Storage should see more buying and MCP is showing a little dead cat bounce
Avago Technologies Ltd. (AVGO:US), a chip manufacturer that began as a unit of Hewlett-Packard Co. (HPQ:US), agreed to buy LSI Corp. (LSI:US) for $6.6 billion, gaining semiconductors for disk drives and other electronics.
Avago will pay $1 billion in cash and use a $4.6 billion bank loan, the companies said in a statement today. Silver Lake Partners, a private-equity firm that helped acquire Avago before its initial public offering in 2009, will provide a $1 billion investment toward the all-cash purchase.
LSI and Avago may be combining to gain more resources as the cost of designing and building semiconductors rises, potentially heralding a wave of deals in the industry, said Suji De Silva, an analyst at Topeka Capital Markets Inc. Packaged together, some of the companies’ storage products may be more attractive to large Internet data-center operators, such as Google Inc., he said.
Japanese Prime Minister Shinzo Abe's Abenomics has largely been driven by aggressive monetary easing initiated by the Bank of Japan (BOJ). The BOJ has aggressively expanded its balance sheet in hopes of increasing inflation, weakening the Yen (FXY, JYN, YCL, YCS), and driving down real interest rates. While the BOJ has succeeded on all three fronts, the efficacy of increasing inflation and weakening the yen to the benefit of the broader Japanese economy has been unresolved.
The Inflation-Currency Link
Inflation and a weaker currency are of course interconnected. A weaker currency pushes labor costs down and makes exporting goods easier. However, it also imports inflation due to the higher import prices, thus decreasing purchasing power. Often times as imports grow more expensive, consumers can substitute cheaper domestic alternatives and thus improve the country's balance of trade. Conversely a strong currency pushes labor costs up, makes exporting goods more difficult, but also increases the consumer's purchasing power. Export-oriented countries such as Japan have typically favored a weak currency as they have historically subscribed to a mercantilist mindset.
With regards to inflation, the aggressive monetary policy by the BOJ has accelerated inflation somewhat in Japan. Furthermore, there are some signs that the increase in consumer goods may make its way to wage inflation as workers negotiate a higher wage due to a higher cost of living. However, without commensurate wage inflation, it is doubtful that an increase in inflation will be welcomed by the Japanese consumer. Even now, over 70% of Japanese polled have not been feeling the benefits of Abenomics, while Japanese exporters have been ecstatic about the weak Japanese Yen.
As noted above, a weaker currency would be expected to help Japan's balance of trade. Unfortunately Japan's most important import is energy. Japan has limited domestic energy resources and domestically only produces roughly 15% of its total energy needs. This reliance on imported energy has been amplified by the shuttering of Japan's 50 nuclear reactors due to the nuclear meltdown at Tokyo Electric Power Co's Fukushima facility in 2011. Nuclear energy accounted for 30% of Japan's electricity and was Japan's greatest source of domestically produced energy. The impact of the falling Yen and greater need for imported energy sources have been apparent in the recent trade deficit reported in Japan as crude oil imports rose 28.1% and liquefied natural gas rose 21.4% from a year earlier. While Japan has always had to import energy, the shuttering of nuclear reactors have made energy imports even more inelastic with no viable substitutes to be produced domestically.
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he EIA expects a sharp rebound in demand this year, although two massive unknowns – the pace of vaccinations and the pace of infections from new covid variants – throw most forecasts into a deep state of uncertainty.
Oil shot up to a one-year high on Tuesday, with WTI topping $55 per barrel. The oil market is “supported by the combination of tightening fundamentals, as seen through the rising backwardation and the renewed risk appetite in the U.S. stock market,” said Ole Hansen, head of commodities research at Saxo Bank A/S.
U.S. West Texas Intermediate crude oil futures rose to their highest levels in nearly a year on Friday with Brent traders zeroing in on the psychological $60 a barrel level on economic revival hopes led by strong compliance with the planned output cuts by OPEC+.
Also contributing to the gains were a government report that showed another draw in crude stockpiles, optimism over a speedier U.S. economic recovery on the prospect of additional stimulus from Washington and a successful rollout of the U.S. vaccination program.
OPEC+ Sticks with Oil Policy as Prices Rise Towards One-Year High
OPEC+ maintained its oil output policy at a meeting on Wednesday, a sign producers are happy that their deep supply cuts are draining inventories despite an uncertain outlook for a recovery in demand as the pandemic lingers.
A Joint Ministerial Monitoring Committee of the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, is “optimistic for (a) year of recovery in 2021,” OPEC said in a statement after the panel met virtually.
US Crude Stockpiles Fall, Gasoline Inventories Surge: EIA
U.S. crude oil stockpiles fell while gasoline inventories jumped unexpectedly, the Energy Information Administration said on Wednesday.
Crude inventories fell by 994,000 barrels in the week to January 29 to 475.7 million barrels, their lowest since March. Analysts in a Reuters poll had forecast a 446,000-barrel rise.
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