External headlines on July 24: The European Central Bank kept its benchmark interest rate unchanged at 2.25%. Intel’s Q 2 revenue increased by 25% year-on-year. Morgan Stanley said Japanese government bonds are worth buying
Global financial media last night and this morning The headlines of common concern include: The European Central Bank keeps its benchmark interest rate unchanged at 2.25%, while soaring energy prices intensify expectations of interest rate hikes Oil prices top $100 as Houthi attack in Red Sea heightens supply risks Intel's Q2 revenue increased by 25% year-on-year, GAAP turned a profit and non-GAAP performance exceeded expectations, capital expenditures increased SAP Q2 cloud business revenue increased by 22%, net profit increased by 26%, and full-year non-IFRS operations were reduced Is basis trading “dead”? Hedge funds’ favorite U.S. bond betting strategy shows signs of weakness Morgan Stanley: 10-year Japanese government bonds are worth buying at an “eye-popping” 3% level The European Central Bank announced on the 23rd that it would keep the three key interest rates in the euro zone unchanged at the current level of 2.25%. European Central Bank President Christine Lagarde said at a subsequent press conference that although the decision to remain on hold was unanimously approved by the Governing Council, the central bank has begun discussions within the central bank on further raising interest rates against the backdrop of the escalating situation in the Middle East that has driven up international oil prices. Lagarde pointed out that the breakdown of the US-Iran ceasefire agreement and the continued obstruction of Red Sea shipping have had a "serious impact" on the global commodity market. Since the beginning of July, the cumulative increase in international oil prices has exceeded 30%, and the price of London Brent crude oil futures once again exceeded the US$100 per barrel mark on the 23rd. Lagarde warned that the subsequent impact of energy price shocks on euro zone inflation has not yet fully emerged. The current economic uncertainty remains high and the development of the Red Sea situation is "worrying" and may have unexpected spillover effects on other economic sectors. Oil prices topped $100 a barrel for the first time in two months after Iran-backed Houthi rebels said they attacked two Saudi Arabian oil tankers in the Red Sea, an action that escalated the conflict in the Middle East and could cause more serious supply disruptions. Yemen's Houthis said they fired missiles and drones at the ships to enforce a blockade of Saudi ports announced this week. Intel's Q2 revenue increased by 25% year-on-year, GAAP turned a profit and non-GAAP performance exceeded expectations ) Total revenue in the second quarter was US$16.128 billion, a year-on-year increase of 25%, the highest growth rate in the past fifteen years, mainly driven by factors such as strong computing demand, improved product delivery efficiency, and improved manufacturing yields. Quarterly GAAP operating profit was US$1.796 billion, compared with a loss of US$3.176 billion in the same period last year, with an operating profit margin of 11.1%; non-GAAP operating profit was US$2.770 billion, with a non-GAAP operating profit margin of 17.2%, which was positively driven by lower operating expenses such as R&D and MG&A (a year-on-year decrease of 6%). At the end of the quarter, cash and cash equivalents and short-term investments totaled US$29.727 billion, a sharp decrease from the previous quarter. Due to capital investments such as equipment and clean room construction during the quarter, adjusted free cash flow was -US$8.419 billion. ) Total revenue in the second quarter was 9.878 billion euros, a year-on-year increase of 9% (11% growth at constant exchange rates), mainly driven by the accelerated growth of the cloud business. The current cloud business backlog reached 22.929 billion euros, a year-on-year increase of 27% (a 26% increase at fixed exchange rates). Quarterly IFRS operating profit was 2.643 billion euros, a year-on-year increase of 8%, and IFRS operating profit margin was 26.8%; non-GAAP operating profit was 2.743 billion euros, a year-on-year increase of 7% (up 9% at constant exchange rates), and non-GAAP operating profit margin was 27.8%. Profit growth was driven by an increase in cloud computing and software gross profit, but was partially offset by accelerated investment in R&D and the dilutive effect of acquisitions. At the end of the quarter, cash and cash equivalents were 10.511 billion euros, and free cash flow reached 3.002 billion euros, a year-on-year increase of 27%; cash flow from operating activities in the first half of the year was 6.666 billion euros, a year-on-year increase of 5%. The share buyback program has been completed for approximately 2.6 billion euros. Hedge funds' most popular trading strategy in the U.S. bond market is showing signs of approaching capacity limits.
This strategy, known as basis trading, focuses on betting on the tiny price difference between U.S. Treasury futures and corresponding cash bonds, amplifying returns by borrowing large amounts of money. But now, those spreads are narrowing and trading momentum is waning. Trading activity in the repo financing market, which is commonly used by some hedge funds to obtain leverage, has declined, and short positions in Treasury futures have also shrunk, indicating to some extent that basis trading has ebbed. It is estimated that the amount of funds invested in basis trading by leveraged investors has dropped by more than $200 billion in recent months to $1 trillion. Morgan Stanley said that Japanese government bond yields have risen to "eye-popping" levels, with the 10-year government bond yield approaching 3%, providing a good buying opportunity. Matthew Hornbach, global head of macro strategy, said in an interview: "If the 10-year Japanese government bond yield reaches 3%, I will definitely consider buying it. I think it looks very attractive." "If you buy bonds with a nominal yield of 3% and think that Japan's underlying inflation rate will be closer to 1% in the next 10 years, then the real interest rate suddenly reaches 2%." Such real yields are "competitive" among global bonds, especially given Japan's ongoing demographic challenges and the impact of its aging population on productivity growth.
This strategy, known as basis trading, focuses on betting on the tiny price difference between U.S. Treasury futures and corresponding cash bonds, amplifying returns by borrowing large amounts of money. But now, those spreads are narrowing and trading momentum is waning. Trading activity in the repo financing market, which is commonly used by some hedge funds to obtain leverage, has declined, and short positions in Treasury futures have also shrunk, indicating to some extent that basis trading has ebbed. It is estimated that the amount of funds invested in basis trading by leveraged investors has dropped by more than $200 billion in recent months to $1 trillion. Morgan Stanley said that Japanese government bond yields have risen to "eye-popping" levels, with the 10-year government bond yield approaching 3%, providing a good buying opportunity. Matthew Hornbach, global head of macro strategy, said in an interview: "If the 10-year Japanese government bond yield reaches 3%, I will definitely consider buying it. I think it looks very attractive." "If you buy bonds with a nominal yield of 3% and think that Japan's underlying inflation rate will be closer to 1% in the next 10 years, then the real interest rate suddenly reaches 2%." Such real yields are "competitive" among global bonds, especially given Japan's ongoing demographic challenges and the impact of its aging population on productivity growth.