[Bloomberg] U.S. Tech Shares Rebound as Metals Fall With Pound: Markets Wrap
[Bloomberg] U.S. Trade Deficit Is Widest Since January
[Bloomberg] Growth in U.S. Service Industries Cools From a 12-Year High
[Bloomberg] State Street Says Short-Volatility Trades Are Storing Up Trouble
[Bloomberg] Senate Bill ‘Bombshell’ Could Raise Taxes on Tech
[BusinessWeek] China’s Infrastructure Binge Is Set for a Major Slowdown
[Bloomberg] Anglo-Saxon Capitalism Gets the Blame for Financial Crises
[CNBC] Stock market's crazy Monday could be a warning
[Bloomberg] Bitcoin is a 'dangerous speculative bubble,' Yale expert says
[Bloomberg] HNA's Units Are on a Borrowing Spree, Swallowing High Rates
[CNBC] North Korea's nuclear ambitions at 'dangerous point,' and could threaten China's market rally, Stephen Roach warns
[FT] The Trump bear market for bonds is fast arriving
[WSJ] Companies Push to Repeal AMT After Senate’s Last-Minute Move to Keep It Alive
Monday, December 4, 2017
Monday Evening Links
[Bloomberg] Asia Stocks Set for Declines as U.S. Rally Ebbs: Markets Wrap
[CNBC] Here are the tax plan differences the House and Senate still need to figure out
[CNBC] House Republicans introduce 2-week stop-gap to fund government, children's health insurance program
[Bloomberg] Brexit Breakthrough Fails as Irish Allies Flex Muscle With May
[WSJ] GOP’s Late Changes to Tax Bill Buoy Key Industries
[FT] Fears over debt load take shine off tax reform
[FT] Republican reforms threaten corporate tax credits
[FT] Kuroda’s ambiguity leaves traders guessing BoJ direction
[CNBC] Here are the tax plan differences the House and Senate still need to figure out
[CNBC] House Republicans introduce 2-week stop-gap to fund government, children's health insurance program
[Bloomberg] Brexit Breakthrough Fails as Irish Allies Flex Muscle With May
[WSJ] GOP’s Late Changes to Tax Bill Buoy Key Industries
[FT] Fears over debt load take shine off tax reform
[FT] Republican reforms threaten corporate tax credits
[FT] Kuroda’s ambiguity leaves traders guessing BoJ direction
Sunday, December 3, 2017
Monday's News Links
[Bloomberg] Tech Slides as Tax Plan Buoys Dow, S&P 500, Dollar: Markets Wrap
[Politico] Congress faces frantic week with possible shutdown, taxes, Russia
[Bloomberg] Congress Talks Tax Deal as Trump Signals Corporate Rate Retreat
[Bloomberg] What We Know About Corporate Winners and Losers in U.S. Tax Bill
[Reuters] Fed rate hike expected next week, three hikes expected in 2018: Reuters poll
[Reuters] Hidden peril awaits China's banks as property binge fuels mortgage fraud frenzy
[NikkeiAR] BOJ's trim of bond purchases hints at 'stealth tapering'
[Bloomberg] Citi Stays Bullish on Commodities While Warning of Risk in China
[Bloomberg] BlackRock and Vanguard Are Less Than a Decade Away From Managing $20 Trillion
[WSJ] Tax Overhaul Marked by Blinding Speed
[WSJ] Why Central Banks Continue to Put Asset Prices Out of Whack
[WSJ] Passage of Senate Tax Bill Puts R&D Tax Credit in Doubt
[FT] Debt redemption wave of $1tn looms in 2018
[Politico] Congress faces frantic week with possible shutdown, taxes, Russia
[Bloomberg] Congress Talks Tax Deal as Trump Signals Corporate Rate Retreat
[Bloomberg] What We Know About Corporate Winners and Losers in U.S. Tax Bill
[Reuters] Fed rate hike expected next week, three hikes expected in 2018: Reuters poll
[Reuters] Hidden peril awaits China's banks as property binge fuels mortgage fraud frenzy
[NikkeiAR] BOJ's trim of bond purchases hints at 'stealth tapering'
[Bloomberg] Citi Stays Bullish on Commodities While Warning of Risk in China
[Bloomberg] BlackRock and Vanguard Are Less Than a Decade Away From Managing $20 Trillion
[WSJ] Tax Overhaul Marked by Blinding Speed
[WSJ] Why Central Banks Continue to Put Asset Prices Out of Whack
[WSJ] Passage of Senate Tax Bill Puts R&D Tax Credit in Doubt
[FT] Debt redemption wave of $1tn looms in 2018
Sunday Evening Links
[Reuters] Dollar, stock futures gain on U.S. tax cut progress
[Bloomberg] Asian Banks See Funding Costs Rise, Making for Challenging 2018
[CNBC] Tax reform could hit certain states harder than others
[Reuters] South Korea, U.S. kick off largest air exercise amid North Korean warnings
[WSJ] Overseas Investors (Finally) Join the U.S. Stock-Market Party
[Bloomberg] Asian Banks See Funding Costs Rise, Making for Challenging 2018
[CNBC] Tax reform could hit certain states harder than others
[Reuters] South Korea, U.S. kick off largest air exercise amid North Korean warnings
[WSJ] Overseas Investors (Finally) Join the U.S. Stock-Market Party
Saturday, December 2, 2017
Saturday's News Links
[Bloomberg] Senate Passes Major Business, Individual Cuts: Tax Debate Update
[Bloomberg] The Biggest Sticking Points Between Senate and House Tax Bills
[Reuters] Fear of missing out keeps investors in stocks despite risks
[Reuters] China airs 'strong dissatisfaction' over U.S. statement to WTO: Xinhua
[WSJ] Senate Passes Sweeping Revision of U.S. Tax Code
[WSJ] Top Fed Official Sees No Need for Fiscal Stimulus at Time of Solid Growth
[Bloomberg] The Biggest Sticking Points Between Senate and House Tax Bills
[Reuters] Fear of missing out keeps investors in stocks despite risks
[Reuters] China airs 'strong dissatisfaction' over U.S. statement to WTO: Xinhua
[WSJ] Senate Passes Sweeping Revision of U.S. Tax Code
[WSJ] Top Fed Official Sees No Need for Fiscal Stimulus at Time of Solid Growth
Friday, December 1, 2017
Weekly Commentary: China Initiating a Global Bear Market?
Chair Yellen is widely lauded for her accomplishments at the Federal Reserve. For the most part, her four-year term at the helm boils down to four (likely soon to be five) little rate hikes over 24 months. Most lavishing praise upon Janet Yellen believe she calibrated “tightenings” adeptly and successfully. Yet financial conditions have obviously remained much too loose for far too long. This predicament was conspicuous in the markets this week. A test of a North Korean ICBM that could reach the entire U.S. modestly pressured equities for about five minutes – then back to the races.
Bubble Dynamics are in full force. The Dow gained 674 points this week. The Banks were up 5.8%, the Broker/Dealers gained 4.5% and the Transports jumped 5.9%. The Semiconductors were hit 5.6%. Bitcoin traded as high (US spot) as $11,434 and as low as $9,009 in wild Wednesday trading. Curiously, the VIX traded up 15% this week to 11.43.
It used to be that markets would fret the Fed falling “behind the curve,” fearing central bankers would be compelled to employ more aggressive tightening measures. Not these days. Any fear of central bank-imposed tightening is long gone. There is little fear of anything.
I recall writing similar comments back with the Bush tax cuts: “I’m as much for lower taxes as anyone. Yet I question the end results when tax cuts exacerbate late-stage Bubble excess.” And I seriously question the merits of aggressively slashing corporate tax rates when the federal government is $20 TN in debt. One of these days the bond market is going to wake up and impose some much need fiscal discipline. In a different era, the Treasury market would be forcing some realism upon Washington politicians (and central bankers).
Moreover, there’s a paramount issue that goes completely undiscussed. It’s presumed that lower taxes will spur economic growth and resulting booming tax receipts – that tax cuts will prove largely self-financing. Yet this fanciful notion ignores a critically important unknown: What role will the financial markets play? As we saw in the last downturn, faltering Bubble markets weigh heavily on both economic growth and government finances. I would go so far as to suggest that never has our nation’s fiscal prospects been as dependent on ongoing equities, bond market and real estate inflation.
Nine years of extreme monetary and fiscal stimulus fueled quite a boom. Interest rates were pegged way too low for too long. The seemingly obvious risk now is that market yields surprise to the upside. Despite the boom and artificially suppressed debt service costs, the federal government has nonetheless posted ongoing large budget deficits. I never bought into the late-nineties notion that budget surpluses were sustainable – that our nation would soon pay down all its debt. It was all a seductive Bubble Illusion.
Today’s delusion is so much more spectacular. I’m all for efforts to revitalize the U.S. manufacturing and export sectors. But to continue to aggressively employ system-wide fiscal and monetary stimulus at this late cycle stage comes with great risk. I’m surprised the bond market remains so sanguine. There’s a (not low probability) scenario that has consumer and producer inflation surprising on the upside, interest rates and market yields surprising on the upside, the stock market buckling to the downside, and fiscal deficits exploding to the unmanageable. The Powel Fed would confront serious challenges (in contrast to the cakewalk enjoyed by Yellen).
November 27 – CNBC (Jeff Cox): “Concern over stock market values is growing at the Fed, with one official worrying that waiting too long to tighten policy could have more serious effects later. In an essay released Monday, Dallas Fed President Robert Kaplan warned about ‘excesses’ in the economy, pointing specifically to stocks and the government debt. The S&P 500 market cap is at 135% of GDP, the highest since 1999-2000, just as the dot-com bubble was about to pop, the central banker said. ‘I am aware that, as excesses build, we are more vulnerable to reversals which have the potential to cause a rapid tightening in financial conditions, which in turn, can lead to a slowing in economic activity,’ Kaplan wrote. ‘Measures of stock market volatility are historically low. We have now gone 12 months without a 3% correction in the U.S. market.,’ he added. ‘This is extraordinarily unusual.’”
November 29 – Reuters (Ann Saphir): “The Federal Reserve should keep raising interest rates over the next couple of years, including about four times between now and the end of 2018, San Francisco Federal Reserve President John Williams said… ‘From today, four rate hikes through the end of next year is still kind of my base view,’ Williams told reporters… Williams rotates into a voting spot on the Fed’s policysetting panel next year. ‘We need to get from here to roughly 2.5% fed funds rate over the next couple of years.’”
One regional Fed president addressing stock market excesses and another talking four additional rate hikes before the end of next year. Whether monitoring the securities markets or economic data, the case for actual interest rate normalization gets stronger by the week. It’s worth noting that October New Home Sales blew away estimates to reach a 10-year high. Housing inventory remains tight and builders are getting gear up. A stronger-than-expected November reading from the Conference Board pushed Consumer Confidence to a new 17-year high. Q3 GDP was revised up to 3.3% annualized. The manufacturing sector remains strong and auto sales resilient (above 17 million SAAR).
Ten-year Treasury yields traded as high as 2.43% Thursday afternoon. Five-year yields rose to 2.17% Thursday, the high going back to March 2011. Longer Treasury yields have for the most part ignored the almost 50 bps rise in two-year yields over the past several months. It was interesting to watch 10-year Treasury yields sink a quick 10 bps Friday morning on reports of Michael Flynn’s plea agreement (and the Dow’s immediate 380 point decline). While stocks have grown content to disregard risk, Treasury bonds seem to embrace the Bubble Thesis - and trade as if trouble is right around the corner.
And speaking of trouble… U.S. markets fixated on tax cuts have been all too happy to ignore developments in China. Officials are taking an increasingly aggressive posture in reining in lending. In particular, Beijing is targeting the enormous “wealth-management product” complex and the booming Internet lending industry. Liquidity has tightened, especially within the corporate bond market (“Worst China Bond Rout Since 2013”). Are Chinese officials finally getting serious about their Credit Bubble? (See "China Watch" below)
The Shanghai Composite was down another 1.1% this week, with a 3.9% drop since the highs on November 14. China’s CSI index lost 2.6% this week. Chinese growth and tech stocks have been under notable pressure for two weeks. Yet equities weakness was not limited to China. South Korean stocks fell 2.7% this week, and India’s equities lost 2.5%. Both Brazilian and Russian equities were hit for 2.6%. The emerging markets, in general, notably underperformed this week. European equities were also under pressure again. Could it be that Credit tightening in China is initiating a global bear market, only Bubbling U.S. equities haven’t figured it out yet?
November 24 – Reuters (Gaurav S Dogra): “For years China’s top officials have touted their ambitious policy priority to wean the world’s second-largest economy off high levels of debt, but there is not much to show for it. On the contrary, a Reuters analysis shows the debt pile at Chinese firms has been climbing in that time, with levels at the end of September growing at the fastest pace in four years. The build-up has continued even as policymakers roll out a series of measures to end the explosive growth of debt, including persuading state firms and local governments to prune borrowing and tighter rules and monitoring of banks’ short-term borrowing… Reuters analysis of 2,146 China listed firms showed their total debt at the end of September jumped 23% from a year ago, the highest pace of growth since 2013. The analysis covered three-fifths of the country’s listed firms…”
Bubble Dynamics are in full force. The Dow gained 674 points this week. The Banks were up 5.8%, the Broker/Dealers gained 4.5% and the Transports jumped 5.9%. The Semiconductors were hit 5.6%. Bitcoin traded as high (US spot) as $11,434 and as low as $9,009 in wild Wednesday trading. Curiously, the VIX traded up 15% this week to 11.43.
It used to be that markets would fret the Fed falling “behind the curve,” fearing central bankers would be compelled to employ more aggressive tightening measures. Not these days. Any fear of central bank-imposed tightening is long gone. There is little fear of anything.
I recall writing similar comments back with the Bush tax cuts: “I’m as much for lower taxes as anyone. Yet I question the end results when tax cuts exacerbate late-stage Bubble excess.” And I seriously question the merits of aggressively slashing corporate tax rates when the federal government is $20 TN in debt. One of these days the bond market is going to wake up and impose some much need fiscal discipline. In a different era, the Treasury market would be forcing some realism upon Washington politicians (and central bankers).
Moreover, there’s a paramount issue that goes completely undiscussed. It’s presumed that lower taxes will spur economic growth and resulting booming tax receipts – that tax cuts will prove largely self-financing. Yet this fanciful notion ignores a critically important unknown: What role will the financial markets play? As we saw in the last downturn, faltering Bubble markets weigh heavily on both economic growth and government finances. I would go so far as to suggest that never has our nation’s fiscal prospects been as dependent on ongoing equities, bond market and real estate inflation.
Nine years of extreme monetary and fiscal stimulus fueled quite a boom. Interest rates were pegged way too low for too long. The seemingly obvious risk now is that market yields surprise to the upside. Despite the boom and artificially suppressed debt service costs, the federal government has nonetheless posted ongoing large budget deficits. I never bought into the late-nineties notion that budget surpluses were sustainable – that our nation would soon pay down all its debt. It was all a seductive Bubble Illusion.
Today’s delusion is so much more spectacular. I’m all for efforts to revitalize the U.S. manufacturing and export sectors. But to continue to aggressively employ system-wide fiscal and monetary stimulus at this late cycle stage comes with great risk. I’m surprised the bond market remains so sanguine. There’s a (not low probability) scenario that has consumer and producer inflation surprising on the upside, interest rates and market yields surprising on the upside, the stock market buckling to the downside, and fiscal deficits exploding to the unmanageable. The Powel Fed would confront serious challenges (in contrast to the cakewalk enjoyed by Yellen).
November 27 – CNBC (Jeff Cox): “Concern over stock market values is growing at the Fed, with one official worrying that waiting too long to tighten policy could have more serious effects later. In an essay released Monday, Dallas Fed President Robert Kaplan warned about ‘excesses’ in the economy, pointing specifically to stocks and the government debt. The S&P 500 market cap is at 135% of GDP, the highest since 1999-2000, just as the dot-com bubble was about to pop, the central banker said. ‘I am aware that, as excesses build, we are more vulnerable to reversals which have the potential to cause a rapid tightening in financial conditions, which in turn, can lead to a slowing in economic activity,’ Kaplan wrote. ‘Measures of stock market volatility are historically low. We have now gone 12 months without a 3% correction in the U.S. market.,’ he added. ‘This is extraordinarily unusual.’”
November 29 – Reuters (Ann Saphir): “The Federal Reserve should keep raising interest rates over the next couple of years, including about four times between now and the end of 2018, San Francisco Federal Reserve President John Williams said… ‘From today, four rate hikes through the end of next year is still kind of my base view,’ Williams told reporters… Williams rotates into a voting spot on the Fed’s policysetting panel next year. ‘We need to get from here to roughly 2.5% fed funds rate over the next couple of years.’”
One regional Fed president addressing stock market excesses and another talking four additional rate hikes before the end of next year. Whether monitoring the securities markets or economic data, the case for actual interest rate normalization gets stronger by the week. It’s worth noting that October New Home Sales blew away estimates to reach a 10-year high. Housing inventory remains tight and builders are getting gear up. A stronger-than-expected November reading from the Conference Board pushed Consumer Confidence to a new 17-year high. Q3 GDP was revised up to 3.3% annualized. The manufacturing sector remains strong and auto sales resilient (above 17 million SAAR).
Ten-year Treasury yields traded as high as 2.43% Thursday afternoon. Five-year yields rose to 2.17% Thursday, the high going back to March 2011. Longer Treasury yields have for the most part ignored the almost 50 bps rise in two-year yields over the past several months. It was interesting to watch 10-year Treasury yields sink a quick 10 bps Friday morning on reports of Michael Flynn’s plea agreement (and the Dow’s immediate 380 point decline). While stocks have grown content to disregard risk, Treasury bonds seem to embrace the Bubble Thesis - and trade as if trouble is right around the corner.
And speaking of trouble… U.S. markets fixated on tax cuts have been all too happy to ignore developments in China. Officials are taking an increasingly aggressive posture in reining in lending. In particular, Beijing is targeting the enormous “wealth-management product” complex and the booming Internet lending industry. Liquidity has tightened, especially within the corporate bond market (“Worst China Bond Rout Since 2013”). Are Chinese officials finally getting serious about their Credit Bubble? (See "China Watch" below)
The Shanghai Composite was down another 1.1% this week, with a 3.9% drop since the highs on November 14. China’s CSI index lost 2.6% this week. Chinese growth and tech stocks have been under notable pressure for two weeks. Yet equities weakness was not limited to China. South Korean stocks fell 2.7% this week, and India’s equities lost 2.5%. Both Brazilian and Russian equities were hit for 2.6%. The emerging markets, in general, notably underperformed this week. European equities were also under pressure again. Could it be that Credit tightening in China is initiating a global bear market, only Bubbling U.S. equities haven’t figured it out yet?
November 24 – Reuters (Gaurav S Dogra): “For years China’s top officials have touted their ambitious policy priority to wean the world’s second-largest economy off high levels of debt, but there is not much to show for it. On the contrary, a Reuters analysis shows the debt pile at Chinese firms has been climbing in that time, with levels at the end of September growing at the fastest pace in four years. The build-up has continued even as policymakers roll out a series of measures to end the explosive growth of debt, including persuading state firms and local governments to prune borrowing and tighter rules and monitoring of banks’ short-term borrowing… Reuters analysis of 2,146 China listed firms showed their total debt at the end of September jumped 23% from a year ago, the highest pace of growth since 2013. The analysis covered three-fifths of the country’s listed firms…”
For the Week:
The S&P500 rose 1.5% (up 18.0% y-t-d), and the Dow jumped 2.9% (up 22.6%). The Utilities gained 0.9% (up 15.4%). The Banks surged 5.8% (up 14.0%), and the Broker/Dealers jumped 4.5% (up 26.5%). The Transports surged 5.9% (up 12.6%). The S&P 400 Midcaps advanced 1.9% (up 14.1%), and the small cap Russell 2000 gained 1.2% (up 13.3%). The Nasdaq100 declined 1.1% (up 30.3%). The Semiconductors sank 6.2% (up 38.9%). The Biotechs added 0.9% (up 38.4%). With bullion down $8, the HUI gold index fell 1.2% (up 1.9%).
Three-month Treasury bill rates ended the week at 124 bps. Two-year government yields increased three bps to 1.77% (up 58bps y-t-d). Five-year T-note yields gained five bps to 2.11% (up 19bps). Ten-year Treasury yields rose two bps to 2.36% (down 8bps). Long bond yields were unchanged at 2.76% (down 30bps).
Greek 10-year yields rose seven bps to 5.37% (down 165bps y-t-d). Ten-year Portuguese yields declined six bps to 1.88% (down 186bps). Italian 10-year yields dropped 10 bps to 1.72% (down 10bps). Spain's 10-year yields fell seven bps to 1.42% (up 4bps). German bund yields were down six bps to 0.31% (up 10bps). French yields dropped nine bps to 0.61% (down 7bps). The French to German 10-year bond spread narrowed three to 30 bps. U.K. 10-year gilt yields dipped two bps to 1.23% (down 2bps). U.K.'s FTSE equities dropped 1.5% (up 2.2%).
Japan's Nikkei 225 equities index gained 1.5% (up 19.4% y-t-d). Japanese 10-year "JGB" yields added a basis point to 0.035% (down 1bp). France's CAC40 fell 1.4% (up 9.3%). The German DAX equities index dropped 1.5% (up 12.0%). Spain's IBEX 35 equities index added 0.3% (up 7.8%). Italy's FTSE MIB index fell 1.4% (up 14.9%). EM markets were mostly lower. Brazil's Bovespa index sank 2.6% (up 20.0%), and Mexico's Bolsa fell 1.4% (up 3.6%). India’s Sensex equities index dropped 2.5% (up 23.3%). China’s Shanghai Exchange lost 1.1% (up 6.9%). Turkey's Borsa Istanbul National 100 index declined 1.1% (up 33.8%). Russia's MICEX equities index sank 2.6% (down 5.7%).
Junk bond mutual funds saw inflows of $310 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates slipped two bps to 3.90% (down 18bps y-o-y). Fifteen-year rates fell two bps to 3.30% (down 4bps). Five-year hybrid ARM rates jumped 10 bps to 3.32% (up 4bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down a basis point to 4.13% (up 4bps).
Federal Reserve Credit last week declined $4.1bn to $4.406 TN. Over the past year, Fed Credit fell $5.0bn. Fed Credit inflated $1.587 TN, or 56%, over the past 264 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt jumped $15.0bn last week to $3.387 TN. "Custody holdings" were up $261bn y-o-y, or 8.3%.
M2 (narrow) "money" supply slipped $3.9bn last week to $13.774 TN. "Narrow money" expanded $595bn, or 4.5%, over the past year. For the week, Currency increased $2.6bn. Total Checkable Deposits rose $15.2bn, while Savings Deposits dropped $19.6bn. Small Time Deposits were little changed. Retail Money Funds dipped $1.8bn.
Total money market fund assets jumped $38.1bn to $2.799 TN. Money Funds rose $80bn y-o-y, or 2.9%.
Total Commercial Paper rose $14.2bn to $1.043 TN. CP gained $119bn y-o-y, or 12.9%.
Currency Watch:
The U.S. dollar index was little changed at 92.885 (down 9.3% y-t-d). For the week on the upside, the South African rand increased 3.1%, the British pound 1.1%, the Swiss franc 0.3%, the New Zealand dollar 0.2% and the Canadian dollar 0.2%. For the week on the downside, the Norwegian krone declined 1.9%, the Swedish krona 0.8%, the Brazilian real 0.8%, the Japanese yen 0.6%, the Mexican peso 0.4%, the euro 0.3%, and the South Korean won 0.1%. The Chinese renminbi declined 0.22% versus the dollar this week (up 5.0% y-t-d).
The S&P500 rose 1.5% (up 18.0% y-t-d), and the Dow jumped 2.9% (up 22.6%). The Utilities gained 0.9% (up 15.4%). The Banks surged 5.8% (up 14.0%), and the Broker/Dealers jumped 4.5% (up 26.5%). The Transports surged 5.9% (up 12.6%). The S&P 400 Midcaps advanced 1.9% (up 14.1%), and the small cap Russell 2000 gained 1.2% (up 13.3%). The Nasdaq100 declined 1.1% (up 30.3%). The Semiconductors sank 6.2% (up 38.9%). The Biotechs added 0.9% (up 38.4%). With bullion down $8, the HUI gold index fell 1.2% (up 1.9%).
Three-month Treasury bill rates ended the week at 124 bps. Two-year government yields increased three bps to 1.77% (up 58bps y-t-d). Five-year T-note yields gained five bps to 2.11% (up 19bps). Ten-year Treasury yields rose two bps to 2.36% (down 8bps). Long bond yields were unchanged at 2.76% (down 30bps).
Greek 10-year yields rose seven bps to 5.37% (down 165bps y-t-d). Ten-year Portuguese yields declined six bps to 1.88% (down 186bps). Italian 10-year yields dropped 10 bps to 1.72% (down 10bps). Spain's 10-year yields fell seven bps to 1.42% (up 4bps). German bund yields were down six bps to 0.31% (up 10bps). French yields dropped nine bps to 0.61% (down 7bps). The French to German 10-year bond spread narrowed three to 30 bps. U.K. 10-year gilt yields dipped two bps to 1.23% (down 2bps). U.K.'s FTSE equities dropped 1.5% (up 2.2%).
Japan's Nikkei 225 equities index gained 1.5% (up 19.4% y-t-d). Japanese 10-year "JGB" yields added a basis point to 0.035% (down 1bp). France's CAC40 fell 1.4% (up 9.3%). The German DAX equities index dropped 1.5% (up 12.0%). Spain's IBEX 35 equities index added 0.3% (up 7.8%). Italy's FTSE MIB index fell 1.4% (up 14.9%). EM markets were mostly lower. Brazil's Bovespa index sank 2.6% (up 20.0%), and Mexico's Bolsa fell 1.4% (up 3.6%). India’s Sensex equities index dropped 2.5% (up 23.3%). China’s Shanghai Exchange lost 1.1% (up 6.9%). Turkey's Borsa Istanbul National 100 index declined 1.1% (up 33.8%). Russia's MICEX equities index sank 2.6% (down 5.7%).
Junk bond mutual funds saw inflows of $310 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates slipped two bps to 3.90% (down 18bps y-o-y). Fifteen-year rates fell two bps to 3.30% (down 4bps). Five-year hybrid ARM rates jumped 10 bps to 3.32% (up 4bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down a basis point to 4.13% (up 4bps).
Federal Reserve Credit last week declined $4.1bn to $4.406 TN. Over the past year, Fed Credit fell $5.0bn. Fed Credit inflated $1.587 TN, or 56%, over the past 264 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt jumped $15.0bn last week to $3.387 TN. "Custody holdings" were up $261bn y-o-y, or 8.3%.
M2 (narrow) "money" supply slipped $3.9bn last week to $13.774 TN. "Narrow money" expanded $595bn, or 4.5%, over the past year. For the week, Currency increased $2.6bn. Total Checkable Deposits rose $15.2bn, while Savings Deposits dropped $19.6bn. Small Time Deposits were little changed. Retail Money Funds dipped $1.8bn.
Total money market fund assets jumped $38.1bn to $2.799 TN. Money Funds rose $80bn y-o-y, or 2.9%.
Total Commercial Paper rose $14.2bn to $1.043 TN. CP gained $119bn y-o-y, or 12.9%.
Currency Watch:
The U.S. dollar index was little changed at 92.885 (down 9.3% y-t-d). For the week on the upside, the South African rand increased 3.1%, the British pound 1.1%, the Swiss franc 0.3%, the New Zealand dollar 0.2% and the Canadian dollar 0.2%. For the week on the downside, the Norwegian krone declined 1.9%, the Swedish krona 0.8%, the Brazilian real 0.8%, the Japanese yen 0.6%, the Mexican peso 0.4%, the euro 0.3%, and the South Korean won 0.1%. The Chinese renminbi declined 0.22% versus the dollar this week (up 5.0% y-t-d).
Commodities Watch:
The Goldman Sachs Commodities Index slipped 0.4% (up 7.8% y-t-d). Spot Gold declined 0.6% to $1,281 (up 11.1%). Silver sank 4.1% to $16.388 (up 2.6%). Crude declined 59 cents to $58.36 (up 8.4%). Gasoline dropped 2.6% (up 4%), while Natural Gas surged 8.8% (down 18%). Copper dropped 3.1% (up 23%). Wheat rallied 0.9% (up 8%). Corn gained 1.1% (up 2%).
Trump Administration Watch:
November 28 – Reuters (Josh Smith): “North Korea said on Wednesday it had successfully tested a new type of intercontinental ballistic missile (ICBM), called Hwasong-15, that could reach all of the U.S. mainland… “If (today‘s) numbers are correct, then if flown on a standard trajectory rather than this lofted trajectory, this missile would have a range of more than 13,000 km (8,100 miles),” the U.S.-based Union of Concerned Scientists said… That would suggest that all of the continental United States including Washington D.C. and New York could be theoretically within range of a North Korean missile.”
December 1 – Wall Street Journal (Richard Rubin, Siobhan Hughes and Kristina Peterson): “The Senate was poised to pass sweeping revisions to the U.S. tax code early Saturday after Republicans navigated a thicket of internal divisions over deficits and other issues to place their imprint on the economy. The bill, which included about $1.4 trillion in tax cuts, would lower the corporate tax rate from 35% to 20%, reshape international business tax rules and temporarily lower individual rates. It also touched other Republican goals, including opening the Arctic National Wildlife Refuge to oil drilling and repealing the mandate that individuals purchase health insurance, punching a sizable hole in the 2010 Affordable Care Act.”
December 1 – New York Times (Michael D. Shear and Adam Goldman): “President Trump’s former national security adviser, Michael T. Flynn, pleaded guilty on Friday to lying to the F.B.I. about conversations with the Russian ambassador last December, becoming the first senior White House official to cut a cooperation deal in the special counsel’s wide-ranging inquiry into election interference.”
November 28 – Financial Times (Shawn Donnan): “The Trump administration launched a fresh trade attack against China on Tuesday, with Washington initiating an anti-dumping investigation against a major trading partner for the first time in more than a quarter century. The move to ‘self-initiate’ an anti-dumping investigation into imports of aluminium sheeting from China marks the first time since 1985 that the US Commerce Department has launched its own investigation without a formal request from industry. The last case was brought by the Reagan administration against Japanese semiconductor imports… A parallel investigation launched on Tuesday into illegal subsidies given to the Chinese sheet industry marks the first time since a 1991 Canadian lumber case that the Commerce Department has self-initiated a probe into subsidies. ‘President [Donald] Trump made it clear from day one that unfair trade practices will not be tolerated under this administration,’ said Wilbur Ross, the US Secretary of Commerce. ‘Today’s action shows that we intend to make good on that promise to the American people.’”
November 29 – Reuters: “Opposition has grown among Americans to a Republican tax plan before the U.S. Congress, with 49% of people who were aware of the measure saying they opposed it, up from 41% in October, according to a Reuters/Ipsos poll…”
China Watch:
November 27 – Wall Street Journal (Anjani Trivedi): “Beijing is coming to grips with its Wild West-like financial system—not a moment too soon, many would argue. The jittery market reaction shows just how delicate that operation is going to be. The timing isn’t coincidental. Xi Jinping has solidified his hold on the Chinese government following the recent party congress, giving him leeway to tackle the country’s deep-seated economic problems. Its most serious effort yet to tame the financial system’s risks are the result. The focus of the recent rule changes is China’s 60 trillion yuan (around $9 trillion) asset-management industry. Regulators have homed in on China’s vast sea of so-called wealth- and asset-management products, the highly leveraged products that banks have sold to their customers in recent years, which in turn have fueled frothy domestic bond, stock and commodity markets.”
November 26 – Bloomberg: “It’s been the worst month for China’s local corporate notes in two years. And it might just be the start, as the nation’s top bond fund manager says yield premiums could rise further in 2018. President Xi Jinping is stepping up efforts to trim the world’s largest corporate debt burden, after emerging even more powerful from the Communist Party’s twice-a-decade congress in October. Financial institutions are hoarding cash amid expectations the government will announce more measures to curb leverage, and that is pushing up borrowing costs in the money market.”
November 30 – Wall Street Journal (Shen Hong): “A widening gap between official and market interest rates in China is making it harder for Beijing to use a key policy tool to manage the world’s second-largest economy. Short-term interest rates in China’s money market have persistently been above those set by the central bank in the past year, as investors and banks spooked by the government’s crackdown on the country’s high levels of leverage have charged more to lend both to each other and external borrowers… The interest rate the People’s Bank of China sets on its benchmark seven-day repurchase agreements, its de facto policy rate, has stayed unchanged at 2.45% since March. Meanwhile the corresponding repurchase agreements, or repo, rate that banks charge each other for their own seven-day loans, has risen to 2.93%...”
November 24 – Reuters (Shu Zhang and Josephine Mason): “The National Internet Finance Association of China issued a risk warning letter late on Friday telling ‘unqualified institutions’ to immediately stop offering loans as Beijing steps up a crackdown on the micro-loan sector to fend off financial risks. The 1 trillion yuan ($151.5bn) short-term, unsecured lending sector, known as ‘cash loan’ in China, has been accused of charging exorbitant interest rates and violent debt collection practices.”
Federal Reserve Watch:
November 29 – Bloomberg (Christopher Condon): “The U.S. economy grew at a modest to moderate pace through mid-November as price pressures strengthened and the labor market tightened… The central bank’s Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks through Nov. 17, said business contacts also reported a brightening view as they look ahead. The findings could help bolster the case for an interest-rate increase when policy makers next meet in two weeks.”
November 29 – CNBC (Jeff Cox): “Federal Reserve Chair Janet Yellen said the central bank is concerned with growth getting out of hand and thus is committed to continuing to raise rates in a gradual manner. ‘We don't want to cause a boom-bust condition in the economy,’ Yellen told Congress in her semiannual testimony Wednesday.”
U.S. Bubble Watch:
November 27 – Bloomberg (Sho Chandra): “U.S. purchases of new homes unexpectedly advanced in broad fashion last month, reaching the strongest pace in a decade and offering an encouraging signal for residential construction… Single-family home sales rose 6.2% m/m to 685k annualized pace (est. 627k), the highest since Oct. 2007. Supply of homes at current sales rate fell to 4.9 months, the smallest since July 2016.”
November 28 – Bloomberg (Patrick Clark): “U.S. consumer confidence unexpectedly improved in November to a fresh 17-year high, a sign Americans are growing more confident about the economy and labor market… Confidence index rose to 129.5 (est. 124), the best since November 2000, from a revised 126.2 in October… Consumer expectations gauge advanced to 113.3, the strongest reading since September 2000, from 109.”
November 27 – Reuters (Richa Naidu): “Black Friday and Thanksgiving online sales in the United States surged to record highs as shoppers bagged deep discounts and bought more on their mobile devices, heralding a promising start to the key holiday season… U.S. retailers raked in a record $7.9 billion in online sales on Black Friday and Thanksgiving, up 17.9% from a year ago, according to Adobe Analytics…”
November 29 – Bloomberg (Sho Chandra): “The U.S. economy’s growth rate last quarter was revised upward to the fastest in three years on stronger investment from businesses and government agencies than previously estimated… Gross domestic product grew at a 3.3% annualized rate (est. 3.2%), revised from 3%; fastest since 3Q 2014… Business-equipment spending rose at a 10.4% pace, a three-year high, revised from 8.6%; reflects transportation gear.”
November 29 – Bloomberg (Camila Russo, Olga Kharif, and Lily Katz): “Bitcoin plunged as much as 20% hours after a rally past $11,000 generated a surge in traffic at online exchanges that led to intermittent outages. The plunge capped a wild day for the largest cryptocurrency that included a breakneck advance to a high of $11,434 before the reversal took it as low as $9,009.”
November 24 – Bloomberg (Lu Wang): “As Wall Street equity forecasters discharge their annual duty of predicting another up year for the S&P 500 Index, it’s worth taking a moment to notice what would be accomplished should that projection come true. At 2,800, the average estimate of nine strategists tracked by Bloomberg points not only to another year of all-time highs, but also an extension of a bull market that would make it the longest ever recorded. Born in the depths of the financial crisis, the advance that started in March 2009 is nine months away from surpassing the 1990-2000 run from the dot-com era.”
November 29 – Bloomberg (Patrick Clark): “The shortage of listings that has defined the U.S. home sales market in recent years will begin to ease in the second half of 2018, according to a new report, but not before setting a record for consecutive months of decline. Increased inventory will help slow price appreciation, especially at higher price points, according to… Realtor.com. That will come as welcome news after the S&P CoreLogic Case-Shiller 20-city index this week showed that prices rose 6.2% in September from a year earlier, the largest increase in more than three years. Inventory has decreased on a year-over-year basis in each of the past 29 months… The longest streak on record is 30 months.”
November 27 – Bloomberg (Joanna Ossinger): “New York City could lose some of its highest-income residents if the tax bill making its way through the U.S. Congress becomes law, according to estimates from Goldman Sachs… Initial analysis suggests that the legislation ‘could eventually lower the number of top-income earners in New York City’ by 2% to 4%, Goldman economists led by Jan Hatzius wrote… The trigger would be a provision that restricts the ability of taxpayers to deduct the levies they pay to state and local authorities, which would disproportionately hit locations with relatively high rates. Home prices across the U.S. might also decline by 1% to 3%.”
November 27 – Bloomberg (Brian K Sullivan): “This year’s U.S. Atlantic hurricane season is officially the most expensive ever, racking up $202.6 billion in damages since the formal start on June 1. The costs tallied by disaster modelers Chuck Watson and Mark Johnson surpass anything they’ve seen in previous years. That shouldn’t come as a complete surprise: In late August, Hurricane Harvey slammed into the Gulf Coast, wreaking havoc upon the heart of America’s energy sector. Then Irma struck Florida, devastating the Caribbean islands on the way. Hurricane Maria followed shortly after, wiping out power to all of Puerto Rico.”
Central Banker Watch:
November 30 – Bloomberg (Alessandro Speciale and Catherine Bosley): “Central banks concerned about the effects of raising rates too fast shouldn’t underestimate the risks of delaying action, the general manager of the Bank for International Settlements said. ‘Postponing normalization too much also has risks,’ [said] Jaime Caruana… ‘Why? Because there is more risk-taking and it’s difficult to know where the risk-taking will go.’”
November 29 – Bloomberg (Jiyeun Lee and Hooyeon Kim): “The Bank of Korea raised its benchmark interest rate for the first time since 2011, marking a likely turning point for Asian central banks. The region faces rising pressure to increase borrowing costs after the Federal Reserve began tightening at the end of 2015 and today’s move in Seoul is the first hike of a benchmark rate by a major central bank in Asia since 2014. Governor Lee Ju-yeol said during a news conference that the decision to raise the seven-day repurchase rate to 1.5% was meant to prevent financial imbalances.”
Global Bubble Watch:
November 29 – Bloomberg (Sofia Horta E Costa): “A prolonged bull market across stocks, bonds and credit has left a measure of average valuation at the highest since 1900, a condition that at some point is going to translate into pain for investors, according to Goldman Sachs… ‘It has seldom been the case that equities, bonds and credit have been similarly expensive at the same time, only in the Roaring ’20s and the Golden ’50s,’ Goldman Sachs International strategists including Christian Mueller-Glissman wrote… ‘All good things must come to an end’ and ‘there will be a bear market, eventually’ they said.”
November 29 – Bloomberg (Sofia Horta E Costa): “Investors may only have seven months left to savor a bull run that has added $27 trillion to global equity markets this year, say Credit Suisse Group AG strategists. While they predict economic growth and steady profits will help add another 6% to the MSCI All-Country World Index by mid-2018, stocks are unlikely to push any higher after that. Risks that could make the second half ‘more difficult’ include a flare-up in junk debt markets, China’s tightening policy and accelerating wages in the U.S, according to a Nov. 28 note.”
November 27 – Bloomberg (Kana Nishizawa, Lianting Tu, and Narae Kim): “The selloff in China’s debt market is a precursor for what global bond traders can expect as reflation gets underway, according to Sean Darby, chief global strategist of Jefferies Group LLC’s Hong Kong unit. While declines in Chinese debt have been exacerbated by a crackdown on shadow banking and attempts to curb corporate borrowing, Darby says global yields are set to follow suit as markets start to price in tighter monetary policy by central banks and as China exports inflation. China ‘was the first one really to reflate from 2016,’ Darby told Bloomberg… ‘Expansion of essentially quantitative easing by the People’s Bank of China is in one sense also being reversed as the yield starts to shift upwards.”
November 30 – Bloomberg (Brian Chappatta): “For all the hullabaloo around the flattening U.S. yield curve in November, the 10-year yield is still on track for its least turbulent month in almost four decades. The note’s yield, which serves as a benchmark for everything from U.S. mortgages to borrowing costs for municipalities, fell in November to as low as 2.3% and topped out at 2.41%. That’s the narrowest range since 1979. Even with volatility largely suppressed, the rate has swung about 32 bps on average every month over the past five years.”
November 28 – Bloomberg (Andrew Janes): “There’s ‘somewhat of a numbness’ to risk among investors right now that’s reminiscent of pre-crisis periods in the past, according to Olivier d’Assier, head of applied research for Asia Pacific at Axioma Inc. …d’Assier… points to the lack of reaction to the recent jump in the Chicago Board Options Exchange’s SPX Volatility Index. The gauge, known as the VIX index, surged from 10.18% at the end of October to as high as 14.51% on Nov. 15, a three-month intraday high. ‘A couple of years ago, when there was a 6, 9, 10% increase in the VIX Index, everybody panicked,’ he said. But ‘nobody cared, everybody jumped in’ when the measure shot up this month, d’Assier said.”
Fixed Income Bubble Watch:
November 27 – Financial Times (Joe Rennison and Robert Smith): “Investors are driving a revival of structured credit products that were a hallmark of the boom years before the financial crisis, as slumbering global bond yields spur a greater tolerance of risk in the search for returns. The sale of collateralised loan obligations — bonds that group together leveraged loans made to companies — has already past $100bn of new issuance for 2017, well ahead of the $60bn sold over the same period in 2016 and approaching the post-crisis record of $124bn set in 2014. Traders and analysts say foreign investors out of Asia and Europe, alongside domestic insurance companies, generally favour senior CLO tranches… Global pension funds and hedge funds are said to be driving demand for riskier tranches that promise a higher return than current fixed returns available from owning US high-yield bonds.”
The Goldman Sachs Commodities Index slipped 0.4% (up 7.8% y-t-d). Spot Gold declined 0.6% to $1,281 (up 11.1%). Silver sank 4.1% to $16.388 (up 2.6%). Crude declined 59 cents to $58.36 (up 8.4%). Gasoline dropped 2.6% (up 4%), while Natural Gas surged 8.8% (down 18%). Copper dropped 3.1% (up 23%). Wheat rallied 0.9% (up 8%). Corn gained 1.1% (up 2%).
Trump Administration Watch:
November 28 – Reuters (Josh Smith): “North Korea said on Wednesday it had successfully tested a new type of intercontinental ballistic missile (ICBM), called Hwasong-15, that could reach all of the U.S. mainland… “If (today‘s) numbers are correct, then if flown on a standard trajectory rather than this lofted trajectory, this missile would have a range of more than 13,000 km (8,100 miles),” the U.S.-based Union of Concerned Scientists said… That would suggest that all of the continental United States including Washington D.C. and New York could be theoretically within range of a North Korean missile.”
December 1 – Wall Street Journal (Richard Rubin, Siobhan Hughes and Kristina Peterson): “The Senate was poised to pass sweeping revisions to the U.S. tax code early Saturday after Republicans navigated a thicket of internal divisions over deficits and other issues to place their imprint on the economy. The bill, which included about $1.4 trillion in tax cuts, would lower the corporate tax rate from 35% to 20%, reshape international business tax rules and temporarily lower individual rates. It also touched other Republican goals, including opening the Arctic National Wildlife Refuge to oil drilling and repealing the mandate that individuals purchase health insurance, punching a sizable hole in the 2010 Affordable Care Act.”
December 1 – New York Times (Michael D. Shear and Adam Goldman): “President Trump’s former national security adviser, Michael T. Flynn, pleaded guilty on Friday to lying to the F.B.I. about conversations with the Russian ambassador last December, becoming the first senior White House official to cut a cooperation deal in the special counsel’s wide-ranging inquiry into election interference.”
November 28 – Financial Times (Shawn Donnan): “The Trump administration launched a fresh trade attack against China on Tuesday, with Washington initiating an anti-dumping investigation against a major trading partner for the first time in more than a quarter century. The move to ‘self-initiate’ an anti-dumping investigation into imports of aluminium sheeting from China marks the first time since 1985 that the US Commerce Department has launched its own investigation without a formal request from industry. The last case was brought by the Reagan administration against Japanese semiconductor imports… A parallel investigation launched on Tuesday into illegal subsidies given to the Chinese sheet industry marks the first time since a 1991 Canadian lumber case that the Commerce Department has self-initiated a probe into subsidies. ‘President [Donald] Trump made it clear from day one that unfair trade practices will not be tolerated under this administration,’ said Wilbur Ross, the US Secretary of Commerce. ‘Today’s action shows that we intend to make good on that promise to the American people.’”
November 29 – Reuters: “Opposition has grown among Americans to a Republican tax plan before the U.S. Congress, with 49% of people who were aware of the measure saying they opposed it, up from 41% in October, according to a Reuters/Ipsos poll…”
China Watch:
November 27 – Wall Street Journal (Anjani Trivedi): “Beijing is coming to grips with its Wild West-like financial system—not a moment too soon, many would argue. The jittery market reaction shows just how delicate that operation is going to be. The timing isn’t coincidental. Xi Jinping has solidified his hold on the Chinese government following the recent party congress, giving him leeway to tackle the country’s deep-seated economic problems. Its most serious effort yet to tame the financial system’s risks are the result. The focus of the recent rule changes is China’s 60 trillion yuan (around $9 trillion) asset-management industry. Regulators have homed in on China’s vast sea of so-called wealth- and asset-management products, the highly leveraged products that banks have sold to their customers in recent years, which in turn have fueled frothy domestic bond, stock and commodity markets.”
November 26 – Bloomberg: “It’s been the worst month for China’s local corporate notes in two years. And it might just be the start, as the nation’s top bond fund manager says yield premiums could rise further in 2018. President Xi Jinping is stepping up efforts to trim the world’s largest corporate debt burden, after emerging even more powerful from the Communist Party’s twice-a-decade congress in October. Financial institutions are hoarding cash amid expectations the government will announce more measures to curb leverage, and that is pushing up borrowing costs in the money market.”
November 30 – Wall Street Journal (Shen Hong): “A widening gap between official and market interest rates in China is making it harder for Beijing to use a key policy tool to manage the world’s second-largest economy. Short-term interest rates in China’s money market have persistently been above those set by the central bank in the past year, as investors and banks spooked by the government’s crackdown on the country’s high levels of leverage have charged more to lend both to each other and external borrowers… The interest rate the People’s Bank of China sets on its benchmark seven-day repurchase agreements, its de facto policy rate, has stayed unchanged at 2.45% since March. Meanwhile the corresponding repurchase agreements, or repo, rate that banks charge each other for their own seven-day loans, has risen to 2.93%...”
November 24 – Reuters (Shu Zhang and Josephine Mason): “The National Internet Finance Association of China issued a risk warning letter late on Friday telling ‘unqualified institutions’ to immediately stop offering loans as Beijing steps up a crackdown on the micro-loan sector to fend off financial risks. The 1 trillion yuan ($151.5bn) short-term, unsecured lending sector, known as ‘cash loan’ in China, has been accused of charging exorbitant interest rates and violent debt collection practices.”
Federal Reserve Watch:
November 29 – Bloomberg (Christopher Condon): “The U.S. economy grew at a modest to moderate pace through mid-November as price pressures strengthened and the labor market tightened… The central bank’s Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks through Nov. 17, said business contacts also reported a brightening view as they look ahead. The findings could help bolster the case for an interest-rate increase when policy makers next meet in two weeks.”
November 29 – CNBC (Jeff Cox): “Federal Reserve Chair Janet Yellen said the central bank is concerned with growth getting out of hand and thus is committed to continuing to raise rates in a gradual manner. ‘We don't want to cause a boom-bust condition in the economy,’ Yellen told Congress in her semiannual testimony Wednesday.”
U.S. Bubble Watch:
November 27 – Bloomberg (Sho Chandra): “U.S. purchases of new homes unexpectedly advanced in broad fashion last month, reaching the strongest pace in a decade and offering an encouraging signal for residential construction… Single-family home sales rose 6.2% m/m to 685k annualized pace (est. 627k), the highest since Oct. 2007. Supply of homes at current sales rate fell to 4.9 months, the smallest since July 2016.”
November 28 – Bloomberg (Patrick Clark): “U.S. consumer confidence unexpectedly improved in November to a fresh 17-year high, a sign Americans are growing more confident about the economy and labor market… Confidence index rose to 129.5 (est. 124), the best since November 2000, from a revised 126.2 in October… Consumer expectations gauge advanced to 113.3, the strongest reading since September 2000, from 109.”
November 27 – Reuters (Richa Naidu): “Black Friday and Thanksgiving online sales in the United States surged to record highs as shoppers bagged deep discounts and bought more on their mobile devices, heralding a promising start to the key holiday season… U.S. retailers raked in a record $7.9 billion in online sales on Black Friday and Thanksgiving, up 17.9% from a year ago, according to Adobe Analytics…”
November 29 – Bloomberg (Sho Chandra): “The U.S. economy’s growth rate last quarter was revised upward to the fastest in three years on stronger investment from businesses and government agencies than previously estimated… Gross domestic product grew at a 3.3% annualized rate (est. 3.2%), revised from 3%; fastest since 3Q 2014… Business-equipment spending rose at a 10.4% pace, a three-year high, revised from 8.6%; reflects transportation gear.”
November 29 – Bloomberg (Camila Russo, Olga Kharif, and Lily Katz): “Bitcoin plunged as much as 20% hours after a rally past $11,000 generated a surge in traffic at online exchanges that led to intermittent outages. The plunge capped a wild day for the largest cryptocurrency that included a breakneck advance to a high of $11,434 before the reversal took it as low as $9,009.”
November 24 – Bloomberg (Lu Wang): “As Wall Street equity forecasters discharge their annual duty of predicting another up year for the S&P 500 Index, it’s worth taking a moment to notice what would be accomplished should that projection come true. At 2,800, the average estimate of nine strategists tracked by Bloomberg points not only to another year of all-time highs, but also an extension of a bull market that would make it the longest ever recorded. Born in the depths of the financial crisis, the advance that started in March 2009 is nine months away from surpassing the 1990-2000 run from the dot-com era.”
November 29 – Bloomberg (Patrick Clark): “The shortage of listings that has defined the U.S. home sales market in recent years will begin to ease in the second half of 2018, according to a new report, but not before setting a record for consecutive months of decline. Increased inventory will help slow price appreciation, especially at higher price points, according to… Realtor.com. That will come as welcome news after the S&P CoreLogic Case-Shiller 20-city index this week showed that prices rose 6.2% in September from a year earlier, the largest increase in more than three years. Inventory has decreased on a year-over-year basis in each of the past 29 months… The longest streak on record is 30 months.”
November 27 – Bloomberg (Joanna Ossinger): “New York City could lose some of its highest-income residents if the tax bill making its way through the U.S. Congress becomes law, according to estimates from Goldman Sachs… Initial analysis suggests that the legislation ‘could eventually lower the number of top-income earners in New York City’ by 2% to 4%, Goldman economists led by Jan Hatzius wrote… The trigger would be a provision that restricts the ability of taxpayers to deduct the levies they pay to state and local authorities, which would disproportionately hit locations with relatively high rates. Home prices across the U.S. might also decline by 1% to 3%.”
November 27 – Bloomberg (Brian K Sullivan): “This year’s U.S. Atlantic hurricane season is officially the most expensive ever, racking up $202.6 billion in damages since the formal start on June 1. The costs tallied by disaster modelers Chuck Watson and Mark Johnson surpass anything they’ve seen in previous years. That shouldn’t come as a complete surprise: In late August, Hurricane Harvey slammed into the Gulf Coast, wreaking havoc upon the heart of America’s energy sector. Then Irma struck Florida, devastating the Caribbean islands on the way. Hurricane Maria followed shortly after, wiping out power to all of Puerto Rico.”
Central Banker Watch:
November 30 – Bloomberg (Alessandro Speciale and Catherine Bosley): “Central banks concerned about the effects of raising rates too fast shouldn’t underestimate the risks of delaying action, the general manager of the Bank for International Settlements said. ‘Postponing normalization too much also has risks,’ [said] Jaime Caruana… ‘Why? Because there is more risk-taking and it’s difficult to know where the risk-taking will go.’”
November 29 – Bloomberg (Jiyeun Lee and Hooyeon Kim): “The Bank of Korea raised its benchmark interest rate for the first time since 2011, marking a likely turning point for Asian central banks. The region faces rising pressure to increase borrowing costs after the Federal Reserve began tightening at the end of 2015 and today’s move in Seoul is the first hike of a benchmark rate by a major central bank in Asia since 2014. Governor Lee Ju-yeol said during a news conference that the decision to raise the seven-day repurchase rate to 1.5% was meant to prevent financial imbalances.”
Global Bubble Watch:
November 29 – Bloomberg (Sofia Horta E Costa): “A prolonged bull market across stocks, bonds and credit has left a measure of average valuation at the highest since 1900, a condition that at some point is going to translate into pain for investors, according to Goldman Sachs… ‘It has seldom been the case that equities, bonds and credit have been similarly expensive at the same time, only in the Roaring ’20s and the Golden ’50s,’ Goldman Sachs International strategists including Christian Mueller-Glissman wrote… ‘All good things must come to an end’ and ‘there will be a bear market, eventually’ they said.”
November 29 – Bloomberg (Sofia Horta E Costa): “Investors may only have seven months left to savor a bull run that has added $27 trillion to global equity markets this year, say Credit Suisse Group AG strategists. While they predict economic growth and steady profits will help add another 6% to the MSCI All-Country World Index by mid-2018, stocks are unlikely to push any higher after that. Risks that could make the second half ‘more difficult’ include a flare-up in junk debt markets, China’s tightening policy and accelerating wages in the U.S, according to a Nov. 28 note.”
November 27 – Bloomberg (Kana Nishizawa, Lianting Tu, and Narae Kim): “The selloff in China’s debt market is a precursor for what global bond traders can expect as reflation gets underway, according to Sean Darby, chief global strategist of Jefferies Group LLC’s Hong Kong unit. While declines in Chinese debt have been exacerbated by a crackdown on shadow banking and attempts to curb corporate borrowing, Darby says global yields are set to follow suit as markets start to price in tighter monetary policy by central banks and as China exports inflation. China ‘was the first one really to reflate from 2016,’ Darby told Bloomberg… ‘Expansion of essentially quantitative easing by the People’s Bank of China is in one sense also being reversed as the yield starts to shift upwards.”
November 30 – Bloomberg (Brian Chappatta): “For all the hullabaloo around the flattening U.S. yield curve in November, the 10-year yield is still on track for its least turbulent month in almost four decades. The note’s yield, which serves as a benchmark for everything from U.S. mortgages to borrowing costs for municipalities, fell in November to as low as 2.3% and topped out at 2.41%. That’s the narrowest range since 1979. Even with volatility largely suppressed, the rate has swung about 32 bps on average every month over the past five years.”
November 28 – Bloomberg (Andrew Janes): “There’s ‘somewhat of a numbness’ to risk among investors right now that’s reminiscent of pre-crisis periods in the past, according to Olivier d’Assier, head of applied research for Asia Pacific at Axioma Inc. …d’Assier… points to the lack of reaction to the recent jump in the Chicago Board Options Exchange’s SPX Volatility Index. The gauge, known as the VIX index, surged from 10.18% at the end of October to as high as 14.51% on Nov. 15, a three-month intraday high. ‘A couple of years ago, when there was a 6, 9, 10% increase in the VIX Index, everybody panicked,’ he said. But ‘nobody cared, everybody jumped in’ when the measure shot up this month, d’Assier said.”
Fixed Income Bubble Watch:
November 27 – Financial Times (Joe Rennison and Robert Smith): “Investors are driving a revival of structured credit products that were a hallmark of the boom years before the financial crisis, as slumbering global bond yields spur a greater tolerance of risk in the search for returns. The sale of collateralised loan obligations — bonds that group together leveraged loans made to companies — has already past $100bn of new issuance for 2017, well ahead of the $60bn sold over the same period in 2016 and approaching the post-crisis record of $124bn set in 2014. Traders and analysts say foreign investors out of Asia and Europe, alongside domestic insurance companies, generally favour senior CLO tranches… Global pension funds and hedge funds are said to be driving demand for riskier tranches that promise a higher return than current fixed returns available from owning US high-yield bonds.”
Europe Watch:
November 28 – Financial Times (Shawn Donnan): “The ramifications of the European Central Bank’s massive bond purchases in recent years register acutely for insurance companies and pension funds alongside other traditional buyers of top tier debt. Over the past three years, the ECB’s bond purchases have sucked more than €2tn of debt out of Europe’s publicly traded markets, and an estimated €760bn, or nearly a third, of these bonds are triple A rated… Joe McConnell, a portfolio manager in the global liquidity group at JPMorgan Asset Management, argues that there has been no issue ‘getting fully invested’ but that returns have been clearly affected. ‘The main impact of QE has been driving yields lower,’ he said, adding that the yields on ‘pretty much everything’ in the money market universe are negative. Alongside a reduction in the outstanding universe of highly-rated assets, the sheer volume of purchases has placed huge downward pressure on bond yields. In turn, that leaves investors having to accept higher levels of credit and interest rate risk in order to generate reasonable returns.”
November 29 – Bloomberg (Alessandro Speciale): “German inflation accelerated more than anticipated in November, in a sign that robust growth in Europe’s largest economy may be translating into higher prices. Consumer prices rose an annual 1.8%... That’s faster than October’s 1.5% and beats the 1.7% median forecast…”
Japan Watch:
November 26 – Financial Times (Gavyn Davies): “The five year term of Bank of Japan Governor Kuroda will end in April 2018. As one of Prime Minister Abe’s key lieutenants, it had been widely assumed that he will be reappointed to a second term, and that his aggressive programme of monetary expansion will be maintained at least until inflation has over-shot the Bank’s 2% target. This had become one of the fixed points in consensus expectations for global asset prices in 2018. Last week, however, these strong assumptions came into question for the first time. The yen rose as investors paid attention to Governor Kuroda’s recent speech in Zurich, which specifically noted some of the risks associated with the policy commitment to fix the 10 year government bond yield at zero… This was followed by some hawkish press ‘guidance’, allegedly from within the central bank. Then, new BoJ Board member Hitoshi Suzuki followed the Governor with a much clearer signal that this so-called Yield Curve Control (YCC) could be watered down next year. If so, it would be the first sign of that the central bank may be contemplating the normalisation of interest rates, albeit with Japanese characteristics.”
November 27 – Reuters (Leika Kihara and Tetsushi Kajimoto): “Bank of Japan Governor Haruhiko Kuroda said… that a ‘reversal rate,’ or the level where interest rate cuts by a central bank could hurt the economy, helps the BOJ understand the appropriate shape of the yield curve. ‘It’s a theory that helps us understand the appropriate shape of the yield curve,’ Kuroda told parliament… Kuroda referred to an academic study on the reversal rate in a speech earlier this month, adding to recent growing signals from the BOJ that it could edge away from crisis-mode stimulus earlier than expected.”
November 27 – Financial Times (Robin Harding): “Japanese companies are scouring the country for workers and offering more attractive permanent contracts as they struggle to overcome the worst labour shortages in 40 years. Companies across a range of sectors — from construction to aged care — have warned in recent days that a lack of staff is starting to hit their business. The hiring difficulties highlight Japan’s declining population and the strength of its economy after five years of economic stimulus… ‘Delays to construction projects are becoming chronic,’ said Motohiro Nagashima, president of Toli Corporation, one of Japan’s biggest makers of floor coverings.”
Emerging Market Watch:
November 29 – Financial Times (Kate Allen): “Emerging market countries, banks and companies are selling long-dated debt in record volumes as investors’ search for yield pushes them to expand their appetite for risk. With markets set to remain open for business for another couple of weeks before winding down to year-end, syndicated sales of paper with maturities of 10 years and more has hit a record high in emerging economies, topping $500bn for the first time according to… Dealogic… Around a third of the total finance raised came from sovereigns and related entities, while 37% came from EM corporates and a quarter from financial institutions… Ultra-low interest rates in developed economies have channelled a wave of money towards higher-yielding assets, pushing up prices in EMs.”
November 28 – Wall Street Journal (Patrick Clark): “The debt woes of one of India’s leading wireless carriers Reliance Communications Ltd. have deepened this week thanks to an unlikely new source of pressure—a leading state-owned Chinese bank. It emerged late Monday that China Development Bank, a policy bank which often helps fund Chinese companies’ investments overseas, had late last week filed a petition for Reliance… to be declared insolvent. The move is highly unusual. Only once before in recent times has a foreign lender requested an Indian company to be declared insolvent. However, China Development Bank is one of RCom’s biggest lenders, having invested some $2 billion in the company’s debt since 2010.”
Leveraged Speculation Watch:
November 30 – Financial Times (Robin Wigglesworth): “A divergence in performance among quantitative hedge funds has caught the eye of investors. In a year where many such funds that surf market trends have disappointed, some of their more daring cousins have clocked up juicy returns trading everything from electricity to cheese prices. Computer-powered trend-following hedge funds… have enjoyed robust inflows in recent years… But their performance has been mediocre recently, gaining about 2% on average this year, according to a Société Générale index. However, a batch of hedge funds that trade less liquid, more exotic markets have clocked up attractive double-digit returns. These vehicles eschew mainstream markets and attempt to ride trends in areas such as Brazilian and Czech interest rate derivatives, natural gas, uranium funds and even cheese and milk contracts.”
November 28 – Financial Times (Shawn Donnan): “The ramifications of the European Central Bank’s massive bond purchases in recent years register acutely for insurance companies and pension funds alongside other traditional buyers of top tier debt. Over the past three years, the ECB’s bond purchases have sucked more than €2tn of debt out of Europe’s publicly traded markets, and an estimated €760bn, or nearly a third, of these bonds are triple A rated… Joe McConnell, a portfolio manager in the global liquidity group at JPMorgan Asset Management, argues that there has been no issue ‘getting fully invested’ but that returns have been clearly affected. ‘The main impact of QE has been driving yields lower,’ he said, adding that the yields on ‘pretty much everything’ in the money market universe are negative. Alongside a reduction in the outstanding universe of highly-rated assets, the sheer volume of purchases has placed huge downward pressure on bond yields. In turn, that leaves investors having to accept higher levels of credit and interest rate risk in order to generate reasonable returns.”
November 29 – Bloomberg (Alessandro Speciale): “German inflation accelerated more than anticipated in November, in a sign that robust growth in Europe’s largest economy may be translating into higher prices. Consumer prices rose an annual 1.8%... That’s faster than October’s 1.5% and beats the 1.7% median forecast…”
Japan Watch:
November 26 – Financial Times (Gavyn Davies): “The five year term of Bank of Japan Governor Kuroda will end in April 2018. As one of Prime Minister Abe’s key lieutenants, it had been widely assumed that he will be reappointed to a second term, and that his aggressive programme of monetary expansion will be maintained at least until inflation has over-shot the Bank’s 2% target. This had become one of the fixed points in consensus expectations for global asset prices in 2018. Last week, however, these strong assumptions came into question for the first time. The yen rose as investors paid attention to Governor Kuroda’s recent speech in Zurich, which specifically noted some of the risks associated with the policy commitment to fix the 10 year government bond yield at zero… This was followed by some hawkish press ‘guidance’, allegedly from within the central bank. Then, new BoJ Board member Hitoshi Suzuki followed the Governor with a much clearer signal that this so-called Yield Curve Control (YCC) could be watered down next year. If so, it would be the first sign of that the central bank may be contemplating the normalisation of interest rates, albeit with Japanese characteristics.”
November 27 – Reuters (Leika Kihara and Tetsushi Kajimoto): “Bank of Japan Governor Haruhiko Kuroda said… that a ‘reversal rate,’ or the level where interest rate cuts by a central bank could hurt the economy, helps the BOJ understand the appropriate shape of the yield curve. ‘It’s a theory that helps us understand the appropriate shape of the yield curve,’ Kuroda told parliament… Kuroda referred to an academic study on the reversal rate in a speech earlier this month, adding to recent growing signals from the BOJ that it could edge away from crisis-mode stimulus earlier than expected.”
November 27 – Financial Times (Robin Harding): “Japanese companies are scouring the country for workers and offering more attractive permanent contracts as they struggle to overcome the worst labour shortages in 40 years. Companies across a range of sectors — from construction to aged care — have warned in recent days that a lack of staff is starting to hit their business. The hiring difficulties highlight Japan’s declining population and the strength of its economy after five years of economic stimulus… ‘Delays to construction projects are becoming chronic,’ said Motohiro Nagashima, president of Toli Corporation, one of Japan’s biggest makers of floor coverings.”
Emerging Market Watch:
November 29 – Financial Times (Kate Allen): “Emerging market countries, banks and companies are selling long-dated debt in record volumes as investors’ search for yield pushes them to expand their appetite for risk. With markets set to remain open for business for another couple of weeks before winding down to year-end, syndicated sales of paper with maturities of 10 years and more has hit a record high in emerging economies, topping $500bn for the first time according to… Dealogic… Around a third of the total finance raised came from sovereigns and related entities, while 37% came from EM corporates and a quarter from financial institutions… Ultra-low interest rates in developed economies have channelled a wave of money towards higher-yielding assets, pushing up prices in EMs.”
November 28 – Wall Street Journal (Patrick Clark): “The debt woes of one of India’s leading wireless carriers Reliance Communications Ltd. have deepened this week thanks to an unlikely new source of pressure—a leading state-owned Chinese bank. It emerged late Monday that China Development Bank, a policy bank which often helps fund Chinese companies’ investments overseas, had late last week filed a petition for Reliance… to be declared insolvent. The move is highly unusual. Only once before in recent times has a foreign lender requested an Indian company to be declared insolvent. However, China Development Bank is one of RCom’s biggest lenders, having invested some $2 billion in the company’s debt since 2010.”
Leveraged Speculation Watch:
November 30 – Financial Times (Robin Wigglesworth): “A divergence in performance among quantitative hedge funds has caught the eye of investors. In a year where many such funds that surf market trends have disappointed, some of their more daring cousins have clocked up juicy returns trading everything from electricity to cheese prices. Computer-powered trend-following hedge funds… have enjoyed robust inflows in recent years… But their performance has been mediocre recently, gaining about 2% on average this year, according to a Société Générale index. However, a batch of hedge funds that trade less liquid, more exotic markets have clocked up attractive double-digit returns. These vehicles eschew mainstream markets and attempt to ride trends in areas such as Brazilian and Czech interest rate derivatives, natural gas, uranium funds and even cheese and milk contracts.”
Thursday, November 30, 2017
Friday's News Links
[Bloomberg] Stocks Fall as Flynn Said to Implicate Trump Team: Markets Wrap
[ABC] Flynn prepared to testify against President Trump - report
[Bloomberg] European Stocks Hit Two-Week Low as Tech Shares Extend Selloff
[Bloomberg] Oil Extends Gains as OPEC Prolongs Production Curbs Through 2018
[Bloomberg] China Stocks Set for Worst Week This Year as State Cools Gains
[Bloomberg] Here’s Where the GOP Tax Plan Stands Right Now
[Reuters] Senate grapples with tax cut plan's impact on U.S. deficit
[CNBC] Three ways Trump's latest pick could really shake up the Federal Reserve
[Reuters] November was best month for euro zone factories in over 17 years: PMI
[Bloomberg] China Bans Unlicensed Micro-Lending, Curbs Rates to Limit Risks
[Bloomberg] Falling Sydney Prices Drive a Slowdown in Australian Property
[Bloomberg] Tencent Drops Suddenly as Shares Set for Worst Week in 21 Months
[FT] Trump puts talks to boost China economic ties on ice
[ABC] Flynn prepared to testify against President Trump - report
[Bloomberg] European Stocks Hit Two-Week Low as Tech Shares Extend Selloff
[Bloomberg] Oil Extends Gains as OPEC Prolongs Production Curbs Through 2018
[Bloomberg] China Stocks Set for Worst Week This Year as State Cools Gains
[Bloomberg] Here’s Where the GOP Tax Plan Stands Right Now
[Reuters] Senate grapples with tax cut plan's impact on U.S. deficit
[CNBC] Three ways Trump's latest pick could really shake up the Federal Reserve
[Reuters] November was best month for euro zone factories in over 17 years: PMI
[Bloomberg] China Bans Unlicensed Micro-Lending, Curbs Rates to Limit Risks
[Bloomberg] Falling Sydney Prices Drive a Slowdown in Australian Property
[Bloomberg] Tencent Drops Suddenly as Shares Set for Worst Week in 21 Months
[FT] Trump puts talks to boost China economic ties on ice
Thursday Evening Links
[Bloomberg] Asia Stocks Pare Gains as U.S. Equity Futures Drop: Markets Wrap
[Politico] Republicans rewriting tax bill — and won’t vote tonight
[CNN] The Senate tax bill has hit a snag, votes to continue Friday
[CNBC] Senate pushes back tax bill vote as setback hits in final hours
[CNBC] Senate tax bill would fall $1 trillion short of paying for itself after economic growth, congressional analysis says
[Bloomberg] OPEC Agrees to Extend Oil Cuts Until the End of 2018
[Bloomberg] Investors Are Piling Into Retail ETFs After Holiday-Fueled Rally
[Reuters] Trump: China's North Korea diplomacy appears to have 'no impact on Little Rocket Man'
[WSJ] Senate Bill Hits Obstacle Over Deficit Concern
[WSJ] Senate Tax Plan Won’t Pay for Itself, Congressional Analysis Says
[WSJ] China Inflames U.S. Ire in Steel Dispute
[Politico] Republicans rewriting tax bill — and won’t vote tonight
[CNN] The Senate tax bill has hit a snag, votes to continue Friday
[CNBC] Senate pushes back tax bill vote as setback hits in final hours
[CNBC] Senate tax bill would fall $1 trillion short of paying for itself after economic growth, congressional analysis says
[Bloomberg] OPEC Agrees to Extend Oil Cuts Until the End of 2018
[Bloomberg] Investors Are Piling Into Retail ETFs After Holiday-Fueled Rally
[Reuters] Trump: China's North Korea diplomacy appears to have 'no impact on Little Rocket Man'
[WSJ] Senate Bill Hits Obstacle Over Deficit Concern
[WSJ] Senate Tax Plan Won’t Pay for Itself, Congressional Analysis Says
[WSJ] China Inflames U.S. Ire in Steel Dispute
Wednesday, November 29, 2017
Thursday's News Links
[Bloomberg] U.S. Stocks Gain on FANG Rebound as Crude Climbs: Markets Wrap
[Reuters] Senate tax drama enters complicated end-game
[Bloomberg] U.S. Consumer Spending Cools While Inflation May Encourage Fed
[Bloomberg] Bank of Korea Leads the Way in Asia With Interest-Rate Hike
[Bloomberg] BIS Warns Central Banks That Policy Caution Has Its Perils Too
[Reuters] Trump nominates Marvin Goodfriend for Fed governor post
[Bloomberg] China Factory Gauge Unexpectedly Rises as Global Demand Firms Up
[Bloomberg] Flattening Curve Aside, Bonds Haven't Been This Calm Since 1979
[Reuters] U.S. warns North Korean leadership will be 'utterly destroyed' in case of war
[WSJ] Corporate Tax Rate in Flux as Senate Votes to Open Debate
[WSJ] Is China’s Central Bank Losing Its Monetary-Policy Mojo?
[FT] After 12 years of leadership, Merkel fatigue spreads in Germany
[FT] Hedge funds eye juicy returns of esoteric trends
[FT] Hunt for yield drives record sales of long-dated EM debt
[Reuters] Senate tax drama enters complicated end-game
[Bloomberg] U.S. Consumer Spending Cools While Inflation May Encourage Fed
[Bloomberg] Bank of Korea Leads the Way in Asia With Interest-Rate Hike
[Bloomberg] BIS Warns Central Banks That Policy Caution Has Its Perils Too
[Reuters] Trump nominates Marvin Goodfriend for Fed governor post
[Bloomberg] China Factory Gauge Unexpectedly Rises as Global Demand Firms Up
[Bloomberg] Flattening Curve Aside, Bonds Haven't Been This Calm Since 1979
[Reuters] U.S. warns North Korean leadership will be 'utterly destroyed' in case of war
[WSJ] Corporate Tax Rate in Flux as Senate Votes to Open Debate
[WSJ] Is China’s Central Bank Losing Its Monetary-Policy Mojo?
[FT] After 12 years of leadership, Merkel fatigue spreads in Germany
[FT] Hedge funds eye juicy returns of esoteric trends
[FT] Hunt for yield drives record sales of long-dated EM debt
Wednesday Evening Links
[Bloomberg] U.S. Stocks Dragged Down by Tech Rout; Bonds Fall: Markets Wrap
[Bloomberg] Bitcoin Just Plunged 20% in a Matter of Hours
[Bloomberg] Fed Says Price Pressures Rising With Economic Growth Steady
[Reuters] Fed districts see U.S. outlook improving, price pressures picking up
[Reuters] Fed's Williams sees four rate hikes between now and end of 2018
[CNBC] Fed Chair Janet Yellen: Rates have to rise to prevent 'boom-bust' economy
[Reuters] GOP tax plan grows even more unpopular as nearly half of Americans oppose it: Poll
[CNBC] Some GOP senators aren't happy about the tool being used to win Corker's tax vote
[Reuters] U.S. pending home sales jump 3.5 percent in October
[Bloomberg] Venezuelan ‘Hunger Bonds’ Sink Into Default, Adding to Goldman's Headache
[Bloomberg] Biggest U.S. Crypto Exchange Hit by Delays as Demand Surges
[CNBC] Yellen: $20 trillion national debt 'should keep people awake at night'
[CNBC] Investors should worry about war between Israel and Iran, warns Pulitzer Prize-winner Tom Friedman
[Bloomberg] Bitcoin Just Plunged 20% in a Matter of Hours
[Bloomberg] Fed Says Price Pressures Rising With Economic Growth Steady
[Reuters] Fed districts see U.S. outlook improving, price pressures picking up
[Reuters] Fed's Williams sees four rate hikes between now and end of 2018
[CNBC] Fed Chair Janet Yellen: Rates have to rise to prevent 'boom-bust' economy
[Reuters] GOP tax plan grows even more unpopular as nearly half of Americans oppose it: Poll
[CNBC] Some GOP senators aren't happy about the tool being used to win Corker's tax vote
[Reuters] U.S. pending home sales jump 3.5 percent in October
[Bloomberg] Venezuelan ‘Hunger Bonds’ Sink Into Default, Adding to Goldman's Headache
[Bloomberg] Biggest U.S. Crypto Exchange Hit by Delays as Demand Surges
[CNBC] Yellen: $20 trillion national debt 'should keep people awake at night'
[CNBC] Investors should worry about war between Israel and Iran, warns Pulitzer Prize-winner Tom Friedman
Tuesday, November 28, 2017
Wednesday's News Links
[Bloomberg] Stocks Gain With Tax, Data in Focus; Pound Rises: Markets Wrap
[Bloomberg] U.S. Third-Quarter Growth Revised Up to 3.3%, Three-Year High
[Reuters] Senate Republicans shove tax bill ahead as Democrats fume
[CNBC] Bitcoin surges through $11,000 less than 24 hours after topping $10,000
[Bloomberg] Yellen Says U.S. Expansion Widening as Financial Risks Muted
[Bloomberg] Clock Ticking for Equities’ Last ‘Hurrah,’ Credit Suisse Says
[Bloomberg] Goldman Warns Highest Valuations Since 1900 Mean Pain Is Coming
[Bloomberg] German Inflation Accelerated More Than Expected in November
[Bloomberg] North Korea Says Nuclear Program Completed After ICBM Test
[Bloomberg] The End of the U.S. Housing Shortage Is Finally in Sight
[WSJ] Global Markets Focus on Bitcoin, Not North Korea’s Latest Missile
[WSJ] Chinese State Bank Adds Pressure to Debt-Laden Indian Wireless Carrier
[FT] Trump team opens new front in trade battle with China
[FT] ECB bond buying transforms universe of top tier debt
[Bloomberg] U.S. Third-Quarter Growth Revised Up to 3.3%, Three-Year High
[Reuters] Senate Republicans shove tax bill ahead as Democrats fume
[CNBC] Bitcoin surges through $11,000 less than 24 hours after topping $10,000
[Bloomberg] Yellen Says U.S. Expansion Widening as Financial Risks Muted
[Bloomberg] Clock Ticking for Equities’ Last ‘Hurrah,’ Credit Suisse Says
[Bloomberg] Goldman Warns Highest Valuations Since 1900 Mean Pain Is Coming
[Bloomberg] German Inflation Accelerated More Than Expected in November
[Bloomberg] North Korea Says Nuclear Program Completed After ICBM Test
[Bloomberg] The End of the U.S. Housing Shortage Is Finally in Sight
[WSJ] Global Markets Focus on Bitcoin, Not North Korea’s Latest Missile
[WSJ] Chinese State Bank Adds Pressure to Debt-Laden Indian Wireless Carrier
[FT] Trump team opens new front in trade battle with China
[FT] ECB bond buying transforms universe of top tier debt
Tuesday Evening Links
[Bloomberg] Asia Stocks to Track U.S. Gains, Shrug Off Missile: Markets Wrap
[Reuters] Surging banks lead Wall Street to highs as tax plan advances
[Reuters] Republican tax plan clears hurdle in Senate; fight erupts over spending
[Bloomberg] GOP Tax Plan Heads to Senate Floor for Vote Likely This Week
[Bloomberg] Democrats Pull Out of Trump Meeting After He Says Deal Is Unlikely
[Bloomberg] Powell Says Case ‘Coming Together’ for December Rate Hike
[Bloomberg] North Korea Launches Another Ballistic Missile, Yonhap Says
[NYT] A Prince’s Uncertain Fate Deepens Mystery in Saudi Arabia
[Reuters] Surging banks lead Wall Street to highs as tax plan advances
[Reuters] Republican tax plan clears hurdle in Senate; fight erupts over spending
[Bloomberg] GOP Tax Plan Heads to Senate Floor for Vote Likely This Week
[Bloomberg] Democrats Pull Out of Trump Meeting After He Says Deal Is Unlikely
[Bloomberg] Powell Says Case ‘Coming Together’ for December Rate Hike
[Bloomberg] North Korea Launches Another Ballistic Missile, Yonhap Says
[NYT] A Prince’s Uncertain Fate Deepens Mystery in Saudi Arabia
Monday, November 27, 2017
Tuesday's News Links
[Bloomberg] Stocks Rise as Energy Shares Jump; Dollar Steady: Markets Wrap
[Bloomberg] U.S. Consumer Confidence Unexpectedly Climbs to 17-Year High
[Reuters] U.S. goods trade deficit widens in October, inventories fall
[Bloomberg] Home Prices in 20 U.S. Cities Rise by Most Since Mid-2014
[Reuters] Fed nominee Powell, once hawkish, now champions Yellen's focus on jobs
[Bloomberg] Here’s Where the GOP Tax Plan Stands Right Now
[Reuters] Senate tax drama intensifies as bill faces key panel vote
[CNBC] Sen. Bob Corker: 'I've been a deficit hawk for 11 years' and don't want to damage the nation with tax vote
[Bloomberg] China Bond Rout Is `Early Warning Signal' to Global Debt Market
[Reuters] BOJ Kuroda: 'Reversal rate' helps understand appropriate yield curve
[Bloomberg] Market's Numbness to Risk Reminds of Calm Before Storm: Axioma
[Reuters] China's regulator just moved to slow the flow of mainland cash into Hong Kong
[Bloomberg] Chinese Rival to Tesla Faces a Debt Crunch
[WSJ] Powell Seeks to Support Economy, Defend Fed Independence
[WSJ] Senators Seek Changes to Tax Bill as Busy Week Kicks Off
[FT] US tax reform: the return of trickle-down economics
[Bloomberg] U.S. Consumer Confidence Unexpectedly Climbs to 17-Year High
[Reuters] U.S. goods trade deficit widens in October, inventories fall
[Bloomberg] Home Prices in 20 U.S. Cities Rise by Most Since Mid-2014
[Reuters] Fed nominee Powell, once hawkish, now champions Yellen's focus on jobs
[Bloomberg] Here’s Where the GOP Tax Plan Stands Right Now
[Reuters] Senate tax drama intensifies as bill faces key panel vote
[CNBC] Sen. Bob Corker: 'I've been a deficit hawk for 11 years' and don't want to damage the nation with tax vote
[Bloomberg] China Bond Rout Is `Early Warning Signal' to Global Debt Market
[Reuters] BOJ Kuroda: 'Reversal rate' helps understand appropriate yield curve
[Bloomberg] Market's Numbness to Risk Reminds of Calm Before Storm: Axioma
[Reuters] China's regulator just moved to slow the flow of mainland cash into Hong Kong
[Bloomberg] Chinese Rival to Tesla Faces a Debt Crunch
[WSJ] Powell Seeks to Support Economy, Defend Fed Independence
[WSJ] Senators Seek Changes to Tax Bill as Busy Week Kicks Off
[FT] US tax reform: the return of trickle-down economics
Monday Evening Links
[Bloomberg] Stocks Languish at Start of Busy Week, Oil Drops: Markets Wrap
[CNBC] Here's where GOP Senate holdouts stand on sweeping tax bill
[AP] Senators consider automatic tax hikes if revenue falls short
[Reuters] Fed chair nominee Powell pledges 'decisive' response to any economic crisis
[CNBC] Dallas Fed president: Stock market 'excesses' pose potential threat to economy
[Reuters] U.S. Cyber Monday sales jump 17 percent, fewer deals on offer
[Bloomberg] How China's Going to Try to Control Its Massive Housing Bubble
[Bloomberg] OPEC’s Clash With U.S. Oil Is Nearing Its Day of Reckoning
[Bloomberg] North Korea May Be Preparing a Missile Launch, Kyodo Reports
[WSJ] Senators Seek Changes to Tax Bill as Busy Week Kicks Off
[WSJ] Beijing is Making Its Most Serious Effort Yet to Tackle Its Financial-System Issues
[FT] Cautious trade follows fresh China stocks sell-off
[FT] Structured credit boom sees investors scaling risk curve
[FT] Trump, Xi and the siren song of nationalism
[CNBC] Here's where GOP Senate holdouts stand on sweeping tax bill
[AP] Senators consider automatic tax hikes if revenue falls short
[Reuters] Fed chair nominee Powell pledges 'decisive' response to any economic crisis
[CNBC] Dallas Fed president: Stock market 'excesses' pose potential threat to economy
[Reuters] U.S. Cyber Monday sales jump 17 percent, fewer deals on offer
[Bloomberg] How China's Going to Try to Control Its Massive Housing Bubble
[Bloomberg] OPEC’s Clash With U.S. Oil Is Nearing Its Day of Reckoning
[Bloomberg] North Korea May Be Preparing a Missile Launch, Kyodo Reports
[WSJ] Senators Seek Changes to Tax Bill as Busy Week Kicks Off
[WSJ] Beijing is Making Its Most Serious Effort Yet to Tackle Its Financial-System Issues
[FT] Cautious trade follows fresh China stocks sell-off
[FT] Structured credit boom sees investors scaling risk curve
[FT] Trump, Xi and the siren song of nationalism
Sunday, November 26, 2017
Monday's News Links
[Bloomberg] Stocks Struggle as Metal Prices Drop; Dollar Slips: Markets Wrap
[Bloomberg] China Shares Resume Decline as Year's Top Performers Take a Hit
[Bloomberg] Bitcoin Guns For $10,000 as Cryptocurrency Mania Intensifies
[Bloomberg] Here’s Where the GOP Tax Plan Stands Right Now
[Bloomberg] U.S. New-Home Sales Unexpectedly Climb to Highest in a Decade
[CNBC] Wall Street week ahead: A new Fed chief, the pulse on the housing market and bitcoin mania
[CNBC] Chance of US stock market correction now at 70 percent: Vanguard Group
[Reuters] German government talks likely a month away, Merkel ally says
[Reuters] South Korea warns North not to repeat armistice violation
[WSJ] Fed’s Plan for 2017 Nears Completion—but View for 2018 Is Fuzzy
[FT] Corporate Japan hit by severe labour shortages
[Bloomberg] China Shares Resume Decline as Year's Top Performers Take a Hit
[Bloomberg] Bitcoin Guns For $10,000 as Cryptocurrency Mania Intensifies
[Bloomberg] Here’s Where the GOP Tax Plan Stands Right Now
[Bloomberg] U.S. New-Home Sales Unexpectedly Climb to Highest in a Decade
[CNBC] Wall Street week ahead: A new Fed chief, the pulse on the housing market and bitcoin mania
[CNBC] Chance of US stock market correction now at 70 percent: Vanguard Group
[Reuters] German government talks likely a month away, Merkel ally says
[Reuters] South Korea warns North not to repeat armistice violation
[WSJ] Fed’s Plan for 2017 Nears Completion—but View for 2018 Is Fuzzy
[FT] Corporate Japan hit by severe labour shortages
Sunday Evening Links
[Bloomberg] Asian Stocks Nudge Higher as Rand Halts Slide: Markets Wrap
[Bloomberg] China's Top Bond Fund Says Rout May Worsen
[Bloomberg] Early China Indicators Signal That Economy Cooled in November
[Bloomberg] New York Could Lose Top Earners Under Tax Bill, Goldman Says
[FT] BoJ hints at normalisation, with Japanese characteristics
[Bloomberg] China's Top Bond Fund Says Rout May Worsen
[Bloomberg] Early China Indicators Signal That Economy Cooled in November
[Bloomberg] New York Could Lose Top Earners Under Tax Bill, Goldman Says
[FT] BoJ hints at normalisation, with Japanese characteristics
Sunday's News Links
[Reuters] Black Friday, Thanksgiving online sales climb to record high
[Bloomberg] Bond Traders Start to See Crack in Fed's Resolve About Inflation
[Reuters] Bavaria boss backs SPD tie-up as consensus grows for German grand coalition
[Bloomberg] The Most Expensive U.S. Hurricane Season Ever: By the Numbers
[WSJ] Jerome Powell’s Path to Confirmation May Lack Drama of Recent Fed Nominee Battles
[Bloomberg] Bond Traders Start to See Crack in Fed's Resolve About Inflation
[Reuters] Bavaria boss backs SPD tie-up as consensus grows for German grand coalition
[Bloomberg] The Most Expensive U.S. Hurricane Season Ever: By the Numbers
[WSJ] Jerome Powell’s Path to Confirmation May Lack Drama of Recent Fed Nominee Battles
Saturday, November 25, 2017
Saturday's News Links
[CNBC] Big week for markets with Fed's Powell confirmation hearing and Yellen testimony
[Reuters] China online finance regulator tells unqualified micro-lenders to stop lending
[Reuters] China’s debt pile growing fast despite years of efforts to contain it
[CNBC] The Fed launched QE nine years ago — these four charts show its impact
[Bloomberg] Longest S&P 500 Rally Ever? That's Wall Street’s Forecast
[Bloomberg] Catalan Leader Doubles Down on Independence Pledge
[WSJ] As Risk of War Looms, South Korea Weighs Changing the Draft
[Reuters] China online finance regulator tells unqualified micro-lenders to stop lending
[Reuters] China’s debt pile growing fast despite years of efforts to contain it
[CNBC] The Fed launched QE nine years ago — these four charts show its impact
[Bloomberg] Longest S&P 500 Rally Ever? That's Wall Street’s Forecast
[Bloomberg] Catalan Leader Doubles Down on Independence Pledge
[WSJ] As Risk of War Looms, South Korea Weighs Changing the Draft
Friday, November 24, 2017
Weekly Commentary: Just the Facts November 24, 2017
For the Week:
The S&P500 gained 0.9% (up 16.2% y-t-d), and the Dow rose 0.9% (up 19.2%). The Utilities added 0.2% (up 14.4%). The Banks slipped 0.3% (up 7.8%), while the Broker/Dealers advanced 1.4% (up 21.0%). The Transports rallied 1.4% (up 6.4%). The S&P 400 Midcaps gained 1.0% (up 12.0%), and the small cap Russell 2000 jumped 1.8% (up 11.9%). The Nasdaq100 advanced 1.5% (up 31.8%).The Semiconductors surged 2.7% (up 48.0%). The Biotechs gained 1.6% (up 37.2%). Though bullion fell $5, the HUI gold index added 0.2% (up 3.2%).
Three-month Treasury bill rates ended the week at 124 bps. Two-year government yields increased two bps to 1.75% (up 56bps y-t-d). Five-year T-note yields added a basis point to 2.06% (up 14bps). Ten-year Treasury yields were unchanged at 2.34% (down 10bps). Long bond yields slipped a basis point to 2.76% (down 30bps).
Greek 10-year yields rose 12 bps to 5.29% (down 173bps y-t-d). Ten-year Portuguese yields declined four bps to 1.94% (down 181bps). Italian 10-year yields dipped three bps to 1.81% (unchanged). Spain's 10-year yields fell seven bps to 1.49% (up 11bps). German bund yields were unchanged at 0.36% (up 16bps). French yields slipped a basis point to 0.70% (up 1bp). The French to German 10-year bond spread narrowed one to 34 bps. U.K. 10-year gilt yields fell four bps to 1.25% (up 1bp). U.K.'s FTSE equities increased 0.4% (up 3.7%).
Japan's Nikkei 225 equities index gained 0.7% (up 18.0% y-t-d). Japanese 10-year "JGB" yields slipped a basis point to 0.03% (down 1bp). France's CAC40 rallied 1.3% (up 10.9%). The German DAX equities index recovered 0.5% (up 13.8%). Spain's IBEX 35 equities index increased 0.4% (up 7.5%). Italy's FTSE MIB index gained 1.5% (up 16.5%). EM markets were mixed. Brazil's Bovespa index rose 1.0% (up 23.1%), and Mexico's Bolsa added 0.2% (up 5.0%). India’s Sensex equities index gained 1.0% (up 26.5%). China’s Shanghai Exchange fell 0.9% (up 8.1%). Turkey's Borsa Istanbul National 100 index dropped 1.6% (up 33.8%). Russia's MICEX equities index gained 1.4% (down 3.2%).
Junk bond mutual funds saw outflows of $209 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates dipped three bps to 3.92% (down 11bps y-o-y). Fifteen-year rates added a basis point to 3.32% (up 7bps). Five-year hybrid ARM rates gained one basis point to 3.22% (up 10bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up a basis point to 4.14% (up 6bps).
Federal Reserve Credit last week declined $12.7bn to $4.410 TN. Over the past year, Fed Credit fell $12.2bn. Fed Credit inflated $1.591 TN, or 57%, over the past 263 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt increased $3.2bn last week to $3.372 TN. "Custody holdings" were up $252bn y-o-y, or 8.1%.
M2 (narrow) "money" supply rose $20.2bn last week to a record $13.778 TN. "Narrow money" expanded $642bn, or 4.9%, over the past year. For the week, Currency slipped $0.2bn. Total Checkable Deposits jumped $49.8bn, while Savings Deposits declined $26.1bn. Small Time Deposits added $0.9bn. Retail Money Funds declined $4.2bn.
Total money market fund assets gained $21.9bn to $2.761 TN. Money Funds rose $56bn y-o-y, or 2.1%.
Total Commercial Paper declined $4.0bn to $1.029 TN. CP gained $107bn y-o-y, or 11.6%.
Currency Watch:
The U.S. dollar index dropped 0.9% to 92.782 (down 9.4% y-t-d). For the week on the upside, the Mexican peso increased 1.9%, the Swedish krona 1.8%, the Norwegian krone 1.4%, the South Korean won 1.1%, the New Zealand dollar 1.0%, the Swiss franc 1.0%, the British pound 0.9%, the Brazilian real 0.9%, the Singapore dollar 0.8%, the Australian dollar 0.7%, the Japanese yen 0.5%, and the Canadian dollar 0.4%. For the week on the downside, the South African rand declined 1.1%. The Chinese renminbi increased 0.37% versus the dollar this week (up 5.2% y-t-d).
Commodities Watch:
The Goldman Sachs Commodities Index gained 1.4% (up 8.2% y-t-d). Spot Gold slipped 0.4% to $1,289 (up 11.8%). Silver declined 1.6% to $17.093 (up 7.0%). Crude surged $2.40 to $58.95 (up 9.5%). Gasoline rose 2.5% (up 7%), while Natural Gas sank 9.2% (down 25%). Copper jumped 3.3% (up 27%). Wheat dropped 2.0% (up 7%). Corn was unchanged (up 1%).
Trump Administration Watch:
November 24 – Bloomberg: “The $1.4 trillion item on President Donald Trump’s wish list -- a package of tax cuts for businesses and individuals that he has said he wants to sign before year’s end -- is headed into the legislative equivalent of a Black Friday scrum next week. Senate Republican leaders plan a make-or-break floor vote on their bill as soon as Thursday -- a dramatic moment that will come only after a marathon debate that could go all night. Democrats are expected to try to delay or derail the measure, and the GOP must hold together at least 50 votes from its thin, 52-vote majority in order to prevail. Their chances improved this week when Republican Senator Lisa Murkowski of Alaska said she’ll support repealing the ‘individual mandate’ imposed by Obamacare -- a provision that Senate tax writers are counting on to help finance the tax cuts.”
November 19 – Wall Street Journal (Lingling Wei, Jacob M. Schlesinger, Jeremy Page and Michael C. Bender): “A month before President Donald Trump’s visit to Beijing, Chinese officials presented an offer they thought Washington couldn’t refuse. China proposed that during the trip, Mr. Trump and his counterpart, Xi Jinping, unveil a plan to widen foreign firms’ access to China’s vast financial industry, according to people with knowledge of the matter. It was a move previous U.S. administrations had sought for years. To Beijing’s consternation, according to the people, Washington wasn’t interested. The offer was made a second time during one of Mr. Trump’s meetings at the Great Hall of the People. Hours after Air Force One took off from Beijing, China announced the opening on its own. The cold shoulder from the White House reflects a fundamental shift in how the U.S. manages its relationship with China, one that suggests a bold gamble and a rocky road ahead despite the bonhomie of the presidential summit earlier this month in Beijing.”
November 21 – Wall Street Journal (Jacob M. Schlesinger and Dudley Althaus): “President Donald Trump’s chief trade negotiator issued a downbeat assessment… of efforts to rewrite the North American Free Trade Agreement, decrying ‘a lack of headway’ and accusing Canada and Mexico of refusing to ‘seriously engage’ on controversial U.S. proposals aimed at cutting the U.S. trade deficit. U.S. Trade Representative Robert Lighthizer didn’t go as far as repeating Mr. Trump’s threat to pull out of the 23-year-old pact if the other parties don’t agree to American demands to ‘rebalance’ Nafta to make it more favorable to the U.S. But he made clear he expected them to do so by next month. ‘Absent rebalancing, we will not reach a satisfactory result,’ Mr. Lighthizer said…”
November 20 – Reuters (Jeff Mason and David Brunnstrom): “President Donald Trump put North Korea back on a list of state sponsors of terrorism on Monday, a designation that allows the United States to impose more sanctions and risks inflaming tensions over Pyongyang’s nuclear weapons and missile programs.”
November 21 – Politico (Rachael Bade and Heather Caygle): “Concern is growing in both parties that a clash over the fate of Dreamers will trigger a government shutdown this December. House conservatives have warned Speaker Paul Ryan against lumping a fix for undocumented immigrants who came to the country as minors into a year-end spending deal. They want him to keep the two issues separate and delay immigration negotiations into 2018 to increase their leverage… But many liberal Democrats have already vowed to withhold votes from the spending bill should it not address Dreamers…”
November 20 – CNBC (Liz Moyer): “The Justice Department sued… to block AT&T's merger with Time Warner, calling it an ‘illegal’ combination that harms consumers and stifles innovation, DOJ officials said. AT&T and Time Warner announced their $85 billion merger last year, but the closing has been dragged out by the government's antitrust review. It is the latest salvo in a drama more than one year in the making. Earlier this month, reports circulated that the government had demanded AT&T sell Turner Broadcasting, operator of the CNN news network, or DirectTV as a condition of approval, though the government pushed back at those reports.”
The S&P500 gained 0.9% (up 16.2% y-t-d), and the Dow rose 0.9% (up 19.2%). The Utilities added 0.2% (up 14.4%). The Banks slipped 0.3% (up 7.8%), while the Broker/Dealers advanced 1.4% (up 21.0%). The Transports rallied 1.4% (up 6.4%). The S&P 400 Midcaps gained 1.0% (up 12.0%), and the small cap Russell 2000 jumped 1.8% (up 11.9%). The Nasdaq100 advanced 1.5% (up 31.8%).The Semiconductors surged 2.7% (up 48.0%). The Biotechs gained 1.6% (up 37.2%). Though bullion fell $5, the HUI gold index added 0.2% (up 3.2%).
Three-month Treasury bill rates ended the week at 124 bps. Two-year government yields increased two bps to 1.75% (up 56bps y-t-d). Five-year T-note yields added a basis point to 2.06% (up 14bps). Ten-year Treasury yields were unchanged at 2.34% (down 10bps). Long bond yields slipped a basis point to 2.76% (down 30bps).
Greek 10-year yields rose 12 bps to 5.29% (down 173bps y-t-d). Ten-year Portuguese yields declined four bps to 1.94% (down 181bps). Italian 10-year yields dipped three bps to 1.81% (unchanged). Spain's 10-year yields fell seven bps to 1.49% (up 11bps). German bund yields were unchanged at 0.36% (up 16bps). French yields slipped a basis point to 0.70% (up 1bp). The French to German 10-year bond spread narrowed one to 34 bps. U.K. 10-year gilt yields fell four bps to 1.25% (up 1bp). U.K.'s FTSE equities increased 0.4% (up 3.7%).
Japan's Nikkei 225 equities index gained 0.7% (up 18.0% y-t-d). Japanese 10-year "JGB" yields slipped a basis point to 0.03% (down 1bp). France's CAC40 rallied 1.3% (up 10.9%). The German DAX equities index recovered 0.5% (up 13.8%). Spain's IBEX 35 equities index increased 0.4% (up 7.5%). Italy's FTSE MIB index gained 1.5% (up 16.5%). EM markets were mixed. Brazil's Bovespa index rose 1.0% (up 23.1%), and Mexico's Bolsa added 0.2% (up 5.0%). India’s Sensex equities index gained 1.0% (up 26.5%). China’s Shanghai Exchange fell 0.9% (up 8.1%). Turkey's Borsa Istanbul National 100 index dropped 1.6% (up 33.8%). Russia's MICEX equities index gained 1.4% (down 3.2%).
Junk bond mutual funds saw outflows of $209 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates dipped three bps to 3.92% (down 11bps y-o-y). Fifteen-year rates added a basis point to 3.32% (up 7bps). Five-year hybrid ARM rates gained one basis point to 3.22% (up 10bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up a basis point to 4.14% (up 6bps).
Federal Reserve Credit last week declined $12.7bn to $4.410 TN. Over the past year, Fed Credit fell $12.2bn. Fed Credit inflated $1.591 TN, or 57%, over the past 263 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt increased $3.2bn last week to $3.372 TN. "Custody holdings" were up $252bn y-o-y, or 8.1%.
M2 (narrow) "money" supply rose $20.2bn last week to a record $13.778 TN. "Narrow money" expanded $642bn, or 4.9%, over the past year. For the week, Currency slipped $0.2bn. Total Checkable Deposits jumped $49.8bn, while Savings Deposits declined $26.1bn. Small Time Deposits added $0.9bn. Retail Money Funds declined $4.2bn.
Total money market fund assets gained $21.9bn to $2.761 TN. Money Funds rose $56bn y-o-y, or 2.1%.
Total Commercial Paper declined $4.0bn to $1.029 TN. CP gained $107bn y-o-y, or 11.6%.
Currency Watch:
The U.S. dollar index dropped 0.9% to 92.782 (down 9.4% y-t-d). For the week on the upside, the Mexican peso increased 1.9%, the Swedish krona 1.8%, the Norwegian krone 1.4%, the South Korean won 1.1%, the New Zealand dollar 1.0%, the Swiss franc 1.0%, the British pound 0.9%, the Brazilian real 0.9%, the Singapore dollar 0.8%, the Australian dollar 0.7%, the Japanese yen 0.5%, and the Canadian dollar 0.4%. For the week on the downside, the South African rand declined 1.1%. The Chinese renminbi increased 0.37% versus the dollar this week (up 5.2% y-t-d).
Commodities Watch:
The Goldman Sachs Commodities Index gained 1.4% (up 8.2% y-t-d). Spot Gold slipped 0.4% to $1,289 (up 11.8%). Silver declined 1.6% to $17.093 (up 7.0%). Crude surged $2.40 to $58.95 (up 9.5%). Gasoline rose 2.5% (up 7%), while Natural Gas sank 9.2% (down 25%). Copper jumped 3.3% (up 27%). Wheat dropped 2.0% (up 7%). Corn was unchanged (up 1%).
Trump Administration Watch:
November 24 – Bloomberg: “The $1.4 trillion item on President Donald Trump’s wish list -- a package of tax cuts for businesses and individuals that he has said he wants to sign before year’s end -- is headed into the legislative equivalent of a Black Friday scrum next week. Senate Republican leaders plan a make-or-break floor vote on their bill as soon as Thursday -- a dramatic moment that will come only after a marathon debate that could go all night. Democrats are expected to try to delay or derail the measure, and the GOP must hold together at least 50 votes from its thin, 52-vote majority in order to prevail. Their chances improved this week when Republican Senator Lisa Murkowski of Alaska said she’ll support repealing the ‘individual mandate’ imposed by Obamacare -- a provision that Senate tax writers are counting on to help finance the tax cuts.”
November 19 – Wall Street Journal (Lingling Wei, Jacob M. Schlesinger, Jeremy Page and Michael C. Bender): “A month before President Donald Trump’s visit to Beijing, Chinese officials presented an offer they thought Washington couldn’t refuse. China proposed that during the trip, Mr. Trump and his counterpart, Xi Jinping, unveil a plan to widen foreign firms’ access to China’s vast financial industry, according to people with knowledge of the matter. It was a move previous U.S. administrations had sought for years. To Beijing’s consternation, according to the people, Washington wasn’t interested. The offer was made a second time during one of Mr. Trump’s meetings at the Great Hall of the People. Hours after Air Force One took off from Beijing, China announced the opening on its own. The cold shoulder from the White House reflects a fundamental shift in how the U.S. manages its relationship with China, one that suggests a bold gamble and a rocky road ahead despite the bonhomie of the presidential summit earlier this month in Beijing.”
November 21 – Wall Street Journal (Jacob M. Schlesinger and Dudley Althaus): “President Donald Trump’s chief trade negotiator issued a downbeat assessment… of efforts to rewrite the North American Free Trade Agreement, decrying ‘a lack of headway’ and accusing Canada and Mexico of refusing to ‘seriously engage’ on controversial U.S. proposals aimed at cutting the U.S. trade deficit. U.S. Trade Representative Robert Lighthizer didn’t go as far as repeating Mr. Trump’s threat to pull out of the 23-year-old pact if the other parties don’t agree to American demands to ‘rebalance’ Nafta to make it more favorable to the U.S. But he made clear he expected them to do so by next month. ‘Absent rebalancing, we will not reach a satisfactory result,’ Mr. Lighthizer said…”
November 20 – Reuters (Jeff Mason and David Brunnstrom): “President Donald Trump put North Korea back on a list of state sponsors of terrorism on Monday, a designation that allows the United States to impose more sanctions and risks inflaming tensions over Pyongyang’s nuclear weapons and missile programs.”
November 21 – Politico (Rachael Bade and Heather Caygle): “Concern is growing in both parties that a clash over the fate of Dreamers will trigger a government shutdown this December. House conservatives have warned Speaker Paul Ryan against lumping a fix for undocumented immigrants who came to the country as minors into a year-end spending deal. They want him to keep the two issues separate and delay immigration negotiations into 2018 to increase their leverage… But many liberal Democrats have already vowed to withhold votes from the spending bill should it not address Dreamers…”
November 20 – CNBC (Liz Moyer): “The Justice Department sued… to block AT&T's merger with Time Warner, calling it an ‘illegal’ combination that harms consumers and stifles innovation, DOJ officials said. AT&T and Time Warner announced their $85 billion merger last year, but the closing has been dragged out by the government's antitrust review. It is the latest salvo in a drama more than one year in the making. Earlier this month, reports circulated that the government had demanded AT&T sell Turner Broadcasting, operator of the CNN news network, or DirectTV as a condition of approval, though the government pushed back at those reports.”
China Watch:
November 20 – Bloomberg: “When China unveiled plans on Friday to end the implicit guarantees underpinning asset-management products worth trillions of dollars, it should have been a bombshell for the nation’s savers. But for Yolanda Yuan and other individual investors who’ve piled into AMPs issued by banks, insurers and securities firms, the government’s announcement was largely a non-event. The reason: they didn’t believe it. ‘I don’t think any big banks will dare to take the risk of allowing defaults on AMPs, as that will lead to a flood of fund redemptions,’ said Yuan, a 29-year-old sales manager at a state-run financial company… She has about 100,000 yuan ($15,069) of personal savings in products covered by the new regulations. Over the past 13 years, assets in Chinese AMPs have swelled from almost nothing to $15 trillion in large part due to one key assumption: that investors would be made whole no matter what happened to the products’ underlying assets. Authorities are now moving to quash that belief amid concern that rampant moral hazard is distorting market prices and making the financial system vulnerable to crises.”
November 22 – CNBC (Huileng Tan): “China has been pumping a lot of cash into its system to lift market sentiment, as the world's second-largest economy walks a thin line between curbing debt and keeping everything running smoothly. Last week, the People's Bank of China injected cash totaling 810 billion Chinese yuan ($122.4bn) in five straight days of daily liquidity management operations. Those actions, which represented the largest weekly net increase since January, were in part a Beijing response to its 10-year sovereign bond yields spiking to multiyear highs, experts said. ‘Surging Chinese government bond yields hit the nerve of policymakers, so in order to further prevent a greater surge, they injected liquidity into the system to improve market sentiment,’ said Ken Cheung, a foreign exchange strategist at Mizuho Bank…”
November 22 – Bloomberg: “When Zhou Xiaochuan finally hands over the baton at the People’s Bank of China after a decade and a half in charge, his successor will inherit a series of headaches crowned by a debt pile racing toward 300% of output. The next governor will be tasked with not just reining in that leverage without tripping up economic growth, but keeping an eye on accelerating inflation too, all as the institution’s role in a complex regulatory structure evolves. As if that wasn’t enough, they’ll also be tasked with maintaining a stable currency as it opens up to market forces and boosting communication to keep global investors in the loop. ‘The PBOC is in more of bind than ever with its monetary policy,’ said Zhao Yang, chief China economist at Nomura Holdings Inc. in Hong Kong. ‘While it was fine to just look at inflation and economic growth targets in the past, the central bank now has to strike a balance among more targets, some of them conflicting.’”
November 23 – Bloomberg (Justina Lee): “A $2.2 trillion superbank is feeling the pinch of China’s bond slump. The yield on China Development Bank’s 10-year bonds surged past 5% on Wednesday, bringing the rise this quarter to about 70 bps. More striking has been the jump in its premium over government debt with a similar maturity, given that the state-owned lender is a so-called policy bank that aligns lending with national goals. The spread surged to 1 percentage point this week, up more than a quarter point just this month. The latest increase comes in the wake of tightened rules unveiled this month for CDB and two sister banks, with regulators pushing for strengthened risk management. As these lenders rely on market funding rather than deposits, the bond rout poses an increasing challenge both to their earnings and the credit they extend -- to everything from shantytown redevelopment to President Xi Jinping’s signature Belt and Road Initiative across Eurasia.”
November 21 - Bloomberg: “China’s drive to reduce its debt burden has shifted into a higher gear following the Communist Party’s twice-a-decade congress in October. Regulators have set their sights on a key pressure point -- shadow banking -- with rules around asset-management products tightened last week as they seek to bring the market under control. But these popular, high-yielding products are just one slice of China’s sizable banking leverage pie, characterized by state media as the ‘original sin’ of the financial system. Even if credit growth eases, China’s debt is on track to be more than three times the size of the economy by 2022…”
November 22 – Financial Times (Emily Feng): “China has halted all approvals for new online lending companies, sending a chill through the country’s fast-growing fintech sector, which has produced some of the biggest and most well subscribed offshore listings this year. The regulations came from a new state body set up to regulate internet finance. The rules also forbid fresh approvals of offline microlending companies that lend across provinces. Existing companies will be allowed to continue operating but may see their operations more heavily regulated.”
November 22 - Bloomberg (Lianting Tu, Enda Curran, and Emma Dai): “China’s deleveraging campaign is finally starting to bite in the nation’s corporate-bond market, a shift that will make 2018 a clearer test of policy makers’ appetites to let struggling companies fail. Yields on five-year top-rated local corporate notes have jumped about 33 bps since the month began, to a three-year high of 5.3%... Government bonds… had already moved last month as the central bank warned further deleveraging was needed. With more than $1 trillion of local bonds maturing in 2018-19, it will become increasingly expensive for Chinese companies to roll over financing -- and all the tougher for those in industries like coal that the nation’s leadership wants to shrink.”
November 23 – Wall Street Journal (Nathaniel Taplin): “It is well known that Chinese history is circular—dynasties rise and dynasties fall. So is commentary on the country’s economy. In 2008, China was supposedly on the brink of collapse. In 2009, its farsighted stimulus program saved the world economy. And in 2015, its nearsighted stimulus and ham-handed regulation was poised to tank the world economy. Now, according to market consensus, China’s problems have largely been fixed and it is poised to dominate the new century. If that sounds suspicious, it should.”
November 17 - Bloomberg: “Chinese home prices rose in more cities in October, snapping a three-month decline, a sign the market is stabilizing amid government efforts to curb property speculation. New-home prices, excluding state-subsidized housing, climbed in 50 of the 70 cities tracked by the government, compared with 44 in September, the National Bureau of Statistics said on Saturday. Prices fell in 14 cities from the previous month and were unchanged in six.”
Federal Reserve Watch:
November 22 – CNBC (Jeff Cox): “Federal Reserve officials expressed largely optimistic views of economic growth at their most recent meeting but also started to worry that financial market prices are getting out of hand and posing a danger to the economy. Minutes from the Oct. 31-Nov. 1 Federal Open Market Committee meeting indicate members with almost universally positive views on growth — the labor market, consumer spending and manufacturing all were showing solid gains. While there were disagreements on the pace of inflation, and even a discussion about changing the Fed's approach to price stability, the sentiment otherwise was largely positive.”
November 21 – Reuters (Jonathan Spicer and Stephanie Kelly): “Federal Reserve Chair Janet Yellen stuck by her prediction that U.S. inflation will soon rebound but offered… an unusually strong caveat: she is ‘very uncertain’ about this and is open to the possibility that prices could remain low for years to come. A day after announcing her retirement from the U.S. central bank, planned for early February, Yellen said the Fed is nonetheless reasonably close to its goals and should continue to gradually raise interest rates to keep both inflation and unemployment from drifting too low.”
U.S. Bubble Watch:
November 20 - Bloomberg (Emma Orr and Scott Moritz): “Some of the biggest landline phone providers in the U.S., from Connecticut to Arizona, are running headlong into a debt crisis after borrowing heavily to add more territory and then failing to escape the industry’s decline. CenturyLink Inc., Frontier Communications Corp. and Windstream Holdings Inc. -- the three largest rural phone carriers -- have lost 8% of their lines in the past year alone as people abandon home-phone service for more convenient wireless plans. The companies have merged with equally weak peers and drained dwindling cash reserves in an effort to pay dividends. Their bonds have plunged, with some of Frontier’s trading as low as 73 cents on the dollar and Windstream’s for as little as 65 cents. CenturyLink is in better shape, but some of its notes now trade at about 95 cents, down from more than 106 cents in July.”
November 20 – CNBC (Fred Imbert): “Investors are too optimistic and taking on too much risk in this low volatile environment, setting the stock market up for a potential downfall, according to strategists at… Societe Generale. ‘In a goldilocks scenario of low interest rates, abundant liquidity, stable growth and a focus on the 'good' Trump, investors continue to push asset prices, volatility and leverage to historical extremes,’ said Alain Bokobza, head of global asset allocation at Societe Generale… ‘Yet, a low volatility carry environment with rather extreme positioning is a dangerous combination, which we recently likened to dancing on the rim of a volcano.’ Bokobza also compared U.S. stocks to the boiling frog that doesn't realize the trouble surrounding it.”
November 20 – Wall Street Journal (Dana Mattioli): “Investment bankers have gotten used to being asked by worried retail-industry chief executives to pitch takeover ideas aimed at fending off Amazon.com Inc. Now the fear has spread to media, health care and many other sectors, where CEOs dread the breathtaking competitive advancements made by not just Amazon but also Facebook Inc., Alphabet Inc.’s Google and Netflix Inc. The result is an explosion of mergers and acquisitions. So far this month, about $200 billion of deals have been announced in the U.S., according to Dealogic. November is on pace to be the second-biggest deal-making month since the firm began tracking them in 1995.”
November 23 – Wall Street Journal (Ben Eisen and Chris Dieterich): “Large companies are repurchasing their shares at the slowest pace in five years, as record U.S. stock indexes and an expanding economy propel more money out of flush corporate coffers into capital spending and mergers. Companies in the S&P 500 are on pace to spend $500 billion this year on share buybacks, or about $125 billion a quarter, according to… INTL FCStone. That is the least since 2012 and down from a quarterly average of $142 billion between 2014 and 2016.”
November 19 - Bloomberg (Shobhana Chandra, Vince Golle and Jordan Yadoo): “Faster apartment building was instrumental in pulling the U.S. housing market out of its slump a decade ago. Now, that engine is starting to throttle back. A softening in the multifamily segment is something to keep an eye on even as overall homebuilding… is expected to keep moving forward. The supply of apartments and condominiums has surged in recent years as builders responded to rising demand… A Commerce Department report… showed completions of multifamily units in October reached the fastest annualized rate in almost three decades. What’s more, the pipeline of apartments under construction is leveling off from a 42-year high reached at the start of 2017.”
Central Banker Watch:
November 23 – Wall Street Journal (Tom Fairless): “European Central Bank President Mario Draghi appears to have gone beyond what top officials agreed by stating last month that the ECB’s giant bond-buying program will continue beyond next September. The minutes of the ECB’s October meeting… show officials were divided over whether to announce a concrete end-date for their bond purchases, known as quantitative easing or QE—and didn’t agree to any extension or wind-down phase after September 2018. On the contrary: Some officials warned against leaving the program open-ended, precisely because it might lead investors to believe that QE would be extended again. A fresh extension ‘did not appear justified in the absence of major new shocks,’ the minutes said.”
November 21 – Reuters (Leika Kihara): “The Bank of Japan is dropping subtle, yet intentional, hints that it could edge away from crisis-mode stimulus earlier than expected, through a future hike in its yield target, according to people familiar with the central bank’s thinking. With inflation still way below its 2% target, the BOJ sees no immediate need to withdraw stimulus, and regards weak price growth as its most pressing policy challenge. But bank officials are now more vocal on the rising cost of prolonged easing…”
November 20 – Bloomberg: “When China unveiled plans on Friday to end the implicit guarantees underpinning asset-management products worth trillions of dollars, it should have been a bombshell for the nation’s savers. But for Yolanda Yuan and other individual investors who’ve piled into AMPs issued by banks, insurers and securities firms, the government’s announcement was largely a non-event. The reason: they didn’t believe it. ‘I don’t think any big banks will dare to take the risk of allowing defaults on AMPs, as that will lead to a flood of fund redemptions,’ said Yuan, a 29-year-old sales manager at a state-run financial company… She has about 100,000 yuan ($15,069) of personal savings in products covered by the new regulations. Over the past 13 years, assets in Chinese AMPs have swelled from almost nothing to $15 trillion in large part due to one key assumption: that investors would be made whole no matter what happened to the products’ underlying assets. Authorities are now moving to quash that belief amid concern that rampant moral hazard is distorting market prices and making the financial system vulnerable to crises.”
November 22 – CNBC (Huileng Tan): “China has been pumping a lot of cash into its system to lift market sentiment, as the world's second-largest economy walks a thin line between curbing debt and keeping everything running smoothly. Last week, the People's Bank of China injected cash totaling 810 billion Chinese yuan ($122.4bn) in five straight days of daily liquidity management operations. Those actions, which represented the largest weekly net increase since January, were in part a Beijing response to its 10-year sovereign bond yields spiking to multiyear highs, experts said. ‘Surging Chinese government bond yields hit the nerve of policymakers, so in order to further prevent a greater surge, they injected liquidity into the system to improve market sentiment,’ said Ken Cheung, a foreign exchange strategist at Mizuho Bank…”
November 22 – Bloomberg: “When Zhou Xiaochuan finally hands over the baton at the People’s Bank of China after a decade and a half in charge, his successor will inherit a series of headaches crowned by a debt pile racing toward 300% of output. The next governor will be tasked with not just reining in that leverage without tripping up economic growth, but keeping an eye on accelerating inflation too, all as the institution’s role in a complex regulatory structure evolves. As if that wasn’t enough, they’ll also be tasked with maintaining a stable currency as it opens up to market forces and boosting communication to keep global investors in the loop. ‘The PBOC is in more of bind than ever with its monetary policy,’ said Zhao Yang, chief China economist at Nomura Holdings Inc. in Hong Kong. ‘While it was fine to just look at inflation and economic growth targets in the past, the central bank now has to strike a balance among more targets, some of them conflicting.’”
November 23 – Bloomberg (Justina Lee): “A $2.2 trillion superbank is feeling the pinch of China’s bond slump. The yield on China Development Bank’s 10-year bonds surged past 5% on Wednesday, bringing the rise this quarter to about 70 bps. More striking has been the jump in its premium over government debt with a similar maturity, given that the state-owned lender is a so-called policy bank that aligns lending with national goals. The spread surged to 1 percentage point this week, up more than a quarter point just this month. The latest increase comes in the wake of tightened rules unveiled this month for CDB and two sister banks, with regulators pushing for strengthened risk management. As these lenders rely on market funding rather than deposits, the bond rout poses an increasing challenge both to their earnings and the credit they extend -- to everything from shantytown redevelopment to President Xi Jinping’s signature Belt and Road Initiative across Eurasia.”
November 21 - Bloomberg: “China’s drive to reduce its debt burden has shifted into a higher gear following the Communist Party’s twice-a-decade congress in October. Regulators have set their sights on a key pressure point -- shadow banking -- with rules around asset-management products tightened last week as they seek to bring the market under control. But these popular, high-yielding products are just one slice of China’s sizable banking leverage pie, characterized by state media as the ‘original sin’ of the financial system. Even if credit growth eases, China’s debt is on track to be more than three times the size of the economy by 2022…”
November 22 – Financial Times (Emily Feng): “China has halted all approvals for new online lending companies, sending a chill through the country’s fast-growing fintech sector, which has produced some of the biggest and most well subscribed offshore listings this year. The regulations came from a new state body set up to regulate internet finance. The rules also forbid fresh approvals of offline microlending companies that lend across provinces. Existing companies will be allowed to continue operating but may see their operations more heavily regulated.”
November 22 - Bloomberg (Lianting Tu, Enda Curran, and Emma Dai): “China’s deleveraging campaign is finally starting to bite in the nation’s corporate-bond market, a shift that will make 2018 a clearer test of policy makers’ appetites to let struggling companies fail. Yields on five-year top-rated local corporate notes have jumped about 33 bps since the month began, to a three-year high of 5.3%... Government bonds… had already moved last month as the central bank warned further deleveraging was needed. With more than $1 trillion of local bonds maturing in 2018-19, it will become increasingly expensive for Chinese companies to roll over financing -- and all the tougher for those in industries like coal that the nation’s leadership wants to shrink.”
November 23 – Wall Street Journal (Nathaniel Taplin): “It is well known that Chinese history is circular—dynasties rise and dynasties fall. So is commentary on the country’s economy. In 2008, China was supposedly on the brink of collapse. In 2009, its farsighted stimulus program saved the world economy. And in 2015, its nearsighted stimulus and ham-handed regulation was poised to tank the world economy. Now, according to market consensus, China’s problems have largely been fixed and it is poised to dominate the new century. If that sounds suspicious, it should.”
November 17 - Bloomberg: “Chinese home prices rose in more cities in October, snapping a three-month decline, a sign the market is stabilizing amid government efforts to curb property speculation. New-home prices, excluding state-subsidized housing, climbed in 50 of the 70 cities tracked by the government, compared with 44 in September, the National Bureau of Statistics said on Saturday. Prices fell in 14 cities from the previous month and were unchanged in six.”
Federal Reserve Watch:
November 22 – CNBC (Jeff Cox): “Federal Reserve officials expressed largely optimistic views of economic growth at their most recent meeting but also started to worry that financial market prices are getting out of hand and posing a danger to the economy. Minutes from the Oct. 31-Nov. 1 Federal Open Market Committee meeting indicate members with almost universally positive views on growth — the labor market, consumer spending and manufacturing all were showing solid gains. While there were disagreements on the pace of inflation, and even a discussion about changing the Fed's approach to price stability, the sentiment otherwise was largely positive.”
November 21 – Reuters (Jonathan Spicer and Stephanie Kelly): “Federal Reserve Chair Janet Yellen stuck by her prediction that U.S. inflation will soon rebound but offered… an unusually strong caveat: she is ‘very uncertain’ about this and is open to the possibility that prices could remain low for years to come. A day after announcing her retirement from the U.S. central bank, planned for early February, Yellen said the Fed is nonetheless reasonably close to its goals and should continue to gradually raise interest rates to keep both inflation and unemployment from drifting too low.”
U.S. Bubble Watch:
November 20 - Bloomberg (Emma Orr and Scott Moritz): “Some of the biggest landline phone providers in the U.S., from Connecticut to Arizona, are running headlong into a debt crisis after borrowing heavily to add more territory and then failing to escape the industry’s decline. CenturyLink Inc., Frontier Communications Corp. and Windstream Holdings Inc. -- the three largest rural phone carriers -- have lost 8% of their lines in the past year alone as people abandon home-phone service for more convenient wireless plans. The companies have merged with equally weak peers and drained dwindling cash reserves in an effort to pay dividends. Their bonds have plunged, with some of Frontier’s trading as low as 73 cents on the dollar and Windstream’s for as little as 65 cents. CenturyLink is in better shape, but some of its notes now trade at about 95 cents, down from more than 106 cents in July.”
November 20 – CNBC (Fred Imbert): “Investors are too optimistic and taking on too much risk in this low volatile environment, setting the stock market up for a potential downfall, according to strategists at… Societe Generale. ‘In a goldilocks scenario of low interest rates, abundant liquidity, stable growth and a focus on the 'good' Trump, investors continue to push asset prices, volatility and leverage to historical extremes,’ said Alain Bokobza, head of global asset allocation at Societe Generale… ‘Yet, a low volatility carry environment with rather extreme positioning is a dangerous combination, which we recently likened to dancing on the rim of a volcano.’ Bokobza also compared U.S. stocks to the boiling frog that doesn't realize the trouble surrounding it.”
November 20 – Wall Street Journal (Dana Mattioli): “Investment bankers have gotten used to being asked by worried retail-industry chief executives to pitch takeover ideas aimed at fending off Amazon.com Inc. Now the fear has spread to media, health care and many other sectors, where CEOs dread the breathtaking competitive advancements made by not just Amazon but also Facebook Inc., Alphabet Inc.’s Google and Netflix Inc. The result is an explosion of mergers and acquisitions. So far this month, about $200 billion of deals have been announced in the U.S., according to Dealogic. November is on pace to be the second-biggest deal-making month since the firm began tracking them in 1995.”
November 23 – Wall Street Journal (Ben Eisen and Chris Dieterich): “Large companies are repurchasing their shares at the slowest pace in five years, as record U.S. stock indexes and an expanding economy propel more money out of flush corporate coffers into capital spending and mergers. Companies in the S&P 500 are on pace to spend $500 billion this year on share buybacks, or about $125 billion a quarter, according to… INTL FCStone. That is the least since 2012 and down from a quarterly average of $142 billion between 2014 and 2016.”
November 19 - Bloomberg (Shobhana Chandra, Vince Golle and Jordan Yadoo): “Faster apartment building was instrumental in pulling the U.S. housing market out of its slump a decade ago. Now, that engine is starting to throttle back. A softening in the multifamily segment is something to keep an eye on even as overall homebuilding… is expected to keep moving forward. The supply of apartments and condominiums has surged in recent years as builders responded to rising demand… A Commerce Department report… showed completions of multifamily units in October reached the fastest annualized rate in almost three decades. What’s more, the pipeline of apartments under construction is leveling off from a 42-year high reached at the start of 2017.”
Central Banker Watch:
November 23 – Wall Street Journal (Tom Fairless): “European Central Bank President Mario Draghi appears to have gone beyond what top officials agreed by stating last month that the ECB’s giant bond-buying program will continue beyond next September. The minutes of the ECB’s October meeting… show officials were divided over whether to announce a concrete end-date for their bond purchases, known as quantitative easing or QE—and didn’t agree to any extension or wind-down phase after September 2018. On the contrary: Some officials warned against leaving the program open-ended, precisely because it might lead investors to believe that QE would be extended again. A fresh extension ‘did not appear justified in the absence of major new shocks,’ the minutes said.”
November 21 – Reuters (Leika Kihara): “The Bank of Japan is dropping subtle, yet intentional, hints that it could edge away from crisis-mode stimulus earlier than expected, through a future hike in its yield target, according to people familiar with the central bank’s thinking. With inflation still way below its 2% target, the BOJ sees no immediate need to withdraw stimulus, and regards weak price growth as its most pressing policy challenge. But bank officials are now more vocal on the rising cost of prolonged easing…”
Global Bubble Watch:
November 22 - Bloomberg (Luke Kawa): “‘I’m melting, I’m melting!’ The dying lament of a Wicked Witch? Yes. But it’s also an apt description of what’s been happening to bond yields since the financial crisis, according to Bank of America Merrill Lynch. In 2008, there was $28 trillion of debt yielding 4% or more. Now, it’s down to $3 trillion. An era of unprecedented monetary accommodation and structurally slower growth has been accompanied by a seemingly insatiable search for yield. Investors will now accept lower relative returns on risky debt or extend duration to clip coupons on sovereign bonds that still aren’t anywhere close to pre-crisis levels.”
November 21 – Financial Times (Robin Wigglesworth): “The difference between US short and long-term bond yields has dropped below the 1% mark for the first time in a decade, sparking concerns that the post-crisis economic expansion may be approaching its end. The so-called yield curve made up by the US government’s borrowing costs is one of the most widely followed financial indicators… On Tuesday the difference between two and 30-year US Treasury yields slipped to 98.8 bps, below the 100 bps (or 1%) level for the first time since November 2007.”
November 24 – Financial Times (John Authers): “Bats with Fangs can bite back. For those who do not speak fluent acronym, the Bats are the dominant Chinese internet groups — Baidu, Alibaba and Tencent — while the Fangs are the dominant US players in the internet, a list which includes Facebook, Amazon, Apple, Netflix, Google and some others. They have risen extraordinarily this year, so that all the world’s largest seven companies by market value are now either Bats or Fangs. The co-ordinated advance of online companies in the world’s two largest economies is one of the phenomena of the age. It can cloud perceptions of China, which is now the fulcrum of world capital markets. China’s political model is changing as Xi Jinping asserts greater control over the economy, while its attempts to change its economic model continue — and while officials throughout the Chinese power structure signal their worry about the country’s huge overhang of debt.”
November 22 - Bloomberg (Luke Kawa): “‘I’m melting, I’m melting!’ The dying lament of a Wicked Witch? Yes. But it’s also an apt description of what’s been happening to bond yields since the financial crisis, according to Bank of America Merrill Lynch. In 2008, there was $28 trillion of debt yielding 4% or more. Now, it’s down to $3 trillion. An era of unprecedented monetary accommodation and structurally slower growth has been accompanied by a seemingly insatiable search for yield. Investors will now accept lower relative returns on risky debt or extend duration to clip coupons on sovereign bonds that still aren’t anywhere close to pre-crisis levels.”
November 21 – Financial Times (Robin Wigglesworth): “The difference between US short and long-term bond yields has dropped below the 1% mark for the first time in a decade, sparking concerns that the post-crisis economic expansion may be approaching its end. The so-called yield curve made up by the US government’s borrowing costs is one of the most widely followed financial indicators… On Tuesday the difference between two and 30-year US Treasury yields slipped to 98.8 bps, below the 100 bps (or 1%) level for the first time since November 2007.”
November 24 – Financial Times (John Authers): “Bats with Fangs can bite back. For those who do not speak fluent acronym, the Bats are the dominant Chinese internet groups — Baidu, Alibaba and Tencent — while the Fangs are the dominant US players in the internet, a list which includes Facebook, Amazon, Apple, Netflix, Google and some others. They have risen extraordinarily this year, so that all the world’s largest seven companies by market value are now either Bats or Fangs. The co-ordinated advance of online companies in the world’s two largest economies is one of the phenomena of the age. It can cloud perceptions of China, which is now the fulcrum of world capital markets. China’s political model is changing as Xi Jinping asserts greater control over the economy, while its attempts to change its economic model continue — and while officials throughout the Chinese power structure signal their worry about the country’s huge overhang of debt.”
November 22 – Bloomberg: “Unease rippled through China’s stock market on Thursday, with a gauge of large-cap shares plummeting the most since June last year, as investors fretted a bond rout is getting out of control. The CSI 300 Index sank 3%, with losses steepening in the last hour of trading… Industrial & Commercial Bank of China Ltd., Ping An Insurance (Group) Co. and Kweichow Moutai Co. were among the biggest drags on Shanghai’s benchmark index. Hong Kong’s Hang Seng Index slid 1% from a decade-high.”
November 23 – Bloomberg (Chris Bourke): “The party is finally winding down for Australia’s housing market. How severe the hangover is will determine the economy’s fate for years to come. After five years of surging prices, the market value of the nation’s homes has ballooned to A$7.3 trillion ($5.6 trillion) -- or more than four times gross domestic product. Not even the U.S. and U.K. markets achieved such heights at their peaks a decade ago before prices spiraled lower and dragged their economies with them. Australia’s obsession with property is firmly entrenched in the nation’s economy and psyche, fueled by record-low interest rates, generous tax breaks, banks hooked on mortgage lending, and prime-time TV shows where home renovators are lauded like sporting heroes. For many, homes morphed into cash machines to finance loans for boats, cars and investment properties.”
Fixed Income Bubble Watch:
November 20 – CNBC (Patti Domm): “Corporate debt is at its highest level relative to U.S. GDP since the financial crisis, and while not now a concern, that mountain of corporate IOUs could quickly turn into a heap of worry under the right circumstances. Fueled by low interest rates and strong investor appetite, debt of nonfinancial companies has increased at a rapid clip, to $8.7 trillion, and is equal to more than 45% of GDP, according to David Ader, chief macro strategist at Informa Financial Intelligence. According to the Federal Reserve, nonfinancial corporate debt outstanding has grown by $1 trillion in two years.”
Europe Watch:
November 23 – Bloomberg (Birgit Jennen and Arne Delfs): “Germany’s biggest opposition party said it’s open to talks on backing a government led by Chancellor Angela Merkel, offering a way to restore political stability to Europe’s biggest economy. Social Democrat Secretary General Hubertus Heil told reporters that the party is ready to start discussions if that’s the course that President Frank-Walter Steinmeier, who is trying to broker a deal, decides upon. Heil spoke after an eight-hour meeting of the SPD leadership in Berlin that wrapped up in the early hours of Friday. The SPD is firmly convinced that talks are needed,’ Heil was quoted as saying… ‘The SPD won’t reject such talks.’”
Fixed Income Bubble Watch:
November 20 – CNBC (Patti Domm): “Corporate debt is at its highest level relative to U.S. GDP since the financial crisis, and while not now a concern, that mountain of corporate IOUs could quickly turn into a heap of worry under the right circumstances. Fueled by low interest rates and strong investor appetite, debt of nonfinancial companies has increased at a rapid clip, to $8.7 trillion, and is equal to more than 45% of GDP, according to David Ader, chief macro strategist at Informa Financial Intelligence. According to the Federal Reserve, nonfinancial corporate debt outstanding has grown by $1 trillion in two years.”
Europe Watch:
November 23 – Bloomberg (Birgit Jennen and Arne Delfs): “Germany’s biggest opposition party said it’s open to talks on backing a government led by Chancellor Angela Merkel, offering a way to restore political stability to Europe’s biggest economy. Social Democrat Secretary General Hubertus Heil told reporters that the party is ready to start discussions if that’s the course that President Frank-Walter Steinmeier, who is trying to broker a deal, decides upon. Heil spoke after an eight-hour meeting of the SPD leadership in Berlin that wrapped up in the early hours of Friday. The SPD is firmly convinced that talks are needed,’ Heil was quoted as saying… ‘The SPD won’t reject such talks.’”
Japan Watch:
November 19 - Bloomberg (James Mayger): “Japan’s exports grew by double digits for a fourth straight month in October, continuing the best year-to-date performance since the global financial crisis. The value of exports rose 14% from a year earlier. Imports increase 18.9%.”
November 19 - Bloomberg (James Mayger): “Japan’s exports grew by double digits for a fourth straight month in October, continuing the best year-to-date performance since the global financial crisis. The value of exports rose 14% from a year earlier. Imports increase 18.9%.”
Emerging Market Watch:
November 20 - Bloomberg (Srinivasan Sivabalan): “Anyone wondering whether there’s still a price to pay for political risk need look no further than Turkey. The extra returns investors demand to buy the country’s assets are among the highest for developing nations, surpassing the premia for politically troubled peers such as Brazil, South Africa and Mexico. And the gap widened in recent days, after Turkish President Recep Tayyip Erdogan hit out at the central bank’s rate policy, reviving concern over government meddling in monetary decisions. That drove the nation’s bonds lower, pushing the yield on the benchmark 10-year debt to a record high on Monday, while the Borsa Istanbul 100 Index posted the biggest four-day loss in local currency terms since the aftermath of a failed coup last year.”
Geopolitical Watch:
November 23 – Reuters (Noah Browning and Parisa Hafezi): “Saudi Arabia’s powerful Crown Prince called the Supreme Leader of Iran ‘the new Hitler of the Middle East’ in an interview with the New York Times…, sharply escalating the war of words between the arch-rivals. The Sunni Muslim kingdom of Saudi Arabia and Shi‘ite Iran back rival sides in wars and political crises throughout the region. Mohammed bin Salman, who is also Saudi defense minister in the U.S.-allied kingdom, suggested the Islamic Republic’s alleged expansion under Ayatollah Ali Khamenei needed to be confronted.”
November 19 - Reuters (Patrick Markey and Mohamed Abdellah): “Saudi Arabia and other Arab foreign ministers criticized Iran and its Lebanese Shi‘ite ally Hezbollah at an emergency meeting in Cairo on Sunday, calling for a united front to counter Iranian interference. Regional tensions have risen in recent weeks between Sunni monarchy Saudi Arabia and Shi‘ite Islamist Iran over Lebanese Prime Minister Saad al-Hariri’s surprise resignation, and an escalation in Yemen’s conflict.”
November 22 - Bloomberg (Donna Abu-Nasr): “Lebanese Prime Minister Saad Hariri suspended his resignation after the country’s president called for talks on how and why he ended up in Saudi Arabia this month and quit suddenly. Hariri said he accepted a request from President Michel Aoun to delay his departure, temporarily defusing a crisis that’s drawn in regional and global powers and rattled investors. The premier, who had said he feared for his life in Lebanon, has denied he was pressured by the Saudis to step down.”
November 20 - Bloomberg (Srinivasan Sivabalan): “Anyone wondering whether there’s still a price to pay for political risk need look no further than Turkey. The extra returns investors demand to buy the country’s assets are among the highest for developing nations, surpassing the premia for politically troubled peers such as Brazil, South Africa and Mexico. And the gap widened in recent days, after Turkish President Recep Tayyip Erdogan hit out at the central bank’s rate policy, reviving concern over government meddling in monetary decisions. That drove the nation’s bonds lower, pushing the yield on the benchmark 10-year debt to a record high on Monday, while the Borsa Istanbul 100 Index posted the biggest four-day loss in local currency terms since the aftermath of a failed coup last year.”
Geopolitical Watch:
November 23 – Reuters (Noah Browning and Parisa Hafezi): “Saudi Arabia’s powerful Crown Prince called the Supreme Leader of Iran ‘the new Hitler of the Middle East’ in an interview with the New York Times…, sharply escalating the war of words between the arch-rivals. The Sunni Muslim kingdom of Saudi Arabia and Shi‘ite Iran back rival sides in wars and political crises throughout the region. Mohammed bin Salman, who is also Saudi defense minister in the U.S.-allied kingdom, suggested the Islamic Republic’s alleged expansion under Ayatollah Ali Khamenei needed to be confronted.”
November 19 - Reuters (Patrick Markey and Mohamed Abdellah): “Saudi Arabia and other Arab foreign ministers criticized Iran and its Lebanese Shi‘ite ally Hezbollah at an emergency meeting in Cairo on Sunday, calling for a united front to counter Iranian interference. Regional tensions have risen in recent weeks between Sunni monarchy Saudi Arabia and Shi‘ite Islamist Iran over Lebanese Prime Minister Saad al-Hariri’s surprise resignation, and an escalation in Yemen’s conflict.”
November 22 - Bloomberg (Donna Abu-Nasr): “Lebanese Prime Minister Saad Hariri suspended his resignation after the country’s president called for talks on how and why he ended up in Saudi Arabia this month and quit suddenly. Hariri said he accepted a request from President Michel Aoun to delay his departure, temporarily defusing a crisis that’s drawn in regional and global powers and rattled investors. The premier, who had said he feared for his life in Lebanon, has denied he was pressured by the Saudis to step down.”
November 21 – Reuters (MacDonald Dzirutwe): “Robert Mugabe resigned as Zimbabwe’s president on Tuesday, a week after the army and his former political allies moved to end four decades of rule by a man once feted as an independence hero who became feared as a despot.”
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