Saturday, January 19, 2019

Saturday's News Links

[Reuters] Trump says a deal 'could very well happen' with China

[Reuters] Merkel says to work hard for a Brexit deal

[Reuters] Explainer: How U.S.-China talks differ from any other trade deal

[WSJ] Central Banks Struggle With Policy Settings

[FT] NY Fed president warns shutdown is hitting US growth

Weekly Commentary: Monetary Disorder 2019

Please join Doug Noland and David McAlvany this Thursday, January 24th, at 4:00PM EST/ 2:00pm MST for the Tactical Short Q4 recap conference call, "The 2019 Secular Shift: Beginning the Long, Difficult Road." Click here to register.

The S&P500 advanced 6.5% in 2019’s first 13 trading sessions. The DJ Transports are up 9.2% y-t-d. The broader market has outperformed. The small cap Russell 2000 sports a 9.9% gain after 13 sessions, with the S&P400 Midcap Index rising 9.3%. The Nasdaq Composite has gained 7.9% y-t-d (Nasdaq100 up 7.2%). The average stock (Value Line Arithmetic) has risen 9.7% to start the year. The Goldman Sachs Most Short index has jumped 13.6%.

Some of the sector gains have been nothing short of spectacular. This week’s 7.7% surge pushed y-t-d gains for the Bank (BKX) index to 13.7%. The Broker/Dealers (XBD) were up 5.3% this week – and 11.0% so far this year. The Nasdaq Bank index has a 2019 gain of 11.3% (up 4.9% this week). The Philadelphia Oil Services index surged 22.3% in 13 sessions. Biotechs (BTK) have jumped 16.1%.

Taking a deeper dive into y-t-d S&P500 sector performance, Energy leads the pack up 11.2%. Financials have gained 9.0%, Industrials 8.9%, Consumer Discretionary 8.4%, and Communications Services 7.9%. Last year’s leaders are badly lagging. The Utilities have gained only 0.4%, followed by Consumer Staples up 3.2% and Health Care gaining 4.2%.

Canadian stocks have gained 6.9% (“Best Start to Year Since 1980”). Mexico’s IPC Index has risen 6.3%. Major equities indices are up 6.1% in Germany, 7.6% in Italy, 6.2% in Spain, 3.6% in the UK and 3.1% in France. European Bank stocks have gained 5.3% (Italy’s banks up 5.1%). Brazil’s Ibovespa index has gained 9.3% and Argentina’s Merval 15.9%. Russian stocks are up 4.9%, lagging the 7.9% gain in Turkey. The Shanghai Composite has recovered 4.1%. Hong Kong’s Hang Seng index has rallied 4.8%, with the Hang Seng Financial Index up 5.1% to start the year. With WTI crude surging 19% y-t-d, the Goldman Sachs Commodities Index is up a quick 10.4% to begin 2019.

After trading as high as 3.25% on November 6th, 10-year Treasury yields ended 2018 at 2.69%. Yields quickly sank to as low of 2.54% on January 3rd and have since rallied to 2.79% - up 10 bps y-t-d. German bund yields traded to 0.57% in early-October before reversing course and ending the year at 0.24%. After trading as low as 15 bps on January 3rd, bund yields closed this week at 26 bps (up 2bps y-t-d). Japan’s JGB yields ended the week at about one basis point, up from the negative 5.4 bps on January 3rd. No “all clear” here.

I titled last year’s “Issues 2018” piece “Market Structure.” A decade of central bank policy-induced market Bubbles fostered momentous market distortions and structural maladjustment. At the top of the list is the historic shift into passive ETF “investing.” With the ETF complex approaching $5.0 Trillion – and another $3.0 TN plus in the hedge fund universe – financial history has never seen such a gargantuan pool of trend-following and performance-chasing finance. Add to this the global proliferation of listed and over-the-counter derivatives strategies (especially options) and trading, and we’re talking about a world of unprecedented financial speculation. It’s an aberrant Market Structure, and we’re witnessing repercussions.

After powerful speculative flows and early-2018 blow-off excess, we saw the emerging markets (EM) then succumb to abrupt market reversals, destabilizing outflows, illiquidity and Crisis Dynamics. We witnessed how fragility at the “Periphery” propelled inflows to the “Core,” pushing U.S. securities markets into a destabilizing speculative melt-up (in the face of a rapidly deteriorating fundamental backdrop). This speculative Bubble burst in Q4.

The Powell Fed chose not to come to the market’s defense at the December 19th FOMC meeting. I viewed this as confirmation that Chairman Powell appreciated how previous hurried Fed measures to backstop the markets had bolstered speculation, distorted market functioning and fueled Bubbles. By January 4th, however, the pressure of market illiquidity had become too much to bear.

The Fed, once again, intervened and reversed the markets. Those believing in the indomitable power of the “Fed put” were further emboldened. The resulting short squeeze and reversal of hedges surely played a commanding role in fueling the advance. And in a financial world dominated by trend-following and performance-chasing finance, market rallies can take on a wild life of their own. There is tremendous pressure on investment managers, the speculator community, advisors and investors not to miss out on rallies. All the makings for a wretchedly protracted bear market.

Serious illiquidity issues were unfolding a small number of trading sessions ago, as equities and fixed-income outflows – along with derivatives-related and speculative selling – began to overwhelm the marketplace. Fed assurances reversed trading dynamics. De-risking/deleveraging has, for now, given way to “risk on.” A powerful confluence of short covering and risk embracement (and leveraging) has acutely speculative markets once again perceiving liquidity abundance and unwavering central bank support. Dangerous.

At least at this point, I’m not anticipating a crisis of confidence in an individual institution (i.e. Lehman in October 2008) to dominate Crisis Dynamics. Rather, I see a more general unfolding crisis of confidence in market function and policymaking. A decade of reckless monetary expansion and near-zero rate policies unleashed Intractable Monetary Disorder. Among the myriad consequences are deep structural impairment to financial systems - certainly including global securities and derivatives markets. The world is in the midst of acute financial instability with little possibility of resolution (outside of crisis).

These policy-induced bouts of “risk on” bolster confidence in both the markets and real economies. Importantly, they also feed dysfunctional Market Dynamics. Upside market volatility exacerbates market instability, fueling pernicious speculation, manic-depressive flows, and destabilizing derivative-related trading dynamics. With fundamental deterioration accelerating both globally and domestically, I would argue a speculative run higher in securities prices exacerbates systemic risks – while ensuring a more problematic future dislocation.

The global Bubble has begun to deflate. Chinese data continue to confirm a serious unfolding downturn. Not dissimilar to Washington policymakers, Beijing appears increasingly anxious. In theory, there would be advantages to letting air out of Bubbles gradually. But the bigger the Bubble – and the greater associated risks – the greater the impetus for policymakers to indefinitely postpone the day of reckoning. The upshot is only worsening Monetary Disorder. With still rising quantities of Credit of rapidly deteriorating quality, systemic risk continues to rise exponentially in China (and the world).

January 14 – Reuters (Kevin Yao): “China… signaled more stimulus measures in the near term as a tariff war with the United States took a heavy toll on its trade sector and raised the risk of a sharper economic slowdown. The world’s second-largest economy will aim to achieve ‘a good start’ in the first quarter, the National Development and Reform Commission (NDRC) said… Central bank and finance ministry officials gave similar assurances. Surprising contractions in China’s December trade and factory activity have stirred speculation over whether Beijing needs to switch to more forceful stimulus measures…”

January 15 – Reuters: “Chinese banks extended 1.08 trillion yuan ($159.95bn) in net new yuan loans in December, far more than analysts had expected but down from the previous month. Analysts polled by Reuters had predicted new yuan loans of 800 billion yuan last month, down from 1.25 trillion yuan in November…”

January 15 – Bloomberg: “China’s credit growth exceeded expectations in December, with the second acceleration in a row indicating the government and central bank’s efforts to spur lending are having an effect. Aggregate financing was 1.59 trillion ($235 billion) in December, the People’s Bank of China said on Tuesday. That compares with an estimated 1.3 trillion yuan in a Bloomberg survey.”

January 15 – South China Morning Post (Amanda Lee): “China’s banks extended a record 16.17 trillion yuan (US$2.4 trillion) in net new loans last year…, as policymakers pushed lenders to fund cash-strapped firms to prop up the slowing economy. The new figure, well above the previous record of 13.53 trillion yuan in 2017, is an indication that the bank has been moderately aggressive in using monetary policy to stimulate the economy, which slowed sharply as a result of the trade war with the US. Outstanding yuan loans were up 13.5% at the end of 2018 from a year earlier… In addition, debt issued by private enterprises increased by 70% year-on-year from November to December last year, indicating that the central bank’s efforts to support the private sector are working.”

There’s a strong consensus view that Beijing has things under control. Reality: China in 2019 faces a ticking Credit time bomb. Bank loans were up 13.5% over the past year and were 28% higher over two years, a precarious late-cycle inflation of Bank Credit. Ominously paralleling late-cycle U.S. mortgage finance Bubble excess, China’s Consumer Loans expanded 18.2% over the past year, 44% in two years, 77% in three years and 141% in five years. China’s industrial sector has slowed, while inflated consumer spending is indicating initial signs of an overdue pullback. Calamitous woes commence with the bursting of China’s historic housing/apartment Bubble.

Typically – and as experienced in the U.S. with problems erupting in subprime - nervous lenders and a tightening of mortgage Credit mark an inflection point followed by self-reinforcing downturns in housing prices, transactions and mortgage Credit. Yet there is nothing remotely typical when it comes to China’s Bubble. Instead of caution, lenders have looked to residential lending as a preferred (versus business) means of achieving government-dictated lending targets. Failing to learn from the dreadful U.S. experience, Beijing has used an inflating housing Bubble to compensate for structural economic shortcomings (i.e. manufacturing over-capacity). This is precariously prolonging “Terminal Phase” excess.

The Institute for International Finance is out with updated global debt data. In the public interest, they should make this data and their report available to the general public.

January 16 – Financial Times (Jonathan Wheatley): “Emerging-market companies have gorged on debt. Slower global growth and higher funding costs will make servicing that debt harder, just as the amount coming due this year reaches a record high. The result? Less investment for growth and yet more borrowing. These are some of the concerns raised by the Institute of International Finance… as it published its quarterly Global Debt Monitor… The world is ‘pushing at the boundaries of comfortably sustainable debt,’ says Sonja Gibbs, managing director at the IIF. ‘Higher debt levels [in emerging markets] really divert resources from more productive areas. This increasingly worries us.’ The IIF’s data show total global debt — owed by households, governments, non-financial corporates and the financial sector — at $244tn, or 318% of gross domestic product at the end of September, down from a peak of 320% two years earlier. In some areas, though, borrowing is rising. Of particular concern is the non-financial corporate sector in emerging markets (EMs), where debts are equal to 93.6% of GDP. That is more than among the same group in developed markets, at 91.1% of GDP.”

January 16 – Washington Post (Robert J. Samuelson): “Government debt has tripled from $20 trillion in 2000 to $65 trillion in 2018, rising as a share of GDP from 55% to 87%. Household debt has increased over the same years, from $17 trillion to $46 trillion (from 44% to 60% of GDP). Finally, nonfinancial corporate debt rose from $24 trillion to $73 trillion (71% of GDP to 92%)… According to the data from the IIF, emerging-market borrowers face $2 trillion of maturing debt in 2019, with about a quarter of those loans made in dollars (most of the rest are in local currency). To avoid default, borrowers must somehow raise those dollars, either from a new loan or from other sources.”

January 16 – Barron’s (Reshma Kapadia): “A record $3.9 trillion of emerging market bonds and syndicated loans comes due through the end of 2020. Most of the redemptions in 2019 will be outside of the financial sector, mainly from large corporate borrowers in China, Turkey, and South Africa. The question will be if they can refinance the debt…”

Considering the unprecedented global debt backdrop, it’s difficult for me to believe last year’s corrections went far in resolving deep structural issues throughout the emerging markets - and for the global economy more generally. “A record $3.9 trillion of emerging market bonds and syndicated loans comes due through the end of 2020…” “…Borrowers face $2 trillion of maturing debt in 2019, with about a quarter of those loans made in dollars.”

Positive headlines from Washington and Beijing engender optimism that a U.S./China trade deal is coming together. One can assume President Trump yearns for those morning Tweets lauding record stock prices. President Xi certainly has ample motivation for a deal to goose Chinese markets and the increasingly vulnerable Chinese economy.

A deal would be expected to boost U.S., Chinese and global equities. It will be curious to see how long Treasury bonds can observe rallying risk markets before turning nervous. So far, Treasuries, bunds and JGBs have been curiously tolerant. If the risk markets rally gains momentum, I would expect flows to be drawn out of the safe havens. A jump in global yields – perhaps accompanied by a resurgent dollar – could prove challenging for the fragile emerging markets.

Pondering the massive pool of unstable global speculative finance, I wonder how both EM and global corporate Credit will trade in the event of a more sustained recovery in global equities and sovereign yields. Bear market rallies feed optimism and perceptions of abundant liquidity. But I believe the global liquidity backdrop has fundamentally deteriorated. This predicament, however, is completely concealed during rallies – only to reemerge when the buyers’ panic runs its course and selling resumes. It would not be surprising to see liquidity issues resurface in EM currencies and debt markets. In general, the more intense the counter-trend rallies the greater the vulnerability to sharp market reversals and a return of illiquidity.

Fed officials have fallen in line with the Chairman’s cautious language. But I would not totally dismiss “data dependent.” With labor markets unusually tight, a scenario of a trade deal, speculative markets and economic resilience could possibly see the Fed contemplating a shift back to “normalization.” Market pundits were quick to highlight “hawkish” Kansas City Fed President Esther George’s newfound dovishness. Comments from “dovish” Chicago Fed President Charles Evans were as notable: “I wouldn’t be surprised if at the end of the year we have a funds rate that’s a little bit higher than where we are now. That would be associated with a better economy and inflation moving up.” It’s going to be a fascinating year.


For the Week:

The S&P500 jumped 2.9% (up 6.5% y-t-d), and the Dow rose 3.0% (up 5.9%). The Utilities slipped 0.4% (down 0.1%). The Banks surged 7.7% (up 13.7%), and the Broker/Dealers jumped 5.3% (up 11.0%). The Transports rose 4.0% (up 9.2%). The S&P 400 Midcaps gained 3.0% (up 9.3%), and the small cap Russell 2000 increased 2.4% (up 9.9%). The Nasdaq100 advanced 2.8% (up 7.2%). The Semiconductors increased 1.3% (up 6.3%). The Biotechs jumped 2.9% (up 16.1%). With bullion down $6, the HUI gold index sank 5.4% (down 6.1%).

Three-month Treasury bill rates ended the week at 2.35%. Two-year government yields jumped seven bps to 2.62% (up 13bps y-t-d). Five-year T-note yields rose nine bps to 2.62% (up 11bps). Ten-year Treasury yields gained eight bps to 2.79% (up 10bps). Long bond yields rose six bps to 3.10% (up 8bps). Benchmark Fannie Mae MBS yields jumped nine bps to 3.57% (up 7bps).

Greek 10-year yields fell 11 bps to 4.17% (down 18bps y-t-d). Ten-year Portuguese yields added two bps to 1.73% (up 1bp). Italian 10-year yields dropped 12 bps to 2.73% (down 1bp). Spain's 10-year yields fell 10 bps to 1.35% (down 7bps). German bund yields rose two bps to 0.26% (up 2bps). French yields were unchanged at 0.66% (down 8bps). The French to German 10-year bond spread narrowed two to 40 bps. U.K. 10-year gilt yields gained six bps to 1.35% (up 8bps). U.K.'s FTSE equities index increased 0.7% (up 3.6% y-t-d).

Japan's Nikkei 225 equities index gained 1.5% (up 3.3% y-t-d). Japanese 10-year "JGB" yields were little changed at 0.02% (up 1bp y-t-d). France's CAC40 rose 2.0% (up 3.1% y-t-d). The German DAX equities index jumped 2.9% (up 6.1%). Spain's IBEX 35 equities index gained 2.2% (up 6.2%). Italy's FTSE MIB index rose 2.2% (up 7.6%). EM equities were higher. Brazil's Bovespa index jumped 2.6% (up 9.3%), and Mexico's Bolsa gained 1.6% (up 6.2%). South Korea's Kospi index advanced 2.3% (up 4.1%). India's Sensex equities index gained 1.0% (up 0.9%). China's Shanghai Exchange rose 1.7% (up 4.1%). Turkey's Borsa Istanbul National 100 index surged 7.4% (up 7.9%). Russia's MICEX equities index gained 1.2% (up 4.9%).

Investment-grade bond funds saw inflows of $913 million, and junk bond funds posted inflows of $3.284 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates were unchanged near a nine-month low 4.45% (up 41bps y-o-y). Fifteen-year rates slipped a basis point to 3.88% (up 39bps). Five-year hybrid ARM rates rose four bps to 3.87% (up 41bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up one basis point to 4.42% (up 14bps).

Federal Reserve Credit last week was little changed at $4.016 TN. Over the past year, Fed Credit contracted $388bn, or 8.8%. Fed Credit inflated $1.205 TN, or 43%, over the past 323 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt jumped $7.6bn last week to $3.403 TN. "Custody holdings" rose $48bn y-o-y, or 1.4%.

M2 (narrow) "money" supply declined $18.7bn last week to $14.505 TN. "Narrow money" gained $684bn, or 4.9%, over the past year. For the week, Currency increased $4.5bn. Total Checkable Deposits fell $14.3bn, and Savings Deposits dropped $20.8bn. Small Time Deposits gained $4.3bn. Retail Money Funds rose $9.0bn.

Total money market fund assets fell $17.4bn to $3.049 TN. Money Funds gained $233bn y-o-y, or 8.3%.

Total Commercial Paper dropped $7.5bn to $1.066 TN. CP declined $53bn y-o-y, or 4.7%.

Currency Watch:

The U.S. dollar index recovered 0.7% to 96.364 (up 0.2% y-t-d). For the week on the upside, the Mexican peso increased 0.2%, the British pound 0.2% and the Canadian dollar 0.1%. For the week on the downside, the New Zealand dollar declined 1.3%, the Swiss franc 1.2%, the Japanese yen 1.2%, the Brazilian real 1.1%, the Swedish krona 1.1%, the euro 0.9%, the Australian dollar 0.7%, the South Korean won 0.5%, the Singapore dollar 0.4%, the Norwegian krone 0.3% and the South African rand 0.1%. The Chinese renminbi declined 0.22% versus the dollar this week (up 1.49% y-t-d).

Commodities Watch:

The Goldman Sachs Commodities Index gained 2.6% (up 10.4% y-t-d). Spot Gold slipped $5 to $1,282 (down 0.1%). Silver fell 1.6% to $15.399 (down 0.9%). Crude jumped $2.21 to $53.80 (up 19%). Gasoline rose 3.7% (up 12%), and Natural Gas surged 12.4% (up 18%). Copper gained 2.1% (up 3%). Wheat slipped 0.3% (up 3%). Corn increased 0.9% (up 2%).

Market Dislocation Watch:

January 18 – Bloomberg (James Crombie and Gowri Gurumurthy): “HCA Healthcare Inc. swooped into the red-hot U.S. junk bond market Thursday to find booming demand for its debt, allowing it to increase the offering by 50% and lower its yield. Yet the hospital chain is finding little company. Through Thursday, total speculative-grade U.S. bond issuance was just shy of $4 billion. That’s less than half of the $11.2 billion that had been sold by this time last year and the $8.4 billion during the same period in 2017. January is typically a good time for junk-rated companies to tap the bond market.”

January 15 – Reuters (Elizabeth Dilts and Siddharth Cavale): “JPMorgan… missed profit estimates for the fourth quarter as a slump in bond trading revenue overpowered strong consumer loan growth and record revenues. It was the first time JPMorgan Chase, the largest U.S. bank by assets, has underperformed earnings-per-share expectations in 16 quarters, according to Barclays equity analyst Jason Goldberg.”

January 14 – Reuters (Saqib Iqbal Ahmed): “An anonymous trader caused a stir in the U.S. equity options market on Monday with a massive bet that recalled Warren Buffett’s famous wager on global stocks more than a decade ago. The trader sold 19,000 put options on the S&P 500 Index obligating him or her to buy the market benchmark at 2,100 on Dec. 18, 2020, data from… options analytics firm Trade alert showed. As long as the index doesn’t drop more than 22% from its current level of 2,582 by that date, the bet will earn the trader roughly $175 million in premiums.”

January 16 – Bloomberg (Lu Wang and Melissa Karsh): “If December was a crisis of confidence rivaling 2008 for professionals in the stock market, January has been a season of faith restored. Hedge funds, initially leery of the equity bounce that has lifted the S&P 500 by 11%, are showing signs of buying in as the rally endures. Their gross leverage, a measure of industry risk appetite, last week jumped the most since May 2017, client data compiled by Goldman Sachs… showed. The spike in demand for borrowed money is the latest indication of improving sentiment after stocks suffered the worst December since the Great Depression.”

Trump Administration Watch:

January 17 – Wall Street Journal (Ruth Simon): “The longest government shutdown in modern U.S. history is choking the economic lifeblood of many entrepreneurs. The Small Business Administration has stopped approving routine small-business loans that the agency backs to ensure entrepreneurs have access to funds, halting their plans for expansion and repairs and forcing some owners to consider costlier sources of cash.”

January 17 – Reuters (Makini Brice and Jeff Mason): “U.S. Treasury Secretary Steven Mnuchin discussed lifting some or all tariffs imposed on Chinese imports and suggested offering a tariff rollback during trade discussions scheduled for Jan. 30, the Wall Street Journal reported on Thursday, citing people familiar with the internal deliberations.”

January 17 – Reuters (David Shepardson): “U.S. President Donald Trump is likely to move ahead with tariffs on imported vehicles, a move that could prompt the European Union to agree a new trade deal, said Senate Finance Committee Chairman Charles Grassley…”

January 18 – Reuters (David Shepardson and Alexandra Alper): “U.S. President Donald Trump is reviving efforts to win approval for a significant infrastructure plan lasting up to 13 years, two people briefed on the matter said, as the administration seeks to bring a long-stalled campaign promise back to life.”

January 16 – CNBC (Kate Fazzini): “The U.S. Justice Department will pursue a criminal case against Chinese tech giant Huawei for alleged trade secrets theft, according to The Wall Street Journal. The charges revolve around theft of trade secrets related to a robotic device called ‘Tappy’ made by T-Mobile, which was used in testing smartphones, according to the report.”

January 13 – Reuters (Daren Butler and Lesley Wroughton): “The United States and Turkey sparred… over the fate of U.S.-allied Kurdish fighters in Syria, with Washington insisting they not be harmed and Ankara rejecting a perceived U.S. threat to punish Turkey economically if it attacked them. The disagreement, played out in rival tweets, is the latest consequence of U.S. President Donald Trump’s Dec. 19 decision to withdraw U.S. troops from Syria, potentially leaving the Kurdish militia under threat as Turkey weighs a new offensive there… On Sunday, Trump said the United States was starting the pull-out of U.S. forces that were deployed to Syria to help drive Islamic State fighters out of the country… ‘Will attack again from existing nearby base if it reforms. Will devastate Turkey economically if they hit Kurds. Create 20 mile safe zone ... Likewise, do not want the Kurds to provoke Turkey,’ Trump tweeted.”

Federal Reserve Watch:

January 17 – Reuters (Jonathan Spicer and Suzanne Barlyn): “The U.S. economy and labor market are strong with inflation contained, even while financial markets have recently been focused on the risk that global economic growth will slow further, a Federal Reserve governor said… ‘Clearly markets are more attuned currently to downside risks but the core, base case remains very strong’ for the U.S. economy, Randal Quarles, the central bank’s vice chair for supervision, said…”

January 13 – Reuters (Jonathan Spicer): “The Federal Reserve is set to take a ‘patient’ approach to policy decisions this year given there is good U.S. economic momentum but also a slowdown overseas, Fed Vice Chairman Richard Clarida said… ‘We can afford to be patient in 2019, there is good momentum,’ he said on Fox Business Network, adding U.S. central bankers will decide interest rates on a ‘meeting by meeting’ basis in the months ahead.”

U.S. Bubble Watch:

January 14 – CNBC (Jeff Cox): “After years of U.S. companies taking advantage of low interest rates to pile up cheap debt, Wall Street is beginning to take notice of a problem forming. Corporate debt outstanding ended 2018 at just over $9 trillion, a 64% increase over a decade’s time… However, credit quality is showing signs of weakening, with heavily indebted companies already feeling the pinch as the Fed raises rates gradually and global economic conditions start to weaken. The result has been a trickle of warnings from financial experts that the price tag for all that debt is coming due. The latest admonition comes from Jeffrey Gundlach, founder of DoubleLine Capital, who said in a warning… that the debt load is about to become a bigger problem. ‘We are talking about the creation of an ocean of debt,’ Gundlach told Barron’s…, during which he noted that the Fed is engaging in ‘quantitative tightening’ that will create ‘a problem for the stock market.’”

January 16 – Reuters (Pete Schroeder): “Labor markets tightened across the United States as businesses struggled to find workers at any skill level and wages generally grew moderately, the Federal Reserve said… The U.S. central bank’s ‘Beige Book’ report, a snapshot of the economy gleaned from discussions with business contacts, found tight labor markets across all 12 Fed districts, with a majority reporting moderate wage gains. A majority of districts also reported modest-to-moderate price increases, with a number saying higher tariffs had driven up costs.”

January 15 – Reuters (Lucia Mutikani): “U.S. producer prices dropped by the most in more than two years in December as the cost of energy products and trade services fell, adding to signs of tame inflation that may allow the Federal Reserve to be patient about raising interest rates this year… The Labor Department said its producer price index for final demand dropped 0.2% last month after edging up 0.1% in November. That was the first decline since February 2017 and largest decrease since August 2016. In the 12 months through December, the PPI increased 2.5%...”

January 13 – Wall Street Journal (Akane Otani): “The U.S.’s biggest public companies are warning that their earnings may not be as strong as they hoped this year, intensifying pressure on a bull market that has struggled to regain its footing. Firms in the S&P 500 were projected back in September to report fourth-quarter earnings growth of 17% from the year earlier. But dimmer expectations for global growth and disappointing holiday sales have forced many companies to slash their forecasts, pushing the estimated earnings-growth rate for the quarter closer to 11%, according to FactSet. The drop-off in estimates—the steepest since 2017—is the latest sign that U.S. corporations, from retailers and airlines to phone makers, are losing momentum after several quarters of standout growth.”

January 18 – Wall Street Journal (Peter Loftus): “Drugmakers have sharply boosted prices of some older, low-cost prescription medicines amid supply shortages and recalls—in some cases, by threefold and more. At least three sellers of a widely used blood-pressure medication, valsartan, have raised prices since a series of safety-related recalls of the drug by other manufacturers began in the summer of 2018.”

January 17 – Reuters (Richard Leong): “The Philadelphia Federal Reserve said… its barometer on U.S. Mid-Atlantic business activity increased more than forecast in January, suggesting resilience in the region’s manufacturing sector amid trade tensions between China and the United States.”

January 11 – CNBC (Diana Olick): “The government shutdown hasn't completely stopped the flow of stunningly bad housing data. Sales of newly built homes fell 18% in December compared with December of 2017, according to… John Burns Real Estate Consulting… Sales were also down a steep 19% annually in November, according to JBRC's analysts. The firm counts 373 market ratings by local builders overseeing more than 3,500 new home communities, estimated to be 16% of U.S. new home sales. JBRC's figures correlate closely with government readings.”

January 16 – CNBC (Jeff Cox): “Student loan debt is putting a dent in young people’s pockets that is contributing to a much lower level of home ownership over the past decade. Federal Reserve economists studied the impact that the $1.5 trillion in educated-related loans is having on those aged 24 to 32. They found that while it is not the principal contributor to the decline in housing purchases, it is playing a significant role. ‘In surveys, young adults commonly report that their student loan debts are preventing them from buying a home,’ Fed researchers Alvaro Mezza, Daniel Ringo, and Kamila Sommer said in a paper…”

January 17 – CNBC (Jeff Daniels): “California’s housing affordability crisis has made it more difficult for school districts to attract and retain teachers, a large reflection of a problem affecting education systems across the country. The challenge of luring and keeping teachers is notoriously a problem for the San Francisco Bay Area, where housing prices are among the highest in the nation. But it’s become a difficult issue in other areas of the state, as well… ‘The main impacts have been in the Bay Area first and now we’re seeing it more and more in Los Angeles with rising rents,’ said Eric Heins, president of the California Teachers Association… ‘If you think that a one-bedroom apartment is $2,000 to $3,000, that’s pretty much a teachers’ take-home pay for the month…”

January 13 – Reuters (Douglas Busvine): “Chinese foreign direct investment into North America and Europe fell by 73% to a six-year low last year as the United States tightened scrutiny of deals and Chinese restrictions on outbound investment bit, law firm Baker & McKenzie said. The figures reflected the impact of escalating trade and political friction between Washington and Beijing. After taking divestitures into account, net Chinese FDI flows into the United States actually turned negative. Investment into the United States fell by 83% but, by contrast, grew by 80% into Canada.”

January 17 – Reuters (Aishwarya Venugopal): “Sears Holdings Corp Chairman Eddie Lampert won a bankruptcy auction to buy the once iconic U.S. retailer after presenting an improved offer of $5.2 billion, Sears said on Thursday, allowing it to keep its more than 400 stores running.”

China Watch:

January 13 – Reuters (Yawen Chen and Martin Quin Pollard): “China’s exports unexpectedly fell the most in two years in December, while imports also contracted, pointing to further weakness in the world’s second-largest economy in 2019 and deteriorating global demand. Adding to policymakers’ worries, data on Monday also showed China posted its biggest trade surplus with the United States on record in 2018… China’s December exports unexpectedly fell 4.4% from a year earlier, with demand in most of its major markets weakening. Imports also saw a shock drop, falling 7.6% in their biggest decline since July 2016… China’s politically-sensitive surplus with the U.S. widened by 17.2% to $323.32 billion last year, the highest on record going back to 2006…”

January 14 – Bloomberg: “China’s government is turning increasingly to tax cuts as the first line of defense against a slowing economy, as credit data… showed some vindication of its gradual stimulus strategy. Further evidence of the dominance of fiscal measures emerged, as senior policy officials pledged that tax reductions on a ‘larger scale’ are in the pipeline, amid worsening… data. JPMorgan… economists estimate the total impact will be around 2 trillion yuan ($300bn), or 1.2% of gross domestic product. That’s a departure from the infrastructure binges coupled with massive monetary stimulus that were deployed in the aftermath of global financial crisis. Beijing is trying to put a floor under the economic slowdown without another debt blowout…”

January 13 – Reuters (Yilei Sun and Brenda Goh): “Car makers in China will face more fierce competition this year, after a tough 2018 when the world’s biggest auto market contracted for the first time in more than two decades, the country’s top auto industry association said… China car sales fell 13% in December, the sixth straight month of declines, bringing annual sales to 28.1 million, down 2.8% from a year earlier… This was against a 3% annual growth forecast set at the start of 2018…”

January 17 – Financial Times (He Wei): “Chinese private companies may face an even more difficult ride in the domestic bond market in 2019 as billions of renminbi in maturing issuance conspire with reduced risk appetite, threatening an even bigger wave of defaults. Last year’s Rmb151bn ($22.3bn) in defaults made it a banner year for credit events in the domestic corporate bond market. Ordinarily, this would be welcomed: the first renminbi corporate bond default was as recent as 2014 and was a watershed moment for regulators… However, nearly 90% of the defaulted paper in 2018 was issued by private sector companies… The difference in the yields between bonds rated AA+ and the highest triple A rating has narrowed since the beginning of 2018, while the spread of bonds rated AA and below over AA+ bonds has more than doubled… Bond ratings issued by Chinese credit rating agencies are not comparable to those of international peers; nearly 60% of corporate issuers in China have a triple A rating, compared with just two in the US.”

January 14 – Bloomberg: “China asked some state-run enterprises to avoid business trips to the U.S. and its allies and to take extra precautions to protect their devices if they need to travel, according to people familiar… In recent weeks, the State-Owned Assets Supervision and Administration Commission -- a regulatory body that oversees about 100 government-run companies -- has told some firms to only take secure, company-issued laptops meant for overseas use if traveling is necessary, the people said. They said the warning extended to the other countries in the Five Eyes intelligence-sharing pact: the U.K., Canada, Australia and New Zealand.”

January 15 – Bloomberg (Venus Feng and Blake Schmidt): “Four Chinese tycoons transferred more than $17 billion of their wealth into family trusts late last year, underscoring how the rich are scrambling to protect their fortunes from the nation’s newly toughened tax regime… All of the four Hong Kong-listed companies but Sunac cited succession planning as the purpose of the transfers. The ownership structures of all four tycoons involve entities in the British Virgin Islands.

Central Bank Watch:

January 16 – Reuters (Leika Kihara): “Bank of Japan Governor Haruhiko Kuroda said… central banks must carefully evaluate the effects of unconventional monetary policy steps, as their benefits and side-effects could differ from those brought about by conventional policy. Kuroda also said demographic changes in major economies could affect how financial institutions behave, thereby affecting central banks’ policy decisions. ‘As a low interest rate environment persists and credit demands become stagnant amid a declining population, banks might accelerate their search-for-yield activities such as expanding their exposure to overseas assets and increasing loans and investments to firms with higher credit risks,’ he said.”

EM Watch:

January 16 – Financial Times (Jonathan Wheatley): “Emerging-market companies have gorged on debt. Slower global growth and higher funding costs will make servicing that debt harder, just as the amount coming due this year reaches a record high. The result? Less investment for growth and yet more borrowing. These are some of the concerns raised by the Institute of International Finance… as it published its quarterly Global Debt Monitor… The world is ‘pushing at the boundaries of comfortably sustainable debt,’ says Sonja Gibbs, managing director at the IIF. ‘Higher debt levels [in emerging markets] really divert resources from more productive areas. This increasingly worries us.’ The IIF’s data show total global debt — owed by households, governments, non-financial corporates and the financial sector — at $244tn, or 318% of gross domestic product at the end of September, down from a peak of 320% two years earlier. In some areas, though, borrowing is rising. Of particular concern is the non-financial corporate sector in emerging markets (EMs), where debts are equal to 93.6% of GDP. That is more than among the same group in developed markets, at 91.1% of GDP.”

Global Bubble Watch:

January 14 – Bloomberg (William Horobin): “Momentum is easing across the world’s major economies, according to a gauge that the Organization for Economic Co-Operation and Development uses to predict turning points. The Composite Leading Indicator is the latest sign of a synchronized slowdown in global growth, adding to recession warnings sparked by industrial figures in Germany last week and slumping trade figures for China… The indicator, which is designed to anticipate turning points six-to-nine months ahead, has been ticking down since the start of 2018 and fell again in November. The OECD singled out the U.S. and Germany, where it said ‘tentative signs’ of easing momentum are now confirmed.”

January 14 – Financial Times (Kate Beioley): “Last year was a rocky one for stock markets and new investment trusts but a record year for passive funds, with more exchange traded funds (ETFs) listed on the London Stock Exchange in 2018 than in any previous year… Globally, the volume of money held in ETFs in particular has soared. Some $4.6tn was held in ETF assets globally at the end of 2018, according to… consultancy ETFGI, up from less than $100bn at the turn of the century. In the US, that has resulted in passive fund groups such as Vanguard owning a significant volume of the country’s stock markets. Vanguard alone owns at least 5% of 491 stocks out of 500 in the S&P 500… — a fourfold increase since 2010.”

January 16 – Bloomberg (Carrie Hong): “China will likely end Japan’s reign as the world’s second-largest bond market this year, according to Standard Chartered Plc. The mainland’s debt pile will grow 15% to 98 trillion yuan ($14.5 trillion) in 2019… As of the second quarter, the size stood at $12.3 trillion versus Japan’s $13 trillion and only 31% of the U.S. market, it said… The central bank on Wednesday pumped in a net 560 billion yuan into the financial system via open-market operations, the biggest one-day addition on record, to meet seasonal demand… ‘Bond demand is supported by flush interbank liquidity and expectations of more easing,’ Standard Chartered said. ‘The size of China’s bond market may overtake that of Japan by year-end.’ Gross issuance of Chinese onshore bonds is forecast to rise 13% to 49.4 trillion yuan this year.”

January 15 – Financial Times (Mamta Badkar): “A gauge of global policy uncertainty is ‘flashing red’ amid anxiety on Brexit, the US government shutdown and the Sino-American trade war, according to Deutsche Bank. The global economic policy uncertainty index is at record high levels at a time of deepening unrest in British politics ahead of the country’s scheduled exit from the EU on March 29, the trade war between the US and China and a government shutdown in the US that has entered its fourth week.”

January 13 – Financial Times (Lucy Hornby and Chris Giles): “Emma Liu has a good job in Beijing, but she has decided to forgo her normal Giorgio Armani face cream and started buying cheaper sweaters online. Her choices are reverberating in boardrooms around the world. A slowdown in the Chinese economy — and flagging consumer expectations — are clouding the outlook for foreign brands. From VW to Apple, the Chinese economy is now the world’s business. No international brand can safely ignore China’s economic prospects. On a market exchange-rate basis, China accounted for 16% of the global economy in 2018.”

January 17 – Bloomberg (Alexandra Harris): “The benchmark being eyed as a potential replacement for dollar Libor is facing renewed scrutiny after a year-end surge in the market underpinning the new rate. With more volatility possible, Wall Street is increasingly wondering if the nascent Secured Overnight Financing Rate will be up to the task. Last month’s jump in rates on overnight Treasury repurchase agreements -- the market that supports SOFR -- pushed the benchmark higher by almost 70 bps over a two-day span. It has since retreated and was set at 2.43% for Wednesday. But given that both repo and SOFR are also susceptible to swings in Treasury-bill supply, which itself could become more erratic as the U.S. grapples with the reintroduction of the debt ceiling, some market veterans are forecasting further fluctuations ahead. Concerns about SOFR range from a lack of term structure to tepid volumes in derivatives that are tied to it.”

Europe Watch:

January 18 – Financial Times (Valentina Romei): “Growth in eurozone house prices slowed in the third quarter as Italy’s property market worsened while others, such as Portugal, cooled from a double-digit pace at the beginning of the year. Eurozone house prices rose at an annual rate of 4.3% in the three months to September, slower than the 4.5% recorded from the start of the year. The slowdown reflected a deterioration in Italy’s house prices that contracted at an annual rate of 0.8%...”

Brexit Watch:

January 14 – Financial Times (Philip Stafford): “As investors wait for the UK’s vote on the Brexit withdrawal agreement, banks and brokers have already accepted that, from March 29, Europe will be split into two distinct capital markets. For most of them, the priority has been to ensure that EU-based clients have access to crucial market plumbing in London. One example: JPMorgan’s German subsidiary last week became a member of ICE Futures Europe’s clearing house in London, so it can clear credit derivatives for EU customers. EU institutions have been anxious to preserve access to the UK’s clearing houses, which act as go-betweens for buyers and sellers in financial markets. Brussels has said it will issue temporary licences, recognising UK laws as ‘equivalent’ to EU standards, to ensure that Europe’s €660tn derivatives market will function with minimal disruption.”

Fixed-Income Bubble Watch:

January 14 – Wall Street Journal (Juliet Chung and Nicole Friedman): “Utilities have long been considered ultrasafe bets. But PG&E Corp.’s announcement Monday that it will file for bankruptcy is teaching investors that isn’t always true. The Baupost Group LLC, Viking Global Investors LP and BlueMountain Capital Management LLC were among the hedge funds that snapped up shares of PG&E… during the third quarter of 2018, just before the deadliest wildfire in California history triggered an existential crisis for the state’s largest utility. That crisis entered a new phase Monday when PG&E said that it intends to seek chapter 11 bankruptcy protection by the end of the month due to more than $30 billion it faces related to its role in sparking deadly California wildfires in 2017 and 2018.”

January 13 – Wall Street Journal (Russell Gold, Katherine Blunt and Rebecca Smith): “PG&E Corp. equipment started more than one fire a day in California on average in recent years as a historic drought turned the region into a tinderbox. The utility’s unsuccessful efforts to prevent such blazes have put it in a state of crisis. The fires included one on Oct. 8, 2017, when nearly 50-mile-an-hour winds snapped an alder tree in California’s Sonoma County wine country. The tree’s top hit a half-century-old PG&E power line and knocked it into a dry grass field… The line set the grass ablaze, sparking what became known as the Nuns Fire. It was among at least 17 major wildfires that year that California investigators have tied to PG&E. Data from the state firefighting agency, Cal Fire, show the fires together scorched 193,743 acres in eight counties, destroyed 3,256 structures and killed 22 people.”

January 12 – Bloomberg (Hailey Waller and James Ludden): “Jeffrey Gundlach said yet again that the U.S. economy is gorging on debt. …Gundlach took part in a round-table of 10 of Wall Street’s smartest investors for Barron’s. He highlighted the dangers especially posed by the U.S. corporate bond market. Prolific sales of junk bonds and significant growth in investment grade corporate debt, coupled with the Federal Reserve weaning the market off quantitative easing, have resulted in what the DoubleLine Capital LP boss called ‘an ocean of debt.’ The investment manager countered President Donald Trump’s claim that he’s presiding over the strongest economy ever. The growth is debt-based, he said… ‘I’m not looking for a terrible economy, but an artificially strong one, due to stimulus spending,’ Gundlach told the panel. ‘We have floated incremental debt when we should be doing the opposite if the economy is so strong.’”

Leveraged Speculation Watch:

January 18 – Bloomberg (Vincent Bielski): “Investors fled hedge funds as markets plunged in the fourth quarter, pulling $22.5 billion, the most in more than two years. The exodus added to the total withdrawals of $34 billion in 2018, or about 1% of industry assets, according to… Hedge Fund Research.”

January 12 – Financial Times (Chris Flood): “Hedge funds run by GAM, Schroders and BlackRock delivered significant losses in 2018 as declines for stock markets globally and rising US interest rates led to widespread difficulties for alternative managers. Many large hedge funds failed to protect their clients from substantial losses, raising more questions about the performance claims made by some of the investment industry’s best-paid managers. Only 16 hedge funds had reported positive full-year 2018 returns after fees in the latest update from HSBC's alternative investment group for the week to January 4. The HSBC research, which monitors around 450 hedge funds, found a further 169 funds were in positive territory in 2018 but they were yet to report numbers for the full year.”

January 16 – Bloomberg (Yakob Peterseil): “Some of the nimblest hedge-funds that trade volatility are hoping history doesn’t repeat after suffering their worst year in over a decade. Managers famed for posting steady profits from relative-value strategies, which shuffle between long- and short-volatility bets, lost a record 2.5% in 2018… You’d think funds that profit from swings would thrive from crazed markets. But these rarefied players were sunk instead by erratic moves in implied volatility and an outsized spike in U.S. equity angst versus the rest of the world. The question now is whether these obstacles will continue to confound market-neutral trades. ‘Higher volatility is positive, but erratic spikes can prove difficult to navigate for volatility-sensitive strategies,’ strategists Karim Cherif and Georg Weidlich at UBS Global Wealth Management wrote…”

Geopolitical Watch:

January 17 – Reuters (Tim Kelly): “The U.S. Navy has not ruled out sending an aircraft carrier through the Taiwan Strait, despite military technology advances by China that pose a greater threat to U.S. warships than ever before, the chief of U.S. naval operations said…”

January 13 – Reuters (Phil Stewart, Sarah N. Lynch and Doina Chiacu): “The White House’s national security team last fall asked the Pentagon to provide it with options for striking Iran after a group of militants aligned with Tehran fired mortars into an area in Baghdad that is home to the U.S. Embassy, a source familiar with the matter said… The source said that the Pentagon drew up options in response to the request, which was first reported by the Wall Street Journal and which originated from the White House National Security Council led by John Bolton.”

January 17 – Wall Street Journal (Benoit Faucon): “China’s state-run energy giant is making a new approach to strike a $3 billion Iranian oil field, seeking to take advantage of waivers allowed under U.S. sanctions even as two European nations have ended crude purchases... The moves highlight the divergent ways nations are reacting to temporary exemptions from U.S. sanctions on Iran. China’s decision to pursue lucrative deals with Tehran and deepen its presence there contrasts with a retreat by Italy and Greece stemming from fear that financial transactions and physical trade with Iran have become too difficult.”

January 16 – CNBC (Kate Fazzini): “Iranian hackers have congregated since at least 2002 in online forums to share tips on the best ways to create successful cyberattacks. Those conversations have given birth to some of the most significant global cybersecurity incidents, including devastating attacks on Saudi Aramco, attacks against the public-facing websites of large banks and espionage campaigns on a wide range of Western targets, according to new research by cybersecurity intelligence firm Recorded Future.”

Friday, January 18, 2019

Friday Evening Links

[Reuters] Wall Street extends rally on U.S.-China trade optimism

[Reuters] Exclusive: U.S. demands regular review of China trade reform

[Reuters] White House adviser Kudlow says making good progress on China trade talks

[Reuters] Testing times from Beijing to Wall Street

[Bloomberg] Hedge Funds Had Year to Forget in 2018

Friday's News Links

[Reuters] Stocks bask in trade optimism, set for fourth straight week of gains

[Reuters] Pound set for biggest weekly gain vs euro in more than a year on Brexit hopes

[CNBC] China to offer path to eliminate trade imbalance with US: Bloomberg News

[Reuters] U.S. manufacturing output posts biggest gain in 10 months

[Reuters] Shutdown clouds outlook for consumer-driven U.S. economic growth

[Reuters] Exclusive: Trump meets with Cabinet officials to revive infrastructure push - sources

[AP] China slump squeezes workers, hammers consumer spending

[Reuters] Job jitters mount as China's factories sputter ahead of Lunar New Year

[Reuters] Gloomy forecast for Davos: crises aplenty, but few world leaders

[Reuters] China trims 2017 GDP growth rate just before 2018 pace unveiled

[CNBC] Fears of excessive debt drive more countries to cut down their Belt and Road investments

[Reuters] Bad bets on oil, gas spark wave of energy-fund closures

[Reuters] U.S. Navy chief does not rule out sending aircraft carrier through Taiwan Strait

[WSJ] Drugmakers Raise Prices Amid Shortages, Recalls

[FT] Donald Trump’s cold war tactics will not work with China

[FT] Eurozone house price growth squeezed by weaker Italian market

Thursday, January 17, 2019

Thursday Evening Links

[Reuters] Wall Street advances as industrials jump on trade hopes

[Reuters] U.S. Treasury Secretary Mnuchin weighs lifting tariffs on China: WSJ

[CNBC] US weighs lifting tariffs on China to get a trade deal: WSJ

[WSJ] U.S. Weighs Lifting China Tariffs to Hasten Trade Deal, Calm Markets

[Reuters] UK in deadlock over Brexit 'Plan B' as May and Corbyn double down

[Reuters] Fed's Evans says good time for central bank to pause rate hikes

[Reuters] U.S. economy 'very strong' despite market worries: Fed's Quarles

[Reuters] U.S. fund investors put most cash in 'junk' since late 2016 -Lipper

[Reuters] Investors pulled a record $143 billion out of active funds during December’s plunge

[Yahoo Finance] Sam Zell Says Gold 'Is a Good Hedge'

[Reuters] Lampert wins Sears bankruptcy auction with $5.2 billion bid

[CNBC] California’s housing affordability crisis looms over the state’s problems with teachers

[WSJ] China Offers Iran $3 Billion Oil-Field Deal as Europe Halts Iranian Crude Purchases

Thursday's News Links

[Reuters] Stocks turn red, pound finds some peace

[Reuters] Italian bonds lead rally in periphery as core rates hold firm

[Reuters] Philly Fed business index rises more than expected in January

[Reuters] Trump 'inclined' to impose new U.S. auto tariffs: senator

[Reuters] BOJ's Kuroda calls for scrutiny of effects, costs of unconventional policy

[WSJ] Small Businesses’ $2 Billion Problem: Government Shutdown Leaves Loans in Limbo

[FT] Chinese corporate bonds set for another wave of defaults

[FT] EM groups will pay heavy price for gorging on debt

[Bloomberg] Forget the Trade War. China Is Already in Crisis

[Bloomberg] China Is Turning Into Its Own Worst Economic Enemy

[Bloomberg] China’s Growth Machine No Longer Looks Unstoppable

[Bloomberg] The U.S. and China Are Making Davos a Mess for Everyone Else

Wednesday, January 16, 2019

Wednesday Evening Links

[Reuters] Upbeat bank earnings send Wall Street to one-month highs

[Reuters] U.S. labor market tightens, wages grow moderately: Fed Beige Book

[CNBC] US pursuing criminal charges against Huawei for alleged theft of trade secrets: WSJ

[CNBC] Student loan debt is keeping young people from buying homes, Fed study finds

[Reuters] Busiest U.S. port sets all-time cargo record in 2018

[Reuters] May seeks to end Brexit stalemate after winning confidence vote

[CNBC] New research shows how Iranian hackers have collaborated to become one of the world’s most fearsome hacking forces

Wednesday's News Links

[Reuters] Gains in Goldman, BofA drive Wall Street to four-week high

[Reuters] US import prices fall for a second straight month

[Reuters] U.S. mortgage applications climb to 11-month high: MBA

[Reuters] China central bank injects record net $83 billion in open market operations

[Reuters] China's trade faces rising uncertainties this year: official

[Reuters] Search on for Brexit consensus after May's crushing defeat

[Reuters] Leveraged loans echo pre-crisis subprime crash: BoE's Carney

[Reuters] Italian banks face 2019 funding crunch without ECB help

[Reuters] Euro zone slowdown consistent with projections -ECB's Mersch

[Reuters] U.S. eyes Taiwan risk as China's military capabilities grow

[WSJ] Shutdown Forces Federal Contractors to Take Drastic Steps

[WSJ] Warning to Investors: Powell Is No Greenspan

[FT] China home price growth slows in December

[Bloomberg] Goldman Says Rich People Will Drag Down the U.S. Economy by Spending Less

[Bloomberg] Quants Take Beating as Momentum Strategy Lags Stock Rebound

[Bloomberg] London, New York and Hong Kong are No Longer Immune to Global Housing Downturn

Tuesday, January 15, 2019

Tuesday Evening Links

[Reuters] Netflix, China boost Wall Street as investors shrug off Brexit vote

[CNBC] Oil rises 2 percent on hopes for China economic stimulus

[Reuters] Brexit bedlam: Parliament votes down May's EU divorce deal by 230 votes

[CNBC] Theresa May lost big on her Brexit deal vote — here’s what could happen now

[UK Sun] CORB CHAOS Labour vows to bring down Theresa May within 24 hours and could overturn Brexit completely

[Reuters] Lighthizer saw no progress on U.S.-China key trade issues: Senator Grassley

[Reuters] Shutdown bites economy as Democrats reject Trump invitation to talk

[Reuters] Fed's George turns dovish, makes case for 'pause' on rate hikes

[AP] Deal or no deal? UK Parliament nears historic vote on Brexit

[Reuters] China Dec new loans at 1.08 trln yuan, beat forecasts

[SCMP] Chinese banks lend record amounts as government seeks to stop economic slowdown

[WSJ] Brexit Deal Hangs in Balance as May Braces for Defeat in Crucial Vote

[FT] Global policy uncertainty at record levels, Deutsche Bank says

Tuesday's News Links

[Reuters] Stocks tripped by earnings angst, sterling huddled for Brexit vote

[Reuters] U.S. producer prices fall more than expected in December

[Reuters] China signals more stimulus as economic slowdown deepens

[Reuters] No clear path for California as massive PG&E utility nears bankruptcy

[Reuters] JPMorgan misses profit estimates as bond trading slumps

[Reuters] Doing a Buffett? Bet on S&P 500 causes flap on options market

[Reuters] U.S., Turkey at odds over Kurdish fighters in Syria

[WSJ] U.K.’s May Likely Faces Defeat as Brexit Deadline Nears

[FT] Record year for passive funds as active fund outflows continue

[FT] Why Trump’s America is rethinking engagement with China

[Bloomberg] China Presses on With Tax-Cut Strategy as Lending Stabilizes

[Bloomberg] China Asks State Firms to Avoid Travel to U.S. and Its Allies

Monday, January 14, 2019

Monday Afternoon Links

[Reuters] Tech stocks pull Wall Street lower after China data

[Reuters] Safe-haven yen up vs dollar after China slowdown sparks risk-off

[Reuters] No. 1 U.S. utility PG&E prepares bankruptcy filing after California wildfires

[Reuters] Clarida reinforces Fed's mantra of U.S. policy patience

[CNBC] Gundlach’s warning on ‘ocean of debt’ adds to worries over corporate bonds

[WSJ] PG&E Was a Hedge-Fund Darling. That Bet Flopped.

Monday's News Links

[Reuters] Wall Street drops after China data, Citi results

[Reuters] Oil slides on China trade slump, but crude imports remain high

[Reuters] China's exports shrink most in 2 years, raising risks for global economy

[Reuters] China's 2018 trade surplus with U.S. highest on record going back to 2006

[CNBC] Citigroup misses fourth-quarter revenue expectations on much weaker-than-expected bond trading

[Reuters] CEO exits as PG&E faces fire liabilities, bankruptcy preparations

[Politico] Trump threatens Turkey with economic devastation

[Reuters] Chinese FDI into North America, Europe falls 73 percent in 2018: report

[Reuters] China car sales hit reverse for first time since 1990s

[WSJ] All Eyes on Corporate Guidance After Weak Economic Data

[WSJ] Slowing Earnings Growth, Gloomy Forecasts Add to Stock Market’s Woes

[WSJ] PG&E Sparked at Least 1,500 California Fires. Now the Utility Faces Collapse

[FT] Clouds loom over global business as Chinese economy falters

[FT] Brexit spells trouble for Europe’s €660tn derivatives market

[Bloomberg] The World’s Biggest Economies Are Moving Deeper Into a Slowdown

Saturday, January 12, 2019

Saturday's News Links

[CNBC] The partial government shutdown is now the longest ever as Trump border wall fight rages on

[CNBC] New home sales tank 19 percent to end 2018

[CNBC] 5 historic global shifts that could turn 2019 into a treacherous year

[Reuters] Turkey sends more reinforcements to border with Syria's Idlib

[WSJ] Cities and States With the Most Federal Workers Affected by the Shutdown

Market Commentary: Issues 2019

Please join Doug Noland and David McAlvany Thursday, January 24th, at 4:00PM EST/ 2:00pm MST for the Tactical Short Q4 recap conference call, "The 2019 Secular Shift: Beginning the Long, Difficult Road." Click here to register.

When I began posting the CBB some twenty years ago, I made a commitment to readers: “I’ll call it as I see it - and let the chips fall where they will.” Over the years, I made a further commitment to myself: Don’t be concerned with reputation – stay diligently focused on analytical integrity.

I attach this odd intro to “Issues 2019” recognizing this is a year where I could look quite foolish. I believe Global Financial Crisis is the Paramount Issue 2019. Last year saw the bursting of a historic global Bubble, Crisis Dynamics commencing with the blow-up of “short vol” strategies and attendant market instabilities. Crisis Dynamics proceeded to engulf the global “Periphery” (Argentina, Turkey, EM, more generally, and China). Receiving a transitory liquidity boost courtesy of the faltering “Periphery,” speculative Bubbles at “Core” U.S. securities markets succumbed to blow-off excess. Crisis Dynamics finally engulfed a vulnerable “Core” during 2018’s tumultuous fourth quarter.

As we begin a new year, rallying risk markets engender optimism. The storm has passed, it is believed. Especially with the Fed’s early winding down of rate “normalization”, there’s no reason why the great bull market can’t be resuscitated and extended. The U.S. economy remains reasonably strong, while Beijing has China’s slowdown well under control. A trade deal would reduce uncertainty, creating a positive boost for markets and economies. With markets stabilized, the EM boom can get back on track. As always, upside volatility reenergizes market bullishness.

I titled Issues 2018, “Market Structure.” I fully anticipate Market Structure to remain a key Issue 2019. Trend-following strategies will continue to foment volatility and instability. U.S. securities markets rallied throughout the summer of 2018 in the face of a deteriorating fundamental backdrop. That rally, surely fueled by ETF flows and derivatives strategies, exacerbated fragilities. Speculative flows fueling the upside destabilization eventually reversed course - and market illiquidity soon followed. Yet short squeezes and the unwind of market hedges create the firepower for abrupt rallies and extreme shifts in market sentiment.

Market Illiquidity is a key Issue 2019. Its Wildness Lies in Wait. Rallying risk markets create their own liquidity, with speculative leverage and derivative strategies in particular generating self-reinforcing liquidity. Recovering stock prices ensure bouts of optimism, along with confidence that robust markets enjoy liquidity abundance. Problems arise with market downdrafts and De-Risking/Deleveraging Dynamics. Rally-induced optimism feeds unreasonable expectations and eventual disappointment.

Crisis Dynamics tend to be a process. There’s the manic phase followed by some type of shock. There is at least a partial recovery and a return of optimism – often bolstered by a dovish central bank response. It’s the second major leg down when things turn more serious – for sentiment, for market dynamics and illiquidity. Disappointment turns to disenchantment and, eventually, revulsion. It’s been a long time since market participants were tested by a prolonged, grinding bear market.

The February 2018 “short vol” blowup was a harbinger of trouble to come. I believe the January 3, 2019 “flash crash” portends serious Issues 2019 in global currency markets. An 8% intraday move in the yen vs. Australian dollar exposed problematic liquidity dynamics. Last year, the “short vol” market signal was initially dismissed then soon forgotten. The recent currency market “flash crash” is an ominous development of potentially momentous significance.

Our so-called “king dollar” is indicating some vulnerability to begin the new year. Newfound Fed dovishness has caught many traders too long the U.S. currency and short the yen, Canadian dollar, renminbi and EM currencies more generally. A clash among a band of fundamentally weak currencies is a critical Issue 2019. When the current currency market short squeeze runs its course, I see a marketplace that’s lost its bearings. A new global currency regime of extraordinary uncertainty, instability and volatility is an Issue 2019. This unsettled new regime is not conducive to speculative leverage.

The U.S. dollar has serious fundamental issues: Trillion-dollar fiscal deficits; large structural Current Account Deficits; huge government, corporate and household debt loads; fragile securities markets; a maladjusted Bubble Economy; political dysfunction and, potentially, Washington chaos; and festering geopolitical risks.

The world’s reserve currency is fundamentally unsound. The dollar is also the nucleus for a financial apparatus financing much of the world’s levered speculative holdings. De-risking/Deleveraging Dynamics in 2018 saw waning liquidity and widening funding and hedging costs in the entangled world of dollar funding markets. With the likes of Goldman Sachs and Deutsche Bank seeing CDS prices rise significantly late in 2018, mounting systemic fragility would appear a serious Issue 2019.

China’s currency has serious fundamental issues: A vulnerable banking system approaching $40 TN of assets (more than quadrupling since the crisis), with Trillions of potentially suspect loans; a troubled “shadow” banking apparatus; an historic housing Bubble with an estimated 65 million vacant units; a deeply maladjusted economic structure; Bubble economic and financial structures dependent upon ongoing loose financial conditions and rapid Credit expansion; huge financial and economic exposures to the emerging markets and the global economy more generally; a population with significantly elevated expectations prone to disappointment and dissatisfaction; and mounting geopolitical risks. In short, China’s historic Bubble is increasingly susceptible to a disorderly collapse.

Hong Kong’s Hang Seng China H-Financial Index dropped 18% in 2018, although China’s banks outperformed the 28% fall in Japan’s TOPIX Bank Index. I would tend to see Asian finance as especially vulnerable to the unfolding global Bubble collapse. Waning confidence in the region’s financial stability would portend acute currency market instability. China’s currency is especially vulnerable to capital flight and the imposition of draconian capital controls. The big unknown is how much “hot money” and leverage has accumulated in Chinese markets. The Indonesia rupiah remains vulnerable to tightening global finance. I worry about India’s banking system after years of Bubble excess. I have concerns for the region’s financial institutions generally. The stability of the perceived stable Hong Kong and Singapore dollars is on the list of Issues 2019.

Fragile Asian finance has company. Italian banks sank 30% in 2018, slightly outperforming the 28% drop in European bank shares (STOXX 600). Italy’s 10-year yields traded to 3.72% in late-November, before ending 2018 at 2.74% (up 73bps in ’18). Italian – hence European – stability is an Issue 2019.

I believe a problematic crisis is likely to unfold in 2019, perhaps sparked by dislocation in Italian debt markets and the resulting crisis of confidence in Italy’s fragile banking system. Serious de-risking/deleveraging in Italian debt would surely see contagion in the vulnerable European periphery – including Greece, Spain and Portugal. Italy’s Target2 balances (liabilities to other eurozone central banks) almost reached $500 billion in 2018. Heightened social and political instability would appear a major Issue 2019, not coincidental with the end of ECB liquidity-creating operations. Draghi had kicked the can down the road. Markets, economies, politicians and protestors have about reached the can.

A crisis of confidence in Europe would ensure problematic currency market instability. Such a scenario would portent difficulties for vulnerable “developing” Eastern European markets and economies. Many economies would appear vulnerable to being locked out of global financing markets. A full-fledged financial crisis engulfing Turkey cannot be ruled out. Last year saw significant currency weakness also in the Russian ruble, Iceland krona, Hungarian forint and Polish zloty. I would see 2018 difficulties as a harbinger of much greater challenges ahead.

Bubbles are mechanism of wealth redistribution and destruction. This reality has been at the foundation of my ongoing deep worries for the consequences of history’s greatest global Bubble. We’ve witnessed the social angst, a deeply divided country and waning confidence in U.S. institutions following the collapse of the mortgage finance Bubble. I fear that the Bubble over the past decade has greatly increased the likelihood of geopolitical tensions and conflict. Aspects of this risk began to manifest in 2018, as fissures developed in the global Bubble. Geopolitical conflict is a critical Issue 2019. Trade relations are clearly front and center. Going forward, I don’t believe we can disregard escalating risks of military confrontation.

Bubbles inflate many things, including expectations. I worry that the protracted Chinese Bubble has so inflated expectations throughout China’s large population. With serious cracks in their Bubble, Beijing will continue to craft a strategy of casting blame on the U.S. (and the “west”). The administration’s hard line creates a convenient narrative: Trump and the U.S. are trying to hold back China’s advancement and ascendency to global superpower status. A faltering Bubble and deteriorating situation in China present Chinese leadership a not inconvenient time to confront the hostile U.S. The South China Sea and Taiwan could loom large as surprise flashpoint Issues 2019.

There are a number of potential geopolitical flashpoints. Without delving into detail, I would say generally that geopolitical risks will continue to rise rapidly in the post-Bubble backdrop. Issues easily disregarded during the Bubble expansion (i.e. the Middle East, Russia, Ukraine, Iran, etc.) may in total become more pressing Issues 2019. I can see a scenario where the U.S. is spending significantly more on national defense in the not too distant future.

“Chairman Powell ‘very worried’ about massive debt” was an early-2019 headline. I believe the U.S. Treasury market in 2018 hinted at a momentous change in Market Dynamics. And while a bout of “risk off” and a powerful short squeeze fueled a big year-end rally, there were times when the Treasury market's traditional safe haven appeal seemed to have lost some luster. The unfolding bursting Bubble predicament turns even more problematic if ever Treasury yields rise concurrently with faltering risk markets. Such a scenario seemed more realistic in 2018. With huge and expanding deficits as far as the eye can see, the suspect dollar and mounting geopolitical tensions, the potential for a disorderly rise in Treasury yields is a potential surprise Issue 2019.

Whether Treasury yields surprise on the upside or fall further in an unfolding crisis backdrop, U.S. corporate Credit is a pressing Issue 2019. Thursday (Jan. 10) ended a 40-day drought in junk bond issuance (longest stretch since at least 1995). Both high-yield and investment-grade funds suffered major redemptions in late-2018, exposing how abruptly financial conditions can tighten throughout corporate finance. Fueling liquidity abundance throughout the boom, ETF flows were exposed as a critical market risk.

Flows for years have been dominated by trend-following and performance-chasing strategies on the upside. The reversal of bullish speculative flows was joined in late-2018 by speculative shorting and hedging-related selling. Liquidity abundance abruptly transformed into unmanageable selling pressure and acute illiquidity. Pernicious Market Structure was revealed and, outside of short squeezes and fleeting bouts of optimism, I believe putting the ETF humpty dumpty back together will prove difficult. The misperception of ETF “moneyness” is being cracked wide open.

Enormous leverage has accumulated throughout corporate Credit over the past decade. This portends negative surprises and challenges in the unfolding backdrop. At this point, I’ll assume some type of trade agreement is cobbled together with the Chinese. This might provide near-term support for the markets and global economy. But I don’t believe a trade agreement would fundamentally change the backdrop of faltering global financial and economic Bubbles.

Expect ongoing global pressure on leveraged speculation. As an industry, the hedge funds did not experience huge redemptions in 2018. I expect redemptions and fund closures to be a significant issue following the next bout of serious de-risking/deleveraging. A similar dynamic should be expected for the ETF complex. Late-2018 outflows were likely just a warmup for the type of destabilizing flows possible in a panic environment.

In my view, an important interplay evolved during this protracted cycle between the ETF complex and a booming derivatives marketplace. Reliable inflows and abundant liquidity in the ETF universe created an advantageous backdrop for structuring and trading various derivatives strategies. This seemingly symbiotic relationship has run its course. The now highly uncertain ETF flow backdrop translates into a potentially problematic liquidity dynamic for derivative-related trading. ETF outflows pose risk to derivatives strategies, while a derivatives-induced market dislocation risks destroying investor faith in the liquidity and safety of ETF passive “investing.”

The possibility of a 1987-style “portfolio insurance” debacle except on a grander – global, multi-asset class - scale is an Issue 2019. The U.S. economy has vulnerabilities. Yet Unsound Finance is a predominant Issue 2019. Outside of possible dreadful geopolitical developments, I would argue that the key major risk for 2019 is the seizing up of global markets. Unprecedented amounts of risks have accumulated across markets around the globe. Consider a particularly problematic scenario: a major de-risking/deleveraging episode sparks upheaval and illiquidity across currencies, equities and fixed-income markets. Such a scenario might incite a crisis of confidence in major global financial institutions, including derivatives markets and counterparties. Central bankers better not disappoint.

Last week’s dovish turn by Chairman Powell broke the bearish spell and reversed markets higher, though this came weeks late in the eyes of most market participants. “We know that long periods of suppressed volatility can lead to the build-up of risks and to a disruptive ending, and the idea that monetary policy can ignore that and leave it to macroprudential tools just is not credible to me.” This prescient comment (released Friday) is extracted from 2013 Federal Reserve transcripts. Governor Powell at the time clearly had a firmer grasp of the risks associated with QE than chairman Bernanke and future chair Yellen.

It is my long-held view that the Fed (and the other major central banks) will see no alternative than to resort to QE when global markets “seize up.” Ten-year Treasury yields at 2.70%, German bund yields at 22 bps and JGBs at zero don’t seem inconsistent with this view. It’s been a decade (or three) of Monetary Disorder. Now come the consequences, commencing with acute market and price instability. I believe this instability will end in a serious and prolonged crisis. There will be policy interventions, of course. But it will become increasingly clear that flawed monetary doctrine and policies are more the problem than the solution. In an increasingly acrimonious world, how closely will policymakers coordinate crisis responses? Will central bankers stick with “whatever it takes”? How quickly will they react to the markets – and with how much firepower? Uncertainty associated with monetary policymaking in a global crisis environment is an Issue 2019.


For the Week:

The S&P500 jumped 2.5% (up 3.6% y-t-d), and the Dow rose 2.4% (up 2.9%). The Utilities increased 0.6% (up 0.3%). The Banks added 1.5% (up 5.5%), and the Broker/Dealers gained 2.2% (up 5.5%). The Transports surged 4.3% (up 5.0%). The S&P 400 Midcaps surged 4.7% (up 5.0%), and the small cap Russell 2000 jumped 4.8% (up 7.3%). The Nasdaq100 advanced 2.8% (up 4.3%). The Semiconductors rose 6.0% (up 5.0%). The Biotechs surged 8.1% (up 12.8%). While bullion added $2, the HUI gold index fell 1.8% (down 0.7%).

Three-month Treasury bill rates ended the week at 2.37%. Two-year government yields rose five bps to 2.54% (up 5bps y-t-d). Five-year T-note yields added three bps to 2.53% (up 2bps). Ten-year Treasury yields gained three bps to 2.70% (up 2bps). Long bond yields rose five bps to 3.03% (up 2bps). Benchmark Fannie Mae MBS yields increased two bps to 3.48% (down 2bps).

Greek 10-year yields dropped 11 bps to 4.28% (down 7bps y-t-d). Ten-year Portuguese yields fell 10 bps to 1.71% (down 1bp). Italian 10-year yields declined four bps to 2.85% (up 11bps). Spain's 10-year yields slipped three bps to 1.45% (up 3bps). German bund yields gained three bps to 0.24% (unchanged). French yields declined three bps to 0.66% (down 5bps). The French to German 10-year bond spread narrowed six to 42 bps. U.K. 10-year gilt yields added a basis point to 1.29% (up 1bp). U.K.'s FTSE equities index rose 1.2% (up 2.8% y-t-d).

Japan's Nikkei 225 equities index surged 4.1% (up 1.7% y-t-d). Japanese 10-year "JGB" yields jumped six bps to 0.02% (up 1bp y-t-d). France's CAC40 increased 0.9% (up 1.1% y-t-d). The German DAX equities index rose 1.1% (up 3.1%). Spain's IBEX 35 equities index jumped 1.6% (up 3.9%). Italy's FTSE MIB index rose 2.4% (up 5.3%). EM equities were mostly higher. Brazil's Bovespa index gained 2.0% (up 6.6%), and Mexico's Bolsa jumped 2.6% (up 4.6%). South Korea's Kospi index rallied 3.2% (up 1.7%). India's Sensex equities index increased 0.9% (down 0.2%). China's Shanghai Exchange rallied 1.5% (up 2.4%). Turkey's Borsa Istanbul National 100 index jumped 3.2% (up 0.5%). Russia's MICEX equities index rose 1.6% (up 3.6%).

Investment-grade bond funds saw outflows of $1.137 billion, while junk bond funds posted inflows of $1.048 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates declined six bps to a near nine-month low 4.45% (up 46bps y-o-y). Fifteen-year rates dropped 10 bps to 3.89% (up 45bps). Five-year hybrid ARM rates sank 15 bps to 3.83% (up 37bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up three bps to 4.41% (up 8bps).

Federal Reserve Credit last week declined $12.2bn to $4.017 TN. Over the past year, Fed Credit contracted $388bn, or 8.8%. Fed Credit inflated $1.206 TN, or 43%, over the past 322 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt recovered $6.7bn last week to $3.396 TN. "Custody holdings" rose $44bn y-o-y, or 1.3%.

M2 (narrow) "money" supply rose $24.1bn last week to a record $14.523 TN. "Narrow money" gained $702bn, or 5.1%, over the past year. For the week, Currency slipped $0.5bn. Total Checkable Deposits dropped $48.6bn, while Savings Deposits jumped $44.5bn. Small Time Deposits added $4.5bn. Retail Money Funds surged $24.3bn.

Total money market fund assets jumped $19bn to a near nine-year high $3.067 TN. Money Funds gained $230bn y-o-y, or 8.1%.

Total Commercial Paper jumped $28.1bn to $1.073 TN. CP declined $38bn y-o-y, or 3.4%.

Currency Watch:

The U.S. dollar index declined 0.5% to 95.67 (down 0.5% y-t-d). For the week on the upside, the New Zealand dollar increased 1.5%, the Australian dollar 1.4%, the Mexican peso 1.4%, the British pound 1.0%, the Norwegian krone 0.9%, the South African rand 0.9%, the euro 0.7%, the Singapore dollar 0.4%, the Swiss franc 0.4%, the Swedish krona 0.4% and the Brazilian real 0.1%. The Japanese yen was little changed for the week. The Chinese renminbi increased 1.57% versus the dollar this week (up 1.71% y-t-d).

Commodities Watch:

January 7 – Bloomberg: “Goldman Sachs… chopped back its near-term metals forecasts as China’s economy has ‘decelerated notably,’ while balancing that outlook with a prediction mainland policy makers will respond by stoking expansion in the second half, aiding a revival in copper and aluminum. The bank -- which had been consistently bullish on raw materials heading into 2019 -- now sees copper at $6,100 a metric ton in three months and $6,400 in six, down from earlier forecasts of $6,500 and $7,000…”

The Goldman Sachs Commodities Index surged 4.2% (up 7.6% y-t-d). Spot Gold added $2 to $1,288 (up 0.4%). Silver slipped 0.8% to $15.656 (up 0.7%). Crude surged $3.63 to $51.59 (up 14%). Gasoline rose 3.9% (up 8%), and Natural Gas gained 1.8% (up 5%). Copper increased 0.5% (up 1%). Wheat added 0.5% (up 3%). Corn declined 1.2% (up 1%).

Market Dislocation Watch:

January 6 – Wall Street Journal (Ira Iosebashvili): “Uneven economic data and volatility in stocks have accelerated a surge into assets perceived as relatively safe…The Japanese yen is up nearly 5% against the dollar since markets began sliding at the end of last year’s third quarter. That move picked up speed after weaker-than-expected manufacturing data and a sales warning from Apple Inc. last week bolstered fears of a global slowdown. Other so-called haven assets are also rising. Gold prices have strengthened around 7% in that period and stand near their highest level in about half a year…”

January 10 – Wall Street Journal (Daniel Kruger and Sam Goldfarb): “No U.S. company rated below investment grade has issued bonds since November—the longest stretch without a high-yield sale in more than two decades… December was the first month since 2008 without a junk-bond sale, according to Dealogic. Thursday is on pace to mark 41 days without a deal, the longest stretch in data going back to 1995. Volatility in financial markets, uncertainty about the economy and the recent drop in oil prices are discouraging riskier companies from issuing debt and investors from buying it, analysts say. Slack investor demand recently lifted the premium, or spread, that companies with junk credit ratings have to pay over risk-free government debt to the highest level in more than two years.”

January 7 – Bloomberg (Tracy Alloway): “Underneath the surface of a burgeoning calm in credit markets lies a fat-tailed monster: Options traders preparing for a sell-off that would spark a surge in risk premiums to levels not seen in two years. Spreads in the cash market for U.S. corporate bonds have begun to reduce, tracking a relief rally in stocks after a tough year for the vast majority of asset classes. But fears linger in credit derivatives, with benchmark indexes implying a higher chance of a major surge in spreads… The distribution of probabilities implied by the options market is ‘becoming increasingly fat-tailed’ which "indicates an increase in market expectation of a tail event," JPMorgan analysts wrote…”

January 9 – Reuters (Trevor Hunnicutt): “Investors demanded cash back from U.S.-based funds for a 13th straight week… Investment Company Institute (ICI) data showed… People withdrew $30.4 billion from U.S.-based mutual funds and exchange-traded funds (ETFs) on a net basis during the week ended Jan. 2, including $14.2 billion from bonds and $11.3 billion from stocks…”

January 7 – CNBC (Yun Li): “Investors are dumping stocks and corporate bonds at the fastest pace ever. Mutual funds invested in equity and bonds lost a record $152 billion in December, while U.S. equity exchange-traded funds just had their first back-to-back weekly outflows since July 2018, shedding $7.1 billion in the last two weeks, according to TrimTabs Investment Research.”

January 9 – Reuters (Trevor Hunnicutt): “U.S. money market fund assets increased for a fifth straight week to their highest level since early 2010, as investors further raised their cash pile due to recent market volatility, a private report… showed. Assets of money market funds… jumped $35.62 billion to $3.029 trillion in the week ended Jan. 8.”

January 9 – Wall Street Journal (Stephanie Yang): “Investors have started to shake off last year’s steep losses, helping markets regain some ground in 2019. But the robots are still almost uniformly bearish. Trend-following investment strategies—a computer-based way of trading that has become a major force in some markets—have gone from bullish to bearish to a degree not seen in a decade, according to an analysis of algorithms that buy or sell based on asset-price momentum. Funds that use such strategies likely went from holding net long positions… in four major asset classes—stocks, bonds, currencies and commodities—in the third quarter of 2017, to being short, or wagering against, everything but bonds by 2019.”

Trump Administration Watch:

January 8 – Bloomberg (Jenny Leonard, Jennifer Jacobs, Saleha Mohsin, and Shawn Donnan): “President Donald Trump is increasingly eager to strike a deal with China soon in an effort to perk up financial markets that have slumped on concerns over the trade war, according to people familiar with internal White House deliberations. Talks between mid-level U.S. and Chinese officials in Beijing concluded on Wednesday, and a Chinese foreign ministry spokesman said a positive result from the meetings will be good for the global economy. The negotiations had been extended for a day, which added to optimism fueled by tweets from Trump that the two sides are making progress toward an agreement.”

January 10 – Wall Street Journal (Rebecca Ballhaus, Kristina Peterson and Natalie Andrews): “As negotiations to end a partial government shutdown broke down Wednesday, White House officials said an increasingly likely option is for President Trump to declare a national emergency over border security and try to use Pentagon funds to pay for construction of a wall or other barrier on the U.S.-Mexico border. If the White House goes that route, House Democrats, who now hold a majority in the chamber, have vowed to immediately challenge it in court. The stakes in the showdown over border-wall funding heightened Wednesday after discussions at the White House between the president and congressional leaders collapsed when Mr. Trump walked out.”

January 9 – CNBC (Emmie Martin): “The partial government shutdown, which began Dec. 22, has now stretched well into the new year. President Donald Trump said Friday that it would continue for ‘months or even years’ until he receives the requested $5 billion in funding for a border wall. The shutdown has left approximately 800,000 federal workers in financial limbo. Around 420,000 ‘essential’ employees are working without pay, while another 380,000 have been ordered to stay home… Government workers are far from alone in feeling stressed about not getting paid. Nearly 80% of American workers (78%) say they’re living paycheck to paycheck, according to a 2017 report by… CareerBuilder.”

January 7 – CNBC (Matthew J. Belvedere): “Commerce Secretary Wilbur Ross told CNBC… that U.S. tariffs are hurting China’s economy and Beijing’s ability to create jobs to stave off domestic disorder. The economic slowdown in China is a ‘big problem in their context of having a very big need to create millions of millions of jobs to hold down social unrest coming out of the little villages,’ Ross said… He argued that Chinese workers going to cities for jobs are finding none and returning home. ‘That creates a real social problem,’ he said. ‘That’s a very disgruntled group of people.’”

January 8 – Reuters (Lisa Lambert): “President Donald Trump… expressed longing for the lower interest rates that the Federal Reserve put in place during the 2007-09 recession, saying he could boost the economy if the central bank brought interest rates to zero. ‘Economic numbers looking REALLY good. Can you imagine if I had long term ZERO interest rates to play with like the past administration, rather than the rapidly raised normalized rates we have today. That would have been SO EASY! Still, markets up BIG since 2016 Election!’ Trump wrote in an early morning tweet.”

January 7 – Bloomberg (Felice Maranz): “Shares of Fannie Mae and Freddie Mac both gained the most intraday since November 2016 on Monday, as U.S. Comptroller of the Currency Joseph Otting takes over as acting director of GSEs’ regulator, the Federal Housing Finance Agency (FHFA). FNMA is up as much as 21% to the highest since Oct. 25; FMCC is up as much as 19% to the highest since Sept. 21…”

Federal Reserve Watch:

January 9 – Associated Press (Martin Crutsinger): “Federal Reserve officials expressed increasing worries when they met last month, as they grappled with volatile stock markets, trade tensions and uncertain global growth. The threats, they said, made the future path of interest rate hikes ‘less clear.’ According to minutes of the Fed’s December gathering…, officials believed that with inflation still muted, the central bank could afford to be ‘patient’ about future rate hikes. While the Fed did approve a fourth rate increase for the year, the minutes show that a ‘few’ Fed officials argued against hiking rates at the meeting.”

January 7 – Reuters (Howard Schneider): “The Federal Reserve may only need to raise interest rates once in 2019, Atlanta Fed President Raphael Bostic said…, focusing on business executives’ nervousness about the economy and a global slowdown as factors that may hold the U.S. central bank back. ‘I am at one move for 2019,’ Bostic said.”

January 7 – Bloomberg (Jeanna Smialek): “Former U.S. Treasury Secretary Lawrence Summers has jumped into the debate about negative interest rates, signing onto a paper that gives the policy -- adopted in Europe and Japan as an emergency tool during the financial crisis -- a damning review. Negative central bank rates have not been transmitted to overall deposit rates, and a model suggests that tiptoeing into negative territory in a world with such a disconnect is ‘at best irrelevant, but could potentially be contractionary due to a negative effect on bank profits,’ Summers writes…”

U.S. Bubble Watch:

January 8 – New York Times (Jim Tankersley): “The federal budget deficit continued to rise in the first quarter of fiscal 2019 and is on pace to top $1 trillion for the year, as President Trump’s signature tax cuts continue to reduce corporate tax revenue… The monthly numbers from the Congressional Budget Office also show an increase in spending on federal debt as rising interest rates drive up the cost of the government’s borrowing. The widening deficit comes despite a booming economy and a low unemployment rate… Federal spending outpaced revenue by $317 billion over the first three months of the fiscal year, which began in October… That was 41% higher than the same period a year ago, or 17% after factoring in payment shifts that made the fiscal 2018 first-quarter deficit appear smaller than it actually was… Corporate tax receipts fell by $9 billion for the quarter, or 15%. Individual receipts fell by $17 billion, or 4%. Interest costs on the debt rose by $16 billion for the quarter, or 19%. Interest costs for December were up 47% from the same month in 2017.”

January 9 – CNBC (Sam Meredith): “The U.S. is in danger of losing its triple-A sovereign credit rating later this year, Fitch said…, warning an ongoing government shutdown could soon start to impact its ability to pass a budget. A stalemate between President Donald Trump and congressional Democrats over a spending package to fund nine government agencies entered its 19th day on Wednesday. It comes at a time when lawmakers are deeply divided over the president’s demand for money for a border wall. ‘I think people are looking at the CBO (Congressional Budget Office) numbers. If people take the time to look at that you can see debt levels moving higher, you can see the interest burden in the U.S. government moving decidedly higher over the next decade,” James McCormack, Fitch’s global head of sovereign ratings told CNBC’s “Squawk Box Europe”… ‘There needs to be some kind of fiscal adjustment to offset that or the deficit itself moves higher and you’re essentially borrowing money to pay interest on the debt. So there is a meaningful fiscal deterioration there, going on the United States,’ he added.”

January 7 – Reuters (Richard Leong and Lucia Mutikani): “U.S. services sector activity slowed to a five-month low in December, but remained above a level consistent with solid economic growth in the fourth quarter. The Institute for Supply Management said… its non-manufacturing activity index fell to 57.6 last month, the lowest reading since July, from 60.7 in November.”

January 10 – Reuters (SinĂ©ad Carew): “U.S. companies’ shopping spree for their own shares helped put a floor on market declines in 2018. Don’t look for the same level of support in 2019. Wall Street’s recent volatility has optimists betting that buybacks could provide the market with an even better buffer in 2019. But many strategists see the lift from buybacks - a major factor behind the bull market - losing some force as earnings growth slows while tax policy bonanzas fizzle out. ‘Companies bought back around 2.8% of shares outstanding in 2018. That was a substantial support to the market and bigger than dividends,’ said Jack Ablin, chief investment officer at Cresset Wealth Advisors… ‘(In 2019) we expect the corporate firepower behind share buybacks to be diminished. The growth in cash flow will be slower.’”

January 7 – CNBC (Diana Olick): “More Americans think it is a bad time to buy a home, as fewer potential buyers can afford what is on the market. The share of Americans who think it is a good time to buy a home just dropped sharply, according to a December survey from… Fannie Mae. Higher mortgage rates and increased home prices are likely to blame. Homes are simply very expensive right now, in relation to income, and there are still very few entry-level homes for sale… ‘Consumer attitudes regarding whether it’s a good time to buy a home worsened significantly in the last month, as well as from a year ago, to a survey low,’ said Doug Duncan, senior vice president and chief economist at Fannie Mae.”

January 8 – Bloomberg (Prashant Gopal): “The U.S. housing market, already losing steam, is taking another hit from the government shutdown, delaying closings and damaging buyer confidence, according to a National Association of Realtors survey. About 20% of 2,211 agents surveyed by the group said they had clients who were impacted in some way by the shutdown that began on Dec. 22, the organization said today.”

January 9 – CNBC (Diana Olick): “The combination of lower mortgage rates and an unusually slow end to 2018 caused mortgage applications to surge to start this year. Overall volume jumped 23.5% last week from the previous week, according to the Mortgage Bankers Association... Mortgage applications to purchase a home also jumped 17% last week but were just 4% higher than a year ago.”

January 8 – Associated Press (Martin Crutsinger): “Americans slowed their pace of borrowing slightly in November, but it still grew by a robust $22.1 billion. Solid auto and student loans offset some of the decline in the category that covers credit cards. …November’s figure follows a $25 billion gain in October, which had been the biggest increase in 11 months.”

January 7 – Financial Times (Chris Flood): “Vanguard has kept its title as the world’s fastest-growing fund manager for a seventh successive year despite a sharp fall in new business in 2018. A preliminary estimate… showed that it attracted net inflows of $232bn, down 38% on the record $371.9bn it gathered in 2017… BlackRock, the world’s largest asset manager, registered net inflows of $73.8bn in the first nine months of 2018…”

January 8 – CNBC (Diana Olick): “Chinese consumers may have soured on some American products, like iPhones, but they have only sweetened on U.S. residential real estate. They have been the top foreign buyers in both units and dollar volume of residential housing for six years straight, according to the National Association of Realtors, and now they are expanding to new, lower price tiers. Chinese consumers appear to be less interested in trade wars and more interested in bidding wars, according to San Francisco-based real estate agent Michi Olson, who just returned from an international real estate property show in Shanghai.”

January 6 – Reuters (Heather Somerville): “New Trump administration policies aimed at curbing China’s access to American innovation have all but halted Chinese investment in U.S. technology startups, as both investors and startup founders abandon deals amid scrutiny from Washington. Chinese venture funding in U.S. startups crested to a record $3 billion last year, according to… Rhodium Group… Since then, Chinese venture funding in U.S. startups has slowed to a trickle, Reuters interviews with more than 35 industry players show.”

China Watch:

January 9 – Reuters: “China’s producer price index (PPI) in December rose 0.9% from a year earlier, marking the lowest rate since September 2016 and slowing sharply from the previous month’s 2.7% increase… Analysts… had expected producer inflation would cool to 1.6% last month. The consumer price index (CPI) rose 1.9% last month compared with a year earlier, also below market expectations for a 2.1% gain.”

January 9 – Bloomberg: “China’s Finance Ministry is set to propose a small increase in the targeted budget deficit for this year as officials seek to balance support for the economy with the need to keep control of debt levels. The ministry agreed the proposed deficit target of 2.8% of gross domestic product… The figure, which compares with 2018’s target of 2.6%, will be presented for approval at the National People’s Congress…”

January 7 – Wall Street Journal (Tom Wright and Bradley Hope): “Senior Chinese leaders offered in 2016 to help bail out a Malaysian government fund at the center of a swelling, multibillion-dollar graft scandal, according to minutes from a series of previously undisclosed meetings… Chinese officials told visiting Malaysians that China would use its influence to try to get the U.S. and other countries to drop their probes of allegations that allies of then-Prime Minister Najib Razak and others plundered the fund known as 1MDB… The Chinese also offered to bug the homes and offices of Journal reporters in Hong Kong who were investigating the fund, to learn who was leaking information to them… In return, Malaysia offered lucrative stakes in railway and pipeline projects for China’s One Belt, One Road program of building infrastructure abroad.”

Central Bank Watch:

January 9 – Wall Street Journal (Brian Blackstone): “One year after posting a record 54 billion franc ($55bn) profit, the Swiss National Bank swung to a 15 billion franc loss in 2018, as a double whammy of weaker global equity markets and a stronger Swiss franc eroded the value of its massive holdings of foreign stocks and bonds. The valuation loss… underscores the interplay between central banks and markets. Usually, it is central bank decisions, or hints of changes in interest rates and other policies that cause stock and bond markets to fluctuate. But this has worked in reverse for Switzerland’s central bank, whose finances are largely at the mercy of financial markets beyond its borders.”

Global Bubble Watch:

January 7 – Financial Times (Lena Komileva): “If 2018 was the first year that tested the resilience of global markets to a switch from quantitative easing to quantitative tightening, the results did not inspire confidence. Investors began the year unprepared for the renewed volatility that came as the Federal Reserve rolled back more of its insurance liquidity. The fact a strong US jobs market and historically low policy rates could not prevent US stocks having their worst December since 1931 confirmed that a decade of repressing volatility had left the market with a weak immune system. The central issue facing markets now is where the new clearing level for risk lies. Has recent turbulence reset market fundamentals to more sustainable levels, or does it portend greater pain to come?”

January 8 – Reuters (Katherine Greifeld): “The growth of the global economy is expected to slow to 2.9% in 2019 compared with 3% in 2018, the World Bank said…, citing elevated trade tensions and international trade moderation. ‘At the beginning of 2018 the global economy was firing on all cylinders, but it lost speed during the year and the ride could get even bumpier in the year ahead,’ World Bank Chief Executive Officer Kristalina Georgieva said…”

January 9 – Bloomberg: “The growth engine for the world’s car industry has been thrown into reverse, with China recording the first annual slump in auto sales in more than two decades -- though progress in trade talks with the U.S. and planned government incentives offer a ray of optimism. Sales in the world’s biggest market fell 6% to 22.7 million units last year…”

January 8 – Bloomberg (Sam Kim): “Samsung Electronics Co.’s quarterly profit and revenue missed estimates on sputtering demand for memory chips during the last three months of 2018, the same period when Apple Inc. saw anemic sales in China. The… company’s operating income fell to 10.8 trillion won ($9.6bn) in the quarter… falling short of the 13.8 trillion-won average of analysts’ estimates…”

January 8 – CNBC (Stephanie Landsman): “Earnings season may deliver a wake-up call to Wall Street. Stephen Roach, one of Wall Street’s leading authorities on Asia, believes multinational corporations are largely underestimating the impact of the U.S.-China trade war on their bottom lines. According to Roach, the first indication came last week… ‘Apple is probably the canary in the coal mine… There’s likely to be more to come.’ Roach, who was Morgan Stanley Asia chairman for five years, sees the trade conflict with China as the biggest threat to the U.S. economy and markets… ‘To think that what affects the Chinese has no bearing whatsoever on an otherwise resilient U.S. economy I think, is ludicrous,’ he said. ‘This is a two-way relationship. The U.S. depends heavily on China. It’s our third largest and most rapidly growing export market over the last 10 years.’”

January 9 – Financial Times (Jamie Smyth): “Free iPads, rental guarantees and an eye-watering A$100,000 ($72,000) off the price of an apartment are some of the sweeteners on offer from property developers amid the worst housing downturn in Australia for 35 years. National house prices fell 1.3% in December, the largest monthly fall since 1983, which resulted in an annual decline of 6.1% last year. Prices in Sydney… are down 11.1% from their peak, according to Morgan Stanley, which warned this week the slump could torpedo Australia’s run of 27 years without a recession… ‘We think the steep downturn in house prices exposes Australia to the risk of recession, particularly in the context of an exogenous shock such as slowdown in Chinese growth,’ said Daniel Blake, lead author of the Morgan Stanley report.”

Europe Watch:

January 9 – Financial Times (Miles Johnson and Monika Pronczuk): “Matteo Salvini has pledged a ‘new European spring’ alongside Poland’s rightwing government as Italy’s populist leader attempts to build a Eurosceptic alliance ahead of Brussels elections in May. On a trip to Warsaw to meet Jaroslaw Kaczynski, leader of Poland’s ruling Law and Justice party, Mr Salvini, Italy’s deputy prime minister and head of the country’s hard right League party, …promised a common action plan that would ‘fuel Europe with new strength and new energy’. ‘Poland and Italy will be the heroes of the new European spring and the renaissance of true European values,’ said Mr Salvini, who has already forged ties with other anti-migrant rightwing leaders across Europe, including France’s Marine Le Pen.”

January 7 – Financial Times (Kate Allen): “Italy must sell €226bn of medium- and long-dated debt this year to a market that remains fragile after investors were rattled by last year’s stand-off between the populist government and Brussels. The political turbulence drove Italian bond yields to their highest since the eurozone debt crisis more than half a decade ago, and while Rome last month reached agreement with Brussels on its budget deficit, investors are wary of assuming that the market will remain calm.”

January 8 – Reuters (Michael Nienaber): “German industrial output unexpectedly fell in November for the third consecutive month, adding to signs that companies in Europe’s largest economy are shifting into a lower gear… Industrial output fell by 1.9% on the month in November… coming in way below the 0.3% increase that had been forecast. The output figure for October was revised down to a fall of 0.8% from a previously reported drop of 0.5%.”

Brexit Watch:

January 6 – Reuters (William James): “Prime Minister Theresa May said… that Britain would be in uncharted territory if her Brexit deal is rejected by parliament later this month, despite little sign that she has won over skeptical lawmakers. Britain is due to leave the European Union on March 29 but May’s inability so far to get her deal for a managed exit through parliament has alarmed business leaders and investors who fear the country is heading for a damaging no-deal Brexit. May said the vote in parliament would be around Jan. 15…”

January 6 – Reuters (Richard Lough and Caroline Pailliez): “Emmanuel Macron intended to start the new year on the offensive against the ‘yellow vest’ protesters. Instead, the French president is reeling from more violent street demonstrations. What began as a grassroots rebellion against diesel taxes and the high cost of living has morphed into something more perilous for Macron - an assault on his presidency and French institutions.”

Fixed-Income Bubble Watch:

January 9 – Bloomberg (Katherine Greifeld): “As the U.S. government kicks off its debt sales this year, here’s one potentially worrisome sign for traders to keep in mind: the steep decline in demand at its bond auctions. Of the $2.4 trillion of notes and bonds the Treasury Department offered last year, investors submitted bids for just 2.6 times that amount… That’s less than any year since 2008. The bid-to-cover ratio, as it’s known, fell even as benchmark Treasury yields soared to multi-year highs in October, before falling back to their lows last month.”

January 7 – Reuters (Ismail Shakil and Arundhati Sarkar): “PG&E Corp’s shares fell 14% on Tuesday, after S&P Global stripped the California power company of its investment-grade credit rating in the face of massive claims stemming from deadly wildfires. The utility, whose roughly $18 billion in bonds fell on Monday due to bankruptcy fears, has come under severe pressure since a fatal Camp fire in November compounded its woes. It currently faces billions of dollars in liabilities related to wildfires in 2017 and 2018.”

Leveraged Speculation Watch:

January 8 – Bloomberg (Alan Mirabella): “Hedge funds posted a loss of 5.7% last year as managers struggled to capitalize on volatility and were roiled by political uncertainty. For December, funds lost 1.9%, according to preliminary figures from the Bloomberg Hedge Fund Database. The industry suffered through one of its worst years in 2018. Many managers not only failed to make money but did worse than the broader market. The return of volatility posed a challenge. The prospect of a trade war with China and the combative stance of President Donald Trump didn’t help.”

January 8 – Financial Times (Robin Wigglesworth): “Philippe Jabre was the quintessential swashbuckling trader, slicing his way through markets first at GLG Partners and then an eponymous hedge fund he founded in 2007 — at the time one of the industry’s biggest-ever launches. But in December he fell on his sword, closing Jabre Capital after racking up huge losses. The fault, he said, was machines. ‘The last few years have become particularly difficult for active managers,’ he said in his final letter to clients. ‘Financial markets have significantly evolved over the past decade, driven by new technologies, and the market itself is becoming more difficult to anticipate as traditional participants are imperceptibly replaced by computerised models.’ …Various quant strategies — ranging from simple ones packaged into passive funds to pricey, complex hedge funds — manage at least $1.5tn, according to Morgan Stanley. JPMorgan estimates that only about 10% of US equity trading is now done by traditional investors.”

Geopolitical Watch:

January 5 – South China Morning Post: “Chinese President Xi Jinping… ordered the People’s Liberation Army to be ready for battle as the country faces unprecedented risks and challenges. Xi’s speech was made at a meeting of top officials from the Central Military Commission (CMC), which he heads, and broadcast later on national television. ‘All military units must correctly understand major national security and development trends, and strengthen their sense of unexpected hardship, crisis and battle,’ he said… China’s armed forces must ‘prepare for a comprehensive military struggle from a new starting point’, he said. ‘Preparation for war and combat must be deepened to ensure an efficient response in times of emergency.’”

January 5 – Financial Times (Edward White): “Taiwan’s president Tsai Ing-wen has made a fresh call for international support in the face of aggressive signals from China. Ms Tsai, in a rare briefing with foreign media, said given the ‘worst-case scenario of China using force’, Taiwan was speeding up development of its military and signalled hope for more foreign assistance. ‘We are working hard to do everything to help ourselves to improve our defence capabilities but at the same time we still hope other countries that attach great importance to democracy and value Taiwan will be able to work together with us,’ Ms Tsai said.”

January 6 – Reuters (Philip Stewart, Christian Shepherd and Michael Martina): “A U.S. guided-missile destroyer sailed near disputed islands in the South China Sea in what China called a ‘provocation’ as U.S. officials joined talks in Beijing during a truce in a bitter trade war. The USS McCampbell carried out a ‘freedom of navigation’ operation, sailing within 12 nautical miles of the Paracel Island chain, ‘to challenge excessive maritime claims’, Pacific Fleet spokeswoman Rachel McMarr said…”

January 8 – Financial Times (Laura Pitel and Aime Williams): “Donald Trump’s top security aide was snubbed by Turkey’s president…, striking a blow to Washington’s efforts to contain the fallout from a plan to withdraw US troops from Syria. John Bolton, the White House national security adviser, had hoped to meet Recep Tayyip Erdogan on his two-day visit to Ankara as part of a rearguard effort to reassure US allies and secure the safety of Kurdish forces in Syria following last month’s abrupt announcement on the departure of the troops. Instead, he found himself on the receiving end of a blistering attack by Mr Erdogan, who accused him of making a ‘serious mistake’ in asking Turkey not to attack Kurdish militants…”

January 6 – Reuters: “Iran’s central bank has proposed slashing four zeros from the rial, state news agency IRNA reported…, after the currency plunged in a year marked by an economic crisis fuelled by U.S. sanctions. ‘A bill to remove four zeros from the national currency was presented to the government by the central bank yesterday and I hope this matter can be concluded as soon as possible,’ IRNA quoted central bank governor Abdolnaser Hemmati…”