Total Non-Financial Debt (NFD) increased $3.522 TN during Q2, more than doubling Q1’s record $1.449 TN gain. This pushed first-half NFD growth to an incredible $4.971 TN. For perspective, NFD expanded $2.439 TN in 2019 and averaged $1.826 TN annually over the past decade. Q2 growth actually surpassed 2004’s annual record $2.912 TN NFD expansion.
At $59.304 TN, Non-Financial Debt surged to a record 304% of GDP. NFD-to-GDP ended 1999 at 184%, 2007 at 227%, and 2019 at 250%. “Off the charts,” as they say.
Unprecedented deficit spending saw Treasury Securities jump $2.852 TN during the quarter to a record $22.371 TN. Treasuries were up $3.352 TN for the first half. Over the past year, Treasuries jumped $4.556 TN, or 25.6%. This dwarfs the previous annual record (2010’s $1.645 TN). After ending 2007 at $6.051 TN, outstanding Treasury Securities ballooned $16.320 TN, or 270%. Treasuries ended Q2 at 115% of GDP. This is up from 44% to end the nineties; 41% to conclude 2007; and 69% to close out 2010.
Agency Securities declined $25 billion during Q2 to $9.746 TN. Agency Securities were up $481 billion over the past year and $786 billion for two years. Having increased an incredible $5.037 TN over the past four quarters, combined Treasuries and GSE Securities ended Q2 at $32.117 TN, or 165% of GDP.
Total Debt Securities jumped $3.364 TN during Q2 to a record $51.690 TN. Over the past year, Debt Securities jumped $5.959 TN (more than double 2007’s record $2.669 TN increase). As a percentage of GDP, Debt Securities surged to 265%. For comparison, Debt Securities ended 2007 at 200% of GDP; the nineties at 157%; the eighties at 126%; and the seventies at 74%.
Total Equities surged $9.121 TN during the quarter to $51.956 TN, with a one-year increase of $884 billion (1.7%). Equities as a percentage of GDP rose to a record 267%. This compares to cycle peaks 181% at the end of Q3 2007 and 202% to conclude Q1 2000.
Total (Debt and Equities) Securities increased an unprecedented $12.485 TN during Q2 to a record $103.646 TN. This growth more than doubled Q1 2019’s record $5.970 TN gain. For comparison, Q4 2009’s $3.449 TN gain was the largest quarterly increase prior to 2019. Total Securities ended Q2 at a record 532% of GDP, compared to cycle peaks 379% during Q3 2007 and 359% to end Q1 2000. Total Securities ended the eighties at 194% and the seventies at 117%.
The Household balance sheet always offers fruitful Bubble Analysis. Unprecedented growth in the Fed’s balance sheet, debt and securities translated into record Household perceived wealth. Household Assets jumped $7.637 TN during Q2 to a record $135.435 TN. And with Liabilities only increasing about $29 million, Household Net Worth inflated a quarterly record $7.607 TN - to an all-time high $118.955 TN. Net Worth was up $5.0 TN over the past year. Net Worth ended the quarter at a record 610% of GDP. This compares to previous cycle peaks 492% (Q1 2007) and 446% (Q1 2000).
Household holdings of Financial Assets increased $7.0 TN during the quarter (up $3.758 TN y-o-y) to $94.548 TN (record 485% of GDP). For comparison, Financial Assets ended 2007 at $54.557 TN (372% of GDP) and 1999 at $34.656 TN (350% of GDP). Real Estate holdings ended Q2 at a record $34.406 TN, with a y-o-y gain of $1.493 TN. At 177% of GDP, Real Estate holdings as a percentage of GDP reached the highest level since Q4 2007.
Banking system (“Private Depository Institutions”) Assets jumped $859 billion (almost 16% annualized) during the quarter to a record $22.780 TN – a gain second only to Q1’s $1.869 TN. Loans increased (a measly) $24 billion, or 0.8% annualized (with mortgages up $36bn). The Asset “Reserves at the Fed” jumped another $313 billion to a record $2.787 TN. The Asset “Fed Funds and Repos” rose $204 billion to a record $863 billion. Debt Securities holdings surged a record $359 billion to an all-time high $5.241 TN. Treasuries gained $207 billion, surpassing $1 TN ($1.102TN) for the first time, and Agency/GSE MBS rose $110 billion to a record $2.934 TN.
Over the past year, Bank Assets surged $3.268 TN, or 16.7% (more than doubling 2008’s annual record $1.249 TN). Reserves at the Fed jumped $1.366 TN, while Loans expanded $862 billion and “repos” increased $507 billion. Bank Debt Securities holdings surged $743 billion, or 16.5%, with Treasuries up $331 billion, or 43%, and Agency Securities gaining $353 billion, or 13.7%. Corporate, muni and open-market paper gained moderately during the quarter and y-o-y.
On the Bank Liability side, Total (Checking and Time & Savings) Deposits surged a record $1.376 TN during Q2 to an all-time high $18.037 TN. Total Deposits rose $2.515 TN during the first half, or 32% annualized – and were up $3.056 TN, or 20.4%, year-on-year. Over the past year, Total Deposits ballooned from 70% to 93% of GDP. Banking system Total Deposits (Liabilities) peaked at 70% of GDP in 1986; ended the eighties at 66%; and the nineties at 48% - before rising back to 65% by 2009.
Rest of World (ROW) holdings of U.S. Financial Assets increased $3.364 TN (more than reversing Q1’s $2.665 TN decline – having been significantly impacted by the recovery in equities prices) to a record $35.465 TN. Debt Securities holdings gained a record $464 billion (after declining only $34bn during Q1) to a record $12.501 TN. Treasury holdings rose $82 billion to a record $6.892 TN, while Agency Securities declined $60 billion to $1.200 TN.
In an intriguing development, ROW boosted holdings of U.S. Corporate Bonds by an unprecedented $427 billion during Q2 to a record $4.177 TN. How much of this gain was associated with buying from foreign domiciled hedge funds, offshore financial entities and structured finance, along with other elements of global leveraged speculation – following the Fed’s move to backstop U.S. corporate Credit and ETFs?
Over the past six quarters, ROW holdings of U.S. Debt Securities jumped $1.315 TN. Treasuries gained $222 billion, and Agency Securities increased $112 billion. Meanwhile, holdings of U.S. Corporate Bonds surged $572 billion. Equities holdings surged $1.608 TN over the past year.
Having doubled over the past decade, Total ROW holdings of U.S. Financial Assets jumped to a record 182% of GDP to end Q2. This compares to 108% to end 2007; 74% at the end of the nineties; 31% to conclude the eighties; and 16% to round out the seventies.
Federal Reserve Assets jumped $1.185 TN, or 19.2%, during the quarter to a record $7.364 TN. This pushed first-half growth to $2.985 TN, or 68.2%. This compares to the $729 billion increase during Q4 2008 – and 2008’s $1.320 TN second-half expansion. The Fed’s balance sheet ballooned $3.355 TN over the past year, or 83.7%.
Fed Assets ended 2008 at $2.271 TN, having ballooned from year-end 2007’s $981 billion. Fed Assets ended 1999 at $697 billion (after a $107bn Q4 gain); the eighties at $315 billion; the seventies at $167 billion; and the sixties at $81 billion. Fed Assets averaged 6.4% of GDP during the three-decade period of the seventies through the nineties. This ratio jumped to 15% in 2008, rose to as high as 28% during Q1 2015, and ended Q2 at 38%.
Unprecedented stimulus and market intervention from the Federal Reserve and global central bank community unleashed epic market speculation (in the face of rapidly deteriorating fundamental prospects). There are indications this speculative cycle has commenced the process of succumbing to reality.
“Risk off” is gathering momentum across global markets. While Friday’s rally cut U.S. equities declines for the week, painful losses were suffered elsewhere. Major equities indices were down 5.0% in France, 4.9% in Germany, 4.4% in Spain and 4.2% in Italy. Hong Kong’s Hang Seng Index sank 5.0%, with China’s CSE 300 index down 3.5%. Real estate jitters rekindle China housing Bubble anxiety.
September 25 – Bloomberg: “China Evergrande Group is facing a crisis of confidence among creditors who’ve lent the world’s most indebted developer more than $120 billion. Long-simmering doubts about the property giant’s financial health exploded to the fore on Thursday, following reports it had sent a letter to Chinese officials warning of a potential cash crunch that could pose systemic risks. The news sparked a bondholder exodus that continued into Friday, sending the price of Evergrande’s yuan note due 2023 down as much as 28% to a record low. Losses in the company’s dollar bonds spread to high-yield debt across Asia.”
September 25 – Bloomberg (Rebecca Choong Wilkins and Denise Wee): “Average spreads on Asian dollar bonds widened 3-5bps by noon in Hong Kong, reversing earlier tightening, according to a trader, amid jitters from a looming cash crunch at Evergrande. This week is set for the biggest widening since March, according to a Bloomberg Barclays index.”
Emerging Markets were under significant pressure. South Korea’s Kospi Index sank 5.5%, with India’s Sensex down 3.8%. Taiwan’s TWSE index fell 5.0%. In EM currencies, the Mexican peso lost 5.4%, the South African rand 4.7%, the Colombian peso 3.9%, the Polish zloty 3.6%, the Russian ruble 3.2%, the Brazilian real 3.1%, the Chilean peso 3.0%, and the Hungarian forint 2.6%. Ten-year (dollar) yields surged 25 bps in Brazil, 25 bps in Ukraine, 12 bps in Indonesia, and eight bps in Philippines.
Global “risk off” squeezed the U.S. dollar bears, as the dollar index rallied 1.8% to a two-month-high. The dollar rally hit commodities markets, with gold dropping 4.6%, Silver 14.9%, Copper 4.7%, and Platinum 8.8%. The industrial metals were all under pressure.
Global bank stocks were under heavy selling pressure. European banks were hit 7.8%, closing Friday near March lows. Hong Kong’s China H-Financials Index fell 5.8% to lows since March. U.S. banks sank 6.8%, trading near four-month lows. Bank debt Credit default swap (CDS) prices jumped to near three-month highs.
“Risk off” is making some headway in U.S. Credit. At $4.86 billion, high-yield bond funds suffered their largest outflows since March. High-yield CDS prices jumped about 50 bps this week to a one-month high 400 bps. A natural gas company postponed its junk bond sale. Investment-grade CDS rose a notable 13 bps this week to a four-month high 74 bps.
The unfolding global de-risking/deleveraging episode only heightens U.S. market fragility. With U.S. elections now about 40 days away, the backdrop is set for extreme instability. The degree of speculative excess experienced over recent months would typically ensure vulnerability to a disorderly downside reversal and market dislocation. These times are, of course, anything but typical. It’s an incredibly worrying backdrop, to say the least. The Q2 report presented by far the most troubling data I’ve encountered in my 20 years of chronicling quarterly Z.1 data.
For the Week:
The S&P500 slipped 0.6% (up 2.1% y-t-d), and the Dow fell 1.7% (down 4.8%). The Utilities jumped 1.5% (down 7.1%). The Banks sank 6.8% (down 37.3%), and the Broker/Dealers dropped 4.6% (down 6.4%). The Transports lost 1.4% (up 3.4%). The S&P 400 Midcaps dropped 2.6% (down 11.9%), and the small cap Russell 2000 sank 4.0% (down 11.6%). The Nasdaq100 rallied 2.0% (up 27.7%). The Semiconductors added 0.8% (up 17.7%). The Biotechs fell 1.4% (up 4.5%). With bullion sinking $89, the HUI gold index was hit 6.6% (up 32.3%).
Three-month Treasury bill rates ended the week at 0.09%. Two-year government yields slipped a basis point to 0.13% (down 144bps y-t-d). Five-year T-note yields declined two bps to 0.27% (down 142bps). Ten-year Treasury yields fell four bps to 0.66% (down 126bps). Long bond yields dropped five bps to 1.40% (down 99bps). Benchmark Fannie Mae MBS yields declined four bps to 1.40% (down 131bps).
Greek 10-year yields dropped five bps to 1.02% (down 41bps y-t-d). Ten-year Portuguese yields declined three bps to 0.7% (down 17bps). Italian 10-year yields dropped eight bps to 0.89% (down 53bps). Spain's 10-year yields fell four bps to 0.25% (down 22bps). German bund yields dropped four bps to negative 0.53% (down 34bps). French yields fell three bps to negative 0.25% (down 37bps). The French to German 10-year bond spread widened one to 28 bps. U.K. 10-year gilt yields added a basis point to 0.19% (down 63bps). U.K.'s FTSE equities index fell 2.7% (down 22.5%).
Japan's Nikkei Equities Index dipped 0.7% (down 1.9% y-t-d). Japanese 10-year "JGB" yields were little changed at 0.01% (up 2bps y-t-d). France's CAC40 sank 5.0% (down 20.9%). The German DAX equities index dropped 4.9% (down 5.9%). Spain's IBEX 35 equities index fell 4.4% (down 30.6%). Italy's FTSE MIB index dropped 4.2% (down 20.5%). EM equities were mostly lower. Brazil's Bovespa index declined 1.3% (down 16.1%), while Mexico's Bolsa gained 1.6% (down 16.0%). South Korea's Kospi index sank 5.5% (up 3.7%). India's Sensex equities index dropped 3.8% (down 9.4%). China's Shanghai Exchange fell 3.6% (up 5.5%). Turkey's Borsa Istanbul National 100 index gained 1.1% (down 1.8%). Russia's MICEX equities index dropped 1.9% (down 4.9%).
Investment-grade bond funds saw inflows of $4.162 billion, and junk bond funds posted outflows of $4.217 billion (from Lipper).
Freddie Mac 30-year fixed mortgage rates increased three bps to 2.90% (down 74bps y-o-y). Fifteen-year rates rose five bps to 2.40% (down 76bps). Five-year hybrid ARM rates fell six bps to 2.90% (down 48bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down a basis point to 3.03% (down 101bps).
Federal Reserve Credit last week surged $40.629bn to a three-month high $7.032 TN. Over the past year, Fed Credit expanded $3.224 TN, or 85%. Fed Credit inflated $4.221 Trillion, or 150%, over the past 411 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week jumped $17.4bn to $3.424 TN. "Custody holdings" were down $34bn, or 1.0%, y-o-y.
M2 (narrow) "money" supply surged $124bn last week to a record $18.701 TN, with an unprecedented 29-week gain of $3.193 TN. "Narrow money" surged $3.711 TN, or 24.8%, over the past year. For the week, Currency increased $6.1bn. Total Checkable Deposits spiked $165.4bn, while Savings Deposits fell $43.2bn. Small Time Deposits dipped $4.6bn. Retail Money Funds were little changed.
Total money market fund assets slipped $2.1bn to $4.414 TN. Total money funds surged $972 y-o-y, or 28.2%.
Total Commercial Paper increased $2.0bn to $986bn. CP was down $112bn, or 10.2% year-over-year.
Currency Watch:
September 23 – CNBC (Stephanie Landsman): “Economist Stephen Roach warns next year will be brutal for the dollar. Not only does he see growing odds of a double-dip recession, the Yale University senior fellow believes his ‘seemingly crazed idea’ that the dollar would crash shouldn’t be so crazy anymore. ‘We’ve got data that’s confirmed both the saving and current account dynamic in a much more dramatic fashion than even I was looking for,’ Roach told CNBC… ‘The current account deficit in the United States, which is the broadest measure of our international imbalance with the rest of the world, suffered a record deterioration in the second quarter… The so-called net-national savings rate, which is the sum of savings of individuals, businesses and the government sector, also recorded a record decline in the second quarter going back into negative territory for the first time since the global financial crisis.’”
For the week, the U.S. dollar index rallied 1.8% to a two-month high 94.577 (down 2.0% y-t-d). For the week on the downside, the Mexican peso declined 5.4%, the Norwegian krone 5.0%, the South African rand 4.7%, the Swedish krona 4.0%, the Australian dollar 3.5%, the New Zealand dollar 3.2%, the Brazilian real 3.1%, the Swiss franc 1.8%, the euro 1.8%, the Canadian dollar 1.4%, the British pound 1.3%, the Singapore dollar 1.3%, the South Korean won 1.0%, and the Japanese yen 1.0%. The Chinese renminbi declined 0.80% versus the dollar this week (up 2.04% y-t-d).
Commodities Watch:
The Bloomberg Commodities Index fell 1.8% (down 12.6% y-t-d). Spot Gold dropped 4.6% to $1,862 (up 22.6%). Silver sank 14.9% to $23.093 (up 28.9%). WTI crude declined 86 cents to $40.25 (down 34%). Gasoline fell 1.8% (down 28%), while Natural Gas rallied 4.4% (down 2%). Copper sank 4.7% (up 6%). Wheat dropped 5.3% (down 3%). Corn fell 3.5% (down 6%).
Coronavirus Watch:
September 21 – Wall Street Journal (Ted Mann and Talal Ansari): “Deaths in the U.S. attributed to the coronavirus neared 200,000 Monday amid concerns from some health experts that the country was heading for another wave of infections. The U.S. continues to lead the world in both total confirmed cases and deaths… ‘Two hundred thousand deaths is disturbing and frustrating because in this pandemic, deaths are preventable if we utilize appropriate public-health measures,’ said Thomas Russo, head of infectious disease at Jacobs School of Medicine & Biomedical Sciences at the University of Buffalo.”
September 22 – Associated Press (Jill Lawless and Pan Pylas): “British Prime Minister Boris Johnson appealed… for resolve and a ‘spirit of togetherness’ through the winter as he unveiled new restrictions on everyday life to suppress a dramatic spike in coronavirus cases. Warning that the measures could last for six months, Johnson voiced hope that ‘things will be far better by the spring’ when a vaccine and mass testing could be in place… In a change of emphasis, Johnson urged people to work from home where possible. He said stiff fines will be imposed on anyone breaking quarantine rules or gathering in groups of more than six, while the use of face masks will be expanded to include passengers in taxis and staff at bars and shops.”
September 24 – Reuters (Daina Beth Solomon, Laura Gottesdiener and David Alire Garcia): “Mexico surpassed 75,000 confirmed coronavirus deaths on Thursday, as the pandemic ravages Latin American nations with large informal economies where workers have grappled with the twin threats of hunger and contagion… More than half of Latin America’s active population have informal jobs in areas such as street commerce and domestic labor. In Mexico, working from home or strict social-distancing measures can mean no income, since the welfare safety net is small.”
September 19 – Reuters (Shilpa Jamkhandikar): “India’s coronavirus case tally surged to 5.4 million as it added 92,605 new infections in the last 24 hours, data from the health ministry showed on Sunday. The country has posted the highest single-day caseload in the world since early August, and lags behind only the United States, which has 6.7 million cases in terms of total infections.”
September 24 – Reuters (John Irish): “France’s prime minister warned on Thursday that the government could be forced to reconfine areas if the number of COVID-19 cases did not improve in the coming weeks and defended tough restrictions taken on Wednesday.”
September 21 – Reuters (Lewis Krauskopf): “Optimism that vaccines are on the way to end the coronavirus pandemic has been a major factor in this year’s U.S. stock resurgence. That will face a critical test in coming weeks, as investors await clinical data on whether they actually work.”
Market Instability Watch:
September 23 – Bloomberg (Vivien Lou Chen): “Treasury yields would be jolted higher by Democrats winning the U.S. presidency and control of both houses of Congress, say Goldman Sachs Group Inc. strategists Praveen Korapaty and Avisha Thakkar. In a note published Wednesday, they said the benchmark 10-year note’s yield could rise 30 to 40 bps over the month following the Nov. 3 election. The adjustment would reflect the possibility of substantially higher federal spending, they said.”
September 21 – Reuters (Annie Nova): “Bored at home, many people are turning to the stock market and dabbling in day trading for entertainment and profits. However, most individual investors do not have the wealth, the time, or the temperament to make money and to sustain the losses that day trading can bring… Day trading has become very popular worldwide since the onset of the coronavirus pandemic. Activity has ‘increased dramatically’ in the first quarter of 2020 compared with 2019, according to data analyzed by Cerulli Associates.”
September 25 – Reuters (Julien Ponthus): “Investors pulled a massive $25.8 billion out of U.S. equity funds in the week to Wednesday, the third biggest outflow ever from the asset class, BofA’s weekly fund flow report showed… Money was sucked out of sectors which have been the main beneficiaries of the rebound in the wake of the Covid19 March crash, said BofA analysts, citing data for the week to Sept. 23 from financial flow tracking firm EPFR.”
September 24 – Financial Times (Joe Rennison and Colby Smith): “US junk bond funds have suffered their biggest weekly outflows since the depths of the coronavirus pandemic in March... Investors pulled $4.86bn from funds that buy US high-yield bonds in the week ending September 23, according to… EPFR Global, the worst result since $5.6bn was withdrawn in the middle of March.”
September 20 – Financial Times (Steve Johnson): “A surge of interest in leveraged and inverse exchange traded products could be luring inexperienced investors into gambling with all its attendant risks, experts warn. Globally, leveraged and inverse ETPs saw net inflows of $20.6bn in the seven months to the end of July…, compared to net outflows of $3.4bn in the same period last year and $4.1bn during the whole of 2019. This took their assets to a record $89.7bn. ‘It’s almost certain that you have got a number of people using these products who don’t know, effectively, what they are doing,’ said Kenneth Lamont, research analyst… at Morningstar. ‘They are the equivalent of spread betting rather than a legitimate long-term investment. They are gambling tools rather than trading tools. The pay-off strategies of these products can be very strange.’”
September 22 – Bloomberg (Sam Potter and Katherine Greifeld): “More than two weeks of doubt and volatility in the stock market are finally starting to show up in corporate bonds. Investors fleeing the iShares iBoxx High Yield Corporate Bond exchange-traded fund (HYG), the largest ETF tracking U.S. junk debt, pulled $1.06 billion from the product on Monday…”
September 23 – Bloomberg (Davide Scigliuzzo and Paula Seligson): “Junk-rated companies are binging on debt like never before thanks to a pledge from the Federal Reserve to keep rates low and credit markets open. But not every borrower is welcome on board. Aethon United BR LP, a… natural gas company, has postponed a $700 million high-yield bond sale that would have refinanced existing debt, according to people with knowledge of the matter who asked not to be identified because the details are private.”
September 21 – Bloomberg (Katherine Greifeld): “America’s exchange-traded funds are shutting down at a record pace and the production line is stuttering as issuers struggle to sell new products in the $5 trillion market. More than 130 ETFs have been liquidated in 2020, already the most ever, while 178 funds have started trading – roughly on course to match last year’s launches… A glance at flows helps explain why: Almost a third of all existing ETFs were launched within the past three years, yet they account for only about $2 of every $100 currently invested in the industry, according to… Bloomberg Intelligence.”
Global Bubble Watch:
September 21 – Reuters (Alun John, Sumeet Chatterjee, Donny Kwok, Lawrence White, Ritvik Carvalho, Sujata Rao, Karin Strohecker, Pete Schroeder and Paritosh Bansal): “Global banks faced a fresh scandal about dirty money on Monday as they sought to limit the fallout from a cache of leaked documents showing they transferred more than $2 trillion in suspect funds over nearly two decades. Britain-based HSBC Holdings Plc, Standard Chartered Plc and Barclays Plc, Germany's Deutsche Bank and Commerzbank AG, and… JPMorgan Chase & Co JPM.N and Bank of New York Mellon Corp BK.N were among the lenders named in the report by the International Consortium of Investigative Journalists and based on leaked documents obtained by BuzzFeed News.”
September 20 – Bloomberg (Yueqi Yang, Jennifer Surane, and Yalman Onaran): “A cache of leaked documents suggests increased scrutiny on suspect transactions at banks does little to stem the flow of trillions of dollars linked to suspicious activity. Shares of the biggest global lenders fell Monday. A new investigation by the International Consortium of Investigative Journalists says JPMorgan Chase & Co., Deutsche Bank AG and HSBC Holdings Plc were among the global banks who ‘kept profiting from powerful and dangerous players’ in the past two decades even after the U.S. imposed penalties on these financial institutions.”
September 21 – Reuters (Marc Jones): “Europe could be facing a new sovereign-bank ‘doom loop’ if a coronavirus crisis surge in government bond buying by banks in those same countries persists, rating agency S&P Global has warned. A report… by S&P said the European sovereign-bank ‘nexus’ -- where banks buy bonds issued by the countries they are based in -- has deepened by 210 billion euros ($247.76bn) since start of the pandemic. ‘Despite European governments’ efforts to increase risk sharing of the fiscal cost of the pandemic, we have seen few signs of this on the part of European banks,’ S&P said.”
September 24 – Bloomberg (Maciej Onoszko): “New bond sales in Europe are set to exceed 1.39 trillion euros ($1.62 trillion) this year, breaking the record tally from 2019 with more than three months to spare.”
Trump Administration Watch:
September 24 – Bloomberg (Christopher Anstey): “Republican lawmakers vowed that the presidential transition after November’s election will occur without disruption, in a rebuke to President Donald Trump’s refusal to commit to a peaceful transfer of power. ‘The winner of the November 3rd election will be inaugurated on January 20th. There will be an orderly transition just as there has been every four years since 1792,’ Senate Majority Leader Mitch McConnell tweeted… By contrast, Trump said Wednesday that ‘we’re going to have to see what happens,’ in response to a reporter’s question at a White House news conference about a peaceful transfer of power. ‘You know that I’ve been complaining very strongly about the ballots, and the ballots are a disaster.’”
September 19 – Wall Street Journal (Alexa Corse): “How soon Americans know the outcome of the presidential election could hinge on a few states—and how fast they count mail ballots. Many states allow election workers to start processing mail ballots before Election Day, and so count them relatively swiftly. Some states—including potentially decisive swing states like Wisconsin, Michigan and Pennsylvania—don’t open envelopes containing mail ballots until Election Day. With an unprecedented number of voters expected to vote by mail amid the coronavirus pandemic, counting ballots may take days or longer in some states, possibly delaying a tally.”
September 21 – Reuters (Andrew Chung and Steve Holland): “President Donald Trump raced… to cement a conservative majority on the U.S. Supreme Court before the Nov. 3 election, telling reporters he planned by Saturday to reveal his pick to succeed liberal icon Ruth Bader Ginsburg.”
September 19 – Bloomberg (Michael P. Regan and Felice Maranz): “While many investors are zeroing in on the U.S. presidential election in November, a trickier political equation could be even more important in determining winners and losers in markets: which party controls the Senate. Many political analysts at this point expect the Democratic Party to remain the majority in the House of Representatives regardless of who wins the presidential race. Control of the Senate is harder to predict. Of the 100 seats, 35 are up for election this year and Republicans will be defending 23 of them -- with their three-seat majority in the balance.”
September 23 – CNBC (Thomas Franck): “Larry Kudlow, President Donald Trump's top economic advisor, said… the broad economic recovery from Covid-19 doesn’t necessarily require additional fiscal stimulus even if select industries or businesses could benefit from more aid. ‘I don’t think the V-shaped recovery depends on the package, but I do think a targeted package could be a great help,’ Kudlow said… ‘Even though I think the economy is improving nicely, it could use some help in some key, targeted places.’”
September 24 – CNBC (Jacob Pramuk): “House Democrats are preparing a new, smaller coronavirus relief package expected to cost about $2.4 trillion as they try to forge ahead with talks with the Trump administration… The bill would include enhanced unemployment insurance, direct payments to Americans, Paycheck Protection Program small-business loan funding and aid to airlines, among other provisions, the person said. To reach the price tag, Democrats would chop roughly $1 trillion from their previous proposal for a fifth pandemic aid plan.”
September 21 – Reuters (Jeff Mason): “U.S. President Donald Trump… said he was rebuffed when he asked officials to adjust the exchange rate of the dollar to counteract what he described as repeated currency manipulation by China of its yuan… ‘I go to my guys, ‘What about doing a little movement on the dollar?’ he said, but they countered that was not possible. ‘Sir, we can’t do that. It has to float naturally.’”
Federal Reserve Watch:
September 23 – Bloomberg (Catarina Saraiva and Steve Matthews): “Federal Reserve Chairman Jerome Powell faced questions from U.S. lawmakers Wednesday over the central bank’s help for Americans compared with markets during the coronavirus pandemic. ‘Our actions were in no way an attempt to relieve pain on Wall Street,’ Powell told a hearing before the House Select Subcommittee on the Coronavirus Crisis. Powell also reiterated his support for further fiscal stimulus, saying it is ‘unequaled’ by anything else. Congressional stimulus talks have stalled since early August with both political parties about $1 trillion apart in their offers. On its Main Street Lending Program, the Fed chief said that he and his colleagues have “done basically all of the things that we can think of.’”
September 22 – Reuters (Jeff Cox): “Federal Reserve Chairman Jerome Powell pledged continued support for an economy that he said has shown substantial improvement but still needs more work. In remarks the central bank leader will deliver Tuesday to the House Financial Services Committee, Powell reiterated the Fed's commitment to helping the economy through the coronavirus pandemic and outlined what's been done so far. ‘We remain committed to using our tools to do what we can, for as long as it takes, to ensure that the recovery will be as strong as possible, and to limit lasting damage to the economy,’ Powell said…”
September 23 – New York Times (Jeanna Smialek): “Jerome H. Powell, the Federal Reserve chair, faced lawmaker criticism over the central bank’s program to backstop the corporate bond market, as House Democrats questioned whether the central bank has done enough for smaller companies and workers. ‘The Fed must use its tremendous resources and market power not just to bail out wealthy stockholders, but also to protect lower-income workers and struggling small businesses that are the backbone of this country’s economy,’ Representative James E. Clyburn, Democrat of South Carolina, said during a House hearing on the coronavirus crisis.”
September 23 – Bloomberg (Steve Matthews and Catarina Saraiva): “Federal Reserve Vice Chairman Richard Clarida said the central bank won’t consider raising interest rates from near zero until it actually achieves 2% inflation for at least a few months as well as full employment. ‘We’re not going to even begin to think about lifting off, we expect, until we actually get observed inflation -- and we measure it on a year-over-year basis, equal to 2%,’ Clarida said… in a Bloomberg Television interview with Tom Keene, Lisa Abramowicz and Jonathan Ferro. ‘That’s at least -- we could actually keep rates at this level even beyond that.’”
September 20 – Bloomberg (Rich Miller): “It sounded a bit like a broken record. Confronted by a pandemic that has devastated the economy, Federal Reserve Chair Jerome Powell declared no less than 10 times last week that the central bank has a ‘powerful’ new monetary policy road map for returning the U.S. to full employment and lifting inflation temporarily above 2%. ‘It was powerful,’ Mellon chief economist Vincent Reinhart said wryly of the central bank’s plan for continued rock-bottom interest rates. ‘If you say it 10 times it must be so.’”
U.S. Bubble Watch:
September 21 – Bloomberg (Scott Lanman): “The U.S. government’s debt will swell over the next 30 years to almost double the size of the economy, raising the risk of a fiscal crisis or a drop in the value of Treasuries, the Congressional Budget Office said… The nonpartisan agency, in its long-term budget outlook, projected debt will reach 195% of gross domestic product in 2050, up from 98% this year and 79% in 2019. That compares with the prior 2050 forecast of 180% from January, before the coronavirus pandemic struck the nation and spurred Congress to pass about $3 trillion of stimulus.”
September 24 – Reuters (Lucia Mutikani): “The number of Americans filing new claims for unemployment benefits unexpectedly increased last week, supporting views the economic recovery from the COVID-19 pandemic was running out of steam… The weekly jobless claims report… also showed 26 million people were on unemployment benefits in early September.”
September 23 – CNBC (Diana Olick): “After a brief lull to start the month, mortgage demand surged ahead yet again — even with the highest interest rates in several weeks… Mortgage applications to purchase a home rose just 3% for the week but were 25% higher than one year ago. Buyers continue to flood the market despite higher home prices and very tight supply. Sales have been strongest on the high end of the market, according to the National Association of Realtors…”
September 24 – CNBC (Diana Olick): “Exceptional demand for new and existing homes, brought on by the stay-at-home culture of the coronavirus pandemic, has the housing market severely depleted. Sales of newly built homes jumped to the highest level in 14 years in August, but builders’ supply dropped to just 3.3 months’ worth… A six-month supply is considered a balanced market. Supply was at 5.5 months in August 2019…”
September 21 – Wall Street Journal (Nicole Friedman): “The pandemic has aggravated the housing market’s longstanding lack of supply, creating a historic shortage of homes for sale. Buyers are accelerating purchase plans or considering homeownership for the first time, rushing to get more living space as many Americans anticipate working from home for a while. Many potential sellers, meanwhile, are keeping their homes off the market for pandemic-related reasons. The combined effect has created an extreme drought of previously owned homes for sale. At the end of July, there were 1.3 million single-family existing homes for sale, the lowest count for any July in data going back to 1982…”
September 24 – Bloomberg (Katia Dmitrieva): “Sales of new homes in the U.S. unexpectedly advanced for a fourth month in August to the highest level in almost 14 years as record-low mortgage rates continued to entice buyers into a market with ever-shrinking supply. Purchases of new single-family houses increased 4.8% to a 1 million annualized pace, led by a flurry of demand in the South, after an upwardly revised 14.7% surge in July… It’s the same picture for backlogs: the number of properties sold for which construction hadn’t yet started jumped to 342,000 in August."
September 24 – CNBC (Diana Olick): “Fierce competition for a limited supply of homes for sale has caused a surge in prices. Now, potential buyers, some fleeing urban areas hit hard by the coronavirus pandemic, are facing a national affordability crisis. The median prices of single-family homes and condos in the third quarter are less affordable than historical averages in 63% of U.S. counties, up from 54% a year ago, according to Attom Data Solutions… It calculates affordability for average wage earners on the income needed to make monthly mortgage, property tax and insurance payments on a median-priced home with a 20% down payment.”
September 20 – Wall Street Journal (Amara Omeokwe): “The housing market has led the recovery from the pandemic-induced economic downturn as Americans have rushed to buy homes amid a desire for more living space and record-low mortgage rates. But some analysts warn even as the housing boom bolsters the overall economy, it may widen the longstanding gap in homeownership between Black and white Americans. That could have broader implications for wealth disparities since homes are a core source of wealth for most Americans.”
September 24 – Bloomberg (Simon Kennedy): “Goldman Sachs Group Inc. economists halved their forecast for U.S. growth in the fourth quarter after deciding there will not be additional fiscal stimulus until next year. The researchers led by Jan Hatzius now predict the world’s largest economy will expand 3% on a quarterly annualized basis, down from the 6% they previously anticipated. ‘It is now clear that Congress will not attach additional fiscal stimulus to the continuing resolution,’ they said… ‘This implies that after a final round of extra unemployment benefits that is currently being disbursed, any further fiscal support will likely have to wait until 2021.’”
September 21 – Bloomberg (Danielle Moran): “Without federal aid, Illinois credit pressures are mounting, and the state may have to borrow more even as officials seek to cut spending and balance the budget, according to S&P Global Ratings. The coronavirus has exacerbated the worst-rated state’s challenges, including already large budget gaps and weak demographics… ‘The magnitude of the current budget gap and reliance on one-time measures make us question Illinois’ ability to achieve structural balance in a reasonable time,’ the analysts wrote. ‘Even if Illinois receives federal aid in fiscal 2021, we expect that it will face challenging budget gaps beyond the current fiscal year.’”
September 18 – Financial Times (Myles McCormick): “It is less than two months since Donald Trump travelled to Texas to declare that the US energy industry, laid low by this year’s oil price crash, was back on its feet. ‘We’re OK now,’ the president told the assembled crowd. But bankruptcy numbers released this week tell a different story. Another 16 upstream US oil and gas companies — producers and service providers — hit the wall in August, the same number as in July… Bigger drillers such as Chaparral and Valaris have joined a pile-up that has seen companies with a combined $85bn worth of debt file for protection from creditors over the past eight months.”
September 24 – Bloomberg (Hannah Levitt): “Before the pandemic emptied the city, few lenders benefited from the heady local real estate market as much as regional players New York Community Bancorp Inc. and Signature Bank. Now they’re becoming a case study for potential trouble from a sudden downturn in the Big Apple’s property sector… With retail and apartment vacancies rising and rents falling, and with the prospect of employers cutting their office space looming, the question is whether the hundreds of millions of dollars the banks have set aside for commercial-property loan losses will be enough.”
September 22 – Bloomberg (Jack Pitcher and Gabrielle Coppola): “Carvana Co. has yet to post a quarterly profit since going public in 2017, but it’s made Ernie Garcia II and his son Ernest Garcia III two of the richest people in America. The elder Garcia is the largest shareholder of… Carvana, the online retailer that sells cars out of massive vending machines. His son, Garcia III, is the company’s chief executive officer. Together they’re worth $21.4 billion… Shares of the company surged 31%... after it projected record revenue and profit margins. The stock has rallied almost 150% this year…”
Fixed Income Watch:
September 20 – Wall Street Journal (Sam Goldfarb and Paul J. Davies): “Surging deposits and declining lending are driving banks to dramatically increase their holdings of U.S. Treasurys… Holdings at U.S. commercial banks of Treasury and agency securities other than mortgage bonds have grown by more than $250 billion since the end of February as their total deposits have jumped by more than $2 trillion… Commercial and industrial loans initially spiked as companies drew on their credit facilities, but many have since repaid bank debt and loan-and-lease volume has fallen.”
September 23 – Bloomberg (Paula Seligson): “U.S. high-yield bond sales reached an annual record of $329.8 billion Wednesday as companies reap the benefits of the Federal Reserve’s liquidity-boosting policies and investors grasp for yield. The crush of debt offerings accelerated in April after the U.S. central bank began purchasing some high-yield bonds as part of its efforts to support the corporate credit markets. Since then, issuance has eclipsed the prior annual sales record of $329.6 billion set in 2012, according to data compiled by Bloomberg.”
September 21 – Wall Street Journal (Sebastian Pellejero): “Bundles of lower-rated mortgages tied to hotels, offices and retail properties across the U.S. have lagged behind the debt markets’ rebound, a sign of the pandemic’s lingering blow to commercial real estate. An index tracking commercial mortgage-backed securities with a triple-B rating—the lowest broad investment-grade tier—remains below pre-pandemic levels, despite a broad recovery in credit markets. Indexes tracking mortgage-backed bonds with higher concentrations of hotel and retail properties are struggling even more.”
China Watch:
September 21 – Bloomberg: “Chinese President Xi Jinping took a veiled swipe at the U.S. in a strongly worded speech, saying no country should ‘be allowed to do whatever it likes and be the hegemon, bully or boss of the world.’ Pushing for developing countries to have a greater role in world affairs, Xi said the United Nations could be ‘more balanced’ and called for the ‘international order underpinned by international law,’ the official Xinhua News Agency reported, citing remarks made at a meeting commemorating the world body’s 75th anniversary. He said countries must not be ‘lorded over by those who wave a strong fist at others.’”
September 23 – Reuters (Andrew Galbraith): “China has no reason to approve the ‘dirty and unfair’ deal based on ‘bullying and extortion’ that Oracle Corp and Walmart Inc said they struck with ByteDance, the state-backed… China Daily newspaper said… ‘What the United States has done to TikTok is almost the same as a gangster forcing an unreasonable and unfair business deal on a legitimate company,’ it said…”
September 21 – Reuters (Akanksha Rana): “Beijing has sped up development of a blacklist that could be used to punish U.S. technology firms, with Huawei Technologies Co Ltd rival Cisco Systems Inc among the companies seen as likely to be included in the list… However, Chinese leaders are hesitating to pull the trigger, with some arguing that a decision on the list should wait till after the U.S. election in November, the report said.”
September 24 – Bloomberg: “The world’s most indebted developer has warned Chinese officials it faces a potential default that could roil the nation’s $50 trillion financial system unless regulators approve the company’s long-delayed stock exchange listing. China Evergrande Group mapped out the scenario in an Aug. 24 letter to the Guangdong government…, in which the company sought support for a restructuring proposal needed to secure the listing and avert a cash crunch. Evergrande’s shares and bonds tumbled on Thursday. The developer faces a critical test on Jan. 31, when strategic investors are allowed to exit unless it gets approval for a listing on the Shenzhen stock exchange. If they refuse to extend the deadline, the company will need to repay as much as 130 billion yuan ($19bn), equivalent to 92% of its cash and cash equivalents. That may lead to ‘cross defaults’ in Evergrande’s borrowings from banks, trusts, funds and the bond market, eventually leading to systematic risks for the broader financial system, according to the document sent to the provincial government…”
September 23 – CNBC (Evelyn Cheng): “Chinese fervor for online shopping waned in August, a sign that the world's second-largest economy still faces many challenges as it tries to boost consumption at home… Online sales of consumer goods and services grew 13.3% in August, slower than the 18.8% growth in July and down from 19% in June, CNBC analysis of official data showed.”
September 22 – Bloomberg: “China jolted markets in 2019 with three high-profile bank rescues that imposed losses on some investors. The appetite for experimenting with greater market discipline has been crushed by the coronavirus pandemic. 2020 has become the year of stealth rescues… Local governments are identifying the weakest lenders among more than 4,000 rural and city banks, and drafting plans… to merge them into bigger and, hopefully, stronger banks… The behind-the-scenes maneuvering has kept crucial credit flowing through local economies, but also allows risks to persist in China’s vast network of regional banks. The sector, which accounts for 80 trillion yuan ($12 trillion) of banking assets, has been plagued for years by scandals, complex ownership structures, rampant off-book dealings and poor risk control.”
September 21 – Reuters (Clare Jim): “China is tackling unbridled borrowing in the real estate development sector anew with caps for debt ratios. But sources at developers say a rush to get around the rules by moving more debt off balance sheets is on. Dubbed ‘the three red lines’, Chinese regulators outlined caps for debt-to-cash, debt-to-assets and debt-to-equity ratios last month at a meeting with 12 major property developers in Beijing. Though not yet officially announced, developers expect the rules to be applied sector-wide as soon as Jan. 1, 2021. The move has sent shock waves through the industry, sources at four Chinese property developers told Reuters.”
September 24 – Bloomberg: “The debt woes of a Chinese state-run property developer have deepened, after plans emerged for the Tianjin-based defaulter to seek delayed repayment and restructuring of its offshore debt, according to people familiar… In a notice sent on Wednesday, Tianjin Real Estate Group Co. asked four banks that are holders of its 4.5% 3-year $100 million bond to accept a six-month maturity extension to avoid a default…”
September 23 – Financial Times (Thomas Hale, Hudson Lockett and Sun Yu): “A surge in internet trading by China’s retail investors has boosted the country’s brokers, awarding some of them a valuation in line with the world’s best-known banks. Average daily turnover on China’s stock market has hit Rmb874bn ($129bn) this year…, up nearly 60% from the average of the past five years, as the coronavirus crisis has driven interest in online equity trading.”
Central Bank Watch:
September 24 – Bloomberg (Piotr Skolimowski and James Hirai): “Euro-zone banks took 174.5 billion euros ($203bn) in another dose of ultra-cheap funding as the European Central Bank gives them every possible incentive to keep lending to the pandemic-stricken economy. The bids for the targeted loans, known as TLTROs, came from 388 banks, and the takeup was at the high end of economists’ expectations. The loans will likely push excess liquidity in the euro zone above 3 trillion euros for the first time on record.”
September 22 – Bloomberg (Carolynn Look and Paul Gordon): “The European Central Bank risks legal trouble if it tries to extend the ‘emergency powers’ of its pandemic bond-buying plan to its other asset-purchase program, according to Executive Board member Yves Mersch. The 1.35 trillion-euro ($1.6 trillion) measure ‘has been created first and foremost to be a backstop,’ Mersch, the ECB’s longest-serving policy maker, said… ‘We have always said it is linked to the assessment of the Governing Council on how long this pandemic is affecting us,’ he said. ‘So we cannot say the pandemic is over but we continue with the pandemic program, or we transfer the pandemic program features into the asset-purchase program. To my humble understanding of what the law means, this would be very curious.’”
EM Watch:
September 24 – Bloomberg (Cagan Koc): “Turkey’s central bank raised interest rates for the first time since a currency crisis in late 2018, surprising most economists after a series of backdoor measures fell short of stabilizing the lira. The Monetary Policy Committee… increased the benchmark one-week repo rate to 10.25% from 8.25% on Thursday… The decision caps a period of tightening by stealth as the central bank tried to contain the lira’s weakness by using fringe tools and ceasing to provide funding at its cheapest benchmark rate.”
Europe Watch:
September 23 – Reuters (Jonathan Cable): “Euro zone business growth ground to a halt this month, throwing the economic recovery into question, as fresh restrictions to quell a resurgence in coronavirus infections slammed the services industry into reverse… IHS Markit’s flash Purchasing Managers’ Index sank to 50.1 in September from August’s 51.9, only just above the 50 mark separating growth from contraction and well below the median forecast…”
September 20 – Reuters (Giuseppe Fonte and Gavin Jones): “Italy expects its coronavirus-hit economy to grow by more than 5% next year after shrinking 9% in 2020, two government sources told Reuters… In April, the government of the anti-establishment 5-Star Movement and the centre-left PD party forecast a fall in gross domestic product of 8% this year and a 2021 rebound of 4.7%.”
September 18 – Reuters (Bhanvi Satija): “Ratings agency S&P Global Ratings… revised Spain’s outlook to ‘negative’ from ‘stable’, saying its policy response to rising economic and fiscal challenges are at risk from political fragmentation and reform fatigue.”
Japan Watch:
September 22 – Reuters (Daniel Leussink): “Japan’s factory activity extended declines in September largely due to a sharper fall in output, as the world’s third-largest economy struggles to stage a robust recovery from the coronavirus pandemic. The au Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) was largely unchanged at 47.3 in September… Output contracted at a faster pace for the first time in four months…”
Leveraged Speculation Watch:
September 23 – Financial Times (Robin Wigglesworth and Laurence Fletcher): “Savage stock market drops, soaring rallies and a frenzied retail trading boom. This should be a fertile environment for quantitative trend-following hedge funds. Instead, the $280bn industry has experienced widely diverging fortunes this year. Société Générale’s index of commodity-trading advisers — a common regulatory designation for ‘quant’ funds that specialise in riding market trends — is down 2.2% this year. That is below the hedge fund industry’s average 2% gain... This year has been a ‘crucible’ for CTAs, according to Edward Raymond, head of UK portfolio management at Julius Baer. ‘It’s the anatomy of the downturn that matters,’ he said. ‘Some did well and others did not, and we’ve seen a wide dispersion of performance this year.’”
September 21 – Bloomberg (Saijel Kishan): “Bridgewater Associates, billionaire Ray Dalio’s hedge fund firm, said U.S. social conditions such as inequality will increasingly affect markets as policy makers consider them more explicitly in their goals. ‘A shift is already underway in terms of how the Fed interprets its current mandate,’ a team led by director of research Karen Karniol-Tambour said… ‘In a world where fiscal policy is increasingly important, social conditions will naturally play a larger role in determining policy -- and therefore play a larger role in markets.’”
Geopolitical Watch:
September 22 – Associated Press (Edith M. Lederer): “Kept apart by a devastating pandemic and dispersed across the globe, world leaders convened electronically… for an unprecedented high-level meeting, where the U.N. chief exhorted them to unite and tackle the era’s towering problems: the coronavirus, the ‘economic calamity’ it unleashed and the risk of a new Cold War between the United States and China. As Secretary-General Antonio Guterres opened the first virtual ‘general debate’ of the U.N. General Assembly, the yawning gaps of politics and anger became evident. China and Iran clashed with the United States and leaders expressed frustration and anger at the handling of the COVID-19 pandemic… While the six-day mainly virtual meeting is unique in the U.N.’s 75-year history, the speeches from leaders hit on all the conflicts, crises and divisions facing a world that Guterres said is witnessing ‘rising inequalities, climate catastrophe, widening societal divisions, rampant corruption.’ In his grim state of the world speech, he said ‘the pandemic has exploited these injustices, preyed on the most vulnerable and wiped away the progress of decades,’ including sparking the first rise in poverty in 30 years.”
September 22 – Wall Street Journal (William Mauldin and James T. Areddy): “World leaders sounded alarms… over the widening rift between the U.S. and China, warning that a lack of cooperation could worsen the coronavirus pandemic, slow a global economic recovery or even lead to outright conflict. ‘We must do everything to avoid a new Cold War,’ United Nations Secretary-General António Guterres said in opening the annual U.N. General Assembly… ‘A technological and economic divide risks inevitably turning into a geostrategic and military divide.’ Chinese leader Xi Jinping, appearing at the U.N. like other leaders via video message, said Beijing has ‘no intention to fight either a cold war or a hot one with any country.’ Yet the growing U.S.-China divide was on display as President Trump slammed Beijing for allowing the coronavirus to spread and took aim at China’s environmental and trade record.”
September 20 – Reuters (Yew Lun Tian): “China’s air force has released a video showing nuclear-capable H-6 bombers carrying out a simulated attack on what appears to be Andersen Air Force Base on the U.S. Pacific island of Guam, as regional tensions rise. The video, released on Saturday on the People’s Liberation Army Air Force Weibo account, came as China carried out a second day of drills near Chinese-claimed Taiwan, to express anger at the visit of a senior U.S. State Department official to Taipei. Guam is home to major U.S. military facilities, including the air base, which would be key to responding to any conflict in the Asia-Pacific region.”
September 20 – Bloomberg: “China is ratcheting up the risk of military confrontation in the Taiwan Strait, as Beijing seeks to deter Taipei from continuing to deepen ties with the U.S. and other like-minded democracies. People’s Liberation Army aircraft repeatedly breached the median line between Taiwan and the Chinese mainland last week, in the latest of a series of military exercises in the area. The Chinese pilots signaled a willingness to continue the practice, telling Taiwanese personnel who attempted to warn them away that ‘there is no median line,’ the Taipei-based China Times newspaper reported…”
September 19 – Reuters (Ben Blanchard and Jeanny Kao): “Two days of Chinese military aircraft approaching Taiwan demonstrate that Beijing is a threat to the entire region and have shown Taiwanese even more clearly the true nature of China’s government, President Tsai Ing-wen said…”
September 21 – Reuters (Yimou Lee): “Taiwan President Tsai Ing-wen praised… the ‘heroic performance’ of air force pilots who have been intercepting Chinese jets that have approached the island, as its armed forces held drills to simulate repulsing an attack… ‘I have a lot of confidence in you. As soldiers of the Republic of China, how could we let enemies strut around in our own airspace?’ she said, using Taiwan’s formal name.”
September 24 – Bloomberg: “China’s military is committed to defeating Taiwanese independence ‘at all cost,’ Defense Ministry spokesman Senior Colonel Tan Kefei tells briefing… People’s Liberation Army exercises in Taiwan Strait targeted at independence forces and external forces who meddle in China’s affairs, Tan says ‘If Taiwan independence forces dare to separate Taiwan from China in any form or use any excuse, we will resolutely defeat it at all costs,’ Tan says.”
September 24 – Bloomberg: “China’s military is committed to defeating Taiwanese independence ‘at all cost,’ Defense Ministry spokesman Senior Colonel Tan Kefei tells briefing… People’s Liberation Army exercises in Taiwan Strait targeted at independence forces and external forces who meddle in China’s affairs, Tan says ‘If Taiwan independence forces dare to separate Taiwan from China in any form or use any excuse, we will resolutely defeat it at all costs,’ Tan says.”