Saturday, July 21, 2018

Weekly Commentary: Intimidate Nobody

Strangely perhaps, but late in the week my thoughts returned to James Carville's 1992 comment: "I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody."

Things have changed so profoundly since then, though I get no sense that many appreciate the momentous ramifications. It seems like ancient history, but the bond market was the king of imposing discipline. Bonds maintained an intimidating watchful eye. No crazy stuff - from politicians, central bankers or corporate managements. The bond market of old would have little tolerance for $1.0 TN dollar deficits, QE or a prolonged boom in BBB corporate debt issuance. Contemporary markets seem to have only a burgeoning desire to tolerate.

July 19 - Reuters (Trevor Hunnicutt and Saqib Iqbal Ahmed): "Donald Trump's comments that a strong dollar 'puts us at a disadvantage' caused an instant fall in the greenback on Thursday and marked another example of the U.S. president commenting directly - and sometimes contradictorily - on the country's currency. Talking directly about the dollar is a break with typical practice by U.S. presidents, who are wary of being seen as interfering directly with financial markets… 'There are certain comments most presidents wouldn't make,' said Michael O'Rourke, chief market strategist at JonesTrading. 'They'd defer monetary policy to the Fed and the dollar to the Treasury secretary. But Donald Trump is not most presidents.'"

July 19 - CNBC (Jeff Cox): "President Donald Trump's move to criticize the Federal Reserve is almost without precedent in a nation that places a high priority on the independence of monetary policy. Almost all of Trump's predecessors steered clear of Fed critiques in the interest of making sure that interest rates were set to whatever was best for the economy and not to boost anyone's political fortunes. The Trump administration, of course, has been anything but typical, and the Trump comments, if anything, were consistent with a president who cares little for convention and is willing to speak his mind on virtually anything. 'Somebody would say, 'Oh, maybe you shouldn't say that as president,' Trump said… 'I couldn't care less what they say, because my views haven't changed.'"

July 19 - Bloomberg (Christopher Condon, Craig Torres and Jeanna Smialek): "President Donald Trump criticized the Federal Reserve's interest-rate increases, breaking with more than two decades of White House tradition of avoiding comments on monetary policy out of respect for the independence of the U.S. central bank. 'I'm not thrilled' the Fed is raising borrowing costs and potentially slowing the economy, he said... 'I don't like all of this work that we're putting into the economy and then I see rates going up.' The dollar relinquished gains from earlier in the day and Treasury yields dropped following the president's remarks."

The 1992 bond market would have recoiled from even the notion of a U.S. President criticizing the Fed, talking down the dollar or kicking sand in the faces of both allies and major foreign holders of our debt. Considering the backdrop, heightened discussion of market complacency is understandable - and long overdue. Why do today's markets - bonds and otherwise - not respond as they would have traditionally? Why is the idea of markets actually imposing discipline turned into such a humorless joke? Discipline? Heck, they don't even react.

From the Fed's Z.1, Total (Debt and Equity) Securities ended this year's first quarter at a record $89.0 TN, or 446% of GDP. For comparison, Total Securities began 1992 at $13.3 TN, or 215% of GDP - only to end the nineties at 360% of GDP ($34.8TN). The Greenspan Federal Reserve championed a historic shift to "activist" central bank management of "market"-based finance. Pure genius and, indeed, miraculous. The economy would massively expand the supply of Credit and equities - and no amount of new supply would slow the dramatic inflation in securities prices. Policymakers found themselves with this all-powerful new lever in which to formulate wealth.

This New Age market finance proved highly unstable. No worries; the Fed would loosen financial conditions with only the wink of a rate cut, as a captive audience of speculators eager to leverage debt securities fixated on every policy twitch. The GSEs were also there to provide increasingly speculative markets a New Age liquidity backstop, with their ballooning balance sheets a harbinger of what was to come from the Federal Reserve and global central bank community. If Fed rate cuts and massive GSE liquidity didn't suffice, there was always government deficit spending and bailouts.

The Federal Reserve and Washington thoroughly abused market-based finance. Along the way, unsound "money" and deeply flawed policy doctrine ensured markets turned increasingly dysfunctional. Not only did they not provide a disciplining mechanism, they became a complicit tool to Washington's power grab. The Treasury market essentially became a bet on prospective monetary policy easing. And as Bubble Dynamics increasingly commanded stock and real estate prices, Treasury bonds essentially became the go-to instrument for betting on (or hedging against) bursting Bubbles. "Excess begets excess." This was especially the case after Dr. Bernanke trumpeted the benefits of "helicopter money" and the "government printing press".

Long before the financial crisis, I argued that "activist" central banking was on a very slippery slope. The evolution of New Age Finance took a giant leap with chairman Bernanke's implementation of zero rates and QE. The Fed's move to reflate the system through inflated market prices essentially ended the securities markets as mechanism of self-adjustment and correction. Market discipline was dead. Today, financial markets now chiefly operate as a tool of government ("government finance quasi-Capitalism").

This complex story turned only more convoluted as the world moved aggressively to adopt U.S.-style policies and, not to be left hopelessly behind, market-based finance. Are the profound changes in monetary management and the rise of the "strongman" politician mere coincidence? I would imagine Greenspan and Bernanke quietly abhor the rise of populism. Do they feel any sense of responsibility?

With central bankers so celebrated for blatantly manipulating markets, of course politicians, dictators and the like would insist on getting a piece of the action. Inflating financial markets became essential to power - economic, political and geopolitical. And as finance became integral to economic growth and the global power play, why not use financial sanctions or the threat of financial repercussions to dictate nation-state behavior? And, over time, attaining financial wealth became an absolute prerequisite for wielding geopolitical power and influence.

The old military variety appears almost feeble standing next to the contemporary Financial Arms Race. And if you seek dominance - domestically, regionally and/or internationally - you had better get a tight rein on the securities markets - whether you're in Washington, Ankara, Moscow or Beijing. Beijing (and it's "national team") moved ahead in this regard, but it would appear Washington is today keen to play catch up. As market-based finance has commandeered the world, the centers of global power have moved to take command of the markets.

July 17 - Wall Street Journal (Nick Timiraos): "Federal Reserve Chairman Jerome Powell delivered an upbeat assessment of the economy and said it justified continued interest rate increases. But he opened the door to a potential policy shift and outlined risks if escalating trade tensions result in permanently higher tariffs. Mr. Powell has mostly sidestepped recent questions on trade policy because he says it is outside of the Fed's responsibilities. He offered words of caution Tuesday… 'In general, countries that have remained open to trade, that haven't erected barriers including tariffs, have grown faster. They've had higher incomes, higher productivity,' said Mr. Powell. 'And countries that have gone in a more protectionist direction have done worse.' Mr. Powell affirmed the Fed's plans to continue with gradual rate increases…"

I'd be curious to know if it was Chairman Powell's trade comments that provoked the first presidential criticism of the Federal Reserve since Richard Nixon. My hunch would be that the administration is crafting a strategy to direct blame at the Federal Reserve in the event the stock market begins to unravel. I cringed Thursday when Larry Kudlow called out Chinese President Xi as responsible for the lack of fruitful Chinese trade negotiations. Count me quite skeptical that this kind of pressure will prove an adept negotiating ploy.

This game of chicken is turning more dangerous, and perhaps the administration is preparing to scapegoat the Federal Reserve. I personally find the denigration of U.S. institutions most regrettable. The Fed down the road will have enough problems maintaining public trust and confidence. And with short rates not yet even above 2%, the thought that the Fed is already getting pulled into the muck creates a very uncomfortable feeling. My unease only worsened with the President's strong dollar "puts us at a disadvantage" comment.

Am I the only one that finds it ironic that Russia recently dumped most of its Treasury holdings? The administration seems to save its vitriol for countries with large holdings our of debt instruments. Call me old fashioned, but I suggest treating one's creditors with at least a modicum of respect. Ten-year Treasury yields jumped seven bps Friday, as the dollar was being pressured by the President's comments. If the administration has begun buckling in for a dicey game of chicken, it would be wishful thinking not to contemplate Treasuries and the dollar as possible collateral damage.

It was another extraordinary week. I'll leave it to others to get political. Looking at recent developments, one would see strong support for the view that the President is imploding. Or, one wouldn't… Either way, he appears emboldened and certainly in no mood for backing down on anything. Markets just take it all in - and exhale calmly. Securities markets have grown fond of disruption (will tend to keep central bankers in check). The threat of a trade war is tolerable - so long as we don't see an actual smash up. Seems reasonable to assume they're not completely reckless, doesn't it? The President is, after all, keen for higher markets, as are leaders around the globe. Markets are keen to accommodate.

July 20 - CNBC (Tae Kim): "President Donald Trump said the stock market rally since his election victory gives him the opportunity to be more aggressive in his trade war with China and other countries. 'This is the time. You know the expression we're playing with the bank's money,' he told CNBC's Joe Kernen… The president has a big cushion. The S&P 500 is up 31% since Trump's win on Election Day, Nov. 8, 2016, through Thursday… Trump added the market would likely be much higher if he didn't escalate the trade issues with China and the rest of the world. 'We are being taking advantage of and I don't like it,' he said. 'I would have a higher stock market right now. … It could be 80% [since the election] if I didn't want to do this.'"

"Still dancing" - spoken infamously in the Summer of 2007. Summer 2018: "We're playing with the bank's money." "The bank's money" as in "the house's" money at a casino? Or "the bank's money" as in central bank "money"? Either way, it's apparently worth risking…

I'm fond of saying how crazy things get near the end of Bubbles. Convinced this is History's Greatest Bubble, I've been anticipating a pretty astonishing variety of "crazy." Watching this all unfold with increasing trepidation, I sense an important line has been crossed. It's time to retire "crazy" - find a replacement that conjures up something more foreboding - more disturbing. And markets, well, they're seemingly fine with it all. At times almost giddy. And that's the fundamental problem: Dysfunctional markets continue to promote incredibly risky policy behavior - the polar (bear) opposite of imposing discipline.

The central banks' "slippery slope" has led us to an ominous place. "Strongmen" now believe it's within their domain to dictate the markets, interest rates and currency levels. All the while, it's regressed into an unprecedented global Bubble replete with a Global Financial Arms Race. Markets trade as if they fully expect all governments to absolutely, at all cost, safeguard their respective financial wealth (i.e. Bubbles). Remember "the West will never allow a Russian collapse"? And "Washington will never allow a housing bust"? Global policymakers will never allow another major crisis. Well, let's see how this game of chicken between President Trump and President/General Secretary Xi plays out.


For the Week:

The S&P500 was little changed (up 4.8% y-t-d), while the Dow added 0.2% (up 1.4%). The Utilities declined 0.5% (down 0.9%). The Banks jumped 2.3% (up 0.2%), and the Broker/Dealers rose 1.9% (up 5.3%). The Transports gained 1.8% (up 1.2%). The S&P 400 Midcaps were little changed (up 5.1%), while the small cap Russell 2000 added 0.6% (up 10.5%). The Nasdaq100 slipped 0.3% (up 14.9%). The Semiconductors rose 1.4% (up 8.5%). The Biotechs were about unchanged (up 21.1%). With bullion down $9, the HUI gold index declined 0.9% (down 10.6%).

Three-month Treasury bill rates ended the week at 1.93%. Two-year government yields added a basis point to 2.59% (up 71bps y-t-d). Five-year T-note yields rose four bps to 2.77% (up 56bps). Ten-year Treasury yields gained seven bps to 2.89% (up 49bps). Long bond yields jumped nine bps to 3.03% (up 29bps). Benchmark Fannie Mae MBS yields rose five bps to 3.61% (up 62bps).

Greek 10-year yields increased two bps to 3.85% (down 23bps y-t-d). Ten-year Portuguese yields gained five bps to 1.78% (down 16bps). Italian 10-year yields rose four bps to 2.59% (up 57bps). Spain's 10-year yields gained five bps to 1.31% (down 25bps). German bund yields added three bps to 0.37% (down 6bps). French yields jumped six bps to 0.68% (down 11bps). The French to German 10-year bond spread widened three to 31 bps. U.K. 10-year gilt yields fell four bps to 1.23% (up 4bps). U.K.'s FTSE equities index added 0.2% (down 0.1%).

Japan's Nikkei 225 equities index increased 0.4% (down 0.3% y-t-d). Japanese 10-year "JGB" yields slipped one basis point to 0.035% (down 1bp). France's CAC40 declined 0.6% (up 1.6%). The German DAX equities index dipped 0.2% (down 2.8%). Spain's IBEX 35 equities index was little changed (down 3.2%). Italy's FTSE MIB index declined 0.4% (down 0.3%). EM equities were mixed. Brazil's Bovespa index rallied 2.6% (up 2.8%), and Mexico's Bolsa gained 1.0% (down 0.9%). South Korea's Kospi index declined 0.9% (down 7.2%). India’s Sensex equities index was about unchanged (up 7.2%). China’s Shanghai Exchange was little changed (down 14.5%). Turkey's Borsa Istanbul National 100 index recovered 4.7% (down 18.4%). Russia's MICEX equities index sank 4.2% (up 6.5%).

Investment-grade bond funds saw inflows of $2.021 billion, and junk bond funds had inflows of $260 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates slipped a basis point to 4.52% (up 56bps y-o-y). Fifteen-year rates declined two bps to 4.00% (up 77bps). Five-year hybrid ARM rates added a basis point to 3.87% (up 66bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down two bps to 4.54% (up 48bps).

Federal Reserve Credit last week increased $5.4bn to $4.256 TN. Over the past year, Fed Credit contracted $184bn, or 4.1%. Fed Credit inflated $1.445 TN, or 51%, over the past 298 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt gained $2.2bn last week to $3.408 TN. "Custody holdings" were up $88.4bn y-o-y, or 2.7%.

M2 (narrow) "money" supply declined $11.8bn last week to $14.128 TN. "Narrow money" gained $526bn, or 3.9%, over the past year. For the week, Currency increased $0.9bn. Total Checkable Deposits rose $18.6bn, while Savings Deposits dropped $24.8bn. Small Time Deposits added $2.4bn. Retail Money Funds increased $1.0bn.

Total money market fund assets declined $5.0bn to $2.846 TN. Money Funds gained $229bn y-o-y, or 8.7%.

Total Commercial Paper dropped $12.6bn to $1.062 TN. CP gained $92bn y-o-y, or 9.5%.

Currency Watch:

The U.S. dollar index slipped 0.2% to 94.476 (up 2.6% y-t-d). For the week on the upside, the Brazilian real increased 2.2%, the Swiss franc 1.0%, the Japanese yen 0.9%, the New Zealand dollar 0.8%, the euro 0.3%, the Swedish krona 0.3%, the Singapore dollar 0.2% and the Canadian dollar 0.1%. For the week on the downside, the South African rand declined 1.0%, the South Korean won 0.9%, the Norwegian krone 0.8%, the Mexican peso 0.7%, the British pound 0.7% and the Australian dollar 0.1%. The Chinese renminbi fell 1.15% versus the dollar this week (down 3.88% y-t-d).

Commodities Watch:

The Goldman Sachs Commodities Index declined 1.2% (up 3.4% y-t-d). Spot Gold slipped 0.8% to $1,232 (down 5.5%). Silver lost 1.7% to $15.549 (down 9.3%). Crude dropped $2.75 to $68.26 (up 13%). Gasoline dropped 1.8% (up 15%), while Natural Gas increased 0.2% (down 7%). Copper declined another 0.7% (down 17%). Wheat rallied 3.8% (up 21%). Corn recovered 4.0% (up 5%).

Trump Administration Watch:

July 20 - CNBC (Jeff Cox): "President Donald Trump has indicated that he is willing to slap tariffs on every Chinese good imported to the U.S. should the need arise. 'I'm ready to go to 500,' the president told CNBC's Joe Kernen… The reference is to the dollar amount of Chinese imports the U.S. accepted in 2017 - $505.5 billion to be exact, compared with the $129.9 billion the U.S. exported to China… Thus far in the burgeoning trade war, the U.S. has slapped tariffs on just $34 billion of Chinese products, which China met with retaliatory duties… Trump's comments point to a willingness to push the envelope as far as the U.S. needs to get Chinese tariff concessions, along with a pledge to stop allegedly stealing American technology."

July 18 - CNBC (Michael Sheetz): "President Donald Trump's top economic advisor Larry Kudlow said China trade talks have stalled… 'I do not think President Xi has any intention of following through on any of the discussions we've made and I think the President is so dissatisfied with China on these so-called talks that he is keeping the pressure on and I support that,' Kudlow said. Kudlow pointed to the gap between U.S. and Chinese tariffs, saying 'our average tariff is about' 2.5% while 'China's average tariff is about 14%.' 'Here's my solution, and the president agrees with this: Lower your barriers,' Kudlow said. 'We will export like crazy.' Kudlow added that President XI of China himself is 'holding the game up' but that overall the country would like to make a deal."

July 18 - CNBC (Brian Schwartz): "Steve Bannon, former top advisor to Donald Trump, said Wednesday that the U.S. has been embroiled in a trade conflict with China for decades. 'We're at war with China,' Bannon said, praising Trump for taking on the Chinese. 'We're winning.' Bannon was speaking at CNBC's Delivering Alpha… His appearance comes on the heels of a provocative statement he gave to CNBC on Tuesday in which he said Trump knows he needs to 'unite the West against the rise of a totalitarian China.' For Bannon, the war against China can only end in one way and that's with the U.S. as victors. 'How it ends is in victory. Victory is when they give all full access to their markets,' he said. Bannon says his message is still heard within the White House."

July 19 - CNBC (Mike Calia): "Peter Navarro, one of President Donald Trump's top trade advisors, said… that China is in a 'zero-sum game' with the rest of the world when it comes to trade. Talking to CNBC's Joe Kernen…, he argued that the U.S. needs to protect its interests in rapidly developing technologies. 'This is our future,' Navarro said, citing artificial intelligence, robotics and high-tech industries - all of which are Chinese priorities for the next decade, as well. 'Unfortunately, it's a zero-sum game now between China and the rest of the world, and what we need to do as a country is to work with the rest of the world' to ensure prosperity and high stock markets, he said."

July 20 - CNBC (Tae Kim): "President Donald Trump criticized the Federal Reserve's monetary policy again. 'The United States should not be penalized because we are doing so well. Tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates - Really?' Trump said Friday on social media. Trump's latest comments come a day after his initial critical remarks about the Fed were revealed…"

July 20 - Wall Street Journal (Nick Timiraos and Harriet Torry): "President Donald Trump escalated his criticism of the Federal Reserve Friday, saying in a tweet that its efforts to raise short-term interest rates hurt the U.S. economic expansion, and he accused China and the European Union of manipulating their currencies to hurt the U.S. on trade. The tweets came shortly after CNBC broadcast an interview with Mr. Trump in which the president said he was prepared to raise U.S. tariffs on $500 billion worth of imports from China as part of his push to narrow U.S. trade deficits with China. In the same interview he said he wasn't happy about Fed rate increases. The president had previously been silent about Fed policy, in keeping with a long tradition…"

July 18 - Wall Street Journal (Chester Dawson and Joshua Zumbrun): "President Donald Trump stood by his threats to levy sweeping tariffs on automobile imports as a way to extract concessions from trading partners, despite opposition from the industry and discontent in Congress with the White House's proposal. Resistance to the tariffs is strong and growing. A coalition of foreign and domestic auto companies, along with auto dealers and auto-parts makers, released a letter on Wednesday urging Mr. Trump to refrain from the tariffs. A bipartisan group of 149 House members also urged the president not to move forward with the tariffs. Auto unions were among the few industry players offering qualified support for the tariffs."

July 18 - Reuters (Roberta Rampton and Lisa Lambert): "President Donald Trump said… the United States may hammer out a trade deal with Mexico, and then do a separate one with Canada later, sowing fresh doubts about the future of the North American Free Trade Agreement (NAFTA). 'We have had very good sessions with Mexico and with the new president of Mexico, who won overwhelmingly, and we're doing very well on our trade agreement,' Trump said…"

Federal Reserve Watch:

July 17 - Bloomberg (Craig Torres and Christopher Condon): "The Federal Open Market Committee, the Fed panel that sets interest rates, 'believes that -- for now -- the best way forward is to keep gradually raising the federal funds rate,' Powell said in prepared testimony before the Senate Banking Committee. 'We are aware that, on the one hand, raising interest rates too slowly may lead to high inflation or financial market excesses,' Powell said… 'On the other hand, if we raise rates too rapidly, the economy could weaken and inflation could run persistently below our objective.'"

July 18 - Bloomberg (Katia Dmitrieva and Christopher Condon): "The U.S. economic expansion rolled along and labor markets tightened in June and early July, even as tariffs heightened concern among manufacturers and boosted some producer prices, a Federal Reserve survey showed. The central bank's Beige Book economic report… said 10 of the districts reported 'moderate or modest' growth. 'Manufacturers in all districts expressed concern about tariffs and in many districts reported higher prices and supply disruptions that they attributed to the new trade policies… All districts reported that labor markets were tight and many said that the inability to find workers constrained growth.'"

July 17 - Wall Street Journal (Michael S. Derby): "Federal Reserve Bank of Kansas City President Esther George said… more rate rises are needed, and she warned there may be signs of looming stress inside the financial system. 'Gradual further increases in our policy rate will be necessary to return policy to a neutral stance, although there is considerable uncertainty about exactly how far or fast we need to go,' Ms. George said…"

July 17 - Financial Times (Gillian Tett and Joe Rennison): "It would be a mistake to think that the unexpected flattening of the US yield curve signals a looming recession, Ben Bernanke, the former chairman of the Federal Reserve has warned… 'Historically the inversion of the yield curve has been a good [sign] of economic downturns [but] this time it may not,' because the normal market signals have been distorted by, 'regulatory changes and quantitative easing in other jurisdictions', he said, speaking with former treasury secretaries Hank Paulson and Timothy Geithner at an event to discuss lessons from the 2008 financial crisis. 'Everything we see in terms of the near-term outlook for the economy is quite strong,' he added."

U.S. Bubble Watch:

July 18 - Wall Street Journal (Nick Timiraos): "The Trump administration expects annual budget deficits to rise nearly $100 billion more than previously forecast in each of the next three years, pushing the federal deficit above $1 trillion starting next year. The revisions… reflect the cost of federal spending increases agreed to earlier this year and higher interest payments. The budget proposal released in February showed annual deficits totaling $7.1 trillion over 10 years. The latest revisions increase these cumulative deficits by $926 billion, to $8 trillion."

July 19 - Reuters (Lucia Mutikani): "The number of Americans filing for unemployment benefits dropped to a more than 48-1/2-year low last week as the labor market strengthens further, but trade tensions are casting a shadow over the economy's outlook."

July 17 - Wall Street Journal (Nigel Chiwaya and Lauren Pollock): "U.S. stock-trading volumes have tumbled this month, despite escalating trade tensions with China, a cooling global growth outlook and fears about the impact of rising interest rates. Activity peaked in February as the stock and bond markets swooned. But volumes since then have been relatively muted, with the number of shares changing hands across the New York Stock Exchange and Nasdaq falling on Friday to the lowest level for a full trading session this year."

July 16 - Wall Street Journal (Justin Lahart and Aaron Back): "Sure, Americans are spending more, but where are they getting the money? Retail sales were solid in June, rising 0.5% from a month earlier… More important, May's gain was revised to a strong 1.3% from 0.8%, with nearly every category of spending higher. The data added to evidence that the economy is growing rapidly. Following the sales report, economists at Barclays pushed their estimate of second-quarter gross-domestic-product growth to 5.2% from 5%. The personal saving rate-the share of after-tax income that doesn't get spent-was previously reported at 3.2% in May versus 3.8% a year earlier, and it seems likely it will be revised even lower."

July 18 - Reuters (Ivan Levingston): "Rising uncertainty in markets didn't stop the biggest U.S. banks from hauling in record revenue from investment banking. Wall Street's largest firms posted a surprise jump in advisory and underwriting fees that took their total to $8.54 billion. That, along with better-than-expected trading gains and the lowest level of bad loans in almost a decade, led the six biggest U.S. lenders to report second-quarter earnings that mostly surpassed estimates."

July 18 - Financial Times (Robin Wigglesworth): "Inflows into technology-focused funds have surpassed the $20bn mark for the year so far, despite rising concerns among some fund managers that the 'tech trade' is overextended. Global equity funds dedicated to technology stocks took in another $673m in the week ending July 18 - the 12th straight week of inflows, bringing the total for 2018 to $20.3bn, according to EPFR. That eclipses the $18.3bn raised in 2017 as a whole, which was a record for a calendar year."

July 19 - Bloomberg (Jeanna Smialek): "American businesses want to keep trucking along, but they're running into a persistent roadblock: A driver shortage amid high demand for freight services. The Federal Reserve's July Beige Book, a collection of anecdotes from across the Fed's regional bank districts, showed 25 mentions of 'truck' or 'trucking,' up from just 10 a year earlier. For months, businesses have been expressing anxiety on earnings calls about rising shipping costs and capacity constraints in the trucking industry as a hot economy stokes demand."

July 18 - Reuters (Lucia Mutikani): "U.S. homebuilding fell to a nine-month low in June and permits for future construction declined for a third straight month, dealing a blow to the housing market as it struggles with a dearth of properties available for sale. 'We're seeing pressure on both sides of the market, from increasingly expensive inputs on the supply side to prices that are charging ahead of wage growth on the demand side, and the result is that neither builders nor buyers can keep up,' said John Pataky, executive vice president at TIAA Bank…"

July 17 - Wall Street Journal (Keiko Morris): "Student housing, manufactured homes and industrial property were the top performing commercial real-estate sectors in the past 12 months, according to new data from Green Street Advisors… The Commercial Property Price Index was at 100 in August 2007, its pre-2008 crash high. It hit a low of 61.2 in May 2009. Since then, the index more than doubled as the improving economy pushed rents and occupancies higher and demand strengthened from yield-hungry investors who could borrow money easily due to low interest rates."

July 16 - Financial Times (Javier Espinoza): "Private equity groups are raising money at the fastest rate in more than a decade. Buyout executives are rushing to tap investor demand just as fears grow of a market correction. The average time PE funds, including those investing in infrastructure and real estate, are taking to raise money has fallen to 12 months - from almost two years in 2010 - the quickest pace since at least 2006, according to an analysis by Pitchbook, a data provider. But the figures also show there are fewer funds raising cash from investors in the US - from 328 in 2014 to 271 last year and 111 by the end of June this year."

China Watch:

July 18 - Bloomberg: "China accused American officials of making false accusations as it fired back against a claim Xi Jinping is blocking talks with the U.S. over the trade war between both nations. The rebuke from China's foreign ministry highlights the deepening impasse between the world's two biggest economies over allegations of unfair trade. 'In front of the whole world some U.S. officials are turning facts on their head and making false accusations,' Chinese foreign ministry spokeswoman Hua Chunying said… 'This is beyond the imagination of most people and is shocking.'"

July 19 - Bloomberg: "China's banks are being offered cash and given instructions to boost lending, adding to evidence of a shift toward greater official support for the economy. The banking and insurance regulator has asked financial institutions to 'earnestly implement' plans to help reduce financing costs for small firms, saying big lenders should 'take the lead'… Meanwhile, the People's Bank of China plans to use its Medium-term Lending Facility to encourage bank loans and investment in lower-rated corporate debt, according to China Business News… 'We have seen strong indications that Beijing could be shifting from mere policy-easing measures to a new round of stimulus to avert a credit squeeze and economic growth slowdown,' Lu Ting, chief China economist at Nomura… wrote…"

July 19 - Bloomberg: "Chinese companies are facing a reality check after years of ramping up debt. The deleveraging campaign that President Xi Jinping began in 2016 to curb risks in the nation's financial markets has cracked down on shadow financing and tightened rules on asset management. As a result, firms are having a tough time raising new funds to repay existing debt, leading to a record amount of bond defaults this year… Chinese companies have been piling on debt for at least a decade, ever since the leadership team under Xi's predecessor unleashed a record borrowing binge in response to the global financial crisis. Corporate debt to GDP ratio surged to a record 160% at the end of 2017 from 101% 10 years earlier. Xi and his lieutenants have vowed to deflate asset bubbles by, among other steps, reining in excessive corporate borrowing."

July 15 - Bloomberg: "China's economic expansion slowed in line with expectations… Gross domestic product increased 6.7% in the second quarter from a year earlier. That was the slowest pace since 2016 and down slightly from the 6.8% pace in the previous quarter. Investment growth and industrial output also slowed in June. Industrial output rose 6% last month from a year earlier, versus the forecast of 6.5%... Retail sales increased 9% in June, compared with the forecast 8.8%. Fixed-asset investment climbed 6% in the first six months, the same as forecast. The urban monthly surveyed unemployment rate stood at 4.8% at end-June."

July 16 - Reuters (Yawen Chen and Se Young Lee): "China's new home prices accelerated to their fastest pace in almost two years in June, with buyer demand in bigger cities resilient in the face of fresh curbs against speculation, a sign more restrictions may be needed. Average new home prices in China's 70 major cities rose 1% in June from a month earlier, higher than the previous month's reading of 0.7%... The monthly growth was the highest since October 2016 and marks 38 straight months of price gains."

July 17 - Financial Times (Henny Sender): "International Investors are too fixated on trade tension between the US and China. Instead, they would do well to take heed as Beijing continues a war against non-bank lenders and fintech companies that is tightening liquidity and spooking investors in mainland China. Money remains tight on the mainland even as financial stability has replaced deleveraging as the official order of the day. Speaking at the Lujiazui forum in Shanghai at the end of June, Guo Shuqing, the head of the China Banking and Insurance Regulatory Commission, warned that there would be more corporate defaults in China, adding that it would actually be a good thing as a sign of market discipline. There are already signs that companies are finding it harder to roll over debt and refinance loans, as interest rates rise and earnings slide. There have been 22 corporate defaults this year…"

July 17 - Financial Times (James Kynge): "A majority of Chinese consumers would be prepared to boycott US goods in the event of a trade war with Washington, a survey has found, signalling the high stakes in the escalating trade conflict… The survey found that 54% of 2,000 respondents in 300 cities across China would 'probably' or 'definitely' stop buying US-branded goods 'in the event of a trade war'. Just 13% said they would not. The remaining 33% said they were unsure or did not at present buy US branded goods…"

July 16 - Financial Times (Don Weinland): "Investors have warned of growing systemic risks in China's $1.09tn money market fund industry, as funds buy up bank credit despite a surge in bad debt this year. Comparably high yields and low risk at Chinese money market funds in recent years have made the industry a favourite among retail investors in the country. Assets under management have grown from Rmb600bn at the end of 2012 to an estimated Rmb7.3tn ($1.09TN) in March, making it the second-largest market in the world after the US."

July 20 - Bloomberg: "The shakeout in China's $192 billion peer-to-peer lending industry is accelerating at a rapid clip. At least 118 platforms have failed this month through early Friday, according to Shanghai-based Yingcan Group, whose tally for July stood at 57 just three days ago. The number of failures, which includes platforms that have halted operations or come under police investigation, is already the highest in two years with more than a week left in the month. China's clampdown on financial risk has weighed on P2P platforms for the past two years, but the pressure has intensified in recent months after the country's credit markets tightened and the banking regulator issued an unusual warning to savers that they should be prepared to lose all their money in high-yield products."

July 16 - New York Times (Li Yuan): "Wang Shidong and his two partners were still finishing graduate school two years ago when they raised $45 million in less than two months to start a venture capital fund. His wife, an elementary-school teacher in their home village, was 'terrified' that he got to manage so much money… Things are different this year. After three months and visits with more than 90 potential investors all over China, Mr. Wang and his partners raised only $3 million for a second fund. In June, they shut down the firm. Their fund, East Zhang Hangzhou Investment Management Ltd., was one of nearly 10,000 founded over the past three years amid a technology gold rush powered in part by China's government-guided economic growth engine. Now they have become the latest sign that China's engine is slowing down."

July 18 - Financial Times (Louise Lucas): "In China, a national identity card is required for almost everything, from buying a train ticket, to opening a bank account to using an internet café. They are also now part of a pioneering experiment in the use of facial recognition technology. In a scheme that started last year in the southern city of Guangzhou, the Chinese government is allowing users of WeChat to link their ID cards to the ubiquitous social media app created by tech titan Tencent… The pilot project, due to be rolled out around the country, highlights one of the most intriguing aspects of China's headlong push into the world of artificial intelligence and other frontier technologies: the relationship between the Chinese Communist party and the country's ambitious and enormous tech companies."

EM Watch:

July 19 - Wall Street Journal (Manju Dalal and Mike Bird): "Asia's junk-bond market, anxious over China's debt problem, is showing cracks after years of rampant growth. Falling prices for below-investment-grade Asian bonds have sent yields sharply higher, leaving creditors nursing big paper losses and clouding the prospects for refinancing maturing debt… When 2018 began, interest rates on dollar-denominated Asian junk bonds broadly matched the global market, according to ICE Bank of America Merrill Lynch indexes. Now the yield on the Asian index-representing $138.1 billion in government and corporate debt-runs nearly 2 percentage points above the world average, having recently topped 9%."

Global Bubble Watch:

July 16 - Wall Street Journal (Julie Wernau): "Companies in the emerging world are on a dollar-debt diet. Issuance of dollar-denominated bonds from emerging-market companies is down 14% year-to-date versus the same period last year, according to Dealogic. Local currency debt is on the rise, up 4% year-to-date versus the same period last year, as corporates turn inward for financing amid widespread selling among foreign investors. The decline comes as rising U.S. interest rates are lifting borrowing costs for emerging markets… That's sparked big selloffs in the currencies of countries like Argentina, Hungary, Turkey, Poland and Chile, making it more difficult for them to pay back dollar debts. Corporate defaults in emerging markets have tripled so far in 2018, according to S&P Global Ratings… Dollar-debt issuances among corporates in the emerging world reached a record high in 2017, according to Dealogic. Hard currency debt in emerging markets peaked in the first quarter of 2018 at $5.5 trillion, with corporates accounting for 78% of that…"

July 17 - Reuters (Stephanie Nebehay): "The credibility and survival of the World Trade Organization (WTO) is under 'serious threat' as major economies put up protectionist barriers, independent experts warned… The report issued by the Bertelsmann Foundation comes amid a deepening trade dispute between China and the United States which has engulfed other major trading partners."

July 18 - Wall Street Journal (Asjylyn Loder): "The deluge of money flooding into and out of passive investments can have a very active effect on stock prices, new research says. The report, from the data and research arm of S&P Global Inc., a major provider of financial-market indexes, is the latest salvo in a long-running debate about the pressure index funds exert on the stocks and bonds they are meant to track. The resurgence of market turbulence this year intensified concerns that an exodus from index funds could trigger an avalanche of forced selling. Assets in passive funds that try to match the market rather than beat it have quintupled in the past decade to $6.9 trillion… Exchange-traded funds… have been linked in recent years to unusual price swings in oil, Japanese equities and high-yield debt."

July 17 - Wall Street Journal (Dan Gallagher): "By being so big and still growing so fast, the world's largest technology companies are in uncharted territory. But pulling that off has been expensive-and will be getting even more so. Combined annual revenue for the world's five largest companies by market value already tops the gross domestic product of 90% of the world's countries… But the cost to generate that growth is going upward as well-at a faster clip. Combined spending on research and development is expected to rise 24% in 2018, while capital expenditures for the five are expected to surge by 48% compared with last year. For Big Tech, these expenses reflect the rising costs of running their current businesses while also developing new ones to stay more competitive…"

July 15 - Financial Times (Chris Flood): "State Street suffered net outflows of more than $7bn from its exchange traded fund arm in June as fears about a global trade war blunted growth across the ETF industry in the first half of 2018… This has led to a marked slowdown in new business for asset managers globally. Worldwide inflows into ETFs (funds and products) dropped to $223bn in the first half of 2018, down more than a third on the same period last year… The sharp decline in growth comes after four consecutive years of record inflows into ETFs, which have attracted the bulk of new money in the global asset management industry."

July 16 - Bloomberg (Andrew Mayeda): "Escalating trade tensions are threatening to derail a global upswing that's already losing momentum amid weaker-than-expected growth in Europe and Japan as financial markets seem complacent to the mounting risks, the International Monetary Fund warned. The IMF kept its global forecast unchanged Monday in the latest update to its Global Economic Outlook. The world economy will grow 3.9% this year and next… The pace this year would be the fastest since 2011."

July 19 - Bloomberg (Brian Louis): "Wildfires, hurricanes, tornadoes, hail storms, Nor'easters and mudslides. A string of disasters has pummeled the biggest U.S. insurers over the past year, and the second quarter was no exception. Allstate Corp. estimated its pretax catastrophe losses at $906 million for the period, the most in a year, and Travelers Cos. reported its sixth-straight quarter in which such costs rose above $300 million. The series of tragic weather events 'exceeded our historical experience and our expectations,' Travelers Chief Executive Officer Alan Schnitzer said…, after reciting a list of catastrophes that struck the U.S. 'We haven't seen a string like that in the last decade.'"

Europe Watch:

July 16 - Reuters: "Germany's foreign minister said on Monday Europe could not rely on Donald Trump and needed to close ranks after the U.S. president called the European Union a 'foe' with regard to trade. 'We can no longer completely rely on the White House,' Heiko Maas told the Funke newspaper group. 'To maintain our partnership with the USA we must readjust it. The first clear consequence can only be that we need to align ourselves even more closely in Europe.' He added: 'Europe must not let itself be divided however sharp the verbal attacks and absurd the tweets may be.'"

July 17 - New York Times (Jack Ewing): "President Trump is inciting a trade war, undermining NATO and painting Europe as a foe. It's no wonder, then, that the European Union is looking elsewhere for friends. On Tuesday in Tokyo, it signed its largest trade deal ever, a pact with Japan that will slash customs duties on products like European wine and cheese, while gradually reducing tariffs on cars. The agreement will cover a quarter of the global economy - by some measures the largest free-trade area in the world - and is the latest in a string of efforts either concluded or in the works with countries like Australia, Vietnam and even China. The deal with Japan, and the others being negotiated, point to a more assertive Europe, one that is looking past the frosty ties with the United States…"

July 20 - Bloomberg (John Ainger): "Italian bonds and stocks fell on concern that Finance Minister Giovanni Tria, whose appointment brought a relative calm to the nation's markets, may be forced to step down. Short-end Italian bonds led the declines after La Repubblica reported that the country's populist leaders were united in battle against Tria over nominations for the leadership of state lender CDP. Five Star Movement leader Luigi Di Maio and League chief Matteo Salvini were said to have gone so far as to 'threaten unofficially to use the weapon of seeking Giovanni Tria's resignation.'"

July 18 - Reuters (Foo Yun Chee): "European antitrust regulators fined Google a record 4.34 billion euro ($5bn)… and ordered it to stop using its popular Android mobile operating system to block rivals, a ruling which the U.S. tech company said it would appeal."

Japan Watch:

July 19 - Bloomberg (Connor Cislo and Emi Nobuhiro): "If the U.S. imposes tariffs on cars it can expect a stronger response from Japan than when it slapped levies on steel and aluminum shipments. That's the message from an interview… with Japanese Trade Minister Hiroshige Seko. Japan and the European Union are already working together to address President Donald Trump's protectionist trade policies, and need to cooperate even more closely on threatened auto tariffs, Seko said in Tokyo."

Fixed Income Bubble Watch:

July 19 - New York Times (Matt Phillips): "In the world of finance, there is one number that arguably matters more than any other. You can find it in the small print on adjustable-rate mortgages and private student loans, it is the basis for enormous corporate loans, and it underpins nearly $200 trillion of derivatives contracts. But it is on the way out, and Wall Street has not worked out how to replace it. The number in question is called Libor, which is short for the London interbank offered rate. Published daily, Libor is an interest rate benchmark, or the basis for many other interest rates. If you have heard of it, that might be because it was at the center of a market-manipulation scandal that resulted in jail time for some traders and billions of dollars in fines for many banks."

Leveraged Speculator Watch:

July 19 - Bloomberg (Melissa Karsh): "Investors pulled about $3 billion from hedge funds in the second quarter, the first quarterly outflow since early 2017. Macro hedge funds led net outflows in the period, with $2.8 billion leaving the strategy, according to… Hedge Fund Research Inc. The outflows were offset by equity hedge funds, which saw inflows of $2.4 billion."

July 19 - Financial Times (Robin Wigglesworth): "In November 2016, Vincent Deluard, a strategist at brokerage INTL FCStone, constructed a basket of stocks that failed to qualify for any of the five popular 'smart beta' exchange traded funds, vehicles that aim to beat the market over time by tilting towards a specific investment factor… Yet Mr Deluard's 'dumb beta' portfolio of 207 stocks has narrowly outperformed the smart beta ETF basket since then… Several popular investment factors have suffered a stinker this year, hammering the performance of many funds that surf them. But this is part of a broader, dismal picture for the 'quantitative' investment industry. Quant equity funds have lost 1% this year, while quant macro funds have fallen 4.2%...Given the soaring investor interest in algorithm-powered investment strategies in recent years, this is unquestionably disappointing."

Friday, July 20, 2018

Friday's News Links

[BloombergQ] Stocks, Dollar Decline as Trump Turns Up Rhetoric: Markets Wrap

[CNBC] US dollar falls as Trump accuses 'China, European Union and others' of manipulating their currencies

[CNBC] Trump says he's 'ready' to put tariffs on all $505 billion of Chinese goods imported to the US

[CNBC] Trump hits the Fed again in tweet: 'Tightening now hurts all that we have done'

[CNBC] Trump says stock market gains since election give him opportunity to wage a trade war: 'We’re playing with the bank's money'

[SCMP] China’s central bank preparing further policy easing to counter credit squeeze

[BloombergQ] Italian Markets Rattled After Tria's Future Is Thrown Into Doubt

[CNBC] 4 powerful weapons China has in its arsenal to win the US-China trade war

[BloombergQ] Yuan's Fallout for Markets Means No Summer Lull for Traders

[BloombergQ] China's P2P Platform Failures Surge as Panic Spreads in Market

[BloombergQ] Climate Change Is Disrupting the Planet’s Seasons

[BloombergSubscription] China Firms Went Deep in Debt. Here Come the Defaults

[WSJ] Trump Says He’s Ready to Impose Tariffs on $500 Billion in Chinese Imports

[WSJ] Trump’s Fed Outburst: All Downside, No Upside

[WSJ] U.S. Grain Prices Crunched by Trade Fears

[FT] Quant funds lose their shine as strategies falter

[FT] Henry Kissinger: ‘We are in a very, very grave period’

[FT] Inside China’s surveillance state

Thursday, July 19, 2018

Thursday Evening Links

[Reuters] U.S. stocks fall on sour earnings, trade fears

[BloombergQ] Trump Blasts Powell’s Rate Hikes, Trespassing on Fed’s Independence

[Reuters] Trump says 'not thrilled' about U.S. interest rate hikes

[CNBC] Trump's Fed criticism is nearly without precedent in US history

[Reuters] Trump and dollar: friend or foe?

[BloombergQ] Trucking Woes Plague Fed Districts With Drivers Hard to Find

[BloombergQ] Catastrophes Unlike Anything in Past Decade Wallop U.S. Insurers

[BloombergQ] Hedge Fund Investors Pull Money for First Time Since 2017

[WSJ] Donald Trump Says He’s ‘Not Happy’ About Federal Reserve Interest-Rate Increases

[FT] The Chinese Communist party entangles big tech

[FT] Investors pile yet more cash into tech stock funds

Thursday's News Links

[Reuters] Dollar stays strong as China grabs for stimulus levers

[Reuters] Dollar rises to one-year high as Fed comments boost outlook

[Reuters] U.S. weekly jobless claims drop to more than 48-and-a-half-year low

[Reuters] China boosts liquidity, set for more policy easing as trade war threatens economy

[BloombergQ] China Flirts With Easier Monetary Policy Amid Slowing Growth

[Reuters] China says U.S. blaming Xi for blocking trade deal is 'bogus'

[CNBC] Trump trade advisor Peter Navarro: 'Zero-sum game' between China and the rest of the world

[Reuters] China to improve macro-prudential, counter-cyclical measures for forex management: official

[BloombergQ] Japan's Trade Minister Suggests Tougher Line on Any Auto Tariffs

[Reuters] EU readies new trade retaliation list before Trump visit

[BloombergQ] China Prods Banks to Support Economy as Policy Shift Emerges

[Reuters] White House struggles to contain political outcry over Trump-Putin summit

[NYT] The Most Important Number in Finance Is Going Away. Wall St. Isn’t Prepared.

[WSJ] Deficit Projected to Top $1 Trillion Starting Next Year

[WSJ] Trump Threatens Auto Tariffs Despite Widespread Opposition

[WSJ] Asian Junk Bonds Are Being Treated Like Trash

[WSJ] As Hurricane Season Arrives, U.S. Homeowners Haven’t Fixed Their Big Underinsurance Problem

[FT] Powell plays down message sent by flattening Treasury yield curve

Wednesday, July 18, 2018

Wednesday Evening Links

[BloombergQ] Stocks Rise on Profit Optimism; Dollar Holds Gain: Markets Wrap

[BloombergQ] Fed Says Economic Growth Holding Up Even as Trade Concerns Spread

[BloombergQ] Larry Kudlow Blames China’s Xi for Stalling Trade Deal

[CNBC] Former Trump advisor Steve Bannon: 'We're at war with China'

[Reuters] Trump says U.S. may pursue separate trade deal with Mexico

[BloombergQ] Trade War Spills Into Uranium as U.S. Weighs Import Tariffs

[BloombergQ] Banks Brush Off Market Uncertainty With Record Deal Fees

[USAT] No love from Russia: Vladimir Putin's nation dumped US Treasurys ahead of Trump summit

Wednesday's News Links

[BloombergQ] Dollar Extends Advance After Powell; Stocks Mixed: Markets Wrap

[BloombergQ] Yuan Hits One-Year Low, Testing China's Tolerance for Weakness

[Reuters] U.S. housing starts drop to a nine-month low

[CNBC] Kudlow says President Trump is 'so dissatisfied' with China trade talks that he is keeping the pressure on

[CNBC] Weekly mortgage applications fall 2.5% as buyers struggle to find affordable homes

[Reuters] Google hit with record $5 billion EU antitrust fine

[Reuters] China says U.S.-led trade war has become biggest 'confidence killer' for world economy

[BloombergQ] Trump’s Trade War May Spark a Chinese Debt Crisis

[BloombergQ] Powell Wants to Create Some Mystery Around Fed Meetings

[BloombergQ] Markets Hear What They Want to Hear From Powell

[CNBC] America may not have the tools to counter the next financial crisis, warn Bernanke, Geithner and Paulson

[WSJ] Fed’s George: More ‘Gradual’ Rate Rises Are Needed

[WSJ] Former Fed Chief Ben Bernanke Says Economic Outlook Is ‘Quite Strong’

[WSJ] Low Stock Trading Volumes Lull Markets

[WSJ] U.S. Commercial Property Values Surge in Niche Sectors

[WSJ] ETFs Unlikely to Cause Widespread Market Disruptions, Research Shows

[FT] Many Chinese consumers ready to boycott US goods in trade war

[FT] Bernanke warns against reading wrong yield curve signal

Tuesday, July 17, 2018

Tuesday Afternoon Links

[BloombergQ] Stocks, Dollar Rally as Powell Touts Strong Growth: Markets Wrap

[Reuters] Dollar higher after Powell deflects trade concerns

[Reuters] Oil steadies on U.S. stockpile forecasts, Venezuela worries

[BloombergQ] Jerome Powell Hints at a Little Trouble With the Curve

[Reuters] WTO's credibility, survival at risk as trade war looms: experts report

[WSJ] Powell Says Fed Should Keep Gradually Raising Interest Rates

[FT] There’s a bigger worry in China than trade tension

[FT] Federal Reserve should continue raising rates gradually, says Powell

[FT] Yield on 3-month Treasury bills hits 2% for first time since 2008

Tuesday News Links

[Reuters] World stocks slip on oil as focus turns to Fed

[BloombergQ] Fed’s Powell Says Gradual Rate Hikes Are the Best Path ‘For Now’

[Reuters] China's June home prices accelerate to near two-year high

[BloombergQ] Warnings of Market Complacency Are Growing Louder 

[BloombergQ] Trade War Imperils World Growth as IMF Sees ‘Complacent’ Markets

[Reuters] China still confident of hitting 2018 growth target despite slowdown, trade risks

[NYT] As Tensions With U.S. Worsen, Europe Courts New Partners

[NYT] Latest Sign of China’s Slowdown: A Technology Cash Crunch

[WSJ] Fed’s Powell on Capitol Hill: What to Watch

[WSJ] Emerging Markets Sour on Dollar Debt Amid Currency Volatility

[WSJ] The Dark Side to Rising Consumer Spending

[WSJ] Big Tech’s Growth Comes With a Big Bill

[FT] PE firms raise money at fastest pace since 2006

Monday, July 16, 2018

Monday Evening Links

[Reuters] S&P 500 dips as energy shares fall; Netflix drops late after results

[Reuters] Oil's 4 percent tumble weighs on energy shares; banks rally

[CNBC] Morgan Stanley's stock market analyst warns clients to stop yawning at his bearish call and get defensive

[WSJ] The Real Growth Numbers to Watch in China

[WSJ] Trump Leaves GOP, Intelligence Community and Allies in the Hot Seat

[FT] China money market funds’ rush into bank credit worries investors

Monday's News Links

[BloombergQ] Stocks Struggle Amid Earnings; Dollar Declines: Markets Wrap

[Reuters] U.S. yields hold rise after solid retail sales data

[Reuters] U.S. retail sales increase solidly in June

[BloombergQ] Powell to Cross Political Minefield as Trade War Clouds Outlook

[Reuters] IMF warns U.S. vulnerable in escalating trade fight

[MSN/Washington Post] The $247 trillion global debt bomb

[BloombergQ] China's Economy Slows as Expected With Trade War Dimming Outlook

[Reuters] China June property investment growth slows to 6-month low

[CNBC] This is the 'biggest bubble in the history of mankind and it's going to burst,' Ron Paul says

[BloombergQ] Banks Are Facing a Squeeze From Trump's Trade War

[CNBC] Germany: We can no longer fully rely on US White House

[NYT] China’s Strong Economic Growth Figures Belie Signs of Weakness

[WSJ] The Problem With Innovation: The Biggest Companies Are Hogging All the Gains

[WSJ] Sizing Up the Bond Market’s Signals

[FT] China can bear more trade pain than America

[FT] Trade war fears blunt growth in global ETF industry

Saturday, July 14, 2018

Saturday's News Links

[CNBC] Trump and Putin are the main event, but there's a lot to move markets in the week ahead

[Spiegel] Trump Takes Aim at Germany and NATO

[WSJ] Federal Reserve Report Defends Use of New Tools to Set Interest Rates

[FT] Argentina learns to live with its inflation dragon

Weekly Commentary: $247 Trillion and (Rapidly) Counting

Please join us Thursday, July 19th, at 4:30 pm Eastern for the McAlvany Wealth Management Tactical Short Q2 Recap ("Cracks in the Global Bubble") Conference Call.  Click to Register.


I chronicled mortgage finance Bubble excess on a weekly basis. Relevant data were right there in plain sight, much of it courtesy of the Federal Reserve. Yet only after the Bubble burst did it all suddenly become obvious. Flashing warning signs were masked by manic delusions of endless prosperity and faith in the almighty "inside the beltway". These days, data for the global government finance Bubble is not as easily-accessible, though there is ample evidence for which to draw conclusions. It will all be frustratingly obvious in hindsight.

The Institute of International Finance is out with their latest data that, unfortunately, is not made available in detail to the general public. Global debt ended the first quarter at a record $247 Trillion, or 318% of GDP. Even after a decade of historic Credit inflation, global debt continues to expand at ("Terminal Phase") double-digit rates (11.1% y-o-y).

Global debt growth accelerated during the first quarter to $8.0 Trillion - and surged $30 Trillion over just the past five quarters. In a single data point not to be disregarded, Global Debt Has Expanded (a difficult to fathom) $150 Trillion, or 150%, Over the Past Ten Years. Actually, the trajectory of Bubble-period Credit expansion may seem rather familiar. It's been, after all, a replay of the reckless U.S. mortgage Credit episode, only on a much grander global scale.

July 10 - Financial Times (Jonathan Wheatley): "The amount of debt in the world increased by nearly $25tn in the year to the end of March, piling more pressure on a global financial system already struggling to deal with rising US interest rates, widening spreads for borrowers and a strengthening US dollar. The Institute of International Finance… said total debts owed by households, governments and financial and non-financial corporations amounted to $247.2tn at the end of March, up from $222.6tn a year earlier and an increase of nearly $8tn in the first quarter alone. 'The increase in the level of debt, both in absolute terms and relative to GDP, against a backdrop of tightening financial conditions, is, of course, a cause for concern,' said Hung Tran, the IIF's executive managing director… The IIF said the debts of non-financial corporations in EMs rose $1.5tn in the first quarter to $31.5tn, the equivalent of 94.4% of GDP…"

A few notable quotes from press reports:

"With global growth losing some momentum and becoming more divergent, and U.S. rates rising steadily, worries about credit risk are returning to the fore - including in many mature economies," the IIF said.

"Non-financial borrowers in the corporate sector, in the household sector, in the government sector having very high debt levels, will find it very costly and difficult to refinance and borrow more in order to sustain investment and consumption going forward. That is really causing growth to falter, so what I term headwinds to growth." IIF Executive Managing Director Hung Tran.

"For many emerging markets, which rely heavily on bank financing, higher borrowing costs for banks could be passed through to the corporate and household sectors, so something of a hidden risk in terms of this floating rate borrowing," said IIF Senior Director Sonja Gibbs.

Bloomberg (Alexandre Tanzi): "Government debt has risen most sharply in Brazil, Saudi Arabia, Nigeria and Argentina, according to the report. Of the four, U.S. dollar refinancing risk is particularly high for Argentina and Nigeria, where over three-quarters of redemptions will be in dollars. About $900 billion is in U.S. dollar-dominated emerging bonds/syndicated loans that will mature by 2020…"

July 10 - Yahoo Finance (Dion Rabouin): "'The pace is indeed a cause for concern,' IIF's Executive Managing Director Hung Tran told Yahoo… 'The problem with the pace and speed is if you borrow or if you lend very quickly … the quality of the credit tends to suffer.' That means more governments, businesses and individuals have been borrowing that could have trouble paying the money back. 'The quality of creditworthiness has declined sharply,' Tran added… Sonja Gibbs, IIF's senior director of the global capital markets department, noted that there was an increased risk of sovereign debt crises in a select few developed markets as a result of the increase of debt and financing costs. 'Government debt is higher than it was prior to the crisis and corporate debt as well,' Gibbs said… Gibbs added that the United States' debt growth was particularly worrisome, given that it has now grown to more than 100% of GDP. With the increases in spending from President Donald Trump and Congress, the U.S. will now have funding needs of 25% of its GDP. 'The U.S. really stands out here because … a lot of that is the expanding budget deficit as well as maturing debt,' Gibbs said. 'That's a lot of financing need affecting the market.'"

U.S. government debt surpassed 100% of GDP during the quarter. Japanese government debt-to-GDP ended the quarter at 224%, the euro area at 101%, the UK at 105% and the emerging markets to 48% of GDP.

To see non-productive U.S. government debt, the foundational "Core" of global finance, inflate so rapidly should be quite distressing. Worse yet, extreme Credit excess is systematic, as debt balloons also at the "Periphery". From my analytical perspective, we're witnessing catastrophic, all-encompassing "Terminal Phase" excess. The first quarter saw emerging market debt rise by $2.5 trillion, or about 18% annualized, to a record $58.5 TN. EM Non-financial Corporate debt surged $1.5 TN, or about 25% annualized, to $31.5 TN - and now exceeds 94% of GDP. One big final blow-off setting the stage for crisis.

From the FT (Jonathan Wheatley): "'The emerging market bond market has grown tremendously over the past decade but trading volumes have not kept pace,' said Sonja Gibbs, senior director at the IIF. 'When you combine a rising rate environment, stronger dollar and low levels of liquidity, you have a recipe for volatility and the exacerbation of any periods of market strain.'"

My thesis holds that the global Bubble has been pierced at the "Periphery." Not atypically, this follows on the heels of remarkable "Terminal Phase Excess," including phenomenal Credit growth and massive "hot money" inflows. The "hot money" has now reversed; de-risking/de-leveraging dynamics are taking hold. Market complacency is at least partially explained by the sizable reserves the emerging markets have accumulated over recent years, resources the marketplace sees available for stabilizing currencies and Credit systems.

July 9 - Wall Street Journal (Chelsey Dulaney): "Emerging-market central banks are tapping a roughly $6 trillion stash of foreign-exchange reserves as they struggle to contain deepening currency declines. Policymakers across the developing world built up foreign reserve buffers over the past year, capitalizing on investor interest in higher-yielding emerging market assets as global growth remained sanguine. In the first five months of 2018, the central banks added $114 billion to their reserves, the fastest pace of accumulation since 2014…"

The problem, also noted by the WSJ: "Emerging-market central banks used roughly $57 billion in foreign reserves in June, which would rank as the largest monthly intervention since late 2016…" Brazil is said to have burned through $44 billion to support its faltering currency. EM reserve data will be monitored closely over the coming weeks and months. Dwindling reserves will incite a rush to the exits.

There's been considerable market focus on recent woes in Brazil, Turkey and Argentina. But from a more global systemic perspective, I would at this point focus on heavily indebted Asia. Interestingly, Asian currencies were down again this week. The Chinese renminbi declined 0.7%, the Japanese yen 1.7%, the South Korean won 0.7%, the Singapore dollar 0.6%, and the Thai baht 0.5%. Over the past month, the renminbi is down 4.4%, the won 4.1%, the baht 3.5%, the Indonesia rupiah 3.2% and the Singapore dollar 2.2%.

The unfolding trade war is indeed a major issue for EM, arriving at a most inopportune juncture. Financial conditions have already tightened meaningfully throughout Asian markets, though I would contend that the issue goes much beyond trade. Let's start with a China Credit Bubble update:

Total Aggregate Finance expanded $176 billion during June, up from May's $115 billion but 16% below estimates. Aggregate Finance grew $1.36 TN during the first-half, about 18% below comparable 2017. The growth in Bank Loans surged $274 billion in June, up from May's $175 billion to the strongest expansion since January. Meanwhile, key "shadow banking" components contracted. At $106 billion, growth in Household (chiefly mortgage) borrowings remained strong.

June's jump in Chinese bank lending surely emboldens those with the view that Beijing has everything in control - that Chinese officials will adeptly commandeer the financial system to ensure sufficient Credit growth and liquidity. It likely won't be that simple. Chinese banks and corporations have issued enormous quantities of marketable debt over recent years, a significant portion denominated in dollars. Moreover, a massive bank lending campaign at this stage of the cycle will not be confidence inspiring.

It's also worth reminding readers than China's international reserve holdings have declined about $900 billion from 2014 highs to $3.112 TN. China now faces the dilemma that their maladjusted economic system will require several trillion ($) of annual Credit growth. Yes, Beijing can dictate lending from state-directed financial institutions. But aggressive reflationary measures risk spurring capital flight and currency turmoil. A disorderly devaluation would be highly problematic for those on the wrong side of dollar-denominated debt.

July 12 - Bloomberg (Lianting Tu and Finbarr Flynn): "A rout in China's dollar-denominated junk bonds is getting worse as mounting defaults send traders running for cover. Rising trade tensions are also adding to longer-existing difficulties created by the nation's push to cut excessive leverage. Junk bonds from China have been more volatile this year than such securities from all of Asia. The average yield for the nation's speculative-rated notes has surged to 10.5%, the highest since 2015, according to ICE BofAML indexes. Few expect a rebound anytime soon."

July 12 - Bloomberg (Andy Mukherjee): "Donald Trump has made Asian high-yield investors nervous wrecks. First, there are the obvious casualties of his trade war against China. Lenovo Group Ltd.'s bonds are down to 87.4 cents on the dollar from more than 100 cents at the start of the year. Then there's the collateral damage of his greenback-boosting, late-cycle fiscal stimulus, which is making investors worried about Asian currency weakness. Indonesian notes are swimming in a sea of red ink… Liquidity in Asian high yield is so bad that, after a little haggling, a bond quoted at 94 cents on the dollar can be had for 91 cents. Sellers are panicking."

After widening 120 bps in four weeks, Asian high-yield spreads on Wednesday were at their widest level since the Chinese mini-crisis back in Q1 2016. China CDS ended last Friday's trading at a 13-month high (73bps). As noted above, the rout over the past two months has left Chinese junk yields at the highs since early-2015.

"[US Treasury] Yield Curve at its Flattest Since August 2007," was a Friday evening Financial Times (Joe Rennison) headline. "The measure is an important signal for investors of when the Federal Reserve may curtail its policy tightening and is also seen as a warning of a coming recession if it turns negative, which last happened in 2006."

I viewed the flat yield curve back in 2007 as more of a warning of Bubble Fragility than an indicator of imminent recession. But with U.S. mortgage finance at the epicenter of the Bubble back then, the bursting Bubble coincided with an abrupt end to Credit expansion and economic growth. I view today's flat Treasury curve as again signaling Bubble Fragility. The big difference, however, is that global (as opposed to U.S.) finance is at today's Bubble epicenter. Heightened fragility in China, Asia and EM, more generally, risks global financial turmoil and economic vulnerability.

The unusual backdrop is creating quite a dilemma for the Federal Reserve. Cracks in the Global Bubble's "Periphery" are putting downward pressure on Treasury yields, in the process loosening U.S. financial conditions in the face of cautious Fed rate increases. The booming U.S. economy at this point beckons for restrictive monetary conditions, yet a more hawkish Fed risks spurring a dollar melt-up and full-fledged EM financial crisis.

The GSCI commodities index sank 3.6% this week. Copper dropped another 1.7%, boosting y-t-d declines to 16%. Zinc fell 5.7% this week, lead 5.6%, Aluminum 2.4% and Platinum 2.1%. WTI Crude dropped 3.8%. In the agriculture commodities, Soybeans dropped 6.7%, Corn 4.9%, Wheat 3.5%, Sugar 4.8% and Coffee 3.8%.

From the currencies to market yields and yield curves to commodities, markets are signaling trouble ahead. The great irony is that Cracks at the Global Periphery now work to prolong "Terminal Phase Excess" at the "Periphery of the Core" - certainly including higher risk U.S. corporate Credit. And booming debt markets feed highly speculative equities and assets Bubbles right along with an overheated U.S. Bubble Economy. After years of Easy Street, central banking has turned into quite a hard challenge.

July 10 - Bloomberg (Danielle DiMartino Booth): "Much has been made of the degradation of the $7.5 trillion U.S. corporate debt market. High yield offers too little, well, yield. And 'high grade' now requires air quotes to account for the growing dominance of bonds rated BBB, which is the lowest rung on the investment-grade ladder before dropping into 'junk' status. And then there's the massive market for leveraged loans, where covenants protecting investors have all but disappeared. How does that break down? Corporate bonds rated BBB now total $2.56 trillion, having surpassed in size the sum of higher-rated debentures, which total $2.55 trillion, according to Morgan Stanley. Put another way, BBB bonds outstanding exceed by 50% the size of the entire investment grade market at the peak of the last credit boom, in 2007… In 2000, when BBB bonds were a mere third of the market, net leverage (total debt minus cash and short term investments divided by earnings before interest, taxes, depreciation and amortization) was 1.7 times. By the end of last year, the ratio had ballooned to 2.9 times."

For the Week:

The S&P500 rallied 1.5% (up 4.8% y-t-d), and the Dow jumped 2.3% (up 1.2%). The Utilities fell 1.0% (down 0.5%). The Banks increased 0.2% (down 2.0%), and the Broker/Dealers added 0.5% (up 3.4%). The Transports gained 0.7% (down 0.6%). The S&P 400 Midcaps increased 0.3% (up 5.0%), and the small cap Russell 2000 slipped 0.4% (up 9.9%). The Nasdaq100 advanced 2.3% (up 15.3%). The Semiconductors declined 0.6% (up 7.0%). The Biotechs rose 2.2% (up 21.2%). With bullion down $14, the HUI gold index sank 3.2% (down %).

Three-month Treasury bill rates ended the week at 1.90%. Two-year government yields rose four bps to 2.58% (up 70bps y-t-d). Five-year T-note yields added a basis point to 2.73% (up 52bps). Ten-year Treasury yields slipped a basis point to 2.83% (up 42bps). Long bond yields were unchanged at 2.93% (up 19bps). Benchmark Fannie Mae MBS yields declined one basis point to 3.56% (up 56bps).

Greek 10-year yields fell 10 bps to 3.83% (down 24bps y-t-d). Ten-year Portuguese yields dropped seven bps to 1.73% (down 21bps). Italian 10-year yields sank 16 bps to 2.55% (up 54bps). Spain's 10-year yields declined five bps to 1.26% (down 30bps). German bund yields rose five bps to 0.34% (down 9bps). French yields dipped two bps to 0.62% (down 17bps). The French to German 10-year bond spread narrowed seven to 28 bps. U.K. 10-year gilt yields added a basis point to 1.27% (up 8bps). U.K.'s FTSE equities index increased 0.6% (down 0.3%).

Japan's Nikkei 225 equities index rallied 3.7% (down 0.7% y-t-d). Japanese 10-year "JGB" yields increased one basis point to 0.04% (down 1bp). France's CAC40 gained 1.0% (up 2.2%). The German DAX equities index increased 0.4% (down 2.9%). Spain's IBEX 35 equities index fell 1.7% (down 3.1%). Italy's FTSE MIB index slipped 0.2% (up 0.2%). EM equities were mixed. Brazil's Bovespa index gained 2.1% (up 0.3%), while Mexico's Bolsa fell 1.2% (down 1.9%). South Korea's Kospi index rallied 1.7% (down 6.3%). India’s Sensex equities index jumped 2.5% (up 7.3%). China’s Shanghai Exchange recovered 3.1% (down 14.4%). Turkey's Borsa Istanbul National 100 index sank 8.9% (down 22.1%). Russia's MICEX equities index was little changed (up 11.2%).

Investment-grade bond funds saw outflows of $2.859 billion, while junk bond funds had inflows of $1.852 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates added a basis point to 4.53% (up 50bps y-o-y). Fifteen-year rates gained three bps to 4.02% (up 73bps). Five-year hybrid ARM rates jumped 12 bps to 3.86% (up 58bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down two bps to 4.56% (up 45bps).

Federal Reserve Credit last week declined $9.1bn to $4.251 TN. Over the past year, Fed Credit contracted $176bn, or 4.0%. Fed Credit inflated $1.440 TN, or 51%, over the past 297 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt gained $9.7bn last week to $3.405 TN. "Custody holdings" were up $82.9bn y-o-y, or 2.5%.

M2 (narrow) "money" supply gained $8.3bn last week to a record $14.141 TN. "Narrow money" gained $622bn, or 4.6%, over the past year. For the week, Currency increased $2.3bn. Total Checkable Deposits rose $8.3bn, while Savings Deposits declined $8.0bn. Small Time Deposits gained $3.2bn. Retail Money Funds added $2.2bn.

Total money market fund assets jumped $28.9bn to $2.851 TN. Money Funds gained $224bn y-o-y, or 8.5%.

Total Commercial Paper rose $10.0bn to $1.075 TN. CP gained $114bn y-o-y, or 11.9%.

Currency Watch:

The U.S. dollar index gained 0.8% to 94.677 (up 2.8% y-t-d). For the week on the upside, the South African rand increased 1.5%, the Mexican peso 0.8% and the Brazilian real 0.3%. For the week on the downside, the Swedish krona declined 1.8%, the Japanese yen 1.7%, the Swiss franc 1.2%, the New Zealand dollar 1.1%, the Norwegian krone 1.1%, the South Korean won 0.7%, the Canadian dollar 0.6%, the Singapore dollar 0.6%, the euro 0.5%, the British pound 0.5% and the Australian dollar 0.1%. The Chinese renminbi declined 0.73% versus the dollar this week (down 2.76% y-t-d).

Commodities Watch:

July 12 - Bloomberg (Robert Burgess): "Plunge, tumble and rout are overused by the financial media to describe a market in decline, but such superlatives would not be out of place to describe what's happening to commodities. The Bloomberg Commodity Index of 25 raw materials ranging from oil to copper to cattle dropped as much as 2.80% on Wednesday, the most since 2014, before closing at its lowest level since December. That brought the gauge's decline to 8.88% from this year's peak in late May."

July 11 - Reuters (Manolo Serapio Jr): "Copper, zinc and lead prices slumped to their weakest in about a year and other metals also sank in a broad selloff on Wednesday after the United States raised the stakes in a trade war with China with threats of more tariffs. The Trump administration said it would slap 10% tariffs on another $200 billion worth of Chinese imports, raising fears the festering trade dispute between the world's two biggest economies could hit global growth."

July 11 - MarketWatch (Myra P. Saefong and Sarah McFarlane): "Oil futures finished sharply lower Wednesday, with the U.S. benchmark registering its sharpest daily slump in about 13 months as fears of flagging demand and renewed production from Libya overshadowed a report showing the biggest weekly drop in domestic crude supplies in nearly two years. August WTI crude, the U.S. benchmark, fell $3.73, or 5%, to $70.38 a barrel…"

The Goldman Sachs Commodities Index sank 3.6% (up 4.7% y-t-d). Spot Gold lost 1.1% to $1,241 (down 4.7%). Silver dropped 1.6% to $15.815 (down 7.8%). Crude dropped $2.79 to $77.01 (up 18%). Gasoline was little changed (up 17%), while Natural Gas sank 3.7% (down 7%). Copper dropped 1.7% (down 16%). Wheat fell 3.5% (up 16%). Corn sank 4.9% (up 1%).

Trump Administration Watch:

July 11 - Bloomberg (Brendan Scott and Enda Curran): "U.S. President Donald Trump is pushing his trade conflict with China toward a point where neither side can back down. By Aug. 30, as the U.S. nears mid-term elections vital for Trump's legislative agenda, the White House will be ready to impose 10% tariffs on $200 billion of Chinese-made products, ranging from clothing to television parts to refrigerators. The levies announced Tuesday -- together with some $50 billion already in the works -- stand to raise import prices on almost half of everything the U.S. buys from the Asian nation. China has seven weeks to make a deal or dig in and try to outlast the U.S. leader. President Xi Jinping, facing his own political pressures to look tough, has vowed to respond blow-for-blow."

July 11 - Bloomberg (Saleha Mohsin, Jenny Leonard, Jennifer Jacobs and Andrew Mayeda): "High-level trade talks between the U.S. and China have ground to a halt as the Trump administration threatens to escalate a trade war that shows little sign of abating, according to five people familiar… The countries held three rounds of formal negotiations since May, led by U.S. Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross and Vice Premier Liu He in China. But communications between senior members of the Trump and Xi administrations have petered out, and there's no immediate plan to restart the formal talks…"

July 6 - Wall Street Journal (Bob Davis): "The U.S. economy's strength is emboldening the Trump administration to play hardball in its trade offensive against China. Tariffs tend to be economic downers with an impact like sales taxes, which push up costs for consumers and businesses and slow growth. But so far it is tough to argue that the spat with China is having a broad macroeconomic impact. Economic output in the second quarter is estimated by many economists to have expanded at a 4% annual rate or more, roughly twice the pace of the nine-year-old expansion."

July 7 - Associated Press: "High-level talks between the United States and North Korea appeared to hit a snag… as Pyongyang said a visit by U.S. Secretary of State Mike Pompeo had been 'regrettable' and accused Washington of making 'gangster-like' demands to pressure the country into abandoning its nuclear weapons. The statement from the North came just hours after Pompeo wrapped up two days of talks with senior North Korean officials without meeting North Korean leader Kim Jong Un…"

July 9 - Reuters (Susan Heavey and David Brunnstrom): "President Donald Trump suggested on Monday that China might be seeking to derail U.S. efforts aimed at denuclearizing North Korea, but said he was confident that North Korean leader Kim Jong Un would uphold a pact the two agreed last month."

July 10 - Reuters (Jeff Mason, Robin Emmott, Alissa de Carbonnel): "U.S. President Donald Trump accused Germany on Wednesday of being a 'captive' of Russia due to its energy reliance, before a NATO summit where he pressed allies to more than double defense spending. Having lambasted NATO members for failing to reach a target of spending 2% of national income on defense, Trump told fellow leaders in Brussels he would prefer a goal of 4%, similar to U.S. levels, officials said."

Federal Reserve Watch:

July 11 - Wall Street Journal (Nick Timiraos): "The boost to U.S. economic growth from recent tax cuts and spending increases, together with more-stable price pressures, has made Federal Reserve officials comfortable with raising interest rates more than they anticipated earlier this year. Among them is Federal Reserve Bank of Chicago President Charles Evans… In an interview Monday, he said he is now comfortable with one or two more Fed rate increases this year, following on the central bank's two moves so far this year. 'The economy seems so strong it seems natural that businesses and consumers can live with' slightly higher interest rates, he said… Mr. Evans's comments echo those of Fed governor Lael Brainard, another once-prominent advocate for a slow pace of rate increases who has recently shifted toward warning against the dangers of letting the economy overheat."

July 12 - CNBC (Michael Sheetz): "Members of the Federal Reserve are telegraphing two more rate hikes this year, with Federal Open Market Committee voting member Loretta Mester… repeating the central bank's expectation for the next six months. 'The economy can certainly handle two more increases this year,' Mester, the president of the Cleveland branch of the Fed, said… 'We could end up getting behind if we don't keep moving things up, so I'm very comfortable, if the economy stays on the path it's going that we move rates up as appropriate this year.'"

July 11 - Reuters (Howard Schneider and Lindsay Dunsmuir): "Federal Reserve officials are scouring new niches of the financial markets to find signals accurate enough to warn the central bank when it is time to stop hiking interest rates before they risk tipping the economy into a recession… New research from staff economists Eric Engstrom and Steven Sharpe, presented at the Fed's June meeting, suggests that some of the traditional warning signs of recession, such as the gap in interest rates between 10-year and 2-year Treasuries, may not be as powerful as analysis that focuses on shorter term rates."

U.S. Bubble Watch:

July 12 - Bloomberg (Reade Pickert): "The U.S. budget deficit widened by 16% to $607 billion three-quarters of the way through Donald Trump's first full fiscal year as president, as spending accelerated faster than revenue. The shortfall in the nine months through June was larger than the $523 billion gap in the same period of fiscal 2017… Revenue rose to $2.54 trillion in the period, up 1.3% from a year earlier. Spending rose 3.9% to $3.15 trillion."

July 11 - Reuters (Richard Leong): "The U.S. economy is growing at a 3.9% annualized rate in the second quarter following the latest data on domestic wholesale inventory and producer prices, the Atlanta Federal Reserve's GDPNow forecast model showed…"

July 8 - CNBC (Michael Ivanovitch): "America's foreign trade deficits on goods transactions are getting worse. After an increase of 7.7% in 2017, those deficits were growing in the first five months of this year at an almost identical annual rate. Particularly disappointing is the fact that there is no progress at all in bringing trade deficits down with the European Union and China. The deficit with those two large economic systems came in at $218 billion during the January-May period, accounting for nearly two-thirds (64%) of America's total trade gap. That deficit was 11.3% more than recorded over the same interval of last year…"

July 11 - Reuters (Lucia Mutikani): "U.S. producer prices increased more than expected in June amid gains in the cost of services and motor vehicles, leading to the biggest annual increase in 6-1/2 years… The producer price index for final demand climbed 0.3% last month after rising 0.5% in May. That pushed the annual increase in the PPI to 3.4%, the largest rise since November 2011, from 3.1% in May."

July 12 - Reuters: "U.S. consumer prices barely rose in June, but the underlying trend continued to point to a steady buildup of inflation pressures… Consumer Price Index edged up 0.1% as gasoline price increases moderated and apparel prices fell. The CPI rose 0.2% in May. In the 12 months through June, the CPI increased 2.9%, the biggest gain since February 2012… Excluding the volatile food and energy components, the CPI rose 0.2%, matching May's gain. That lifted the annual increase in the so-called core CPI to 2.3%, the largest rise since January 2017…"

July 10 - Financial Times (Andrew Edgecliffe-Johnson): "Stock buyback announcements by US companies smashed records in the second quarter, feeding the debate over how boardrooms are spending their windfall from the Republican tax cuts… The almost $437bn in buyback plans announced in the three months to June 30 eclipsed the previous quarterly record of $242bn, which was set just three months earlier, according to TrimTabs… 'Corporate America's actions suggest that most of the benefits of the corporate tax cut will flow to investors in general and top corporate executives in particular,' TrimTabs said."

July 8 - Wall Street Journal (Rachel Louise Ensign): "Business borrowing is picking up, a welcome relief for banks and a sign of strength for the U.S. economy. Preliminary second-quarter data from the Federal Reserve indicate the year-over-year growth rate of business loans rose to 5.5% in late June from less than 1% near the end of 2017. The upturn marks the reversal of a prolonged slump in business-loan growth that began in earnest about two years ago. The rebound reflects increased confidence at companies."

July 9 - Associated Press: "Americans increased their borrowing in May at the fastest pace in a year and a half, boosted by a big increase in credit card borrowing. Consumer debt rose $24.5 billion in May after an increase of $10 billion in April… It was the biggest monthly increase since a rise of $24.8 billion in November 2016. The category that includes credit cards climbed $16.3 billion in May after increasing by $5 billion in April."

July 12 - Bloomberg (Alex Tanzi and Wei Lu): "The financial burden of living in coastal neighborhoods reveals itself quickly in the Bloomberg study. San Francisco, Seattle, Portland, Jacksonville, and the Bridgeport-Stamford-Norwalk, Connecticut area rounded out the top five areas with the fastest increase in mortgage payments… Slightly over 10% of all metro areas saw rents rising faster than inflation. In three locations, rents increased by more than 5%. Overall, eight of the top 20 most expensive markets are in California, with three of them among the 100 largest metro areas in the U.S. San Jose, San Francisco and Los Angeles are the three priciest markets… In nine metro regions, aggregate housing costs breached 50% of income."

July 11 - CNBC (Diana Olick): "A slight increase in the number of homes for sale may be helping to juice the mortgage market. After falling for two straight weeks, mortgage application volume rose 2.5% last week… Mortgage applications to purchase a home jumped 7% for the week and were 8% higher than the same week one year ago. Potential homebuyers have been blocked by a severe shortage of homes for sale this year, but more listings have been coming on the market."

July 6 - CNBC (Matt Rosoff): "The average price of a house bought in San Francisco rose by $205,000 in the first half of 2018, the largest six-month increase in history… The average house in the city limits now costs $1.62 million. Condo prices also rose by $71,000, which is a significantly slower pace of change than in past years, but still comes in at a startling $1.21 million. This is a direct outgrowth of the current tech boom in Silicon Valley, which shows no signs of slowing down."

July 10 - CNBC (Scott Cohn): "Seattle-area real estate agent Jerry Martin said he first entered the business in 1977, which means he remembers the days of double-digit mortgage rates and multiple booms and busts. That includes the bubble in 2006 and 2007 and the historic collapse that followed. None of that, he said, quite compares to the 'craziness' that has been going on lately. 'It would not be unreasonable for a three-bedroom, one-and-three-quarter bath, 1,500-square-foot home to go on the market and within the hour or two you're looking at multiple offers,' he told CNBC. 'We've had situations where 20, 30 offers were coming in on a piece of property.' The Washington state housing market is the hottest in the country. Prices increased nearly 4% in the first quarter…"

July 12 - Bloomberg (Prashant Gopal): "Got a million bucks to spend on a new home? Good. Just don't expect a palace. The starting price for the most expensive 5% of U.S. residential properties sold in April was at least $1 million in more than half the luxury markets Realtor.com analyzed for its latest report. Sales of million-dollar-plus real estate jumped 25% from April of last year… That's the biggest sales increase in high-end homes since January 2014 and more than twice this January's pace."

July 9 - Wall Street Journal (Ryan Dezember and Laura Kusisto): "Wall Street is betting that more well-off Americans will want to be renters. Financiers who loaded up on homes after the housing bust for pennies on the dollar are buying yet more-despite home prices in many markets being at all-time highs. The number of homes purchased by major investors in 2017 was at least 29,000, up 60% from the previous year, estimates Amherst Capital Management LLC…"

July 10 - Reuters (Lucia Mutikani): "More American workers voluntarily quit their jobs in May, …a sign of confidence in the labor market that economists say will soon boost wage growth. That lifted the quits rate one-tenth of a percentage point to 2.4%, the highest since April 2001."

July 8 - CNBC (Matt Lavietes): "In late June, employees at Salesforce.com completed a task that's becoming common in Silicon Valley. They protested. Thousands of tech workers from top companies, including Google, Amazon and Microsoft, have recently led large-scale internal rebellions against their employers. The wave of employee outrage is largely over the use of companies' technology in controversial government contracts - from facial recognition software sold to law enforcement, to drone technology for the military and work with U.S. Immigration and Customs Enforcement."

China Watch:

July 12 - Reuters (Yawen Chen): "China's commerce ministry said on Thursday that China has not been in touch with the United States about restarting trade negotiations and said complaints about forced technology transfers and IP theft are unacceptable. China does not want a trade war, but it does not fear one and would fight if necessary, ministry spokesman Gao Feng told reporters…"

July 11 - Financial Times (Keyu Jin): "As the US-China trade dispute ramps up, with the announcement of $200bn-worth of new tariffs on Chinese imports, Beijing is savouring a quote from Mao Zedong. In a contest with a foe of great strength, Mao said, 'injuring all of a man's 10 fingers is not as effective as chopping off one, and routing 10 enemy divisions is not as effective as annihilating one of them'. China is adopting the same strategy in dealing with rising trade tensions. The concern in Beijing is that this trade war is not really about surpluses or unfair practices, but about Chinese aspiration. In the Bill Clinton era, the US viewed China as a 'constructive strategic partner'. The administration of George W Bush saw the Chinese as 'responsible stakeholders', while Barack Obama sought to build a relationship with Beijing based on 'mutual respect'. But by the time of the Trump administration's first national security strategy, …China had become the US's principal 'competitor'. So what does 'chopping off one finger' signify in this context? It means focusing on pain points; going after a narrow set of products in the US, goods which have easy substitutes readily available in other markets - soyabeans from South America, for instance."

July 8 - Reuters: "China's offshore dollar debt crackdown could boomerang on the faltering yuan. Officials are moving to curb overseas currency bond issuance by Chinese firms, in particular indebted real estate developers. This could put more downward pressure on the exchange rate, and possibly on the country's $3.1 trillion foreign exchange reserves. The National Development and Reform Commission… said last month that real estate firms should issue new dollar-denominated bonds primarily to repay existing debt. Thomson Reuters IFR also reported that officials are giving oral guidance to private issuers restricting short-term dollar bond issues."

July 12 - Bloomberg (Ben Bartenstein and Giulia Morpurgo): "Donald Trump's tariff barrage pushed Chinese markets into their worst selloff since a shocking currency devaluation three years ago. The offshore yuan fell the most since August 2015…, as the White House said it's ready to impose 10% tariffs on $200 billion of Chinese-made products. Beijing said it would be forced to retaliate, describing the move as 'totally unacceptable.' Meanwhile, the iShares China Large-Cap exchange-traded fund extended a two-day slide to 2.5%. 'It's going to be difficult to find some place to hide," said David Lebovitz, global strategist at JPMorgan Asset Management… China can allow the currency to weaken a bit further, but at some point it will step in as too much weakness would be counterproductive, according to him."

July 8 - Financial Times (Gabriel Wildau and Yizhen Jia): "China is retreating from a policy that has channelled about $1tn in subsidies to homebuyers since 2016, a reversal that has sent tremors through the country's residential property market amid broader concerns about a housing bubble. Mainland property shares have tumbled since an executive from China Development Bank said… this month that CDB was tightening loan approvals for the subsidy programme. CDB, the state-owned policy bank with $2.4tn in assets, is the main source of loans for China's slum redevelopment policy, which began as a lending programme to support urban renewal but evolved into cash payments for displaced residents."

July 10 - Wall Street Journal (Jacky Wong): "China's crackdown on shadow banking has caused some high-profile blowups. Now it's driving the country's car makers off course. One big target for Beijing has been the proliferation of peer-to-peer lending platforms-total transactions on these ballooned to 2.8 trillion yuan ($423bn) last year, more than 10 times the total in 2014… The worry is that such platforms have become a hotbed for embezzlement, or could simply run out of money. Local media reported dozens of them collapsing in the past few months alone. About 20% of the platforms in existence last year disappeared in the first half… New rules introduced late last year to tame growth in P2P lending seem to be hitting the auto sector now."

July 9 - Reuters (Lusha Zhang and Elias Glenn): "China's producer inflation accelerated to a six-month high in June… The producer price index (PPI) …rose by a stronger-than-expected 4.7% in June from a year earlier, compared with a 4.1% increase in May… The consumer price index (CPI) rose 1.9% in June from a year earlier, in line with expectations for a slight pick-up from May's gain of 1.8%."

July 10 - Bloomberg: "For a lens on how China's stock market rout is affecting companies and brokerages, consider Hubei Broadcasting & Television Information Network Co.'s recent convertible bond sale. The… operator of a digital television network sought to sell 1.7 billion yuan ($256 million) of six-year securities, but investors only subscribed for about two-thirds of the offering… The sole bookrunner, Zhongtai Securities Co., ended up buying the remaining notes, putting the brokerage on the hook for losses… The deal underlines the funding pressures that are squeezing Chinese companies, with convertible debt -- once so popular with investors that gains were all but guaranteed -- becoming a harder sell as stocks languish near two-year lows."

July 11 - Bloomberg: "International investors have long fretted over the inflated credit scores Chinese domestic rating firms assign to local bonds. This latest example shows their worry may be well justified. Yields on coal producer Zhongrong Xinda Group Co.'s yuan bond maturing in August surged to 335%... amid concern defaults by its shareholder and business partner Wintime Energy Co. will hurt the company's operations. Yet United Ratings still has a AAA score on Zhongrong Xinda and many of its bonds including the one due next month."

EM Watch:

July 10 - Wall Street Journal (Christopher Whittall, Yeliz Candemir and Ira Iosebashvili): "Global investors who were once eager to buy any dip in emerging markets are now backing away, fearing that a big tumble could herald more weakness ahead… Global money that flowed into developing countries last year is slowing considerably. Flows into emerging market stocks and bonds have been $59.7 billion this year, down from $167.6 billion in the same time in 2017… A stronger dollar and higher yields in the U.S. have made it more difficult for investors to ignore shortcomings in countries like Turkey, where external debt stands at 53.4% of gross domestic product…"

July 11 - Financial Times (Laura Pitel and Adam Samson): "Turkish equities, bonds and the lira took a hammering on Wednesday as President Recep Tayyip Erdogan predicted a fall in interest rates and investors fretted over the health of the country's economy. Asked about a slide in the Turkish lira since he announced his new cabinet at the start of the week, the newly re-elected Turkish president told journalists that a combined treasury and finance ministry headed by his son-in-law 'will of course do whatever is necessary', according to Hurriyet newspaper… Turkey must find about $200bn a year in foreign financing - most of it in the form of short-term 'hot money' flows - to fund the current account deficit as well as maturing debt."

July 10 - Wall Street Journal (Julie Wernau and Ira Iosebashvili): "Emerging markets could become collateral damage in an escalating trade conflict where the U.S. is squaring off against China and Europe. The first tariffs levied by the U.S. and China went into effect Friday, but worries over the trade spat have already rippled through a broad range of emerging markets, hurting prices for stocks, bonds and currencies from Indonesia to Brazil. Export-dependent Asian economies may be especially vulnerable, and major stock markets in the region have tumbled in recent weeks. A significant portion of U.S.-bound exports from countries like Malaysia, South Korea and Thailand pass through China, thanks to its central role in the global supply chain."

July 10 - Financial Times (Laura Pitel): "Recep Tayyip Erdogan has gained the power to appoint the governor of Turkey's central bank and hundreds of other senior officials, unnerving markets as the country's new executive presidency comes into force. The Turkish leader issued his first set of presidential decrees just hours after being sworn into office, triggering the transition to a muscular system of governance that Mr Erdogan has sought for years."

July 10 - Financial Times (Laura Pitel): "From the moment he entered politics just three years ago, it was clear that Berat Albayrak would not be constrained by the limits of his official energy brief. As the son-in-law of President Recep Tayyip Erdogan, the former business executive soon found himself setting out the Turkish government's position on military operations, joining high level overseas visits and accompanying his wife's father on the campaign trail. Few expected, however, that Mr Erdogan would be bold enough to put his 40-year-old protégé in sole charge of the economy at a time of mounting concerns about its health."

July 10 - New York Times (Peter S. Goodman): "Looming like a fortress over the Black Sea, Istanbul's new airport has been engineered to provoke awe, underscoring Turkey's desire to reclaim its imperial glory. The project is expected to cost nearly $12 billion and carve six runways across a swath of land as big as Manhattan. When completed in a decade, the complex is supposed to transport some 200 million people a year, dwarfing all rivals as the busiest airport on the planet. But the airport has also become a symbol of a less savory aspect of Turkey's modern-day incarnation: its reckless disregard for arithmetic and the independence of critical government institutions. Together, they have placed the nation at growing risk of sliding into a financial crisis. In a global economy increasingly plagued by worries… Turkey may present the most immediate cause for alarm."

July 8 - BBC: "Turkey has sacked another 18,000 state workers, in the latest purge triggered by a failed coup two years ago. Those dismissed include soldiers, police and academics. A TV channel and three newspapers have also been closed. Since the coup attempt the government has fired more than 125,000 people, introduced emergency rule and clamped down on the media and the opposition."

July 12 - Bloomberg (Lilian Karunungan, Jasmine Ng and Abhishek Vishnoi): "For Mark Mobius, there may be worse to come even after the U.S. fired new shots in its trade war with China: a further 10% drop in emerging-market stocks and a global financial crisis. 'There's no question we'll see a financial crisis sooner or later because we must remember we're coming off from a period of cheap money,' the veteran investor in developing nations said… 'There's going to be a real squeeze for many of these companies that depended upon cheap money to keep on going.'"

Central Bank Watch:

July 9 - Financial Times (Claire Jones): "Mario Draghi has delivered a bullish assessment of the eurozone's economic prospects, saying monetary stimulus undertaken by policymakers had been and would continue to be 'very effective' in boosting growth and inflation. The European Central Bank chief told lawmakers at the European Parliament… that the measures - which include negative interest rates and a €2.4tn bond-buying programme - would boost growth and inflation… The ECB is starting to unwind the strategy measures, which were unleashed in 2014 and 2015 to counter the threat of weak growth triggering a severe bout of deflation."

July 9 - Bloomberg (Piotr Skolimowski and Alexander Weber): "Mario Draghi said the improvement in euro-area inflation is on a self-sustained path as he struck a confident tone that the European Central Bank can withdraw its stimulus despite the rising specter of a global trade war. Addressing European Parliament lawmakers, the ECB president urged the region's governments to lead by example by pushing back against creeping protectionism, which he singled out as the main risk for the area's economic expansion."

July 12 - Financial Times (Claire Jones): "The eurozone's central bankers are set to call time on the expansion of their €2.5tn bond buying spree later this year because they are increasingly convinced the region's economy is now strong enough to take the slow withdrawal of some of their crisis era support, according to accounts of the European Central Bank's June policy vote. The ECB's governing council voted unanimously to lower the amount of bonds it buys each month under its landmark quantitative easing programme from €30bn to €15bn in September, before ending the purchases for good after December…. Rates will remain on hold at their current record lows of zero for the main refinancing rate and minus 0.4% for the deposit rate 'at least through the summer of 2019'."

July 11 - Reuters (Larry King): "European Central Bank policymakers are split over when the ECB might raise interest rates next year, with some saying an increase is possible as early as July 2019 and others ruling out a move until autumn, according to several sources… Some expressed annoyance with an overly dovish message by ECB President Mario Draghi that pushed rate hike expectations to December, a date hawks consider too late."

July 7 - Wall Street Journal (Tom Fairless): "The decision on who will succeed Mario Draghi as European Central Bank president is still a year away, but the jockeying for position is already under way. The 19 countries that use the euro are preparing for a delicate political dance that will decide who will steer the eurozone economy away from years of easy-money policies. The favorite, Jens Weidmann, the conservative president of Germany's central bank, risks becoming a lightning rod for criticism of the nation's dominance of the $14 trillion currency bloc."

Global Bubble Watch:

July 11 - Bloomberg (Shannon D. Harrington, Sally Bakewell, Christopher Cannon and Mathieu Benhamou): "Masayoshi Son and Elon Musk leveraged their dreams to the hilt. Patrick Drahi stockpiled debt to build a global cable empire. Michael Dell loaded his computer company with risky loans to buy out activists threatening his control. And a group of Chinese developers borrowed big to expand in the nation's booming property market. Call them the titans of junk. They're the headliners in a decade-long, $11 trillion corporate borrowing frenzy, fueled by central banks that flooded the global financial system with ultra-cheap money. Investors have been lending to virtually anyone willing to pay a decent yield. But now the easy money is coming to an end… For many companies, it will bring new financial pressures… Bloomberg News delved into corporate filings, debt offerings, M&A deal tables and bond indexes to find the biggest beneficiaries of this decade of loose lending. The search identified 69 companies spanning the globe that have boosted their debt levels by 50% or more in the past five years and now have at least $5 billion of debt. Together, they're sitting on almost $1.2 trillion of bonds and loans, most of it rated junk…"

Europe Watch:

July 12 - Bloomberg (Patrick Donahue): "German Chancellor Angela Merkel said European defense spending and trade with the U.S. are separate issues, rejecting a link made by President Donald Trump. Merkel's comments came at the end of a North Atlantic Treaty Organization summit marked by the U.S. president's renewed demands for European NATO allies, and Germany in particular, to pay a greater share of the alliance's defense spending. At a news conference in Brussels on Thursday, Trump again appeared to link European willingness to be forthcoming on defense spending to U.S. trade conflicts with the European Union."

July 8 - Financial Times (Kate Allen and Claire Jones): "A widely watched measure of eurozone capital flows suggests that Italy's debts to the European Central Bank are set to hit €500bn this summer, reflecting the eurozone's persistent financial imbalances. The country's Target 2 balance - the difference between incoming and outgoing cross-border payments - is €480bn in the red and growing rapidly… Meanwhile, Germany's Target 2 surplus is on track to reach €1tn. Target 2 was set up by the ECB and eurozone national central banks to allow banks to make large payments to one another quickly. More than 1,700 banks use it to transact with one another."

July 10 - Bloomberg (Patrick Donahue and Birgit Jennen): "German Chancellor Angela Merkel praised China for opening up to foreign investment, drawing a contrast with trade conflicts burdening both countries' relations with the U.S. Merkel's positive take followed a meeting on Monday in Berlin with Chinese Prime Minister Li Keqiang, who presented himself as an ally in her defense of rules-based global trade. They also agreed that they want to preserve a nuclear accord with Iran that President Donald Trump has ditched."

July 10 - ActionForex.com: "Italian European Affairs Minister Paolo Savona warned… that the country had to be ready for 'all eventualities' on its Eurozone membership. He told a panel in the Senate that 'we may find ourselves in a position where it's not we who decide but others.' Hence, 'my position regarding a Plan B … is that we have to be ready for all eventualities.'"

July 10 - Financial Times (Claire Jones): "House prices across the eurozone are rising at their fastest since before the global financial crisis, forcing the region's banks to squeeze the supply of credit to would-be mortgage holders. …House prices in the 19-member currency area rose 4.5% in the year to the first quarter of 2018 - a level last seen in early 2007. Five countries - Latvia, Slovenia, Ireland, Portugal and Slovakia - saw double-digit price rises."

Brexit Watch:

July 9 - Bloomberg (Thomas Penny, Kitty Donaldson, Robert Hutton and Timothy Ross): "Prime Minister Theresa May battled to stave off a full-blown crisis after three ministers quit within 24 hours to protest her Brexit plan. The resignation of Foreign Secretary Boris Johnson, the face of the campaign to leave the European Union in 2016, compounded the chaos in government following the departures of Brexit Secretary David Davis and his deputy late Sunday."

Fixed Income Bubble Watch:

July 12 - Bloomberg (Sally Bakewell): "Wall Street's junk war is heating up. On one side are major banks, which are diving back into high-risk corporate lending now that U.S. regulators have loosened up. On the other are so-called shadow lenders -- private equity shops, boutique banks and other financial players that muscled in on this business when regulators restrained the big banks five years ago. The result: ever-growing competition to provide junk-rated debt used in corporate takeovers. It could turn out to be a 'race to the bottom,' said Frank Ossino, a senior portfolio manager at Newfleet Asset Management… For the $2.3 trillion-plus market in junk bonds and leveraged loans, the question is whether all this competition ultimately brings new, greater risks."

Leveraged Speculator Watch:

July 11 - Bloomberg (Dani Burger): "The dog days of summer have arrived for quants. Systematic traders who tie their fortunes to the ebbs and flows of stock markets are experiencing some of their worst returns in eight years… Factor investing -- which slices and dices equities based on traits like profitability and price volatility -- has buckled while the broader market has stayed afloat. For example, AQR Capital Management LLC's $1.9 billion mutual fund, one of the largest in the sector, last month nursed its steepest loss since inception. It's all adding insult to injury for quants struggling to make money this year as equity volatility awakens and economic angst builds… A market-neutral version of value -- which bets on companies priced cheaply while offsetting the broader market --rounded off its worst quarter since 2011. Meanwhile, momentum, which bets on the highest fliers like tech stocks, saw its biggest monthly drawdown in more than two years… Only 17% of large-cap active quant mutual funds outperformed the Russell 1000 index in June, the worst monthly showing in more than eight years…"

July 9 - Wall Street Journal (Mengqi Sun): "Hedge funds have long touted their ability to do better when things turn volatile. But they lagged behind the S&P 500 for the first half of 2018 despite market swings tied to trade policy tensions and interest rate increases. A widely followed hedge-fund index maintained by data research company HFR dropped 0.46% in June… The index rose .81% in the first two quarters, which is lower than the 2.65% return on the S&P 500… The only large category of hedge funds that posted an increase in June were funds that seek to capitalize on mergers and acquisitions… Those that specialized in stock picking and macroeconomic analysis posted declines."

Geopolitical Watch:

July 7 - Reuters (Phil Stewart, Idrees Ali and Jess Macy Yu): "Two U.S. warships passed through the Taiwan Strait on Saturday on a voyage that will likely be viewed in the self-ruled island as a sign of support by President Donald Trump amid heightened tension with China… Washington has no formal ties with Taiwan but is bound by law to help it defend itself and is the island's main source of arms. China regularly says Taiwan is the most sensitive issue in its ties with the United States."