not strong enough to offset soft external demand. >> Read More

Gold has faced stiff headwinds lately as investors abandon alternative investments to chase record-high stock markets.  Probably the most significant has been the major selling hammering the flagship GLD gold ETF.  It has suffered such intense differential selling pressure that its custodians have been forced to dump enormous quantities of physical gold.  What are the implications of this flood of new supply?

 The amount of gold bullion GLD has hemorrhaged recently is amazing.  To put it into perspective, earlier this week the rumor that embattled Cyprus may be forced to sell its official gold reserves made news.  The Cypriot government owns 13.9 metric tons of gold.  But on a single trading day alone in February’s gold capitulation, GLD had to sell 20.8 tonnes!  The supply recently added by GLD dwarfs everything else.

 Why is GLD dumping gold so aggressively?  While silly conspiracy theories abound as always in the gold world, the reality is far less provocative.  GLD’s mission is simply to track the price of gold.  The World Gold Council (which is funded by leading gold miners) created this gold investment vehicle in November 2004 to offer stock investors an easy, cheap, and efficient way to obtain gold exposure in their portfolios.

 The gold miners created a direct conduit for the vast pools of stock-market capital to chase gold.  The only way for GLD to fulfill its mission of tracking gold is for this ETF to shunt excess GLD-share demand and supply into underlying physical gold bullion itself.  This capital sloshing into and out of gold via GLD has naturally had a massive impact on global gold prices.  And lately gold has suffered a major GLD exodus.

 During times like 2009 when gold grows popular among investors, GLD shares are bought up far faster than gold itself is rallying.  This excess, or differential, GLD demand would quickly force this ETF to decouple from the metal to the upside if not equalized into physical gold.  So GLD’s custodians sop it up by issuing new GLD shares to meet demand.  They then use the proceeds to buy more gold bullion. 

But when gold is falling out of favor like now, capital flows reverse.  GLD shares are dumped at a quicker pace than gold’s own selloff.  This differential selling pressure creates an excess supply of GLD shares.  This ETF would decouple from gold to the downside if this wasn’t equalized into the metal.  So GLD is forced to buy up this excess supply.  It raises the cash to do this by selling some of its gold bullion. >> Read More

How quickly the mighty can fall. Once again, a leading market bellweather for how awesome everything is has missed. Missed Top-line; missed bottom-line; guided top-line lower; guided bottom-line lower. It seems, surprise surprise, currency headwinds are to blame for some of the damage.

• *ORACLE 3Q NON-GAAP EPS 65C, EST. 66C
• *ORACLE 3Q NON-GAAP REV. $8.97B, EST. $9.37B
• *ORACLE SEES 4Q NON-GAAP REVENUE DOWN 1% TO UP 4%, EST. UP 5%
• *ORACLE SEES 4Q NON-GAAP EPS 85C-91C, EST. 88C

Analysts at French bank Societe Generale have a big report out titled The Return Of Yield: Preparing For Rising Long Term Rates.

 The theme is very great rotation-y in that they argue that the economy is turning the corner, and interest rates are about to rise.

Their language is strong and dramatic. A watershed moment for the US economy is at hand, and the risk are that it will happen sooner rather than later. >> Read More

The global rating agency Standard and Poor’s today said the factors constraining the asset quality of banks in Asia Pacific region including India will persist in 2013.

The region’s economy is likely to show a moderate recovery in 2013 after a sharp drop in growth in 2012, but some headwinds in the global economy, such as negative GDP growth in the eurozone, will continue to weigh on growth in Asia-Pacific.

Some of the more debt-laden corporate and household sectors in the region remain susceptible to external shocks, the report said. Outlook on ratings on half of the banks in Japan and all the banks in India are negative, reflecting negative outlook on these sovereign ratings, S&P said.

The other sovereign rating agencies in the region have stable outlooks. >> Read More

1.Can you kill the investment? Is there adult supervision at the company?

2. Is the company essential? Does it depend upon the kindness of strangers?

3. What can the company make? Reasonable profitability for owners?

4. How are owners paid? Distributions?

5. Management – honest in past and present?

6. Does accounting reflect reality?

7. Does the balance sheet match up with the income statement?

8. Catalysts – Buybacks? Misunderstood? Is enterprise having a big problem that is fixable? Everyone’s been burned by the stock so afraid to buy it.

9. Are there irrational fears of current headwinds?

10. Does the business have pricing power or unit growth?

11. Can you hold the investment for a long time & does it improve portfolio performance?

After facing headwinds for two consecutive years, the economy is set to grow at 6.8 per cent next fiscal on a reversal in deterring factors, says the economic think tank the Centre for Monitoring Indian Economy (CMIE).

“The economy is set to grow at 6.8 per cent in 2013-14, after showing a sharp deceleration in the preceding two years,” the CMIE said in its February review of the economy.

It said the slowdown is due to supply constraints emanating from the mining and agricultural sectors, slow implementation of projects and a slowdown in discretionary spends.

In FY14, “growth will be aided by easing supply constraints, lower inflation, softening of interest rates and fast-tracking of investment projects,” it said. >> Read More