For the Week:
The S&P500 slipped 0.3% (up 5.2% y-t-d), while the Dow was about unchanged (up 4.5%). The Utilities added 0.3% (up 5.3%). The Banks fell 1.2% (down 1.0%), and the Broker/Dealers dropped 2.4% (up 2.7%). The Transports were little changed (up 0.7%). The S&P 400 Midcaps declined 0.8% (up 2.8%), and the small cap Russell 2000 fell 1.5% (up 0.5%). The Nasdaq100 dipped 0.3% (up 11.4%), and the Morgan Stanley High Tech index declined 0.2% (up 13.3%). The Semiconductors lost 1.2% (up 10.2%). The Biotechs sank 2.5% (up 13.1%). With bullion gaining $5, the HUI gold index rallied 3.3% (up 11.8%).
Three-month Treasury bill rates ended the week at 80 bps. Two-year government yields increased three bps to 1.29% (up 10bps y-t-d). Five-year T-note yields were unchanged at 1.92% (down 1bp). Ten-year Treasury yields slipped a basis point to 2.38% (down 6bps). Long bond yields were unchanged at 3.01% (down 6bps).
Greek 10-year yields declined 11 bps to 6.79% (down 23bps y-t-d). Ten-year Portuguese yields fell 11 bps to 3.87% (up 12bps). Italian 10-year yields dropped 10 bps to 2.22% (up 41bps). Spain's 10-year yields declined five bps to 1.61% (up 23bps). German bund yields sank 10 bps to 0.23% (up 2bps). French yields fell eight bps to 0.89% (up 21bps). The French to German 10-year bond spread widened one to 66 bps. U.K. 10-year gilt yields fell six bps to 1.08% (down 16bps). U.K.'s FTSE equities index added 0.4% (up 2.9%).
Japan's Nikkei 225 equities index dropped 1.3% to a four-month low (down 2.4% y-t-d). Japanese 10-year "JGB" yields slipped a basis point to 0.06% (up 2bps). The German DAX equities index dipped 0.7% (up 6.5%). Spain's IBEX 35 equities index added 0.6% (up 12.6%). Italy's FTSE MIB index fell 0.9% (up 5.5%). EM equities were mixed. Brazil's Bovespa index lost 0.8% (up 7.0%). Mexico's Bolsa jumped 1.6% (up 8.1%). South Korea's Kospi slipped 0.4% (up 6.2%). India’s Sensex equities index added 0.3% (up 11.6%). China’s Shanghai Exchange jumped 2.0% (up 5.9%). Turkey's Borsa Istanbul National 100 index declined 0.5% (up 13.3%). Russia's MICEX equities index advanced 1.2% (down 9.5%).
Junk bond mutual funds saw inflows surge to $2.375 billion (from Lipper).
Freddie Mac 30-year fixed mortgage rates declined four bps to 4.10% (up 51bps y-o-y). Fifteen-year rates declined three bps to 3.36% (up 48bps). The five-year hybrid ARM rate added a basis point to 3.19% (up 37bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down four bps to 4.19% (up 51bps).
Federal Reserve Credit last week slipped $1.6bn to $4.435 TN. Over the past year, Fed Credit declined $8.8bn (down 0.2%). Fed Credit inflated $1.617 TN, or 58%, over the past 230 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt gained $7.2bn last week to $3.214 TN. "Custody holdings" were down $43.4bn y-o-y, or 1.3%.
M2 (narrow) "money" supply last week expanded $12.3bn to a record $13.418 TN. "Narrow money" expanded $777bn, or 6.2%, over the past year. For the week, Currency increased $4.3bn. Total Checkable Deposits dropped $25bn, while Savings Deposits jumped $31.4bn. Small Time Deposits were little changed. Retail Money Funds added $1.8bn.
Total money market fund assets declined $6.0bn to $2.648 TN. Money Funds fell $91bn y-o-y (3.3%).
Total Commercial Paper gained $6.7bn to $993bn. CP declined $109bn y-o-y, or 9.9%.
Currency Watch:
The U.S. dollar index gained 0.8% to 101.13 (down 1.2% y-t-d). For the week on the upside, the Mexican peso and Japanese yen increased 0.3%. For the week on the downside, the South African rand declined 2.5%, the Australian dollar 1.7%, the British pound 1.4%, the South Korean won 1.4%, the Swedish krona 1.1%, the New Zealand dollar 0.9%, the Brazilian real 0.8%, the Norwegian krone 0.7%, the Swiss franc 0.6%, the Canadian dollar 0.6%, the euro 0.6% and the Singapore dollar 0.6%. The Chinese yuan declined 0.19% versus the dollar this week (up 0.64% y-t-d).
Commodities Watch:
The Goldman Sachs Commodities Index advanced 1.2% (down 1.4% y-t-d). Spot Gold added 0.4% to $1,254 (up 8.9%). Silver fell 1.5% to $17.99 (up 12.6%). Crude jumped $1.69 to $52.29 (down 2.9%). Gasoline rose 2.3% (up 4%), and Natural Gas gained 1.8% (down 13%). Copper slipped 0.3% (up 6%). Wheat declined 0.6% (up 4%). Corn fell 1.3% (up 2%).
Trump Administration Watch:
April 4 – Reuters (David Brunnstrom, Matt Spetalnick and Ben Blanchard): “When U.S. President Donald Trump meets Chinese President Xi Jinping this week, their summit will be marked not only by deep policy divisions but a clash of personalities between America’s brash ‘tweeter-in-chief’ and Beijing’s cautious, calculating leader. They may have one thing in common: their rhetoric about restoring their nations to greatness. But the two men differ in almost every other respect, from their political styles to their diplomatic experience, adding uncertainty to what has been called the world’s most important bilateral relationship. Five months after his election on a stridently anti-China platform, Trump appears to have set himself on a course for collision rather than conciliation with Xi, raising doubts as to whether the world's two biggest economies can find common ground.”
April 3 – Financial times (Song Jung-a, Ben Bland and Tom Mitchell): “Donald Trump’s warning that he could take unilateral action to eliminate North Korea’s nuclear threat has sparked alarm among some analysts in Asia about the implications for South Korea, Japan and China of a military conflict with Pyongyang. ‘China has great influence over North Korea. And China will either decide to help us with North Korea, or they won’t,’ Mr Trump told the Financial Times... ‘If China is not going to solve North Korea, we will.’ The comments by the US president came weeks after Rex Tillerson, secretary of state, declared during a visit to Asia that the US policy of ‘strategic patience has ende’. Mr Tillerson said that Washington would not rule out any option in response to provocations by North Korea.”
April 6 – Bloomberg (Elizabeth Dexheimer): “In a private meeting with lawmakers, White House economic adviser Gary Cohn said he supports a policy that could radically reshape Wall Street’s biggest firms by separating their consumer-lending businesses from their investment banks, said people with direct knowledge… Cohn, the ex-Goldman Sachs Group Inc. executive who is now advising President Donald Trump, said he generally favors banking going back to how it was when firms like Goldman focused on trading and underwriting securities, and companies such as Citigroup Inc. primarily issued loans… The remarks surprised some senators and congressional aides who attended the Wednesday meeting, as they didn’t expect a former top Wall Street executive to speak favorably of proposals that would force banks to dramatically rethink how they do business.”
April 5 – Reuters (Roberta Rampton and Jeff Mason): “‘We’re going to be coming out with some very strong - far beyond recommendations - we're going to be doing things that are going to be very good for the banking industry so that the banks can loan money to people who need it,’ Trump told a meeting with a business leaders… ‘We’re going to do a very major haircut on Dodd-Frank. We want strong restrictions, we want strong regulation. But not regulation that makes it impossible for the banks to loan to people that are going to create jobs,’ Trump said.”
April 4 – Bloomberg (Matthew Townsend, Ben Brody, and Elizabeth Dexheimer): “Donald Trump’s surprising election and his promise to overhaul the U.S. tax code set off celebrations across corporate America -- but some industries had barely applauded before they began gearing up for a fight. Trump’s win gave Republicans control of the U.S. government for the first time in a decade and quickly drew attention to a tax plan that House Speaker Paul Ryan unveiled last summer with little fanfare. Ryan’s radical tax-code rewrite would replace the corporate income tax with a 20% tax on businesses’ domestic sales and imports; their exports would be exempt. Cue the alarm bells for import-heavy companies like Wal-Mart Stores Inc., Target Corp. and Nike Inc. Retailers, apparel-makers, shoemakers, automakers and others unleashed one of their most robust lobbying and public-relations pushes in recent memory against the so-called ‘border-adjusted’ tax.”
China Bubble Watch:
April 2 – Bloomberg: “China’s deleveraging push has racked up the most defaults on corporate bonds ever for a first quarter, and the identity of the debtors is pretty revealing. Seven companies have defaulted on a total of nine bonds onshore so far in 2017, versus 29 for all of last year… In a sign of the struggles facing China’s old economic model, most of them depend on heavy industry and construction… ‘Weak companies can’t sell bonds, which adds to the pressure on their cash flow,’ said Liu Dongliang, a senior analyst at China Merchants Bank… ‘The pace of defaults will continue. It will be even more difficult for weak companies to sell bonds because corporate bond yields may rise further -- the current yield premium doesn’t provide enough protection against credit risks.’”
April 4 – Reuters (Jake Spring): “The crisis at Huishan Dairy, one of China's biggest dairy companies, is a stark reminder of what can lurk in the dark corners of corporate China, where rapid growth can go hand in hand with tangled finances and heavy debt. China Huishan Dairy Holdings Co Ltd embraced what its executives called ‘innovative financing’, from the sale and leaseback of its cows, to selling wealth management products for rich investors - financial antics that seem incongruous with the dusty fields, tin-roofed sheds and plastic greenhouses of Zhangwu county in northeast China. Now it is battling swollen liabilities, a short-term debt squeeze and considerable unwanted attention… It has reported a key finance executive missing. Its misfortunes are a reminder that even as banks' bad debt numbers stabilise, there remain many question marks over the quality of their balance sheets… ‘When you move down to the local lenders in less developed provinces and counties, there could be hundreds and thousands of similar cases to Huishan, albeit at a smaller scale,’ said Shawlin Chaw, Control Risks analyst focused on Greater China.”
April 4 – Financial Times (Jennifer Hughes): “The disclosure that China Huishan Dairy’s founder pledged 71% of his company’s shares for loans before the group’s stock collapsed has raised fears that more companies could be at risk if other large shareholders have followed his example. Share-backed lending is common in Asia and a sought-after business in Hong Kong for banks keen to build deeper links with favoured tycoons, whose wealth is often tied up in their company’s stock. Private equity funds also regularly borrow against the value of their holdings in listed groups. While the loans carry strict triggers and borrowers forfeit shares if they cannot meet margin calls promptly, the extreme nature of Huishan’s crash — the shares plummeted 85% in 45 minutes before dealing was halted and are still not trading — means it is unclear whether Yang Kai might be forced to cede control of the group.”
April 6 – Bloomberg (Lianting Tu, Carrie Hong, and Denise Wee): “The first ever downgrade of a Chinese local-government financing vehicle by an international ratings agency is reigniting concern over the debt-saddled entities, amid angst there could be more cuts to come. S&P Global Ratings reduced its credit rating on Jiangsu NewHeadline Development Group, a construction services provider and one of the largest financing firms owned by Lianyungang City -- in China’s eastern Jiangsu province… S&P attributed the cut to the local government’s high debt burden and said the LGFV’s credit profile will remain under pressure for the next two years. ‘I wouldn’t be surprised if we see more downgrades by rating agencies,’ said Anne Zhang, executive director at… JPMorgan… ‘If S&P downgrades, we might see Fitch start to review their ratings as well.’”
April 7 – Bloomberg: “The scent of doom is returning to China’s local government bond market. S&P Global Ratings pulled the trigger on the first ever downgrade of a Chinese local-government financing vehicle Thursday, citing the city in eastern Jiangsu province’s high debt burden. Traders and analysts are uneasy as well, with 18 of 29 polled in a Bloomberg News survey saying they’d sooner buy corporate debt than LGFV bonds. Concern Beijing is trying to wean local bodies off their support is quelling demand for the debt, with the yield premium on LGFV notes versus company bonds swelling to near the most since March 2014.”
April 3 – Financial times (Don Weinland): “China’s so-called bad banks are thriving as alternative lenders, evolving from bad-debt managers into some of the country’s largest financial conglomerates just as margins at the big state-owned banks come under pressure. China’s four centrally controlled asset management companies (AMCs) were set up in 1999 to swallow toxic assets from banks, and have had their assets grow expansively over the past five years. Assets at Cinda Asset Management Company… rose 360% to Rmb1.1tn ($160bn) between 2012 and 2016… The four groups — Cinda, Huarong, Great Wall and Orient — have been the primary buyers of non-performing loans in China. But they have also profited from low interest rates in recent years, borrowing cheaply and lending to companies at much higher rates to restructure problematic loans.”
April 5 – Reuters (Yawen Chen and Nicholas Heath): “Activity in China's service sector expanded at its weakest pace in six months in March, hurt by slower growth in new orders and intensifying cost pressures… The Caixin/Markit services purchasing managers' index (PMI) for March fell to 52.2 from February's 52.6…”
Global Bubble Watch:
April 4 – Reuters (Dion Rabouin): “Global debt rose to 325% of the world's gross domestic product in 2016, totalling $215 trillion, an Institute for International Finance report released… showed, boosted by the rapid growth of issuance in emerging markets. Global debt grew by $7.6 trillion in 2016 compared with the prior year. Issuance rose from 320% of GDP in 2015. Emerging market debt saw a ‘spectacular rise’ to $55 trillion outstanding in 2016, equal to 215% of their GDP. This was driven mostly by non-financial corporate debt, the report said. Emerging markets have raised nearly $40 trillion of new debt between 2006 and 2016, a significant acceleration from the roughly $9 trillion added between 1996 and 2006… Global debt has risen more than $70 trillion in the last decade to a record high for debt issuance… Developed market countries accounted for $160 trillion, the lion's share of global debt, reaching… 390% of those markets' combined GDP. The report found that the $32 trillion increase in developed market debt had been driven largely by governments, with U.S. and UK public sector debt having more than doubled since 2006.”
April 5 – Bloomberg (Fergal O'Brien): “Inflation across Organization for Economic Cooperation and Development member nations is accelerating, with the average reaching the fastest in five years in February. The increase was driven by energy prices, where the year-on-year change jumped to 11.1% from 8.5%, and food. Among the OECD’s biggest economies, the fastest inflation was in the U.S…”
April 3 – Bloomberg (Luke Kawa): “So much for America First. In the first quarter, investors dumped an U.S. exchange-traded fund that holds mid and small-cap U.S. stocks and flooded into another that owns large emerging-market equities. The iShares Russell 2000 ETF… was hit with $1.41 billion in outflows since the start of the year, the most among U.S.-listed equity ETFs. The iShares Core MSCI Emerging Markets ETF… attracted $6.63 billion in assets, the most among funds tracked by Bloomberg.”
April 5 – Bloomberg (Kim Chipman and Erik Hertzberg): “Toronto’s housing market showed no signs of cooling last month, with the average sale price soaring the most in almost three decades as the cost of a detached downtown home climbed to nearly C$1.6 million ($1.2 million). Prices increased by a third in every major housing category, including townhouses and condominiums, amid intense competition among buyers…”
April 2 – Bloomberg (Emily Cadman): “Australian house prices rose the most in almost seven years in March as the country’s housing boom accelerated. Average home values in Australia’s eight state and territory capitals rose 12.9% in the 12 months through March, the fastest pace since May 2010, according to… CoreLogic… The boom is being led by Sydney, where average house values surged 18.9% in the past 12 months, the most since November 2002. Sydney home values climbed 5% in the first three months of the year.”
April 4 – Bloomberg (Emily Cadman): “Australian regulators may take further steps to rein in mortgage lending amid growing concern booming home prices pose a risk to the financial system. Restrictions on interest-only loans announced last week were a ‘tactical response’ to growth in lending to property investors, Australian Prudential Regulation Authority Chairman Wayne Byres said... The regulator ‘can and will do more, or less, as conditions evolve,’ he said… Australian house prices rose the most in almost seven years in March, data from CoreLogic… showed. The boom is being led by Sydney, where average house values surged 18.9% in the past 12 months, the most since November 2002.”
Fixed Income Bubble Watch:
April 4 – Wall Street Journal (Christopher Whittall): “High-grade corporate bonds surged when the European Central Bank added them to its €2.3 trillion purchase program last year. Now, with a slowdown in ECB buying on the horizon—alongside potentially risky European elections—some investors are bracing for a selloff. The ECB started paring its monthly purchases of European debt from €80 billion to €60 billion in April, meaning it will buy around €1.9 billion fewer corporate bonds every month…”
April 4 – Financial Times (Nicholas Megaw): “Growing risk appetite as investors embraced the so-called ‘Trump trade’ helped issuance of high-yield corporate bonds in Europe more than double in the first quarter, but from a very low base, according to data from Fitch… Total junk bond issuance of €30bn was 2.5 times greater than in the first quarter of 2016… The riskiest debt, with credit ratings below B-, made up the highest share of total high-yield issuance since 2013, highlighting the extent of market optimism.”
ECB Watch:
April 4 – Reuters (Stephen Jewkes): “Italy's Target 2 liabilities rose to a new record high in March pointing to growing imbalances in the position of different central banks within the euro zone. The Bank of Italy's position within the Target 2 system, which settles cross-border payments in the euro zone, is monitored because its increase can indicate financial stress. The Bank of Italy said on Friday its Target 2 position rose to 419.8 billion euros ($446.2bn) in March from 386.1 billion euros in February.”
April 6 – Bloomberg (Alessandro Speciale): “Mario Draghi may have hoped to put an end to the bubbling debate on the European Central Bank’s exit strategy on Thursday. It didn’t take long for a reminder of how complicated this will be. Speaking in Frankfurt, the ECB president sought to quash the idea that policy makers will begin tightening policy sooner than planned and dispel doubts about the planned route to the eventual stimulus exit. Less than three hours later, Bundesbank President Jens Weidmann re-opened the issue, saying that a discussion on forward guidance is ‘legitimate.’ The conflicting signals are exactly what executive board member Benoit Coeure warned about last week when he said public disagreements may hamper the effectiveness of policy.”
Europe Watch:
April 3 – Reuters (Jonathan Cable): “Factories across the euro zone struggled to keep up with demand last month despite increasing activity at the fastest rate in nearly six years, according to a survey that showed them again hiking prices. IHS Markit's final manufacturing Purchasing Managers’ Index for the euro zone rose to 56.2 in March, the highest since April 2011, from February's 55.4.”
April 3 – Bloomberg (Zoe Schneeweiss): “Euro-area unemployment fell to the lowest level in almost eight years in February, in a sign that the region’s economy is strengthening. Joblessness decreased to 9.5%... That’s the lowest since May 2009…”
April 3 – Financial times (Dan McCrum): “Italian government bond prices were lower on Monday, as investors focused on signs of political sclerosis rather than economic data pointing to strength in manufacturing and a drop in the ranks of the unemployed. The difference between Italian 10-year sovereign bonds and the benchmark German Bund — a key measure of investor confidence as it shows the premium traders are demanding to buy Italian debt — hit a more than three-year high on Monday of 2.03%.”
April 4 – Financial times (Mehreen Khan): “The yield gap between French and German two-year debt has blown out to its highest level since the eurozone crisis as investors snap up German assets ahead of France’s presidential elections in three weeks’ time. The two-year spread – a measure of the premium investors demand to hold French over German debt – has hit 47 bps, surpassing the 42 bps reached during the height of jitters about Marine Le Pen’s chance of victory in France’s presidential elections and the widest since the bloc’s debt crisis abated five years ago. The spread has swollen from 26bps just 10 days ago…”
April 2 – Reuters (Dominique Vidalon): “French presidential candidate Marine Le Pen told a political rally on Sunday that the euro currency which she wants France to ditch was like a knife in the ribs of the French people. The leader of the eurosceptic and anti-immigrant National Front (FN) also told the rally in the city of Bordeaux that the forthcoming election for president could herald a ‘change in civilization’.”
Federal Reserve Watch:
April 5 – Reuters (Lindsay Dunsmuir and Howard Schneider): “Most Federal Reserve policymakers think the central bank should take steps to begin trimming its $4.5 trillion balance sheet later this year as long as the economic data holds up, minutes from their last meeting showed. The minutes… of the March 14-15 policy discussion… also showed that the rate-setting committee had a broad discussion about whether to phase out or halt reinvestments all at once. ‘Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee's reinvestment policy would likely be appropriate later this year’…”
April 6 – Bloomberg (Catherine Bosley and Lucy Meakin): “Federal Reserve Bank of San Francisco President John Williams said it may take the U.S. central bank around five years to shrink its balance sheet to a more normal size once that process gets underway. Speaking with reporters…, Williams said it made sense to begin the roll-off toward the end of 2017. The length of time it takes would depend on how far officials want to trim a balance sheet swollen to $4.5 trillion by three rounds of asset purchases… ‘The number of years we’re thinking about just based on the arithmetic is something like 5 years,’ said Williams…”
April 4 – Bloomberg (Craig Torres, Christopher Condon , and Jeanna Smialek): “The Federal Reserve’s inspector general says it will be ending its investigation into the 2012 release of confidential information. Even after the scandal cut short the career of one top Fed official, the answer to the most important question remains a mystery. Who did the initial leaking? Richmond Fed President Jeffrey Lacker resigned abruptly… as he announced his role in the unauthorized disclosure of information to Medley Global Advisors about policy options that the central bank was considering in 2012. His explanation suggested he was confirming facts the Medley analyst already knew. It was a sudden career stop for a Fed president who was frequently in opposition to the Fed board consensus on interest-rate policy, and the news will likely revive questions in Congress about the value of the central bank’s discretion and transparency.”
April 3 – Bloomberg (Matthew Boesler and Shahien Nasiripour): “The rising burden of student debt is weighing on interest rates in the U.S., and it would be a ‘reasonable conversation’ for policy makers to explore making college tuition free, Federal Reserve Bank of New York President William Dudley said. The growing pile of student debt is ‘obviously one headwind to economic activity’ that ‘probably pushes in that direction of lower equilibrium real rates’ because it limits households’ spending power, Dudley said… Fed officials have been trying to estimate the so-called equilibrium level of interest rates that keeps economic growth on a steady and sustainable pace. The concept has increasingly dominated the debate about where to set the U.S. central bank’s benchmark rate and how quickly to move after policy makers in December 2015 embarked on their first tightening cycle in nearly a decade.”
U.S. Bubble Watch:
April 7 – Wall Street Journal (Jon Sindreu and Christopher Whittall): “What if selling insurance against tornadoes made tornadoes occur less frequently? Something like that may be behind the incredible calm in global financial markets. The theory, advanced by several money managers, bankers and analysts, describes a type of feedback loop in which calm markets make selling insurance against sharp swings in asset prices profitable, which makes the markets more calm, which then makes selling insurance yet more attractive. And on and on. Behind the loop is a danger: If a giant shock—a big tornado—does materialize, the loop could suddenly run in the other direction, amplifying big moves rather than damping them.”
April 3 – CNBC (Jeff Cox): “The bullish beginning of 2017 did more than set a sizzling pace for the year — it actually pulled some long-dormant cash off the sidelines. As the S&P 500 gained 4.7%, and bonds managed to stay above water, investors yanked about $75 billion out of low-yielding money market accounts and put it to work, according to… the Investment Company Institute and TrimTabs… That money accounted for a sizable chunk of the $162 billion that flowed to both stocks and bond funds during the quarter, TrimTabs said. The money market total is through February…”
April 7 – Bloomberg (Gabrielle Coppola, Matt Scully and David Welch): “On countless occasions in recent years, the U.S. auto industry has relied on cheap and easy credit from Wall Street to get it through rough patches. Not this time. With both bad loans and interest rates on the rise, financial institutions are becoming more selective in doling out credit for new-car purchases, adding to the pressure for automakers already up against the wall with sliding sales, swelling inventories and a used-car glut. ‘We’ve been having a party for a few years and it was fun,’ said Maryann Keller, an industry consultant… ‘Now lenders are getting back to basics.’”
April 3 – Bloomberg (Vince Golle): “America’s factories continued to expand in March at a robust pace, demonstrating momentum in an industry that struggled for the better part of the last two years, Institute for Supply Management data showed… ISM’s diffusion index eased to 57.2 from February’s 57.7, which was the highest since August 2014… Factory employment gauge climbed to 58.9, the strongest reading since June 2011, from 54.2. Prices-paid index increased to 70.5, the highest since May 2011, from 68…”
April 5 – Bloomberg (Patricia Laya): “American service companies expanded in March at the slowest pace in five months, adding to signs of tepid economic growth in the first quarter, a survey by the Institute for Supply Management showed… ISM’S non-manufacturing index eased to 55.2 (forecast was 57) from February’s 57.6, which was the highest since 2015…”
April 3 – Bloomberg (Jamie Butters and David Welch): “U.S. auto sales trailed estimates, with Kia Motors Corp. and Ford Motor Co. reporting some of the biggest declines, as heavy incentive spending failed to contain plunging demand for sedan and compact models… Combined deliveries for Kia and its affiliate Hyundai Motor Co. slumped 11%, and Ford’s dropped 7.2% last month… General Motors Co., Fiat Chrysler Automobiles NV and Toyota Motor Corp. also fell short of expectations.”
April 3 – CNBC (Diana Olick): “Fast-rising home prices gave homeowners more equity than many expected, and they are now tapping that equity at the fastest rate in eight years. Homeowners gained a collective $570 billion throughout 2016, bringing the number of homeowners with ‘tappable’ equity up to 39.5 million, according to Black Knight Financial Services… But the fact that mortgage rates were lower last year makes it less likely today's borrowers would want to refinance this year. About 68% of tappable equity belongs to borrowers with mortgage rates below today's levels.”
April 7 – Wall Street Journal (Jay Greene): “Just as oil and gas companies plow billions of dollars in searching for new energy reserves, big technology companies are spending lavishly on a global footprint of sophisticated computers to run every startup and corporate colossus’s business in the cloud. Amazon.com Inc. upped the ante this week, announcing plans to plunk down a massive collection of data centers in Stockholm. It is the latest move in a high-stakes race to own the biggest piece of a market that is expected to reach into the hundreds of billions of dollars. Amazon and its chief rivals— Microsoft Corp. and Alphabet Inc.’s Google—are aggressive players in so-called hyperscale computing, which provides digital horsepower that scales quickly when needed in real time… Combined, Amazon, Microsoft and Alphabet doled out $31.54 billion in 2016 in capital expenditures and capital leases, according to company filings. That is up 22% from 2015.”
April 7 – Bloomberg (David M Levitt): “One of the most visible symbols of San Francisco’s technology-fueled boom is nearing completion and reshaping the city’s skyline. Builders laid the final beam yesterday for Salesforce Tower, a $1 billion skyscraper that now stands as the tallest office building west of Chicago. The 1,070-foot tower is set to be finished this summer and the main tenant, Salesforce.com Inc., expects to start moving in by the end of the year… It’s the biggest and most ambitious project in what city Supervisor Jane Kim called San Francisco’s largest construction boom since the 1906 earthquake… There is 5.9 million square feet of offices under construction in the city, with about 38.8% pre-leased…”
April 7 – Wall Street Journal (AnnaMaria Andriotis): “Credit-card debt breached the $1 trillion threshold in the U.S., joining auto loans and student debt in crossing that level, and hitting its highest mark since the nation’s last recession. The new data from the Federal Reserve marks the latest sign of a growing appetite for household debt. Rising consumer borrowing is often a positive sign for the U.S. economy as it typically means consumers are spending more on big-ticket items, such as cars, and smaller purchases often charged on cards. And while some are concerned about auto lending to risky borrowers and defaults on student loans, the quality of most credit-card debt remains strong.”
April 5 – Bloomberg (Oshrat Carmiel): “A home on Manhattan’s Upper East Side sold for $79.5 million…, making it the highest price ever paid for a townhouse in the borough. The 20,500-square-foot property, at 19 E. 64th St., had been owned by the Wildenstein family, billionaire art dealers whose gallery was located at the site for more than 80 years. The previous record for a Manhattan townhouse was the $53 million paid for 4 E. 75th St., in 2006…”
Japan Watch:
April 5 – Reuters (Stanley White): “Activity in Japan’s services sector expanded at the fastest pace in 19 months in March as outstanding business improved, allowing companies to charge more for their goods... The Markit/Nikkei Japan Services Purchasing Managers Index (PMI) rose to 52.9 in March on a seasonally adjusted basis from 51.3 in February.”
EM Watch:
April 2 – Bloomberg (Filipe Pacheco): “It’s been a tumultuous few days in Latin America, with anti-government protests in Venezuela and Paraguay, an attack on the opposition presidential candidate in Ecuador and recurring unrest in Brazil, where the president’s popularity is tumbling amid attempts to reform the pension system. All are reigniting concern about political stability in some of this year’s best-performing emerging markets and key U.S. trading partners.”
April 3 – Bloomberg (Rene Vollgraaff): “South Africa lost its investment-grade credit rating from S&P Global Ratings for the first time in 17 years in response to a cabinet purge by President Jacob Zuma… S&P cut the foreign-currency rating to BB+, the highest junk score, on Monday and warned that a deterioration of the nation’s fiscal and macroeconomic performance could lead to further reductions… Moody’s…, which rates the nation at two levels above junk with a negative outlook, said the rating is under review for a downgrade.”
April 6 – Bloomberg (Anirban Nag): “India unexpectedly raised the reverse repo rate while keeping the benchmark unchanged, effectively tightening policy to step up the fight against accelerating inflation. Bonds fell. The reverse repo rate was raised to 6% from 5.75% while the benchmark repurchase rate was kept steady at 6.25%, the Reserve Bank of India said…, citing excess funds in the banking system after the government’s clampdown on cash.”
April 6 – Reuters (Jason Hovet and Jan Lopatka): “The Czech central bank scrapped its cap on the crown currency on Thursday, allowing it to float freely to stronger levels against the euro for the first time since 2013.”
Leveraged Speculation Watch:
April 7 – Bloomberg (Katia Porzecanski): “Equity hedge funds are getting a pick-me-up after a harsh 2016, when they suffered almost a third of the industry’s withdrawals, amid a global stock rally. The long-short strategy returned 3.2% in the first quarter on an asset-weighted basis, marking the best start to a year since 2013, according to Hedge Fund Research Inc. The strategy was the top performer over the period, with the average hedge fund returning 2.3%, on a fund-weighted basis.”
Geopolitical Watch:
April 7 – Washington Post (David Filipov and Anne Gearan): “Russia on Friday condemned a U.S. missile strike against Syrian government forces as an attack on its ally and said it was suspending an agreement to minimize the risk of in-flight incidents between U.S. and Russian aircraft operating over Syria. Even as Russian officials expressed hope that the strike against Syrian President Bashad al-Assad’s forces would not lead to an irreversible breakdown in U.S. relations with Moscow, the Kremlin’s decision to suspend the 2015 memorandum of understanding on the air operations immediately raised tensions in the skies over Syria.”
April 5 – Wall Street Journal (Carol E. Lee and Felicia Schwartz): “A confluence of crises in Syria and North Korea is forcing President Donald Trump to re-evaluate his fledgling foreign policy, deciding which advisers he will listen to and which campaign pledges to jettison. The apparent chemical-weapons attack in Syria and the latest ballistic missile test by North Korea raise the stakes for two upcoming events: Mr. Trump’s summit this week with Chinese President Xi Jinping… and Secretary of State Rex Tillerson’s planned visit next week to Russia, a patron of the Syrian regime.”
April 6 – Reuters (Tim Kelly and Ju-min Park): “Diplomatic and economic measures taken to rein in North Korea's missile program have not had the desired effect, a senior U.S. military commander said on Thursday after the North's latest test triggered a flurry of calls among world leaders. U.S President Donald Trump led calls with leaders and senior officials from Japan and South Korea on Thursday to discuss the latest provocation from Pyongyang, hours before Trump begins a much-anticipated summit with Chinese counterpart Xi Jinping.”
April 5 – Wall Street Journal (Carol E. Lee Dion Nissenbaum and Farnaz Fassihi): “President Donald Trump said a suspected chemical attack by the Assad regime was ‘a terrible affront to humanity’ that changed his mind about the Syrian strongman, signaling a more aggressive U.S. policy toward Syria. Mr. Trump didn’t elaborate on how his administration would respond to the latest attack, which killed at least 85 people, but said it made him re-evaluate his approach to Syrian President Bashar al-Assad and his regime.”
April 4 – CNBC (Clay Dillow): “OKINAWA-While the world watches mounting military tensions in the South China Sea, another, more ominous situation is brewing in the East China Sea that could be the trigger point for a major war between the superpowers. At the heart of tensions are eight uninhabited islands controlled by Japan that are close to important shipping lanes, rich fishing grounds and potential oil and gas reserves. China contests Japan's claims and is escalating its military activity in Japan airspace. In response, Japan has been doubling its F-15 jet intercepts. The situation increases the risk of an accidental confrontation — and could draw other countries, like the United States, into a conflict. It's a topic President Trump will likely bring up with Chinese President Xi Jinping at his Mar-a-Lago estate this week.”
Friday, April 7, 2017
Friday Evening Links
[Bloomberg] Stocks Mixed, Bonds Pare Drop as Jobs Hit Fades: Markets Wrap
[Bloomberg] Gold Rises to Five-Month High as Jobs Fizzle Adds to Demand
[Bloomberg] Gary Cohn Says White House Will Push ‘One Cohesive’ Tax Plan
[Reuters] Fed might avoid simultaneous rate hike, bond runoff: Dudley
[Bloomberg] New York Fed's Dudley Supports Reconsidering Key Banking Rules
[Reuters] Italy's Target 2 liabilities reach new high in March
[Bloomberg] San Francisco Skyline Remade by Tallest West Coast Office Tower
[NYT] The Man in Charge of Fixing Fannie and Freddie Knows Them All Too Well
[WSJ] America’s Credit-Card Tab Hits $1 Trillion
[APA] Russian PM: "US on brink of military clash with Russia"
[FT] US and Russia clash over Trump’s strike on Syria
[Bloomberg] Gold Rises to Five-Month High as Jobs Fizzle Adds to Demand
[Bloomberg] Gary Cohn Says White House Will Push ‘One Cohesive’ Tax Plan
[Reuters] Fed might avoid simultaneous rate hike, bond runoff: Dudley
[Bloomberg] New York Fed's Dudley Supports Reconsidering Key Banking Rules
[Reuters] Italy's Target 2 liabilities reach new high in March
[Bloomberg] San Francisco Skyline Remade by Tallest West Coast Office Tower
[NYT] The Man in Charge of Fixing Fannie and Freddie Knows Them All Too Well
[WSJ] America’s Credit-Card Tab Hits $1 Trillion
[APA] Russian PM: "US on brink of military clash with Russia"
[FT] US and Russia clash over Trump’s strike on Syria
Thursday, April 6, 2017
Friday's News Links
[Bloomberg] Dollar, Stocks Fluctuate Amid Jobs, Syria Tension: Markets Wrap
[Bloomberg] Payroll Gains Slow While U.S. Jobless Rate at Lowest Since 2007
[Reuters] Gold hits 5-mth peak after Trump launches missile strike on Syria
[Reuters] Nikkei hits 4-mth low as US strike on Syria hurts risk sentiment
[Bloomberg] Second Junk-Rating Blow Sends South African Assets Tumbling
[Bloomberg] Wall Street Is Making It Harder to Buy a Car
[Bloomberg] Here's What Trump's Syria Strike Just Did to Financial Markets
[CNBC] Kremlin says Syria strikes do significant damage to US-Russia ties
[Reuters] Escalating U.S. role in Syria, Trump orders strikes on Assad airbase
[Bloomberg] Traders Are Worried About China Local Government Debt Again
[Reuters] Currency 'misalignment' gains stature in Trump trade plans - official
[WSJ] Are Traders Creating a Bizarre New Feedback Loop... Feedback Loop... Feedback Loop?
[WSJ] Trump Flashes Confidence as China Summit Begins
[WSJ] Tech’s High-Stakes Arms Race: Costly Data Centers
[Bloomberg] Payroll Gains Slow While U.S. Jobless Rate at Lowest Since 2007
[Reuters] Gold hits 5-mth peak after Trump launches missile strike on Syria
[Reuters] Nikkei hits 4-mth low as US strike on Syria hurts risk sentiment
[Bloomberg] Second Junk-Rating Blow Sends South African Assets Tumbling
[Bloomberg] Wall Street Is Making It Harder to Buy a Car
[Bloomberg] Here's What Trump's Syria Strike Just Did to Financial Markets
[CNBC] Kremlin says Syria strikes do significant damage to US-Russia ties
[Reuters] Escalating U.S. role in Syria, Trump orders strikes on Assad airbase
[Bloomberg] Traders Are Worried About China Local Government Debt Again
[Reuters] Currency 'misalignment' gains stature in Trump trade plans - official
[WSJ] Are Traders Creating a Bizarre New Feedback Loop... Feedback Loop... Feedback Loop?
[WSJ] Trump Flashes Confidence as China Summit Begins
[WSJ] Tech’s High-Stakes Arms Race: Costly Data Centers
Thursday Evening Links
[Reuters] Trump orders military strikes against Assad airbase in Syria
[NBC] Defense Sec Mattis Briefs President Trump on Military Options in Syria
[Bloomberg] Asia Stocks Set to Nudge Higher Before U.S. Jobs: Markets Wrap
[Bloomberg] Stocks Edge Up, Bonds Pare Drop as Caution Rises: Markets Wrap
[Bloomberg] Riding Cohn Momentum, Senators Call for Glass-Steagall Return
[Bloomberg] Kashkari Slams Jamie Dimon's Complaints About Regulatory Burden
[Bloomberg] Watch These Assets for Clues on Trade Policy as Trump Meets Xi
[WSJ] Gary Cohn Backs Breaking Up Big Banks
[WSJ] Not a Dot-Com Bubble, Not 2007, but a Nasty Mix of Both
[FT] Complacency and self-delusion: the most significant risk to markets — BIS economists
[Bloomberg] Trump says 'something should happen' with Assad as U.S. weighs military options
[Reuters] China fighter plane spotted on South China Sea island: think tank
[NBC] Defense Sec Mattis Briefs President Trump on Military Options in Syria
[Bloomberg] Asia Stocks Set to Nudge Higher Before U.S. Jobs: Markets Wrap
[Bloomberg] Stocks Edge Up, Bonds Pare Drop as Caution Rises: Markets Wrap
[Bloomberg] Riding Cohn Momentum, Senators Call for Glass-Steagall Return
[Bloomberg] Kashkari Slams Jamie Dimon's Complaints About Regulatory Burden
[Bloomberg] Watch These Assets for Clues on Trade Policy as Trump Meets Xi
[WSJ] Gary Cohn Backs Breaking Up Big Banks
[WSJ] Not a Dot-Com Bubble, Not 2007, but a Nasty Mix of Both
[FT] Complacency and self-delusion: the most significant risk to markets — BIS economists
[Bloomberg] Trump says 'something should happen' with Assad as U.S. weighs military options
[Reuters] China fighter plane spotted on South China Sea island: think tank
Wednesday, April 5, 2017
Thursday's News Links
[Bloomberg] Stocks Pare Drop, Dollar Rises as Fed Effect Dims: Markets Wrap
[Bloomberg] U.S. Jobless Claims Decline to a Five-Week Low of 234,000
[Bloomberg] Cohn Backs Wall Street Split of Lending, Investment Banks
[Reuters] Fed and Trump signals give stocks double trouble
[Bloomberg] Fed's Williams Sees Balance-Sheet Shrinking Taking Five Years
[Bloomberg] Stock Vulnerability Exposed During Biggest Reversal in 14 Months
[Bloomberg] China's Local Debt Nightmare Is Getting a Rerun After Rating Cut
[Reuters] China March services activity expands at weakest pace in six months: Caixin PMI
[Bloomberg] Draghi Struggles to Shut Down ECB Debate Weidmann Wants to Have
[Bloomberg] Draghi Draws Line Under ECB Rate Debate and Warns on Prices
[Bloomberg] German Factory Orders Recover as Economic Momentum Strong
[Bloomberg] India Unexpectedly Tightens, Flags Cash Tools to Curb Prices
[Reuters] Czech central bank scraps currency cap againt euro
[Bloomberg] Trump’s Xi Summit Tests His Promise to Win on Trade, North Korea
[Reuters] U.S., Japan, South Korea discuss North's latest threat before Trump-Xi summit
[WSJ] Donald Trump’s Foreign Policy Tested by Syria, North Korea Crises
[WSJ] Global Markets Fall on Uncertainty Over U.S. Policy
[FT] The ECB’s upcoming repo market headache
[FT] ‘Shadow banks’ step into the spotlight
[Bloomberg] U.S. Jobless Claims Decline to a Five-Week Low of 234,000
[Bloomberg] Cohn Backs Wall Street Split of Lending, Investment Banks
[Reuters] Fed and Trump signals give stocks double trouble
[Bloomberg] Fed's Williams Sees Balance-Sheet Shrinking Taking Five Years
[Bloomberg] Stock Vulnerability Exposed During Biggest Reversal in 14 Months
[Bloomberg] China's Local Debt Nightmare Is Getting a Rerun After Rating Cut
[Reuters] China March services activity expands at weakest pace in six months: Caixin PMI
[Bloomberg] Draghi Struggles to Shut Down ECB Debate Weidmann Wants to Have
[Bloomberg] Draghi Draws Line Under ECB Rate Debate and Warns on Prices
[Bloomberg] German Factory Orders Recover as Economic Momentum Strong
[Bloomberg] India Unexpectedly Tightens, Flags Cash Tools to Curb Prices
[Reuters] Czech central bank scraps currency cap againt euro
[Bloomberg] Trump’s Xi Summit Tests His Promise to Win on Trade, North Korea
[Reuters] U.S., Japan, South Korea discuss North's latest threat before Trump-Xi summit
[WSJ] Donald Trump’s Foreign Policy Tested by Syria, North Korea Crises
[WSJ] Global Markets Fall on Uncertainty Over U.S. Policy
[FT] The ECB’s upcoming repo market headache
[FT] ‘Shadow banks’ step into the spotlight
Wednesday Evening Links
[Bloomberg] U.S. Stocks Fall With Dollar as Treasuries Rise: Markets Wrap
[Bloomberg] Traders Bet the Fed Will Slow Rate Hikes to Shrink Balance Sheet
[Reuters] Most Fed policymakers see change to balance sheet policy 'later this year': minutes
[CNBC] Federal Reserve wants to start unwinding the $4.5 trillion in bonds on its balance sheet this year
[Bloomberg] Inside the Fed’s March Meeting: The Annotated Minutes
[Bloomberg] Macron Slips Post Debate Making Him Tied With Le Pen, Poll Shows
[Bloomberg] Here's What Financial Markets Are Telling Us About the Economy
[Bloomberg] Manhattan Townhouse Sells for a Record $79.5 Million
[Bloomberg] Thailand Gets That Hot-Money Feeling, But Inflow Curbs Are Tough
[Reuters] For Trump, Mar-a-Lago is place to break the ice with China's Xi
[WSJ] Fed Officials Expect to Whittle Down Portfolio Later This Year: Minutes
[WSJ] Why the Refinancing Slowdown Matters for the Fed
[WSJ] Trump Signals Change in Syria Policy
[Bloomberg] Traders Bet the Fed Will Slow Rate Hikes to Shrink Balance Sheet
[Reuters] Most Fed policymakers see change to balance sheet policy 'later this year': minutes
[CNBC] Federal Reserve wants to start unwinding the $4.5 trillion in bonds on its balance sheet this year
[Bloomberg] Inside the Fed’s March Meeting: The Annotated Minutes
[Bloomberg] Macron Slips Post Debate Making Him Tied With Le Pen, Poll Shows
[Bloomberg] Here's What Financial Markets Are Telling Us About the Economy
[Bloomberg] Manhattan Townhouse Sells for a Record $79.5 Million
[Bloomberg] Thailand Gets That Hot-Money Feeling, But Inflow Curbs Are Tough
[Reuters] For Trump, Mar-a-Lago is place to break the ice with China's Xi
[WSJ] Fed Officials Expect to Whittle Down Portfolio Later This Year: Minutes
[WSJ] Why the Refinancing Slowdown Matters for the Fed
[WSJ] Trump Signals Change in Syria Policy
Tuesday, April 4, 2017
Wednesday News Links
[Bloomberg] U.S. Stocks Pare Gains as Crude Slumps, Bonds Rise: Markets Wrap
[Bloomberg] ADP Says Companies in U.S. Added 263,000 Employees in March
[Bloomberg] U.S. Service Industries Expand at Slowest Pace in Five Months
[CNBC] Blowout ADP jobs growth is new evidence of economic traction, outgoing Fed Gov Tarullo says
[Bloomberg] In Hot Debt Markets, Wall Street Shows It Can Beat Shadow Banks
[Reuters] EU, Greece seek bailout deal by Friday
[Reuters] Japan's service sector expands at strongest pace in 19 months in March: PMI
[Bloomberg] OECD Inflation Rate Rises to Highest Level in Five Years: Chart
[Bloomberg] Toronto Home Prices Just Jumped Another 33%
[Bloomberg] Australian Regulators May Increase Lending Curbs Amid Home Boom
[Bloomberg] ETFs Are the New Bond Kings
[WSJ] U.S. Companies Expected to Post Strongest Quarter Since 2011
[FT] The five markets charts that matter for investors
[NYT] Trump and Xi: Two Imposing Leaders With Clashing Agendas
[Bloomberg] ADP Says Companies in U.S. Added 263,000 Employees in March
[Bloomberg] U.S. Service Industries Expand at Slowest Pace in Five Months
[CNBC] Blowout ADP jobs growth is new evidence of economic traction, outgoing Fed Gov Tarullo says
[Bloomberg] In Hot Debt Markets, Wall Street Shows It Can Beat Shadow Banks
[Reuters] EU, Greece seek bailout deal by Friday
[Reuters] Japan's service sector expands at strongest pace in 19 months in March: PMI
[Bloomberg] OECD Inflation Rate Rises to Highest Level in Five Years: Chart
[Bloomberg] Toronto Home Prices Just Jumped Another 33%
[Bloomberg] Australian Regulators May Increase Lending Curbs Amid Home Boom
[Bloomberg] ETFs Are the New Bond Kings
[WSJ] U.S. Companies Expected to Post Strongest Quarter Since 2011
[FT] The five markets charts that matter for investors
[NYT] Trump and Xi: Two Imposing Leaders With Clashing Agendas
Tuesday Evening Links
[Bloomberg] Asian Stocks Nudge Higher Before China Reopens: Markets Wrap
[Bloomberg] Treasuries Fall, Stocks Mixed as Commodities Gain: Markets Wrap
[Bloomberg] Fed Leak Probe Dooms Lacker But Leaves Key Question: Who Leaked?
[CNBC] Richmond Fed President Lacker says he was involved with Medley leak, announces immediate resignation
[Bloomberg] What the Fed Minutes Could Reveal About the Balance Sheet
[Reuters] Trump says planning 'haircut' for Dodd-Frank banking regulations
[Bloomberg] Dimon's Annual Letter: Key Takeaways on Brexit, Tech and Taxes
[WSJ] Fed’s Lacker Resigns Over Leak, Dealing Blow to Bank’s Credibility
[WSJ] Gold, Yen, Bonds Gain as Investors Step Up Safety Plays
[FT] Huishan saga exposes China’s tycoon finance risk
[FT] ECB and Trump rally help European junk bond issuance double
[Bloomberg] North Korea Fires Ballistic Missile Before Xi-Trump Meeting
[CNBC] Military nightmare scenario brewing in the East China Sea
[Bloomberg] Treasuries Fall, Stocks Mixed as Commodities Gain: Markets Wrap
[Bloomberg] Fed Leak Probe Dooms Lacker But Leaves Key Question: Who Leaked?
[CNBC] Richmond Fed President Lacker says he was involved with Medley leak, announces immediate resignation
[Bloomberg] What the Fed Minutes Could Reveal About the Balance Sheet
[Reuters] Trump says planning 'haircut' for Dodd-Frank banking regulations
[Bloomberg] Dimon's Annual Letter: Key Takeaways on Brexit, Tech and Taxes
[WSJ] Fed’s Lacker Resigns Over Leak, Dealing Blow to Bank’s Credibility
[WSJ] Gold, Yen, Bonds Gain as Investors Step Up Safety Plays
[FT] Huishan saga exposes China’s tycoon finance risk
[FT] ECB and Trump rally help European junk bond issuance double
[Bloomberg] North Korea Fires Ballistic Missile Before Xi-Trump Meeting
[CNBC] Military nightmare scenario brewing in the East China Sea
Monday, April 3, 2017
Tuesday's News Links
[Bloomberg] Global Stocks Fall After Weak Car Sales, Yen Rises: Markets Wrap
[Bloomberg] The Danger of a Sell-off in U.S. Stocks Grows
[Bloomberg] Trade Deficit in U.S. Narrows in February to Four-Month Low
[Reuters] Harker, joining chorus, says Fed could trim bond portfolio this year
[Bloomberg] Ryan’s Border Tax on the Ropes as Trump Ponders Overhaul Plan
[Reuters] 'Not natural friends': Trump, Xi will be 'odd couple' at first summit
[LA Times] As he gets ready to meet Trump in Florida, China's Xi Jinping has a lot to worry about
[Washington Post] New CBO numbers offer a dose of reality on tax reform
[NYT] Within Hours, Plans for a Quiet Corner of China Send Home Prices Soaring
[WSJ] European Debt’s Biggest Buyer Becomes Its Biggest Risk
[FT] Franco-German short term yield spreads blow out to eurozone crisis high
[Bloomberg] The Danger of a Sell-off in U.S. Stocks Grows
[Bloomberg] Trade Deficit in U.S. Narrows in February to Four-Month Low
[Reuters] Harker, joining chorus, says Fed could trim bond portfolio this year
[Bloomberg] Ryan’s Border Tax on the Ropes as Trump Ponders Overhaul Plan
[Reuters] 'Not natural friends': Trump, Xi will be 'odd couple' at first summit
[LA Times] As he gets ready to meet Trump in Florida, China's Xi Jinping has a lot to worry about
[Washington Post] New CBO numbers offer a dose of reality on tax reform
[NYT] Within Hours, Plans for a Quiet Corner of China Send Home Prices Soaring
[WSJ] European Debt’s Biggest Buyer Becomes Its Biggest Risk
[FT] Franco-German short term yield spreads blow out to eurozone crisis high
Monday Evening Links
[Bloomberg] Asian Stocks Set to Drift Lower as Yen Strengthens: Markets Wrap
[Reuters] Wall St. slips after U.S. states challenge Trump on energy efficiency
[Reuters] Global debt hits $215 trillion in 2016, led by emerging markets: IIF
[Bloomberg] Student-Debt Overhang Is Pushing Down U.S. Rates, Dudley Says
[CNBC] Put me in, coach: Money is pouring into the market from the sidelines
[CNBC] Homeowners are pulling cash out again; this time it’s the millennials
[Reuters] 'Innovative financing' sours dairy giant in China's rural northeast
[Bloomberg] Tech Overthrows Financials as King of Emerging Markets
[Reuters] Latest rift in Greek bailout talks dashes hopes for deal in Malta
[Bloomberg] South Africa Cut to Junk for the First Time Since 2000
[NYT] Trump Is Ready for Tax Cuts, but His Treasury Department Isn’t
[WSJ] This Volatility Warning Has a Different Ring to It Today
[FT] China’s ‘bad banks’ thrive as alternative lenders
[FT] Donald Trump’s North Korea warning sparks concern in Asia
[FT] Italian bond yields rise as traders focus on political worries
[Reuters] Wall St. slips after U.S. states challenge Trump on energy efficiency
[Reuters] Global debt hits $215 trillion in 2016, led by emerging markets: IIF
[Bloomberg] Student-Debt Overhang Is Pushing Down U.S. Rates, Dudley Says
[CNBC] Put me in, coach: Money is pouring into the market from the sidelines
[CNBC] Homeowners are pulling cash out again; this time it’s the millennials
[Reuters] 'Innovative financing' sours dairy giant in China's rural northeast
[Bloomberg] Tech Overthrows Financials as King of Emerging Markets
[Reuters] Latest rift in Greek bailout talks dashes hopes for deal in Malta
[Bloomberg] South Africa Cut to Junk for the First Time Since 2000
[NYT] Trump Is Ready for Tax Cuts, but His Treasury Department Isn’t
[WSJ] This Volatility Warning Has a Different Ring to It Today
[FT] China’s ‘bad banks’ thrive as alternative lenders
[FT] Donald Trump’s North Korea warning sparks concern in Asia
[FT] Italian bond yields rise as traders focus on political worries
Sunday, April 2, 2017
Monday's News Links
[Bloomberg] U.S. Stocks Fall Despite Strong Manufacturing Data: Markets Wrap
[Reuters] Dollar starts week on back foot, keeps above 4-month lows
[Bloomberg] Manufacturing in U.S. Kept Expanding at Robust Pace in March
[Bloomberg] Fed's Rebel Defends Autonomy as Trump-Molded Central Bank Looms
[Bloomberg] Debt Market Lures Billions as Verizon, GM Pursue Pension Trade
[Bloomberg] Ford, Chrysler Sales Disappoint as Cars Plunge Despite Discounts
[Bloomberg] ETF Investors Dumped U.S. Small Caps, Loved Emerging Markets
[Bloomberg] Euro-Area Unemployment Declines to Lowest Level in Eight Years
[Reuters] Euro zone factories struggled to meet soaring demand in March: PMI
[Bloomberg] Latin American Markets Feel the Pressure From Political Turmoil
[Bloomberg] Almost a Decade Later, U.S. Money Markets Are Yet to Recover
[Bloomberg] Australia Home Prices Rise Most in 7 Years Amid Bubble Concern
[Reuters] Japan business mood brightens as recovery broadens: BOJ tankan
[Bloomberg] Four Huishan Directors Resign in Wake of Mystery 85% Stock Plunge
[Reuters] Trump presses China on North Korea ahead of Xi talks
[WSJ] Trouble Bubbling Under at Chinese Banks
[WSJ] The Rising Retirement Perils of 401(k) ‘Leakage’
[FT] Test of nerve awaits investors as Q2 dawns
[FT] Bond market ignores more assertive Fed at its peril
[Reuters] Dollar starts week on back foot, keeps above 4-month lows
[Bloomberg] Manufacturing in U.S. Kept Expanding at Robust Pace in March
[Bloomberg] Fed's Rebel Defends Autonomy as Trump-Molded Central Bank Looms
[Bloomberg] Debt Market Lures Billions as Verizon, GM Pursue Pension Trade
[Bloomberg] Ford, Chrysler Sales Disappoint as Cars Plunge Despite Discounts
[Bloomberg] ETF Investors Dumped U.S. Small Caps, Loved Emerging Markets
[Bloomberg] Euro-Area Unemployment Declines to Lowest Level in Eight Years
[Reuters] Euro zone factories struggled to meet soaring demand in March: PMI
[Bloomberg] Latin American Markets Feel the Pressure From Political Turmoil
[Bloomberg] Almost a Decade Later, U.S. Money Markets Are Yet to Recover
[Bloomberg] Australia Home Prices Rise Most in 7 Years Amid Bubble Concern
[Reuters] Japan business mood brightens as recovery broadens: BOJ tankan
[Bloomberg] Four Huishan Directors Resign in Wake of Mystery 85% Stock Plunge
[Reuters] Trump presses China on North Korea ahead of Xi talks
[WSJ] Trouble Bubbling Under at Chinese Banks
[WSJ] The Rising Retirement Perils of 401(k) ‘Leakage’
[FT] Test of nerve awaits investors as Q2 dawns
[FT] Bond market ignores more assertive Fed at its peril
Sunday Evening Links
[Bloomberg] Asian Stocks Poised to Nudge Higher; Euro Rises: Markets Wrap
[Bloomberg] China Has Its Worst-Ever Start to a Year For Defaults
[Reuters] Euro is a 'knife in the ribs' of the French says Le Pen
[CNBC] Coming up this week in business: Where the jobs are, market fears, and a Trump-China fight
[FT] Trump trade still set to fixate investors in busy April
[CNBC/FT] FT exclusive: Trump ready to tackle North Korea alone
[Bloomberg] China Has Its Worst-Ever Start to a Year For Defaults
[Reuters] Euro is a 'knife in the ribs' of the French says Le Pen
[CNBC] Coming up this week in business: Where the jobs are, market fears, and a Trump-China fight
[FT] Trump trade still set to fixate investors in busy April
[CNBC/FT] FT exclusive: Trump ready to tackle North Korea alone
Saturday, April 1, 2017
Saturday's News Links
[Bloomberg] PBOC Raises Interest Rates on Standing Lending Facility Loans
[Reuters] Venezuela seeks to cool protests as court reverses Congress annulment
[Bloomberg] Zuma Discontent Builds in South Africa's ANC Amid Calls to Quit
[Reuters] Germany criticizes Trump orders on trade deficits, import duty evasion
[Bloomberg] The EU Engages: What We Learned About Brexit From Donald Tusk
[Bloomberg] Hong Kong Warns on Home Loan Risks, Daily Says, as Prices Soar
[Reuters] South Africa's new finance minister swings left, wants radically changed economy
[CNBC] Hackers next target could be the US electric grid
[NYT] Trump Talks Tough on U.S.-China Trade but Delays Real Action
[WSJ] Federal Reserve Readies Plan for Balance Sheet
[WSJ] Buying a Home Will Be Harder Than Ever This Spring
[Reuters] Venezuela seeks to cool protests as court reverses Congress annulment
[Bloomberg] Zuma Discontent Builds in South Africa's ANC Amid Calls to Quit
[Reuters] Germany criticizes Trump orders on trade deficits, import duty evasion
[Bloomberg] The EU Engages: What We Learned About Brexit From Donald Tusk
[Bloomberg] Hong Kong Warns on Home Loan Risks, Daily Says, as Prices Soar
[Reuters] South Africa's new finance minister swings left, wants radically changed economy
[CNBC] Hackers next target could be the US electric grid
[NYT] Trump Talks Tough on U.S.-China Trade but Delays Real Action
[WSJ] Federal Reserve Readies Plan for Balance Sheet
[WSJ] Buying a Home Will Be Harder Than Ever This Spring
Friday, March 31, 2017
Weekly Commentary: Q1: Sure Bets That Weren’t
An intriguing first quarter. The year began with bullish exuberance for the Trump policy agenda. With the GOP finally in control of Washington, there was now little in the way of healthcare reform, tax cuts/reform, infrastructure spending and a full-court press against regulation. As Q1 drew to a close, by most accounts our new Executive Branch is a mess - the old Washington swamp as stinky a morass as ever. And, in spite of it all, the global bull market marched on undeterred. Everyone’s still dancing. From my perspective, there’s confirmation that the risk market rally has been more about rampant global liquidity excess and speculative Market Dynamics than prospects for U.S. policy change.
It’s not as if market developments unfolded as anticipated. Key “Trump trades” stumbled – longs and shorts across various markets. The overly Crowded king dollar faltered, with the Dollar Index down 2.0% during Q1. The Mexican peso reversed course and ended the quarter up 10.6% versus the dollar, at the top of the global currency leaderboard. The Japanese yen - another popular short and a key funding instrument for global carry trades – jumped 5% . China’s renminbi gained 0.84% versus the dollar. WSJ headline: “A Soaring Dollar and Falling Yuan: The Sure Bets That Weren’t”
Shorting Treasuries was another Trump Trade Sure Bet That Wasn’t. And while 10-year yields jumped to a high of 2.63% on March 13, yields ended the quarter down six bps from yearend to 2.39%. Despite a less dovish Fed, a hike pushed forward to March, and even talk of shrinking the Federal Reserve’s balance sheet - bond yields were notably sticky. Corporate debt enjoyed a solid quarter. Investment grade bonds (LQD) gained 1.2% during the quarter, with high-yield (HYG) returning 2.3%.
The S&P500 gained 5.5% during Q1. And while most were positioned bullishly, I suspect many hedge funds (and fund managers generally) will be disappointed with Q1 performance. There was considerable Trump Trade enthusiasm for the higher beta small caps and broader market. Badly lagging the S&P500, it took a 2.3% rise in the final week of the quarter to see the small cap Russell 2000 rise 2.1% in Q1. The mid caps (MID) were only somewhat better, rising 3.6%.
Technology stocks had been low on the list of Trump Trades going into the quarter, perhaps helping to explain a gangbuster Q1 in the markets. The popular QQQ ETF (Nasdaq100) returned 12.0% during Q1. The Morgan Stanley High Tech index rose 13.5%, and the Semiconductors jumped 11.6%. The Biotechs (BTK) surged 16.0%.
A Trump Trade darling entering 2017, the financials struggled during Q1. March’s 4.0% decline reduced the bank stocks’ (BKX) Q1 gain to an unimpressive 0.3%. Somewhat lagging the S&P500, the broker/dealers (XBD) posted a 5.4% Q1 advance. The NYSE Financial Index gained 3.7%, while the Nasdaq Bank Index dropped 3.1%.
King dollar bullishness had investors underweight the emerging markets (EM) going into 2017. A weakening dollar coupled with huge January Chinese Credit growth helped spur a decent EM short squeeze. Outperformance then attracted the performance-chasing Crowd. By the end of March, EM (EEM up 12.5%) had enjoyed the best quarter in five years (from FT).
March 31 – Financial Times: “Capital flows to emerging markets have continued to surge ahead after a strong start to the year, with cross-border portfolio flows in March at their highest monthly level since January 2015 and broad capital flows to China turning positive in February for the first time in almost three years, according to the Institute of International Finance. The IIF… said flows from non-resident investors into EM bonds and equities were an estimated $29.8bn in March, up from $17.2bn in February…”
A Bloomberg headline from the final day of the quarter: “Rupee Caps Best First Quarter Since 1975 Amid $12 Billion Inflow.” India’s equities (Sensex) posted an 11.2% Q1 gain. A short squeeze also helped Turkish stocks (Borsa Istanbul) to a 13.8% first quarter rise. Latin American equities enjoyed a spectacular start to 2017. Stocks rose 6.4% in Mexico, 8.0% in Brazil, 15.2% in Chile and 19.2% in Argentina. With the notable exception of Russia, Eastern Europe’s equities also enjoyed a solid Q1.
March 31 – Bloomberg (Lilian Karunungan): “All of Asia’s emerging-market currencies, apart from the Philippine peso, strengthened this quarter as optimism over the region’s economic outlook lured inflows. India’s rupee led the advance in March. Regional equities had their best three months since 2010.”
Chinese stocks for the most part posted a solid Q1, with the Shanghai Composite gaining 3.8%. China’s growth-oriented ChiNext index declined 2.8%. Stocks gained 6.0% in Taiwan, 6.6% in South Korea, 5.1% in Indonesia, 6.0% in Malaysia, 6.9% in the Philippines and 8.6% in Vietnam.
Europe lavished in boundless free "money." Germany’s DAX equites index jumped 7.3% and Frances’s CAC40 gained 5.4%, yet bigger gains were enjoyed in the Periphery. Spanish stocks surged 11.9%. The Italian Mid Cap index surged 17.5%. Portuguese stocks rose 8.1%.
The quarter, however, was not kind to European periphery sovereign debt. Notably, Italian 10-year yields jumped 51 bps. Spanish and French yields rose 29 bps, and Portuguese yields gained 23 bps. With German bund yields rising only 12 bps, European debt spreads widened meaningfully.
For the most part, Bubbling equities markets only exacerbated already extremely loose global financial conditions. First quarter U.S. high-grade debt issuance jumped to $393bn, up 9% from last year’s record pace. Led by record U.S. corporate debt sales, debt issuance boomed around the globe.
March 30 – Financial Times (James Kynge and Thomas Hale): “Emerging market countries sold record levels of government debt in the first quarter of this year, taking advantage of a surge in optimism towards the developing world as trade grows at its fastest rate for seven years and inflationary pressures ebb. Data from Dealogic, a research firm, show that sovereign bond sales from emerging markets rose to $69.6bn in the first three months of the year, an increase of 48 per cent from a year ago and a record amount for a single quarter. Corporate bond sales by companies in developing countries also surged, rising 135% year on year in the first quarter to $105bn…”
March 21 – Dealogic (Olga Tarabrina): “Global M&A volume has reached $705.0bn in 2017 YTD, surpassing $700bn in a YTD period for the first time since 2007 ($903.5bn). Of this, a total of 125 $1bn+ deals, worth $454.9bn, have been announced so far this year, compared to only 94 deals (totaling $260.3bn) 5 years ago. $10bn+ deals account for $167.2bn of the total this year… US-based companies are on top of the heap of cross-border deals, with $95.8 billion in announced acquisitions so far – “the highest YTD level on record.’ … For the first quarter, ‘14 times EBITDA is what the Dealogic figures show as the median EBITDA multiple,’ explained Dealogic’s head of M&A Research, Chunshek Chan. ‘That’s something we really haven’t seen over the course of the data that we have. Historically, we’ve been bouncing between 10 and 12 times, sometimes even 13 times. So 14 times EBITDA is certainly a premium to pay for acquisitions.’”
Various indicators of bullish market sentiment went to extremes. An incredible $124bn flooded into ETFs during the first two months of the year. Margin debt jumped to an all-time high ($528bn) in February, although this pales in comparison to the amount of leverage embedded in derivative trades.
March 31 – Bloomberg (Cecile Vannucci): “Just a week ago, it looked as if the dormant CBOE Volatility Index was awakening. Fast-forward five days, and the gauge known as the VIX is closing in on its lowest quarterly average since the final months of 2006. The measure has lost 18% this year through Thursday as the S&P 500 Index climbed 5.8%.”
March 28 – Bloomberg (Vince Golle): “Americans haven’t been this upbeat about the U.S. stock market since 2000, according to the Conference Board’s latest consumer confidence report… More than 47% of respondents said they expect equities to move higher in the next 12 months, the largest share since January 2000.”
March 23 – CNBC (Evelyn Cheng): “Investor sentiment jumped to a 16-year high in the first quarter, according to the latest Wells Fargo/Gallup Investor and Retirement Optimism Index. The index… rose 30 points to hit 126 in the first quarter… The last time the optimism index was higher was during the tech bubble in November 2000, when the index was at 130.”
The U.S. economy appeared to struggle during the quarter to keep up with booming confidence. University of Michigan Consumer Confidence - Current Conditions jumped to the highest level since July 2005. The Conference Board consumer confidence index surged to the highest level since December 2000. Small business confidence rose to the highest level since 2004.
On the other side of the world, China’s Credit-induced boom caught some momentum. Led by January’s record $545bn expansion of Total Social Financing, total Chinese Credit growth likely exceeded $1.0 TN during Q1. No surprise then that GDP was said to be tracking 6.8% annualized during the quarter. China’s Manufacturing index (PMI) ended the quarter at the strongest level in almost five years. And it’s no surprise that continued timid “tightening” measures have thus far had minimal impact. There were, however, bouts of instability in China’s Wild West money market that portend trouble ahead.
March 31 – China Money Network (Li Dongmei): “China’s announced outbound M&A deals totaled US$23.8 billion during the first three months of 2017, a drop of 75% from US$95.1 billion recorded during same period a year ago, as tightened regulatory controls on capital outflows limited Chinese companies' ability to invest outside of the borders.”
The confluence of a weaker dollar, booming Chinese and global Credit, and latent financial fragilities provided precious metals a nice shine throughout Q1. Palladium jumped 17.1%, silver 14.2%, Gold 8.4% and Platinum 5.2%. The HUI (NYSE Arca Gold Bugs Index) jumped 8.2%. Bloomberg headline: “Metals Enjoy Longest Rally in Seven Years as Low Rates Lure Cash.”
There was yet another facet of the Trump Rally that faded as the quarter wore on: The notion of a fortuitous handoff from monetary stimulus to fiscal policy. Markets were supposed to begin “normalizing.” As central banks pulled back from market dominance, stock picking and active management were to grab some of their advantage lost to the passive index Crowd. We’ll wait to see the percentage of hedge fund and mutual fund managers that beat the SPY for the quarter.
As a market analyst, I saw during Q1 the unprecedented Crowded Trade Phenomenon deepen further. Way too much “money” playing the securities market game – became only more so. And while a strong quarterly gain in the indexes is celebrated by the bullish Crowd, the undercurrents must be troubling to many.
The reality is that too much “money” spoils the game. When everyone is Crowded on one side of the king dollar trade, the boat rocks over. When the Crowd gets short the yen, it’s squeeze higher. Short the metals, here comes a squeeze. Heavily long the banks (slam dunk trade), watch out below. Underweight the emerging markets, the Crowd is forced to chase a big rally. Long the small caps versus the big caps, and the Crowd has no choice but to unwind the trade and jump aboard the S&P500 index. Run long/short strategies with similar factors to everyone else, and the Crowd is left pulling its hair out. Most importantly, focus on risk and you had no chance of outperforming the market or the passive “investing” Crowd.
And it’s “funny” how this all works nowadays. Inflation has turned up, while central bank monetary stimulus is being turned down. Shorting Treasuries (and sovereign debt) should be a Sure Bet. Yet there’s this Lurking Financial Fragility issue, the Elephant in the Market. So, the bigger global Bubbles inflate, the greater the systemic vulnerability to rising market yields (among other things). Yet the more susceptible risk market Bubbles become to trouble the greater the safe haven bid - and the more downward pressure on market yields. Artificially low yields then work to spur speculation and excess, exacerbating global Bubbles and associated fragilities.
All the “money” slushing around in markets dominated by Deviant Market Dynamics continues to make it difficult for most active managers to perform. And the biggest consequence of this troubling market dilemma? Just more enormous self-reinforcing Bubble flows into ETF index products. For the most part, investors are pleased with Q1 returns. What’s not appreciated is the amount of risk that must be accepted to continue playing this game.
March 27 – Financial Times (Miles Johnson): “Hedge fund managers may be criticised for their recent returns but they have consistently displayed a razor sharp sense of timing when it comes to picking when to sell their own businesses. When Och-Ziff, the… hedge fund founded by the former Goldman Sachs trader Daniel Och, decided to sell equity to the public markets it did so near the top of the market in late 2007. Investors in that pre-crisis deal… have since lost more than 90% of their money… So what is to be made of the timing of last week’s news that Eric Mindich has decided to shut his $7bn Eton Park hedge fund and return money to investors from what he called a ‘position of relative strength’? The closure of Eton Park has a symbolic resonance on Wall Street. Once the youngest partner in the history of Goldman Sachs, Mr Mindich left the bank in 2004 to set up Eton Park. It became one of the largest launches in the history of the hedge fund industry and, emboldened by his and others’ success, a whole generation tried to follow him.”
It’s not as if market developments unfolded as anticipated. Key “Trump trades” stumbled – longs and shorts across various markets. The overly Crowded king dollar faltered, with the Dollar Index down 2.0% during Q1. The Mexican peso reversed course and ended the quarter up 10.6% versus the dollar, at the top of the global currency leaderboard. The Japanese yen - another popular short and a key funding instrument for global carry trades – jumped 5% . China’s renminbi gained 0.84% versus the dollar. WSJ headline: “A Soaring Dollar and Falling Yuan: The Sure Bets That Weren’t”
Shorting Treasuries was another Trump Trade Sure Bet That Wasn’t. And while 10-year yields jumped to a high of 2.63% on March 13, yields ended the quarter down six bps from yearend to 2.39%. Despite a less dovish Fed, a hike pushed forward to March, and even talk of shrinking the Federal Reserve’s balance sheet - bond yields were notably sticky. Corporate debt enjoyed a solid quarter. Investment grade bonds (LQD) gained 1.2% during the quarter, with high-yield (HYG) returning 2.3%.
The S&P500 gained 5.5% during Q1. And while most were positioned bullishly, I suspect many hedge funds (and fund managers generally) will be disappointed with Q1 performance. There was considerable Trump Trade enthusiasm for the higher beta small caps and broader market. Badly lagging the S&P500, it took a 2.3% rise in the final week of the quarter to see the small cap Russell 2000 rise 2.1% in Q1. The mid caps (MID) were only somewhat better, rising 3.6%.
Technology stocks had been low on the list of Trump Trades going into the quarter, perhaps helping to explain a gangbuster Q1 in the markets. The popular QQQ ETF (Nasdaq100) returned 12.0% during Q1. The Morgan Stanley High Tech index rose 13.5%, and the Semiconductors jumped 11.6%. The Biotechs (BTK) surged 16.0%.
A Trump Trade darling entering 2017, the financials struggled during Q1. March’s 4.0% decline reduced the bank stocks’ (BKX) Q1 gain to an unimpressive 0.3%. Somewhat lagging the S&P500, the broker/dealers (XBD) posted a 5.4% Q1 advance. The NYSE Financial Index gained 3.7%, while the Nasdaq Bank Index dropped 3.1%.
King dollar bullishness had investors underweight the emerging markets (EM) going into 2017. A weakening dollar coupled with huge January Chinese Credit growth helped spur a decent EM short squeeze. Outperformance then attracted the performance-chasing Crowd. By the end of March, EM (EEM up 12.5%) had enjoyed the best quarter in five years (from FT).
March 31 – Financial Times: “Capital flows to emerging markets have continued to surge ahead after a strong start to the year, with cross-border portfolio flows in March at their highest monthly level since January 2015 and broad capital flows to China turning positive in February for the first time in almost three years, according to the Institute of International Finance. The IIF… said flows from non-resident investors into EM bonds and equities were an estimated $29.8bn in March, up from $17.2bn in February…”
A Bloomberg headline from the final day of the quarter: “Rupee Caps Best First Quarter Since 1975 Amid $12 Billion Inflow.” India’s equities (Sensex) posted an 11.2% Q1 gain. A short squeeze also helped Turkish stocks (Borsa Istanbul) to a 13.8% first quarter rise. Latin American equities enjoyed a spectacular start to 2017. Stocks rose 6.4% in Mexico, 8.0% in Brazil, 15.2% in Chile and 19.2% in Argentina. With the notable exception of Russia, Eastern Europe’s equities also enjoyed a solid Q1.
March 31 – Bloomberg (Lilian Karunungan): “All of Asia’s emerging-market currencies, apart from the Philippine peso, strengthened this quarter as optimism over the region’s economic outlook lured inflows. India’s rupee led the advance in March. Regional equities had their best three months since 2010.”
Chinese stocks for the most part posted a solid Q1, with the Shanghai Composite gaining 3.8%. China’s growth-oriented ChiNext index declined 2.8%. Stocks gained 6.0% in Taiwan, 6.6% in South Korea, 5.1% in Indonesia, 6.0% in Malaysia, 6.9% in the Philippines and 8.6% in Vietnam.
Europe lavished in boundless free "money." Germany’s DAX equites index jumped 7.3% and Frances’s CAC40 gained 5.4%, yet bigger gains were enjoyed in the Periphery. Spanish stocks surged 11.9%. The Italian Mid Cap index surged 17.5%. Portuguese stocks rose 8.1%.
The quarter, however, was not kind to European periphery sovereign debt. Notably, Italian 10-year yields jumped 51 bps. Spanish and French yields rose 29 bps, and Portuguese yields gained 23 bps. With German bund yields rising only 12 bps, European debt spreads widened meaningfully.
For the most part, Bubbling equities markets only exacerbated already extremely loose global financial conditions. First quarter U.S. high-grade debt issuance jumped to $393bn, up 9% from last year’s record pace. Led by record U.S. corporate debt sales, debt issuance boomed around the globe.
March 30 – Financial Times (James Kynge and Thomas Hale): “Emerging market countries sold record levels of government debt in the first quarter of this year, taking advantage of a surge in optimism towards the developing world as trade grows at its fastest rate for seven years and inflationary pressures ebb. Data from Dealogic, a research firm, show that sovereign bond sales from emerging markets rose to $69.6bn in the first three months of the year, an increase of 48 per cent from a year ago and a record amount for a single quarter. Corporate bond sales by companies in developing countries also surged, rising 135% year on year in the first quarter to $105bn…”
March 21 – Dealogic (Olga Tarabrina): “Global M&A volume has reached $705.0bn in 2017 YTD, surpassing $700bn in a YTD period for the first time since 2007 ($903.5bn). Of this, a total of 125 $1bn+ deals, worth $454.9bn, have been announced so far this year, compared to only 94 deals (totaling $260.3bn) 5 years ago. $10bn+ deals account for $167.2bn of the total this year… US-based companies are on top of the heap of cross-border deals, with $95.8 billion in announced acquisitions so far – “the highest YTD level on record.’ … For the first quarter, ‘14 times EBITDA is what the Dealogic figures show as the median EBITDA multiple,’ explained Dealogic’s head of M&A Research, Chunshek Chan. ‘That’s something we really haven’t seen over the course of the data that we have. Historically, we’ve been bouncing between 10 and 12 times, sometimes even 13 times. So 14 times EBITDA is certainly a premium to pay for acquisitions.’”
Various indicators of bullish market sentiment went to extremes. An incredible $124bn flooded into ETFs during the first two months of the year. Margin debt jumped to an all-time high ($528bn) in February, although this pales in comparison to the amount of leverage embedded in derivative trades.
March 31 – Bloomberg (Cecile Vannucci): “Just a week ago, it looked as if the dormant CBOE Volatility Index was awakening. Fast-forward five days, and the gauge known as the VIX is closing in on its lowest quarterly average since the final months of 2006. The measure has lost 18% this year through Thursday as the S&P 500 Index climbed 5.8%.”
March 28 – Bloomberg (Vince Golle): “Americans haven’t been this upbeat about the U.S. stock market since 2000, according to the Conference Board’s latest consumer confidence report… More than 47% of respondents said they expect equities to move higher in the next 12 months, the largest share since January 2000.”
March 23 – CNBC (Evelyn Cheng): “Investor sentiment jumped to a 16-year high in the first quarter, according to the latest Wells Fargo/Gallup Investor and Retirement Optimism Index. The index… rose 30 points to hit 126 in the first quarter… The last time the optimism index was higher was during the tech bubble in November 2000, when the index was at 130.”
The U.S. economy appeared to struggle during the quarter to keep up with booming confidence. University of Michigan Consumer Confidence - Current Conditions jumped to the highest level since July 2005. The Conference Board consumer confidence index surged to the highest level since December 2000. Small business confidence rose to the highest level since 2004.
On the other side of the world, China’s Credit-induced boom caught some momentum. Led by January’s record $545bn expansion of Total Social Financing, total Chinese Credit growth likely exceeded $1.0 TN during Q1. No surprise then that GDP was said to be tracking 6.8% annualized during the quarter. China’s Manufacturing index (PMI) ended the quarter at the strongest level in almost five years. And it’s no surprise that continued timid “tightening” measures have thus far had minimal impact. There were, however, bouts of instability in China’s Wild West money market that portend trouble ahead.
March 31 – China Money Network (Li Dongmei): “China’s announced outbound M&A deals totaled US$23.8 billion during the first three months of 2017, a drop of 75% from US$95.1 billion recorded during same period a year ago, as tightened regulatory controls on capital outflows limited Chinese companies' ability to invest outside of the borders.”
The confluence of a weaker dollar, booming Chinese and global Credit, and latent financial fragilities provided precious metals a nice shine throughout Q1. Palladium jumped 17.1%, silver 14.2%, Gold 8.4% and Platinum 5.2%. The HUI (NYSE Arca Gold Bugs Index) jumped 8.2%. Bloomberg headline: “Metals Enjoy Longest Rally in Seven Years as Low Rates Lure Cash.”
There was yet another facet of the Trump Rally that faded as the quarter wore on: The notion of a fortuitous handoff from monetary stimulus to fiscal policy. Markets were supposed to begin “normalizing.” As central banks pulled back from market dominance, stock picking and active management were to grab some of their advantage lost to the passive index Crowd. We’ll wait to see the percentage of hedge fund and mutual fund managers that beat the SPY for the quarter.
As a market analyst, I saw during Q1 the unprecedented Crowded Trade Phenomenon deepen further. Way too much “money” playing the securities market game – became only more so. And while a strong quarterly gain in the indexes is celebrated by the bullish Crowd, the undercurrents must be troubling to many.
The reality is that too much “money” spoils the game. When everyone is Crowded on one side of the king dollar trade, the boat rocks over. When the Crowd gets short the yen, it’s squeeze higher. Short the metals, here comes a squeeze. Heavily long the banks (slam dunk trade), watch out below. Underweight the emerging markets, the Crowd is forced to chase a big rally. Long the small caps versus the big caps, and the Crowd has no choice but to unwind the trade and jump aboard the S&P500 index. Run long/short strategies with similar factors to everyone else, and the Crowd is left pulling its hair out. Most importantly, focus on risk and you had no chance of outperforming the market or the passive “investing” Crowd.
And it’s “funny” how this all works nowadays. Inflation has turned up, while central bank monetary stimulus is being turned down. Shorting Treasuries (and sovereign debt) should be a Sure Bet. Yet there’s this Lurking Financial Fragility issue, the Elephant in the Market. So, the bigger global Bubbles inflate, the greater the systemic vulnerability to rising market yields (among other things). Yet the more susceptible risk market Bubbles become to trouble the greater the safe haven bid - and the more downward pressure on market yields. Artificially low yields then work to spur speculation and excess, exacerbating global Bubbles and associated fragilities.
All the “money” slushing around in markets dominated by Deviant Market Dynamics continues to make it difficult for most active managers to perform. And the biggest consequence of this troubling market dilemma? Just more enormous self-reinforcing Bubble flows into ETF index products. For the most part, investors are pleased with Q1 returns. What’s not appreciated is the amount of risk that must be accepted to continue playing this game.
March 27 – Financial Times (Miles Johnson): “Hedge fund managers may be criticised for their recent returns but they have consistently displayed a razor sharp sense of timing when it comes to picking when to sell their own businesses. When Och-Ziff, the… hedge fund founded by the former Goldman Sachs trader Daniel Och, decided to sell equity to the public markets it did so near the top of the market in late 2007. Investors in that pre-crisis deal… have since lost more than 90% of their money… So what is to be made of the timing of last week’s news that Eric Mindich has decided to shut his $7bn Eton Park hedge fund and return money to investors from what he called a ‘position of relative strength’? The closure of Eton Park has a symbolic resonance on Wall Street. Once the youngest partner in the history of Goldman Sachs, Mr Mindich left the bank in 2004 to set up Eton Park. It became one of the largest launches in the history of the hedge fund industry and, emboldened by his and others’ success, a whole generation tried to follow him.”
And thanks for checking out our final of four short videos, Tactical Short Episode IV, “The Time is Now" at https://vimeo.com/210719190
For the Week:
The S&P500 increased 0.8% (up 5.5% y-t-d), and the Dow added 0.3% (up 4.6%). The Utilities fell 1.3% (up 5.0%). The Banks recovered 1.3% (up 0.3%), and the Broker/Dealers rallied 2.0% (up 5.2%). The Transports jumped 2.1% (up 0.8%). The S&P 400 Midcaps rose 1.5% (up 3.6%), and the small cap Russell 2000 rallied 2.3% (up 2.1%). The Nasdaq100 gained 1.3% (up 11.8%), and the Morgan Stanley High Tech index rose 1.2% (up 13.5%). The Semiconductors increased 0.7% (up 11.6%). The Biotechs advanced 1.6% (up 16.0%). Though bullion gained $6, the HUI gold index declined 1.0% (up 8.2%).
Three-month Treasury bill rates ended the week at 74 bps. Two-year government yields were unchanged at 1.26% (up 7bps y-t-d). Five-year T-note yields slipped two bps to 1.92% (down 1 bp). Ten-year Treasury yields declined two bps to 2.39% (down 6bps). Long bond yields were unchanged at 3.01% (down 6bps).
Greek 10-year yields sank 41 bps to 6.9% (down 12bps y-t-d). Ten-year Portuguese yields dropped 15 bps to 3.98% (up 23bps). Italian 10-year yields jumped nine bps to 2.32% (up 51bps). Spain's 10-year yields declined three bps to 1.67% (up 29bps). German bund yields dropped eight bps to 0.33% (up 12bps). French yields declined two bps to 0.97% (up 29bps). The French to German 10-year bond spread widened six to 64 bps. U.K. 10-year gilt yields fell six bps to 1.14% (down 10bps). U.K.'s FTSE equities index slipped 0.2% (up 2.5%).
Japan's Nikkei 225 equities index dropped 1.8% (down 1.1% y-t-d). Japanese 10-year "JGB" yields added about a basis point to 0.07% (up 3bps). The German DAX equities index rose 2.1% (up 7.2%). Spain's IBEX 35 equities index advanced 1.5% (up 11.9%). Italy's FTSE MIB index gained 1.5% (up 6.5%). EM equities were mixed. Brazil's Bovespa index rallied 1.8% (up 7.9%). Mexico's Bolsa lost 1.1% (up 6.4%). South Korea's Kospi slipped 0.4% (up 6.6%). India’s Sensex equities index added 0.7% (up 11.2%). China’s Shanghai Exchange declined 1.4% (up 3.8%). Turkey's Borsa Istanbul National 100 index dropped 1.6% (up 13.8%). Russia's MICEX equities index sank 2.2% (down 10.6%).
Junk bond mutual funds saw outflows of $249 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates sank nine bps to 4.14% (up 43bps y-o-y). Fifteen-year rates declined five bps to 3.39% (up 41bps). The five-year hybrid ARM rate fell six bps to 3.18% (up 28bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up a basis point to 4.23% (up 47bps).
Federal Reserve Credit last week was little changed at $4.436 TN. Over the past year, Fed Credit fell $8.2bn (down 0.2%). Fed Credit inflated $1.626 TN, or 58%, over the past 229 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt declined $4.8bn last week to $3.207 TN. "Custody holdings" were down $53.4bn y-o-y, or 1.6%.
M2 (narrow) "money" supply last week increased $2.5bn to a record $13.405 TN. "Narrow money" expanded $834bn, or 6.6%, over the past year. For the week, Currency increased $1.4bn. Total Checkable Deposits dropped $11.5bn, while Savings Deposits gained $6.8bn. Small Time Deposits were little changed. Retail Money Funds rose $5.1bn.
Total money market fund assets were about unchanged at $2.654 TN. Money Funds fell $112bn y-o-y (4.0%).
Total Commercial Paper jumped $18.2bn to $983.7bn. CP declined $117bn y-o-y, or 10.6%.
Currency Watch:
March 27 – Wall Street Journal (Ira Iosebashvili): “The dollar fell to its lowest level Monday since November amid rising doubts that the White House will be able to push through promised tax cuts and infrastructure spending after failing to repeal the Affordable Care Act last week. The Wall Street Journal Dollar Index, which gauges the U.S. currency against a basket of 16 others, was recently down 0.4% to 89.65, its lowest level since November 11.”
The U.S. dollar index rallied 0.7% to 100.35 (down 2.0% y-t-d). For the week on the upside, the British pound increased 0.6%, the Canadian dollar 0.5%, the South Korean won 0.4%, the Mexican peso 0.2%, the Singapore dollar 0.1% and the Australian dollar 0.1%. For the week on the downside, the South African rand declined 7.3%, the Swedish krona 1.8%, the euro 1.4%, the Norwegian krone 1.2%, the Swiss franc 1.1%, the Brazilian real 0.5% and the New Zealand dollar 0.3%. The Chinese yuan was little changed versus the dollar this week (up 0.84% y-t-d).
Commodities Watch:
The Goldman Sachs Commodities Index rallied 2.7% (down 2.6% y-t-d). Spot Gold added 0.5% to $1,249 (up 8.4%). Silver jumped 2.7% to $18.26 (up 14.2%). Crude recovered $2.63 to $50.60 (down 6%). Gasoline surged 6.1% (up 2%), and Natural Gas rose 3.7% (down 15%). Copper increased 0.8% (up 6%). Wheat added 0.4% (up 5%). Corn gained 2.2% (up 4%).
Trump Administration Watch:
March 30 – Reuters (Susan Cornwell and Amanda Becker): “U.S. President Donald Trump lashed out… at Republican conservatives who helped torpedo healthcare legislation he backed, escalating a feud within his party that jeopardizes the new administration's legislative agenda. Trump threatened to try to defeat members of the Freedom Caucus - a bloc of conservative Republicans in the House of Representatives - in next year's congressional elections if they continued to defy him. ‘The Freedom Caucus will hurt the entire Republican agenda if they don't get on the team, & fast. We must fight them, & Dems, in 2018!’ Trump wrote on Twitter… He later singled out three Freedom Caucus members by name…”
March 31 – CNBC (Matthew J. Belvedere): “The United States will no longer bow to the rest of the world on trade because President Donald Trump plans to act, Commerce Secretary Wilbur Ross told CNBC… ‘We are in a trade war. We have been for decades. The only difference is that our troops are finally coming to the rampart. We didn’t end up with a trade deficit accidentally,’ he said, warning about the consequences of doing nothing. Ross…argued… that the shortfalls are the result of bad trade deals and other countries actively seeking surpluses. ‘Our trade deficit overall is about $500 billion a year,’ Ross said. ‘Quite miraculously, that also equals the net trade surplus with the rest of the world.’”
March 28 – Associated Press (Andrew Taylor): “The fundamentals of tax overhaul were strong some 30 years ago. A popular president, Republican Ronald Reagan, pushed the landmark 1986 measure. Powerful and experienced congressional leaders shepherded the legislation with bipartisan support. Key players had established, trusting relationships. The situation facing President Donald Trump features none of those advantages. His party is divided and his congressional leadership is weakened after the health care debacle. Key players are inexperienced. Trump has record low approval ratings. Republicans who control all of Washington are planning on going it alone, without help from Democrats. Now, there isn't even basic agreement on what revising the tax code is. Trump is promising ‘massive tax relief for the middle class.’”
March 27 – Wall Street Journal (Justin Lahart): “Any investors who think the failure of health-care reform was somehow a positive because it cleared the way for tax reform may be about to be rapidly disabused of that notion. Optimism on taxes is sharply at odds with the complexity and controversy that has met every effort of reform. Indeed, the rifts among congressional Republicans exposed by the health care battle might just get deeper. Ever since President Donald Trump was elected, investors have used a tax-reform plan House Republicans drew up last year as their lodestar. The plan, championed by Speaker Paul Ryan, calls for a reduction in the corporate tax rate to 20% from 35%. To help pay for that plan, it includes a border adjustment tax that would levy goods imported into the U.S.”
March 27 – Wall Street Journal (Kristina Peterson and Siobhan Hughes): “President Donald Trump and GOP leaders enter their next big battle facing stubborn opposition in both parties that increases Republicans’ worries that they will need more Democratic support than previously expected to avert a government shutdown by the end of April. It is a sign of the new reality in Washington after Mr. Trump and House Speaker Paul Ryan failed to persuade the House’s most conservative Republicans, as well as centrists, to back a bill to replace the Affordable Care Act. The failure derailed the GOP leadership and the new administration’s top legislative priority and has put unexpected questions before both parties about their paths forward. For Republicans leaders, the main challenge is the House Freedom Caucus, an alliance of the most conservative Republicans who successfully defied the White House to sink the health bill.”
March 28 – Bloomberg (Billy House and Erik Wasson): “Republican leaders are eager to avoid a government shutdown but the demise of their Obamacare repeal could leave some conservatives spoiling for a fight that raises the odds of a standoff. The House Freedom Caucus… says Republicans have yet to notch a significant victory, despite controlling both chambers of Congress and the White House. One top promise they and other conservatives had to hoped to deliver on with the Obamacare repeal was defunding Planned Parenthood over its provision of abortions. Now, their next chance comes with a spending measure needed to keep the government operating after April 28, when current funding runs out.”
March 29 – Wall Street Journal (William Mauldin): “The Trump administration appears poised to cement China’s unfavorable status in trade cases, making Chinese goods eligible for higher U.S. tariffs well into the future. U.S. officials are preparing a review of China’s ‘market-economy status’ under the World Trade Organization, according to official documents… The review is expected to be announced as early as this week, just days before a high-stakes meeting between President Xi Jinping and President Donald Trump.”
March 30 – Associated Press (Michael Cohen): “President Donald Trump is predicting ‘a very difficult’ meeting next week with Chinese President Xi Jinping, citing trade deficits and lost jobs. Hours after both governments announced an April 6-7 summit between the economic powerhouses in Florida, Trump sought to set expectations by tweeting: ‘The meeting next week with China will be a very difficult one in that we can no longer have massive trade deficits and job losses. American companies must be prepared to look at other alternatives.’”
March 31 – Wall Street Journal (Chun Han Wong): “China signaled little inclination to make concessions on trade with the U.S. after President Donald Trump warned of a difficult meeting with Chinese leader Xi Jinping at next week’s bilateral summit. ‘China doesn’t intentionally seek trade surpluses,’ Vice Foreign Minister Zheng Zeguang said… He said that imbalances in China-U.S. trade are mainly the result of global industrial trends, as well as disparities in the two countries’ economic structures and development.”
March 27 – Politico (Ben White and Nancy Cook): “The fight for the direction of Donald Trump’s presidency between the Goldman Sachs branch of the West Wing and hardcore conservatives is spilling into the Treasury Department, threatening Trump’s next agenda item of overhauling the tax code. Conservatives inside and outside Treasury say the new secretary, former Goldman Sachs banker, movie producer and Democratic donor Steven Mnuchin, is assembling a team that is too liberal and too detached from the core of Trump’s ‘Make America Great Again’ platform of ripping up trade deals, gutting the Dodd-Frank banking rules and generally rejecting ‘globalism’ in all its forms. The ideological divide has been brewing for weeks inside the White House as a result of appointing a raft of top advisers with radically different worldviews. The battle at Treasury is simply an extension of that brutal fight…”
March 27 – Financial Times (Shawn Donnan and Sam Fleming): “Conservative economist Allan Meltzer has railed against the World Bank and the International Monetary Fund for decades and in Donald Trump’s nomination of a former protegee he sees hope that Washington may finally be heeding his calls for reform. While Mr Trump’s naming this month of Adam Lerrick as the next assistant secretary for international finance at the Treasury has yielded a nervous reaction inside both the IMF and the World Bank, Mr Meltzer is effusive. ‘There is not to my knowledge a person in the world better qualified for that job,’ he says. Mr Lerrick, a former investment banker, served as Mr Meltzer’s top adviser on a 1990s congressional commission examining the role of the two institutions in the global economy. The ‘Meltzer Commission’ report that Mr Lerrick went on to help draft called for a more limited IMF that focuses exclusively on plugging the short-term liquidity needs of countries facing crises rather than protracted bailouts. It also recommended that the World Bank scale back its activities…”
March 30 – Reuters (David Shepardson): “U.S. Transportation Secretary Elaine Chao said the Trump administration would unveil a $1 trillion infrastructure plan later this year, but she did not offer details of funding for projects. Chao said… the infrastructure initiative would include ‘a strategic, targeted program of investment valued at $1 trillion over 10 years. The proposal will cover more than transportation infrastructure, it will include energy, water and potentially broadband and veterans hospitals as well.’”
China Bubble Watch:
March 29 – Wall Street Journal (Shen Hong): “Money markets are often described as the financial system’s plumbing: When they work—which is most of the time—hardly anyone notices, but when they get blocked up, it creates quite a stink. That’s why China’s massive money market—where banks and other financial institutions borrowed some $6.4 trillion from each other last month alone to fund their daily needs—is becoming one of the world’s most important markets to watch. China’s central bank has raised key interest rates twice since early February. That immediately pushed funding costs to the highest in two years, hitting smaller banks that have come to rely on the market particularly hard. Last week, some small rural banks failed to make good on short-term loans from other lenders… The volume of interbank lending, usually uncollateralized, hit a record with the equivalent of $34 trillion in loans last year, nearly 100 times the amount of lending in 2002… Turnover in the repo market surged to the equivalent of $216 trillion last year, around 24 times its volume a decade ago.”
March 31 – Bloomberg: “Chinese banks are taking on an unprecedented amount of short-term financing. Yield-starved investors are lapping it up amid assumptions of state support, unperturbed by a lack of collateral and warnings from rating companies. That’s fueling concern among some analysts that government backing for the nation’s lenders is distorting one of the world’s largest debt markets and increasing risks in the event of cash crunches, even after Premier Li Keqiang vowed to give market forces greater sway. Banks have issued a record 5.2 trillion yuan ($754.6bn) this quarter of so-called negotiable certificates of deposit (NCDs) that mostly mature within a year, up 44% from the three months ended Dec.31…”
March 31 – Bloomberg (Robin Ganguly): “China’s short-term money-market rates climbed across the board, with the one-week cost rising to the most expensive level in almost two years. The seven-day repurchase rate jumped 36 bps to 3.17%, the highest since April 7, 2015. The 14-day cost added 20 bps to 4.94%, extending its advance after reaching the highest since March 2015 on Thursday. The rates rose as the People’s Bank of China refrained from conducting reverse-repurchase agreements for the sixth day in a row, saying that there is a high level of liquidity in the banking system.”
March 28 – Bloomberg: “Turmoil at a small Chinese dairy company is shedding rare light on the final destination for some of the country’s estimated $8 trillion of shadow banking loans. Jilin Jiutai Rural Commercial Bank Corp., a major creditor to embattled China Huishan Dairy Holdings Co., said… it has extended a total of 1.35 billion yuan ($196 million) in credit to the dairy producer, including 750 million yuan through the purchase of investment receivables from a finance lease company. Investment receivables -- a category that can include using wealth-management products, asset-management plans and trust-beneficiary rights to disguise what are in effect loans -- allow banks to reduce the amount of cash they need to set aside for capital and provisions for loan losses.”
March 30 – Reuters (Meg Shen and Lee Chyen Yee): “China's economy, the world's second largest, will likely expand 6.8% in the first quarter of 2017, the official Xinhua agency quoted a government think tank as saying… The expected pace is on par with the 6.8% growth logged in the fourth quarter, which was better than market expectations due to higher government spending and record bank lending.”
March 31 – Bloomberg: “China’s official factory gauge climbed to the highest in almost five years, the latest evidence of increasing momentum in the world’s second-largest economy. The manufacturing purchasing managers index increased to 51.8 in March…”
March 30 – Reuters: “Growth in China’s services sector accelerated in March at the fastest pace in nearly three years, an official survey showed… The official non-manufacturing Purchasing Managers' Index (PMI) stood at 55.1, compared with the previous month's reading of 54.2…”
March 28 – Reuters (Jun Yang): “The ever-closer relationship between Chinese companies and banks can be a toxic mix. A growing number of companies in the People's Republic are buying into local lenders that need to raise capital. The interdependence is risky. One danger is that banks lend to their corporate shareholders on more lenient terms than to regular borrowers, regardless of credit risks. That concern sparked a selloff in Jilin Jiutai Rural Commercial Bank’s stock on Monday, the first trading day following an 85% plunge in the market value of shareholder China Huishan Dairy. The milk group’s chairman controls the company through an entity that also owns more than 15% of Jilin Jiutai's Hong Kong-listed stock. The lender in turn is Huishan’s second-largest creditor, with some $262 million on the line, according to Caixin.”
Global Bubble Watch:
March 31 – Financial Times (Katie Martin): “Investors might need to chuck out their text books, because markets seem set to move in unpredictable and potentially painful ways. That’s the warning from Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, in his widely-read quarterly market wrap. ‘It ain’t a normal cycle,’ he and Jared Woodward write. After all, central banks around the world have cut interest rates 679 times and bought $14.2bn since the collapse of Lehman Brothers. ‘Normalization’ from a 5,000-year low in rates, 70-year low in G7 fiscal stimulus, 35-year high in the US-German rate differential, an all-time high US stocks vs. [the rest of the world], a 75-year low in bank stocks is unlikely to be peaceful; long gold in anticipation of potential manias, panics, crashes.’”
March 26 – Financial Times (Gavyn Davies): “One of the most dramatic monetary interventions in recent years has been the unprecedented surge in global central bank balance sheets. This form of ‘money printing’ has not had the inflationary effect predicted by pessimists, but there is still deep unease among some central bankers about whether these bloated balance sheets should be accepted as part of the ‘new normal’. There are concerns that ultra large balance sheets carry with them long term risks of inflation, and financial market distortions. In recent weeks, there have been debates within the FOMC and the ECB Governing Council about balance sheet strategy, and it is likely that there will be important new announcements from both these central banks before the end of 2017. Meanwhile, the PBOC balance sheet has been drifting downwards because of the large scale currency intervention that has been needed to prevent a rapid devaluation in the renminbi. Only the Bank of Japan seems likely to persist with policies that will extend the balance sheet markedly further after 2017.”
March 28 – Bloomberg (Andrea Wong): “A high-risk corner of the $5.1 trillion-a-day currency market has become the collateral damage of the dollar selloff. Whipsawed by the greenback and confronted by U.S. policy confusion, carry trades were supposed to be a rare bright spot for investors who want to stay away from the world’s biggest reserve currency. Under the strategy, you borrow in low-rate alternatives such as the yen, and buy high-yielding peers like the Mexican peso… Practitioners of the carry trade are learning there’s no hiding from the dollar’s influence. Growing doubts about the outlook for U.S. policy following the failed attempt at health-care reform not only led to a weaker dollar, it also caused investors to pile into havens such as the yen and the euro -- the funding currencies carry traders sell as part of the strategy. The Japanese currency gained 2.2% against the dollar this month, while the euro rose 2.7%.”
March 28 – Bloomberg (Narae Kim and Sid Verma): “Talk about risk-on: the demand for higher-yielding securities is proving so strong that Papua New Guinea, one of Asia’s poorest nations, is contemplating a debut issue of dollar bonds. The southwest Pacific nation plans to raise $500 million in five-year bonds… The country would join Mongolia among sub-investment grade issuers in 2017. Sales of high-yield bonds total almost $15 billion so far this year… It’s part of a broader trend of enduring strength in emerging markets that are weathering the U.S. Federal Reserve’s monetary tightening cycle with aplomb. Concerns about trade wars and the potential renewed decline of commodity prices have been set aside for now, with the long-awaited end of the global bond bull market seeming to be on hold.”
Fixed Income Bubble Watch:
March 27 – Reuters (Nick Carey): “As U.S. auto sales have peaked, competition to finance car loans is set to intensify and drive increased credit risk for auto lenders, Moody’s… said… ‘The combination of plateauing auto sales, growing negative equity from consumers and lenders' willingness to offer flexible loan terms is a significant credit risk for lenders,’ Jason Grohotolski, a senior credit officer at Moody’s… told Reuters. Motor vehicle sales have boomed in the years since the Great Recession.”
Brexit Watch:
March 29 – Bloomberg (Tim Ross and Jonathan Stearns): “U.K. Prime Minister Theresa May struck a conciliatory tone toward the European Union as she coupled her demand for divorce with a request for a sweeping free-trade deal encompassing financial services. In a six-page letter submitted… to EU President Donald Tusk, May formally triggered two years of likely contentious talks that will end with Britain breaking ties with its largest trading partner after more than four decades. May sought to smooth over tensions from the start by calling on both sides to negotiate ‘constructively and respectfully,’ saying that she wants the bloc to ‘succeed and prosper.’”
ECB Watch:
March 30 – Reuters (Thomas Escritt and Balazs Koranyi): “The European Central Bank needs to stick to its already laid out policy path, several policymakers argued…, although a top conservative urged them to leave the door open to a more rapid reduction in stimulus. Economic growth is gaining momentum and the euro zone may be on its best economic run in a decade. But inflation is still not moving decisively higher, the policymakers argued, hinting at little appetite for now to amend the ECB's policy stance. The comments gel with Reuters report on Wednesday that policymakers are wary of making any new change to their policy message after small tweaks this month upset investors… With inflation at a four-year high, critics of the ECB, particularly in Germany, have called on the bank to start winding down its unprecedented stimulus measures…”
March 29 – Wall Street Journal (Tom Fairless): “The European Central Bank’s recent moves mark the first steps in winding down its aggressive monetary stimulus and the bank could soon take fresh steps toward an exit if economic data remain strong, a top ECB official said. Klaas Knot, who sits on the ECB’s rate-setting committee as governor of the Dutch central bank, said policy makers were increasingly optimistic about the strength of the economic recovery under way in the 19-nation eurozone. He said the ECB would likely start winding down its massive bond-purchase program within the next 12 months, and suggested it could even raise interest rates in parallel.”
March 27 – Reuters (Balazs Koranyi, Andreas Framke and Francesco Canepa): “Germany’s two representatives on the European Central Bank's main policy-making body called… for it to prepare to wind down its aggressive stimulus policy as soon as economic conditions allow it. The comments by Bundesbank president Jens Weidmann and by Sabine Lautenschlaeger, who represents the ECB's supervisory arm on the bank's executive board, highlight Germany's impatience with the direction the ECB has taken under president Mario Draghi. They also reveal the rift between themselves and supporters of the ECB's current policy of ultra-low interest rates and massive bond buying, which was defended on Monday separately by the central bank's chief economist Peter Praet and by Belgian central bank governor Jan Smets. ‘I would like to see a less expansive stance,’ Jens Weidmann, who sits on the ECB's Governing Council, said…”
March 25 – Reuters (Francesco Canepa): “The European Central Bank’s next policy moves and the order they come in are still up in the air and might even include a rate hike or sales of bonds, a director at Germany's central bank said. Joachim Wuermeling's comments signal Germany’s impatience with the ECB's ultra-easy policy as inflation in the bloc rebounds and raise new questions about the bank's policy plan… The ECB has said it would keep buying bonds until at least the end of the year and keep interest rates at current record low levels or even cut them until ‘well past’ that point. ‘The forward guidance of the ECB council now presumes that interest rate hikes are currently to be expected at the earliest after the end of net monetary policy purchases,’ Wuermeling told an audience… ‘But here too, everything is in flux.’”
March 28 – Financial Times (Mehreen Khan): “The European Central Bank improperly veered into political activity during the eurozone crisis and should withdraw from the ‘troika’ of international bailout monitors, according to anti-corruption watchdog Transparency International. In a review of the central bank’s actions, carried out in co-operation with ECB officials, the report called on the ECB to be placed under greater scrutiny by EU institutions, saying its mandate to ensure price stability in the eurozone had been pushed to ‘breaking point’ in tackling the crisis. ‘The ECB’s accountability framework is not appropriate for the far-reaching political decisions taken by the governing council,’ said the report written by Benjamin Braun, an economist at Harvard.”
Europe Watch:
March 31 – Bloomberg (Carolynn Look and Stu Metzler): “German unemployment fell by the most since 2011, pushing joblessness to a record low as Europe’s largest economy powers ahead. The number of people out of work slid by a seasonally adjusted 30,000 to 2.6 million in March, and the rate dropped to 5.8% from 5.9%...”
The S&P500 increased 0.8% (up 5.5% y-t-d), and the Dow added 0.3% (up 4.6%). The Utilities fell 1.3% (up 5.0%). The Banks recovered 1.3% (up 0.3%), and the Broker/Dealers rallied 2.0% (up 5.2%). The Transports jumped 2.1% (up 0.8%). The S&P 400 Midcaps rose 1.5% (up 3.6%), and the small cap Russell 2000 rallied 2.3% (up 2.1%). The Nasdaq100 gained 1.3% (up 11.8%), and the Morgan Stanley High Tech index rose 1.2% (up 13.5%). The Semiconductors increased 0.7% (up 11.6%). The Biotechs advanced 1.6% (up 16.0%). Though bullion gained $6, the HUI gold index declined 1.0% (up 8.2%).
Three-month Treasury bill rates ended the week at 74 bps. Two-year government yields were unchanged at 1.26% (up 7bps y-t-d). Five-year T-note yields slipped two bps to 1.92% (down 1 bp). Ten-year Treasury yields declined two bps to 2.39% (down 6bps). Long bond yields were unchanged at 3.01% (down 6bps).
Greek 10-year yields sank 41 bps to 6.9% (down 12bps y-t-d). Ten-year Portuguese yields dropped 15 bps to 3.98% (up 23bps). Italian 10-year yields jumped nine bps to 2.32% (up 51bps). Spain's 10-year yields declined three bps to 1.67% (up 29bps). German bund yields dropped eight bps to 0.33% (up 12bps). French yields declined two bps to 0.97% (up 29bps). The French to German 10-year bond spread widened six to 64 bps. U.K. 10-year gilt yields fell six bps to 1.14% (down 10bps). U.K.'s FTSE equities index slipped 0.2% (up 2.5%).
Japan's Nikkei 225 equities index dropped 1.8% (down 1.1% y-t-d). Japanese 10-year "JGB" yields added about a basis point to 0.07% (up 3bps). The German DAX equities index rose 2.1% (up 7.2%). Spain's IBEX 35 equities index advanced 1.5% (up 11.9%). Italy's FTSE MIB index gained 1.5% (up 6.5%). EM equities were mixed. Brazil's Bovespa index rallied 1.8% (up 7.9%). Mexico's Bolsa lost 1.1% (up 6.4%). South Korea's Kospi slipped 0.4% (up 6.6%). India’s Sensex equities index added 0.7% (up 11.2%). China’s Shanghai Exchange declined 1.4% (up 3.8%). Turkey's Borsa Istanbul National 100 index dropped 1.6% (up 13.8%). Russia's MICEX equities index sank 2.2% (down 10.6%).
Junk bond mutual funds saw outflows of $249 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates sank nine bps to 4.14% (up 43bps y-o-y). Fifteen-year rates declined five bps to 3.39% (up 41bps). The five-year hybrid ARM rate fell six bps to 3.18% (up 28bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up a basis point to 4.23% (up 47bps).
Federal Reserve Credit last week was little changed at $4.436 TN. Over the past year, Fed Credit fell $8.2bn (down 0.2%). Fed Credit inflated $1.626 TN, or 58%, over the past 229 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt declined $4.8bn last week to $3.207 TN. "Custody holdings" were down $53.4bn y-o-y, or 1.6%.
M2 (narrow) "money" supply last week increased $2.5bn to a record $13.405 TN. "Narrow money" expanded $834bn, or 6.6%, over the past year. For the week, Currency increased $1.4bn. Total Checkable Deposits dropped $11.5bn, while Savings Deposits gained $6.8bn. Small Time Deposits were little changed. Retail Money Funds rose $5.1bn.
Total money market fund assets were about unchanged at $2.654 TN. Money Funds fell $112bn y-o-y (4.0%).
Total Commercial Paper jumped $18.2bn to $983.7bn. CP declined $117bn y-o-y, or 10.6%.
Currency Watch:
March 27 – Wall Street Journal (Ira Iosebashvili): “The dollar fell to its lowest level Monday since November amid rising doubts that the White House will be able to push through promised tax cuts and infrastructure spending after failing to repeal the Affordable Care Act last week. The Wall Street Journal Dollar Index, which gauges the U.S. currency against a basket of 16 others, was recently down 0.4% to 89.65, its lowest level since November 11.”
The U.S. dollar index rallied 0.7% to 100.35 (down 2.0% y-t-d). For the week on the upside, the British pound increased 0.6%, the Canadian dollar 0.5%, the South Korean won 0.4%, the Mexican peso 0.2%, the Singapore dollar 0.1% and the Australian dollar 0.1%. For the week on the downside, the South African rand declined 7.3%, the Swedish krona 1.8%, the euro 1.4%, the Norwegian krone 1.2%, the Swiss franc 1.1%, the Brazilian real 0.5% and the New Zealand dollar 0.3%. The Chinese yuan was little changed versus the dollar this week (up 0.84% y-t-d).
Commodities Watch:
The Goldman Sachs Commodities Index rallied 2.7% (down 2.6% y-t-d). Spot Gold added 0.5% to $1,249 (up 8.4%). Silver jumped 2.7% to $18.26 (up 14.2%). Crude recovered $2.63 to $50.60 (down 6%). Gasoline surged 6.1% (up 2%), and Natural Gas rose 3.7% (down 15%). Copper increased 0.8% (up 6%). Wheat added 0.4% (up 5%). Corn gained 2.2% (up 4%).
Trump Administration Watch:
March 30 – Reuters (Susan Cornwell and Amanda Becker): “U.S. President Donald Trump lashed out… at Republican conservatives who helped torpedo healthcare legislation he backed, escalating a feud within his party that jeopardizes the new administration's legislative agenda. Trump threatened to try to defeat members of the Freedom Caucus - a bloc of conservative Republicans in the House of Representatives - in next year's congressional elections if they continued to defy him. ‘The Freedom Caucus will hurt the entire Republican agenda if they don't get on the team, & fast. We must fight them, & Dems, in 2018!’ Trump wrote on Twitter… He later singled out three Freedom Caucus members by name…”
March 31 – CNBC (Matthew J. Belvedere): “The United States will no longer bow to the rest of the world on trade because President Donald Trump plans to act, Commerce Secretary Wilbur Ross told CNBC… ‘We are in a trade war. We have been for decades. The only difference is that our troops are finally coming to the rampart. We didn’t end up with a trade deficit accidentally,’ he said, warning about the consequences of doing nothing. Ross…argued… that the shortfalls are the result of bad trade deals and other countries actively seeking surpluses. ‘Our trade deficit overall is about $500 billion a year,’ Ross said. ‘Quite miraculously, that also equals the net trade surplus with the rest of the world.’”
March 28 – Associated Press (Andrew Taylor): “The fundamentals of tax overhaul were strong some 30 years ago. A popular president, Republican Ronald Reagan, pushed the landmark 1986 measure. Powerful and experienced congressional leaders shepherded the legislation with bipartisan support. Key players had established, trusting relationships. The situation facing President Donald Trump features none of those advantages. His party is divided and his congressional leadership is weakened after the health care debacle. Key players are inexperienced. Trump has record low approval ratings. Republicans who control all of Washington are planning on going it alone, without help from Democrats. Now, there isn't even basic agreement on what revising the tax code is. Trump is promising ‘massive tax relief for the middle class.’”
March 27 – Wall Street Journal (Justin Lahart): “Any investors who think the failure of health-care reform was somehow a positive because it cleared the way for tax reform may be about to be rapidly disabused of that notion. Optimism on taxes is sharply at odds with the complexity and controversy that has met every effort of reform. Indeed, the rifts among congressional Republicans exposed by the health care battle might just get deeper. Ever since President Donald Trump was elected, investors have used a tax-reform plan House Republicans drew up last year as their lodestar. The plan, championed by Speaker Paul Ryan, calls for a reduction in the corporate tax rate to 20% from 35%. To help pay for that plan, it includes a border adjustment tax that would levy goods imported into the U.S.”
March 27 – Wall Street Journal (Kristina Peterson and Siobhan Hughes): “President Donald Trump and GOP leaders enter their next big battle facing stubborn opposition in both parties that increases Republicans’ worries that they will need more Democratic support than previously expected to avert a government shutdown by the end of April. It is a sign of the new reality in Washington after Mr. Trump and House Speaker Paul Ryan failed to persuade the House’s most conservative Republicans, as well as centrists, to back a bill to replace the Affordable Care Act. The failure derailed the GOP leadership and the new administration’s top legislative priority and has put unexpected questions before both parties about their paths forward. For Republicans leaders, the main challenge is the House Freedom Caucus, an alliance of the most conservative Republicans who successfully defied the White House to sink the health bill.”
March 28 – Bloomberg (Billy House and Erik Wasson): “Republican leaders are eager to avoid a government shutdown but the demise of their Obamacare repeal could leave some conservatives spoiling for a fight that raises the odds of a standoff. The House Freedom Caucus… says Republicans have yet to notch a significant victory, despite controlling both chambers of Congress and the White House. One top promise they and other conservatives had to hoped to deliver on with the Obamacare repeal was defunding Planned Parenthood over its provision of abortions. Now, their next chance comes with a spending measure needed to keep the government operating after April 28, when current funding runs out.”
March 29 – Wall Street Journal (William Mauldin): “The Trump administration appears poised to cement China’s unfavorable status in trade cases, making Chinese goods eligible for higher U.S. tariffs well into the future. U.S. officials are preparing a review of China’s ‘market-economy status’ under the World Trade Organization, according to official documents… The review is expected to be announced as early as this week, just days before a high-stakes meeting between President Xi Jinping and President Donald Trump.”
March 30 – Associated Press (Michael Cohen): “President Donald Trump is predicting ‘a very difficult’ meeting next week with Chinese President Xi Jinping, citing trade deficits and lost jobs. Hours after both governments announced an April 6-7 summit between the economic powerhouses in Florida, Trump sought to set expectations by tweeting: ‘The meeting next week with China will be a very difficult one in that we can no longer have massive trade deficits and job losses. American companies must be prepared to look at other alternatives.’”
March 31 – Wall Street Journal (Chun Han Wong): “China signaled little inclination to make concessions on trade with the U.S. after President Donald Trump warned of a difficult meeting with Chinese leader Xi Jinping at next week’s bilateral summit. ‘China doesn’t intentionally seek trade surpluses,’ Vice Foreign Minister Zheng Zeguang said… He said that imbalances in China-U.S. trade are mainly the result of global industrial trends, as well as disparities in the two countries’ economic structures and development.”
March 27 – Politico (Ben White and Nancy Cook): “The fight for the direction of Donald Trump’s presidency between the Goldman Sachs branch of the West Wing and hardcore conservatives is spilling into the Treasury Department, threatening Trump’s next agenda item of overhauling the tax code. Conservatives inside and outside Treasury say the new secretary, former Goldman Sachs banker, movie producer and Democratic donor Steven Mnuchin, is assembling a team that is too liberal and too detached from the core of Trump’s ‘Make America Great Again’ platform of ripping up trade deals, gutting the Dodd-Frank banking rules and generally rejecting ‘globalism’ in all its forms. The ideological divide has been brewing for weeks inside the White House as a result of appointing a raft of top advisers with radically different worldviews. The battle at Treasury is simply an extension of that brutal fight…”
March 27 – Financial Times (Shawn Donnan and Sam Fleming): “Conservative economist Allan Meltzer has railed against the World Bank and the International Monetary Fund for decades and in Donald Trump’s nomination of a former protegee he sees hope that Washington may finally be heeding his calls for reform. While Mr Trump’s naming this month of Adam Lerrick as the next assistant secretary for international finance at the Treasury has yielded a nervous reaction inside both the IMF and the World Bank, Mr Meltzer is effusive. ‘There is not to my knowledge a person in the world better qualified for that job,’ he says. Mr Lerrick, a former investment banker, served as Mr Meltzer’s top adviser on a 1990s congressional commission examining the role of the two institutions in the global economy. The ‘Meltzer Commission’ report that Mr Lerrick went on to help draft called for a more limited IMF that focuses exclusively on plugging the short-term liquidity needs of countries facing crises rather than protracted bailouts. It also recommended that the World Bank scale back its activities…”
March 30 – Reuters (David Shepardson): “U.S. Transportation Secretary Elaine Chao said the Trump administration would unveil a $1 trillion infrastructure plan later this year, but she did not offer details of funding for projects. Chao said… the infrastructure initiative would include ‘a strategic, targeted program of investment valued at $1 trillion over 10 years. The proposal will cover more than transportation infrastructure, it will include energy, water and potentially broadband and veterans hospitals as well.’”
China Bubble Watch:
March 29 – Wall Street Journal (Shen Hong): “Money markets are often described as the financial system’s plumbing: When they work—which is most of the time—hardly anyone notices, but when they get blocked up, it creates quite a stink. That’s why China’s massive money market—where banks and other financial institutions borrowed some $6.4 trillion from each other last month alone to fund their daily needs—is becoming one of the world’s most important markets to watch. China’s central bank has raised key interest rates twice since early February. That immediately pushed funding costs to the highest in two years, hitting smaller banks that have come to rely on the market particularly hard. Last week, some small rural banks failed to make good on short-term loans from other lenders… The volume of interbank lending, usually uncollateralized, hit a record with the equivalent of $34 trillion in loans last year, nearly 100 times the amount of lending in 2002… Turnover in the repo market surged to the equivalent of $216 trillion last year, around 24 times its volume a decade ago.”
March 31 – Bloomberg: “Chinese banks are taking on an unprecedented amount of short-term financing. Yield-starved investors are lapping it up amid assumptions of state support, unperturbed by a lack of collateral and warnings from rating companies. That’s fueling concern among some analysts that government backing for the nation’s lenders is distorting one of the world’s largest debt markets and increasing risks in the event of cash crunches, even after Premier Li Keqiang vowed to give market forces greater sway. Banks have issued a record 5.2 trillion yuan ($754.6bn) this quarter of so-called negotiable certificates of deposit (NCDs) that mostly mature within a year, up 44% from the three months ended Dec.31…”
March 31 – Bloomberg (Robin Ganguly): “China’s short-term money-market rates climbed across the board, with the one-week cost rising to the most expensive level in almost two years. The seven-day repurchase rate jumped 36 bps to 3.17%, the highest since April 7, 2015. The 14-day cost added 20 bps to 4.94%, extending its advance after reaching the highest since March 2015 on Thursday. The rates rose as the People’s Bank of China refrained from conducting reverse-repurchase agreements for the sixth day in a row, saying that there is a high level of liquidity in the banking system.”
March 28 – Bloomberg: “Turmoil at a small Chinese dairy company is shedding rare light on the final destination for some of the country’s estimated $8 trillion of shadow banking loans. Jilin Jiutai Rural Commercial Bank Corp., a major creditor to embattled China Huishan Dairy Holdings Co., said… it has extended a total of 1.35 billion yuan ($196 million) in credit to the dairy producer, including 750 million yuan through the purchase of investment receivables from a finance lease company. Investment receivables -- a category that can include using wealth-management products, asset-management plans and trust-beneficiary rights to disguise what are in effect loans -- allow banks to reduce the amount of cash they need to set aside for capital and provisions for loan losses.”
March 30 – Reuters (Meg Shen and Lee Chyen Yee): “China's economy, the world's second largest, will likely expand 6.8% in the first quarter of 2017, the official Xinhua agency quoted a government think tank as saying… The expected pace is on par with the 6.8% growth logged in the fourth quarter, which was better than market expectations due to higher government spending and record bank lending.”
March 31 – Bloomberg: “China’s official factory gauge climbed to the highest in almost five years, the latest evidence of increasing momentum in the world’s second-largest economy. The manufacturing purchasing managers index increased to 51.8 in March…”
March 30 – Reuters: “Growth in China’s services sector accelerated in March at the fastest pace in nearly three years, an official survey showed… The official non-manufacturing Purchasing Managers' Index (PMI) stood at 55.1, compared with the previous month's reading of 54.2…”
March 28 – Reuters (Jun Yang): “The ever-closer relationship between Chinese companies and banks can be a toxic mix. A growing number of companies in the People's Republic are buying into local lenders that need to raise capital. The interdependence is risky. One danger is that banks lend to their corporate shareholders on more lenient terms than to regular borrowers, regardless of credit risks. That concern sparked a selloff in Jilin Jiutai Rural Commercial Bank’s stock on Monday, the first trading day following an 85% plunge in the market value of shareholder China Huishan Dairy. The milk group’s chairman controls the company through an entity that also owns more than 15% of Jilin Jiutai's Hong Kong-listed stock. The lender in turn is Huishan’s second-largest creditor, with some $262 million on the line, according to Caixin.”
Global Bubble Watch:
March 31 – Financial Times (Katie Martin): “Investors might need to chuck out their text books, because markets seem set to move in unpredictable and potentially painful ways. That’s the warning from Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, in his widely-read quarterly market wrap. ‘It ain’t a normal cycle,’ he and Jared Woodward write. After all, central banks around the world have cut interest rates 679 times and bought $14.2bn since the collapse of Lehman Brothers. ‘Normalization’ from a 5,000-year low in rates, 70-year low in G7 fiscal stimulus, 35-year high in the US-German rate differential, an all-time high US stocks vs. [the rest of the world], a 75-year low in bank stocks is unlikely to be peaceful; long gold in anticipation of potential manias, panics, crashes.’”
March 26 – Financial Times (Gavyn Davies): “One of the most dramatic monetary interventions in recent years has been the unprecedented surge in global central bank balance sheets. This form of ‘money printing’ has not had the inflationary effect predicted by pessimists, but there is still deep unease among some central bankers about whether these bloated balance sheets should be accepted as part of the ‘new normal’. There are concerns that ultra large balance sheets carry with them long term risks of inflation, and financial market distortions. In recent weeks, there have been debates within the FOMC and the ECB Governing Council about balance sheet strategy, and it is likely that there will be important new announcements from both these central banks before the end of 2017. Meanwhile, the PBOC balance sheet has been drifting downwards because of the large scale currency intervention that has been needed to prevent a rapid devaluation in the renminbi. Only the Bank of Japan seems likely to persist with policies that will extend the balance sheet markedly further after 2017.”
March 28 – Bloomberg (Andrea Wong): “A high-risk corner of the $5.1 trillion-a-day currency market has become the collateral damage of the dollar selloff. Whipsawed by the greenback and confronted by U.S. policy confusion, carry trades were supposed to be a rare bright spot for investors who want to stay away from the world’s biggest reserve currency. Under the strategy, you borrow in low-rate alternatives such as the yen, and buy high-yielding peers like the Mexican peso… Practitioners of the carry trade are learning there’s no hiding from the dollar’s influence. Growing doubts about the outlook for U.S. policy following the failed attempt at health-care reform not only led to a weaker dollar, it also caused investors to pile into havens such as the yen and the euro -- the funding currencies carry traders sell as part of the strategy. The Japanese currency gained 2.2% against the dollar this month, while the euro rose 2.7%.”
March 28 – Bloomberg (Narae Kim and Sid Verma): “Talk about risk-on: the demand for higher-yielding securities is proving so strong that Papua New Guinea, one of Asia’s poorest nations, is contemplating a debut issue of dollar bonds. The southwest Pacific nation plans to raise $500 million in five-year bonds… The country would join Mongolia among sub-investment grade issuers in 2017. Sales of high-yield bonds total almost $15 billion so far this year… It’s part of a broader trend of enduring strength in emerging markets that are weathering the U.S. Federal Reserve’s monetary tightening cycle with aplomb. Concerns about trade wars and the potential renewed decline of commodity prices have been set aside for now, with the long-awaited end of the global bond bull market seeming to be on hold.”
Fixed Income Bubble Watch:
March 27 – Reuters (Nick Carey): “As U.S. auto sales have peaked, competition to finance car loans is set to intensify and drive increased credit risk for auto lenders, Moody’s… said… ‘The combination of plateauing auto sales, growing negative equity from consumers and lenders' willingness to offer flexible loan terms is a significant credit risk for lenders,’ Jason Grohotolski, a senior credit officer at Moody’s… told Reuters. Motor vehicle sales have boomed in the years since the Great Recession.”
Brexit Watch:
March 29 – Bloomberg (Tim Ross and Jonathan Stearns): “U.K. Prime Minister Theresa May struck a conciliatory tone toward the European Union as she coupled her demand for divorce with a request for a sweeping free-trade deal encompassing financial services. In a six-page letter submitted… to EU President Donald Tusk, May formally triggered two years of likely contentious talks that will end with Britain breaking ties with its largest trading partner after more than four decades. May sought to smooth over tensions from the start by calling on both sides to negotiate ‘constructively and respectfully,’ saying that she wants the bloc to ‘succeed and prosper.’”
ECB Watch:
March 30 – Reuters (Thomas Escritt and Balazs Koranyi): “The European Central Bank needs to stick to its already laid out policy path, several policymakers argued…, although a top conservative urged them to leave the door open to a more rapid reduction in stimulus. Economic growth is gaining momentum and the euro zone may be on its best economic run in a decade. But inflation is still not moving decisively higher, the policymakers argued, hinting at little appetite for now to amend the ECB's policy stance. The comments gel with Reuters report on Wednesday that policymakers are wary of making any new change to their policy message after small tweaks this month upset investors… With inflation at a four-year high, critics of the ECB, particularly in Germany, have called on the bank to start winding down its unprecedented stimulus measures…”
March 29 – Wall Street Journal (Tom Fairless): “The European Central Bank’s recent moves mark the first steps in winding down its aggressive monetary stimulus and the bank could soon take fresh steps toward an exit if economic data remain strong, a top ECB official said. Klaas Knot, who sits on the ECB’s rate-setting committee as governor of the Dutch central bank, said policy makers were increasingly optimistic about the strength of the economic recovery under way in the 19-nation eurozone. He said the ECB would likely start winding down its massive bond-purchase program within the next 12 months, and suggested it could even raise interest rates in parallel.”
March 27 – Reuters (Balazs Koranyi, Andreas Framke and Francesco Canepa): “Germany’s two representatives on the European Central Bank's main policy-making body called… for it to prepare to wind down its aggressive stimulus policy as soon as economic conditions allow it. The comments by Bundesbank president Jens Weidmann and by Sabine Lautenschlaeger, who represents the ECB's supervisory arm on the bank's executive board, highlight Germany's impatience with the direction the ECB has taken under president Mario Draghi. They also reveal the rift between themselves and supporters of the ECB's current policy of ultra-low interest rates and massive bond buying, which was defended on Monday separately by the central bank's chief economist Peter Praet and by Belgian central bank governor Jan Smets. ‘I would like to see a less expansive stance,’ Jens Weidmann, who sits on the ECB's Governing Council, said…”
March 25 – Reuters (Francesco Canepa): “The European Central Bank’s next policy moves and the order they come in are still up in the air and might even include a rate hike or sales of bonds, a director at Germany's central bank said. Joachim Wuermeling's comments signal Germany’s impatience with the ECB's ultra-easy policy as inflation in the bloc rebounds and raise new questions about the bank's policy plan… The ECB has said it would keep buying bonds until at least the end of the year and keep interest rates at current record low levels or even cut them until ‘well past’ that point. ‘The forward guidance of the ECB council now presumes that interest rate hikes are currently to be expected at the earliest after the end of net monetary policy purchases,’ Wuermeling told an audience… ‘But here too, everything is in flux.’”
March 28 – Financial Times (Mehreen Khan): “The European Central Bank improperly veered into political activity during the eurozone crisis and should withdraw from the ‘troika’ of international bailout monitors, according to anti-corruption watchdog Transparency International. In a review of the central bank’s actions, carried out in co-operation with ECB officials, the report called on the ECB to be placed under greater scrutiny by EU institutions, saying its mandate to ensure price stability in the eurozone had been pushed to ‘breaking point’ in tackling the crisis. ‘The ECB’s accountability framework is not appropriate for the far-reaching political decisions taken by the governing council,’ said the report written by Benjamin Braun, an economist at Harvard.”
Europe Watch:
March 31 – Bloomberg (Carolynn Look and Stu Metzler): “German unemployment fell by the most since 2011, pushing joblessness to a record low as Europe’s largest economy powers ahead. The number of people out of work slid by a seasonally adjusted 30,000 to 2.6 million in March, and the rate dropped to 5.8% from 5.9%...”
March 28 – Wall Street Journal (James Mackintosh): “Politics has been a big driver of markets, but investors may be worrying about the wrong politics. Squabbling over health care hurts the chance of a big U.S. tax cut, and the neurotic can find plenty to fear in the French presidential election. Much less attention has been paid to the biggest political threat on the horizon for investors: Italy. Italian elections are events investors have learned to disregard after 44 governments in 50 years. The next election might be different, thanks to the potential for a nasty three-way feedback loop between populist politics, the European Central Bank and the bond market.”
Federal Reserve Watch:
March 31 – Reuters (Jonathan Spicer): “The Federal Reserve could begin shrinking its $4.5-trillion balance sheet as soon as this year, earlier than most economists expect, New York Fed President William Dudley said… in the central bank's most definitive comments on the question that looms over financial markets. The hawkish-sounding assertion temporarily pushed the dollar lower and raised yields on longer-dated bonds, and added Dudley's influential voice to at least three other officials at the Fed eyeing a prompt end to a crisis-era policy. ‘It wouldn't surprise me if some time later this year or some time in 2018, should the economy perform in line with our expectations, that we will start to gradually let the securities mature rather than reinvesting them,’ Dudley, a close ally of Fed Chair Janet Yellen, said…”
March 31 – Bloomberg (Matthew Boesler): “For two decades, William Dudley has led a charge to change the way central bankers think about how they steer their economies through the booms and busts of financial markets. As president of the Federal Reserve Bank of New York, he’s showing them during the current tightening cycle what he’s been talking about all along. Dudley’s contribution has been, in a nutshell, to get policy makers more focused on swings in the stock market and how they affect the economy. Inspired by the Bank of Canada in the mid-1990s, he’s been developing an idea ever since that could encourage the Fed to speed up -- or slow down -- the pace of interest-rate increases, depending on market movements. ‘I don’t think we are removing the punch bowl, yet. We’re just adding a bit more fruit juice,’ Dudley said Thursday…”
March 31 – Wall Street Journal (Eric Morath and Jeffrey Sparshott): “An important measure of inflation exceeded the Federal Reserve’s target for a 2% annual gain for the first time in nearly five years. The personal-consumption expenditures price index, which is the Fed’s preferred inflation gauge, rose a seasonally adjusted 0.1% in February from the prior month and climbed 2.1% from a year earlier… It was the strongest annual gain for the price measure since March 2012.”
March 30 – Reuters (Svea Herbst-Bayliss): “The U.S. Federal Reserve should raise interest rates three more times this year due to the strength of the economy, Boston Fed President Eric Rosengren said… ‘The base case (for 2017) would be four tightenings, reflecting the strength of the economy that I believe justifies more regular normalization of interest rates,’ Rosengren said…”
March 28 – Reuters (Jason Lange): “A Republican-controlled committee of lawmakers approved a bill… to allow a congressional audit of Federal Reserve monetary policy, a proposal Fed policymakers have opposed and which faces an uncertain path to final approval. Democrats uniformly spoke against the proposal during a meeting of the House of Representatives Committee on Oversight and Government Reform, suggesting the bill would face stronger resistance than in the past.”
U.S. Bubble Watch:
March 28 – Reuters (Lucia Mutikani and Dan Burns): “U.S. consumer confidence surged to a more than 16-year high in March amid growing labor market optimism while the goods trade deficit narrowed sharply in February, indicating the economy was regaining momentum after faltering at the start of the year… Robust consumer confidence and rising household wealth from the home price gains suggest a recent slowdown in consumer spending, which has hurt growth, is likely temporary. ‘We think that real consumption will firm moving forward,’ said Daniel Silver, an economist at JP Morgan…”
March 28 – Bloomberg (Michelle Jamrisko): “Home prices in 20 U.S. cities climbed in the 12 months through January at the fastest pace since July 2014, while nationwide the increase in property values also accelerated, according to S&P CoreLogic Case-Shiller… 20-city property values index rose 5.7% from January 2016 after increasing 5.5% in the year through December. National home-price gauge increased 5.9% in the 12 months through January…”
March 27 – Bloomberg (Vince Golle): “The paucity of houses on the market remains a nagging hurdle for those Americans interested in trading up or looking to take their first step into homeownership. With a limited number of property listings amid solid demand, sellers have little reason to reduce asking prices. From December through February, less than four months’ supply of existing houses were on the market, compared with a post-recession high of about 12 months’ worth in mid-2010… Yes, interested sellers take their homes off the market during the winter, but such a lean supply over a similar time frame has never been recorded in about two decades of data.”
Japan Watch:
March 30 – Bloomberg (Toru Fujioka and Keiko Ujikane): “Japan’s core consumer prices rose slightly for a second month in February, while the jobless rate dropped to the lowest level since 1994. Consumer prices excluding fresh food climbed 0.2% in February from a year earlier, registering the first back-to-back gains since late 2015.”
Federal Reserve Watch:
March 31 – Reuters (Jonathan Spicer): “The Federal Reserve could begin shrinking its $4.5-trillion balance sheet as soon as this year, earlier than most economists expect, New York Fed President William Dudley said… in the central bank's most definitive comments on the question that looms over financial markets. The hawkish-sounding assertion temporarily pushed the dollar lower and raised yields on longer-dated bonds, and added Dudley's influential voice to at least three other officials at the Fed eyeing a prompt end to a crisis-era policy. ‘It wouldn't surprise me if some time later this year or some time in 2018, should the economy perform in line with our expectations, that we will start to gradually let the securities mature rather than reinvesting them,’ Dudley, a close ally of Fed Chair Janet Yellen, said…”
March 31 – Bloomberg (Matthew Boesler): “For two decades, William Dudley has led a charge to change the way central bankers think about how they steer their economies through the booms and busts of financial markets. As president of the Federal Reserve Bank of New York, he’s showing them during the current tightening cycle what he’s been talking about all along. Dudley’s contribution has been, in a nutshell, to get policy makers more focused on swings in the stock market and how they affect the economy. Inspired by the Bank of Canada in the mid-1990s, he’s been developing an idea ever since that could encourage the Fed to speed up -- or slow down -- the pace of interest-rate increases, depending on market movements. ‘I don’t think we are removing the punch bowl, yet. We’re just adding a bit more fruit juice,’ Dudley said Thursday…”
March 31 – Wall Street Journal (Eric Morath and Jeffrey Sparshott): “An important measure of inflation exceeded the Federal Reserve’s target for a 2% annual gain for the first time in nearly five years. The personal-consumption expenditures price index, which is the Fed’s preferred inflation gauge, rose a seasonally adjusted 0.1% in February from the prior month and climbed 2.1% from a year earlier… It was the strongest annual gain for the price measure since March 2012.”
March 30 – Reuters (Svea Herbst-Bayliss): “The U.S. Federal Reserve should raise interest rates three more times this year due to the strength of the economy, Boston Fed President Eric Rosengren said… ‘The base case (for 2017) would be four tightenings, reflecting the strength of the economy that I believe justifies more regular normalization of interest rates,’ Rosengren said…”
March 28 – Reuters (Jason Lange): “A Republican-controlled committee of lawmakers approved a bill… to allow a congressional audit of Federal Reserve monetary policy, a proposal Fed policymakers have opposed and which faces an uncertain path to final approval. Democrats uniformly spoke against the proposal during a meeting of the House of Representatives Committee on Oversight and Government Reform, suggesting the bill would face stronger resistance than in the past.”
U.S. Bubble Watch:
March 28 – Reuters (Lucia Mutikani and Dan Burns): “U.S. consumer confidence surged to a more than 16-year high in March amid growing labor market optimism while the goods trade deficit narrowed sharply in February, indicating the economy was regaining momentum after faltering at the start of the year… Robust consumer confidence and rising household wealth from the home price gains suggest a recent slowdown in consumer spending, which has hurt growth, is likely temporary. ‘We think that real consumption will firm moving forward,’ said Daniel Silver, an economist at JP Morgan…”
March 28 – Bloomberg (Michelle Jamrisko): “Home prices in 20 U.S. cities climbed in the 12 months through January at the fastest pace since July 2014, while nationwide the increase in property values also accelerated, according to S&P CoreLogic Case-Shiller… 20-city property values index rose 5.7% from January 2016 after increasing 5.5% in the year through December. National home-price gauge increased 5.9% in the 12 months through January…”
March 27 – Bloomberg (Vince Golle): “The paucity of houses on the market remains a nagging hurdle for those Americans interested in trading up or looking to take their first step into homeownership. With a limited number of property listings amid solid demand, sellers have little reason to reduce asking prices. From December through February, less than four months’ supply of existing houses were on the market, compared with a post-recession high of about 12 months’ worth in mid-2010… Yes, interested sellers take their homes off the market during the winter, but such a lean supply over a similar time frame has never been recorded in about two decades of data.”
Japan Watch:
March 30 – Bloomberg (Toru Fujioka and Keiko Ujikane): “Japan’s core consumer prices rose slightly for a second month in February, while the jobless rate dropped to the lowest level since 1994. Consumer prices excluding fresh food climbed 0.2% in February from a year earlier, registering the first back-to-back gains since late 2015.”
EM Watch:
March 30 – Reuters (Adam Haigh): “The first quarter is ending, and the tally is in: emerging markets are winning hands down. Developing-market equities have handed investors a 12.4% return this year, twice that of developed stocks, for their best start to a year since 2012. A gauge of local-currency emerging-nation bonds is up 7.4%, more than three times as much as the Bloomberg Barclays global fixed-income index.”
March 30 – Bloomberg (Michael Cohen): “South African President Jacob Zuma faced a widening public backlash from senior members of the ruling African National Congress including his deputy, Cyril Ramaphosa, the morning after he fired his finance minister and made sweeping cabinet changes. ‘I have made my views known and there are quite a number of other colleagues and comrades who are unhappy about the situation, particularly the removal of the minister of finance,’ Ramaphosa said… He called Zuma’s reasons for removing Pravin Gordhan ‘unacceptable.’”
March 31 – Bloomberg (Jonathan Spicer): “Venezuela lurched closer to full-blown crisis Friday when the nation’s top prosecutor, a long-time ally of the ruling socialist party, labeled unconstitutional the Supreme Court’s move to usurp the power of the opposition-led National Assembly. Small, sporadic protests flared up across the country, jittery investors dumped the government’s bonds and opposition leaders sought to capitalize on the chaos by calling on the military to ‘restore’ constitutional order.”
March 30 – Reuters (Adam Haigh): “The first quarter is ending, and the tally is in: emerging markets are winning hands down. Developing-market equities have handed investors a 12.4% return this year, twice that of developed stocks, for their best start to a year since 2012. A gauge of local-currency emerging-nation bonds is up 7.4%, more than three times as much as the Bloomberg Barclays global fixed-income index.”
March 30 – Bloomberg (Michael Cohen): “South African President Jacob Zuma faced a widening public backlash from senior members of the ruling African National Congress including his deputy, Cyril Ramaphosa, the morning after he fired his finance minister and made sweeping cabinet changes. ‘I have made my views known and there are quite a number of other colleagues and comrades who are unhappy about the situation, particularly the removal of the minister of finance,’ Ramaphosa said… He called Zuma’s reasons for removing Pravin Gordhan ‘unacceptable.’”
March 31 – Bloomberg (Jonathan Spicer): “Venezuela lurched closer to full-blown crisis Friday when the nation’s top prosecutor, a long-time ally of the ruling socialist party, labeled unconstitutional the Supreme Court’s move to usurp the power of the opposition-led National Assembly. Small, sporadic protests flared up across the country, jittery investors dumped the government’s bonds and opposition leaders sought to capitalize on the chaos by calling on the military to ‘restore’ constitutional order.”
Leveraged Speculation Watch:
March 29 – Wall Street Journal (Saumya Vaishampayan): “Many of the trades that seemed sure bets at the start of 2017 have already flopped in the first quarter. Investors’ high expectations about what President Donald Trump would be able to achieve in office, reflected in the ‘Trump trade,’ have moderated. In addition, trades have been upended by surprisingly good global economic data. The Eurekahedge Macro Hedge Fund Index, which shows the performance of funds that wager on big economic trends, has returned 0.5% so far this year, versus 3.4% in all of 2016. ‘There’s been quite a shift in sentiment about what the U.S. administration will do,’ said Mitul Kotecha, head of Asia macro strategy at Barclays…”
March 29 – Wall Street Journal (Saumya Vaishampayan): “Many of the trades that seemed sure bets at the start of 2017 have already flopped in the first quarter. Investors’ high expectations about what President Donald Trump would be able to achieve in office, reflected in the ‘Trump trade,’ have moderated. In addition, trades have been upended by surprisingly good global economic data. The Eurekahedge Macro Hedge Fund Index, which shows the performance of funds that wager on big economic trends, has returned 0.5% so far this year, versus 3.4% in all of 2016. ‘There’s been quite a shift in sentiment about what the U.S. administration will do,’ said Mitul Kotecha, head of Asia macro strategy at Barclays…”
Geopolitical Watch:
March 30 – Reuters (Ben Blanchard): “China's Defence Ministry said… it was futile for Taiwan to think it could use arms to prevent unification, as the self-ruled democratic island looks to fresh arms sales by the United States amid what it sees as a growing Chinese threat. China has never renounced the use of force to bring under its control what it deems a wayward province, and Taiwan's defense ministry says China has more than 1,000 missiles directed at the island. The Trump administration is crafting a big new arms package for Taiwan that could include advanced rocket systems and anti-ship missiles to defend against China…”
March 30 – Reuters (Ben Blanchard): “There was ‘no such thing’ as man-made islands in the disputed South China Sea, China's Defence Ministry said…, and reiterated that any building work was mainly for civilian purposes. China, which claims most of the resource-rich region, has carried out land reclamation and construction on several islands in the Spratly archipelago, parts of which are also claimed by Brunei, Malaysia, the Philippines, Taiwan and Vietnam. The building has included airports, harbors and other facilities…”
March 30 – Wall Street Journal (Yaroslav Trofimov): “Turkey expected a honeymoon with President Donald Trump. Instead, it increasingly looks like Ankara and Washington are heading for a squabble, if not a divorce. For now, President Recep Tayyip Erdogan has bitten his tongue and avoided attacking the Trump administration with the kind of inflammatory statements that he routinely hurls at European and regional leaders. The White House, too, has kept largely mum about Turkish affairs… Yet, on several key issues of this complicated relationship between the two North Atlantic Treaty Organization allies, a head-on collision with potentially unpredictable consequences seems more and more possible.”
March 29 – New York Times (Ben Hubbard and Michael R. Gordon): “The United States launched more airstrikes in Yemen this month than during all of last year. In Syria, it has airlifted local forces to front-line positions and has been accused of killing civilians in airstrikes. In Iraq, American troops and aircraft are central in supporting an urban offensive in Mosul, where airstrikes killed scores of people on March 17. Two months after the inauguration of President Trump, indications are mounting that the United States military is deepening its involvement in a string of complex wars in the Middle East that lack clear endgames… On display are some of the first indications of how complicated military operations are continuing under a president who has vowed to make the military ‘fight to win.’”
March 30 – Reuters (Ben Blanchard): “China's Defence Ministry said… it was futile for Taiwan to think it could use arms to prevent unification, as the self-ruled democratic island looks to fresh arms sales by the United States amid what it sees as a growing Chinese threat. China has never renounced the use of force to bring under its control what it deems a wayward province, and Taiwan's defense ministry says China has more than 1,000 missiles directed at the island. The Trump administration is crafting a big new arms package for Taiwan that could include advanced rocket systems and anti-ship missiles to defend against China…”
March 30 – Reuters (Ben Blanchard): “There was ‘no such thing’ as man-made islands in the disputed South China Sea, China's Defence Ministry said…, and reiterated that any building work was mainly for civilian purposes. China, which claims most of the resource-rich region, has carried out land reclamation and construction on several islands in the Spratly archipelago, parts of which are also claimed by Brunei, Malaysia, the Philippines, Taiwan and Vietnam. The building has included airports, harbors and other facilities…”
March 30 – Wall Street Journal (Yaroslav Trofimov): “Turkey expected a honeymoon with President Donald Trump. Instead, it increasingly looks like Ankara and Washington are heading for a squabble, if not a divorce. For now, President Recep Tayyip Erdogan has bitten his tongue and avoided attacking the Trump administration with the kind of inflammatory statements that he routinely hurls at European and regional leaders. The White House, too, has kept largely mum about Turkish affairs… Yet, on several key issues of this complicated relationship between the two North Atlantic Treaty Organization allies, a head-on collision with potentially unpredictable consequences seems more and more possible.”
March 29 – New York Times (Ben Hubbard and Michael R. Gordon): “The United States launched more airstrikes in Yemen this month than during all of last year. In Syria, it has airlifted local forces to front-line positions and has been accused of killing civilians in airstrikes. In Iraq, American troops and aircraft are central in supporting an urban offensive in Mosul, where airstrikes killed scores of people on March 17. Two months after the inauguration of President Trump, indications are mounting that the United States military is deepening its involvement in a string of complex wars in the Middle East that lack clear endgames… On display are some of the first indications of how complicated military operations are continuing under a president who has vowed to make the military ‘fight to win.’”
Friday Afternoon Links
[Bloomberg] U.S. Stocks Meander on Last Day of Stellar Quarter: Markets Wrap
[Reuters] Oil retreats, set to become worst-performing asset in first quarter
[Reuters] Fed signals it could promptly start shedding bonds from portfolio this year
[Bloomberg] Venezuela Crisis Deepens, Bonds Sink as Maduro Ally Pushes Back
[Reuters] Top Venezuela official breaks with government, protests escalate
[CNBC] The looming budget disaster, in four charts
[Forbes] Proof That Mr. Market Is Losing His Mind
[CNBC] From a $200,000 Aston Martin sports car to $1,000 an hour escorts, Wall Street spending is up
[NYT] Caution Signals Are Blinking for the Trump Bull Market
[FT] ‘It ain’t a normal cycle’, BAML reminds investors
[Reuters] Oil retreats, set to become worst-performing asset in first quarter
[Reuters] Fed signals it could promptly start shedding bonds from portfolio this year
[Bloomberg] Venezuela Crisis Deepens, Bonds Sink as Maduro Ally Pushes Back
[Reuters] Top Venezuela official breaks with government, protests escalate
[CNBC] The looming budget disaster, in four charts
[Forbes] Proof That Mr. Market Is Losing His Mind
[CNBC] From a $200,000 Aston Martin sports car to $1,000 an hour escorts, Wall Street spending is up
[NYT] Caution Signals Are Blinking for the Trump Bull Market
[FT] ‘It ain’t a normal cycle’, BAML reminds investors
Thursday, March 30, 2017
Friday's News Links
[Bloomberg] Global Stocks Drop on Final Day of Stellar Quarter: Markets Wrap
[Reuters] Dollar edges up but heads for worst quarter in a year
[Bloomberg] U.S. Personal Spending Cools as Inflation Reaches Fed's Goal
[CNBC] Commerce's Wilbur Ross warns the US is already in a trade war
[Reuters] Trump to order trade abuses study, improve import duty collection
[Bloomberg] How the Yellen Fed Got Religion Over the Stock Market and Policy
[Bloomberg] Calmest Market in More Than Decade on VIX Quarterly Drop: Chart
[Bloomberg] Euro-Area Inflation Slows More Than Predicted on Oil, Food
[Bloomberg] ECB's Coeure Says Forward Guidance Could Change, Just Not Yet
[Bloomberg] German Unemployment Slides to Record Low as Economy Booms
[Bloomberg] China Manufacturing Gauge Climbs to Highest in Almost Five Years
[Reuters] China March service sector growth fastest in nearly 3 years-official PMI
[Bloomberg] Japan Inflation Registers First Back-to-Back Rise Since 2015
[Bloomberg] Zuma Faces Widening Backlash After South African Cabinet Purge
[Bloomberg] Trump Predicts 'Very Difficult' Meeting With China's Leader
[Reuters] Republican disarray deepens as Trump attacks rebel conservatives
[WSJ] Consumer Inflation Tops Fed’s Target
[WSJ] China Digs In on Trade as Trump Warns of ‘Very Difficult’ Summit
[FT] Political risk stalks booming Silicon Valley
[Reuters] Dollar edges up but heads for worst quarter in a year
[Bloomberg] U.S. Personal Spending Cools as Inflation Reaches Fed's Goal
[CNBC] Commerce's Wilbur Ross warns the US is already in a trade war
[Reuters] Trump to order trade abuses study, improve import duty collection
[Bloomberg] How the Yellen Fed Got Religion Over the Stock Market and Policy
[Bloomberg] Calmest Market in More Than Decade on VIX Quarterly Drop: Chart
[Bloomberg] Euro-Area Inflation Slows More Than Predicted on Oil, Food
[Bloomberg] ECB's Coeure Says Forward Guidance Could Change, Just Not Yet
[Bloomberg] German Unemployment Slides to Record Low as Economy Booms
[Bloomberg] China Manufacturing Gauge Climbs to Highest in Almost Five Years
[Reuters] China March service sector growth fastest in nearly 3 years-official PMI
[Bloomberg] Japan Inflation Registers First Back-to-Back Rise Since 2015
[Bloomberg] Zuma Faces Widening Backlash After South African Cabinet Purge
[Bloomberg] Trump Predicts 'Very Difficult' Meeting With China's Leader
[Reuters] Republican disarray deepens as Trump attacks rebel conservatives
[WSJ] Consumer Inflation Tops Fed’s Target
[WSJ] China Digs In on Trade as Trump Warns of ‘Very Difficult’ Summit
[FT] Political risk stalks booming Silicon Valley
Thursday Evening Links
[Reuters] Wall Street rises, aided by growth data; Nasdaq ends at record
[Bloomberg] Fed's Dudley Says Fiscal Stimulus Outlook Shifts Risks to Upside
[Bloomberg] Mexico Raises Rate as Inflation Hits Highest Since Recession
[Bloomberg] Draghi's German Problem May Fizzle as ECB Sticks to Its Plan
[Bloomberg] JPMorgan economist sees Fed shrinking balance sheet starting 2018
[FT] Upbeat mood drives record emerging market sovereign debt sales
[Bloomberg] Fed's Dudley Says Fiscal Stimulus Outlook Shifts Risks to Upside
[Bloomberg] Mexico Raises Rate as Inflation Hits Highest Since Recession
[Bloomberg] Draghi's German Problem May Fizzle as ECB Sticks to Its Plan
[Bloomberg] JPMorgan economist sees Fed shrinking balance sheet starting 2018
[FT] Upbeat mood drives record emerging market sovereign debt sales
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