Friday, March 30, 2018

Weekly Commentary: Just the Facts

For the Final Week of a Wild Quarter:

The S&P500 rallied 2.0% (down 1.2% Q1), and the Dow gained 2.4% (down 2.5%). The Utilities jumped 2.9% (down 4.5%). The Banks recovered 2.5% (down 0.2%), and the Broker/Dealers rose 2.7% (down 0.2%). The Transports gained 2.3% (down 2.0%). The S&P 400 Midcaps rose 2.1% (down 1.1%), and the small cap Russell 2000 gained 1.3% (down 0.4%). The Nasdaq100 advanced 1.1% (up 2.9%). The Semiconductors added 0.4% (up 6.1%). The Biotechs increased 0.2% (up 6.7%). With bullion down $22, the HUI gold index declined 0.8% (down 11.1%).

Three-month Treasury bill rates ended the week at 1.67%. Two-year government yields added a basis point to 2.27% (up 38bps y-t-d). Five-year T-note yields declined five bps to 2.56% (up 36bps). Ten-year Treasury yields fell seven bps to 2.74% (up 33bps). Long bond yields dropped nine bps to 2.97% (up 23bps).

Greek 10-year yields fell seven bps to 4.29% (up 22bps y-t-d). Ten-year Portuguese yields dropped 11 bps to 1.61% (down 33bps). Italian 10-year yields declined nine bps to 1.79% (down 23bps). Spain's 10-year yields sank 11 bps to 1.16% (down 40bps). German bund yields declined three bps to 0.50% (up 7bps). French yields fell four bps to 0.72% (down 6bps). The French to German 10-year bond spread narrowed one to 22 bps. U.K. 10-year gilt yields fell 10 bps to 1.35% (up 16bps). U.K.'s FTSE equities index jumped 1.9% (down 8.2%).

Japan's Nikkei 225 equities index recovered 4.1% (down 5.8% y-t-d). Japanese 10-year "JGB" yields rose three bps to 0.05% (down 2bps). France's CAC40 gained 1.4% (down 2.7%). The German DAX equities index rallied 1.8% (down 6.4%). Spain's IBEX 35 equities index recovered 2.2% (down 4.4%). Italy's FTSE MIB index increased 0.5% (up 2.6%). EM equities were mixed. Brazil's Bovespa index gained 1.2% (up 11.7%), while Mexico's Bolsa declined 0.8% (down 6.5%). South Korea's Kospi index gained 1.2% (down 0.9%). India’s Sensex equities index rose 1.1% (down 3.2%). China’s Shanghai Exchange increased 0.5% (down 4.2%). Turkey's Borsa Istanbul National 100 index fell 1.4% (down 0.3%). Russia's MICEX equities was unchanged (up 8.3%).

Investment-grade bond funds saw inflows of $438 million, while junk bond funds suffered outflows of $619 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates slipped a basis point to 4.44% (up 30bps y-o-y). Fifteen-year rates declined one basis point to 3.90% (up 51bps). Five-year hybrid ARM rates fell two bps to 3.66% (up 51bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down 11 bps to 4.49% (up 26bps).

Federal Reserve Credit last week declined $4.2bn to $4.357 TN. Over the past year, Fed Credit contracted $79bn, or 1.8%. Fed Credit inflated $1.547 TN, or 55%, over the past 282 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt rose $4.2bn last week to $3.444 TN. "Custody holdings" were up $237bn y-o-y, or 7.4%.

M2 (narrow) "money" supply declined $13.7bn last week to $13.901 TN. "Narrow money" gained $511bn, or 3.8%, over the past year. For the week, Currency increased $2.0bn. Total Checkable Deposits dropped $42.8bn, while savings Deposits rose $21.1bn. Small Time Deposits gained $4.5bn. Retail Money Funds added $1.4bn.

Total money market fund assets added $3.9bn to $2.829 TN. Money Funds gained $175bn y-o-y, or 6.6%.

Total Commercial Paper slipped $3.9bn to $1.062 TN. CP gained $75.5bn y-o-y, or 7.7%.

Currency Watch:

The U.S. dollar index gained 0.6% to 89.974 (down 2.3% y-o-y). For the week on the upside, the Mexican peso increased 1.9%, the South Korean won 1.8%, the Singapore dollar 0.3%, the Brazilian real 0.2%, and the New Zealand dollar 0.1%. For the week on the downside, the Japanese yen declined 1.5%, the Swedish krona 1.1%, the Norwegian krone 1.1%, the British pound 0.8%, the South African rand 0.8%, the Swiss franc 0.8%, the Australian dollar 0.3%, and the euro 0.2%. The Chinese renminbi gained 0.65% versus the dollar this week (up 3.69% y-t-d).

Commodities Watch:

The Goldman Sachs Commodities Index slipped 0.5% (up 2.4% y-t-d). Spot Gold dropped 1.7% to $1,325 (up 1.7%). Silver fell 1.9% to $16.268 (down 5.1%). Crude declined 94 cents to $64.94 (up 8%). Gasoline dipped 0.6% (up 13%), while Natural Gas jumped 5.5% (down 8%). Copper rallied 1.1% (down 8%). Wheat fell 2.0% (up 6%). Corn jumped 2.8% (up 10%).

Trump Administration Watch:

March 27 - Bloomberg (Andrew Mayeda, Saleha Mohsin, and David McLaughlin): "The Trump administration is considering a crackdown on Chinese investments in technologies the U.S. deems sensitive by invoking a law reserved for national emergencies… Treasury Department officials are working on plans to identify technology sectors in which Chinese companies would be banned from investing, such as semiconductors and so-called 5G wireless communications, according to four people with knowledge of the proposal… The investment curbs would be the latest step in President Donald Trump's plan to punish China for what the U.S. sees as violations of American intellectual-property rights."

March 25 - Reuters (Valerie Volcovici): "Despite threats of retaliation from China over U.S. plans to impose tariffs on up to $60 billion in Chinese goods, Treasury Secretary Steve Mnuchin on Sunday said President Donald Trump had no intention of backing down and was not worried about a trade war. 'We are going to proceed with our tariffs. We're working on that," Mnuchin told Fox News… 'So, as President Trump said, we're not afraid of a trade war, but that's not our objective.'"

March 26 - Reuters (Michelle Fox): "The spending spree coming out of the nation's capital has to stop, former Government Accountability Office head David Walker told CNBC… 'Fiscal policy is spinning out of control again in Washington, D.C.,' said Walker, who was head of the GAO under Presidents Bill Clinton and George W. Bush. 'We are mortgaging the future of kids and grandkids at record rates. That is irresponsible. It is unethical. It is immoral. It must stop… We've seen the debt ceiling limit go up $1 trillion in the last year. We're facing trillion-dollar annual deficits starting in '19, and we can see on the horizon that the federal budget may end up spending $1 trillion on interest alone in the not-too-distant future. And what do you get for interest? Nothing,' said Walker…"

March 29 - Bloomberg (Anna Edgerton, Allison McCartney and Chloe Whiteaker): "Republicans are presiding over an escalation in U.S. indebtedness after years of railing against widening deficits under Democrats. The GOP's biggest legislative achievement since President Donald Trump took office was a massive tax cut that congressional scorekeepers expect will add more than $1 trillion to deficits over the next decade, even when accounting for faster economic growth. Adding to that, the Republican-controlled House and Senate just passed a massive $1.3 trillion bill to fund most of the government's daily operations. The agreement-which included more money for the military that Republicans wanted in addition to more money for domestic programs that Democrats wanted-was grudgingly accepted by Trump, who vowed he 'will never sign another bill like this again.'"

March 23 - CNBC (Raymond Zhong and Paul Mozur): "A cold war is being waged across the world's most advanced industries. And it just got a lot chillier. Recent tit-for-tat trade actions could deepen what has become a global contest for technological dominance between the United States and China, home to the planet's largest population of internet users and a flourishing community of start-ups and innovative companies. The Trump administration this week accused Beijing of stealing valuable technological know-how from American companies as it proposed tariffs on $60 billion in Chinese goods and curbs on Chinese investments. China responded with its own set of penalties aimed at American products. The fight between the two countries is cleaving the high-tech realm. The world's two biggest economies have each become increasingly protective of their own leading-edge industries, and mistrustful of the other's."

March 29 - Reuters: "China warned the United States on Thursday not to open Pandora's Box and spark a flurry of protectionist practices across the globe, even as Beijing pointed to U.S. goods that it could target in a deepening Sino-U.S. trade dispute. China could target a broad range of U.S. businesses from agriculture to aircraft, autos, semiconductors and even services if the trade conflict escalates, the official China Daily newspaper said in an editorial…"

March 23 - CNBC (Christina Wilkie): "Some of the nation's loudest and most prominent conservative voices tore into President Donald Trump on Friday, lambasting the president over his decision to sign a $1.3 trillion omnibus spending bill just hours after he threatened to veto it. The attacks represented a swift about-face from a group that typically comprises some of Trump's biggest cheerleaders. Laura Ingraham… wrote on Twitter that it was a 'missed opportunity' for the president. 'If he loses the House, Dems will go straight to impeachment'… Author and commentator Ann Coulter also warned the president that signing the bill, and thereby betraying his conservative base, could lead to his impeachment… Coulter, whose most recent book was titled, 'In Trump We Trust,' also labeled Trump as 'President Schumer,' a reference to liberal Senate Minority Leader…"

March 25 - Wall Street Journal (Jesse Newman, Jacob Bunge and Benjamin Parkin): "Farmers and companies across the agricultural supply chain, many of whom have welcomed some of President Donald Trump's policies, are bracing for disruption from his escalating trade battle with China. China is the second-biggest customer for U.S. agricultural exports after Canada, and its planned tariffs on pork, fruit, nuts and other goods are expected to worsen the U.S. farm economy's slump. Farm incomes this year are expected to slide to their lowest level since 2006…, prolonging a downturn that has pushed some farmers out of business and eroded profits for seed, chemical and equipment companies. 'This could not be happening at a worse time for American agriculture,' said Zippy Duvall, president of the American Farm Bureau Federation."

Federal Reserve Watch:

March 26 - Reuters (Jonathan Spicer): "The Federal Reserve should continue raising interest rates this year and next so that it can avoid an overheating that cuts short the economic expansion that is already picking up steam, a policymaker of the U.S. central bank…"

March 29 - Wall Street Journal (Nick Timiraos): "Federal Reserve Bank of Philadelphia President Patrick Harker said he expects officials will need to raise short-term interest rates a total of three times this year, up from his earlier projection of two, due to stronger inflation. Fed officials voted unanimously last week to raise their benchmark federal-funds rate by a quarter percentage point to a range between 1.5% and 1.75%, and they penciled in two more such increases for this year. 'We saw some firming of inflation,' Mr. Harker said…"

March 27 - Wall Street Journal (Nick Timiraos): "Federal Reserve Bank of Atlanta President Raphael Bostic said he supports plans to gradually raise interest rates, but uncertainty over how the economy would respond next year to tax cuts and increased government spending could complicate monetary policy. The Federal Reserve could soon face rising chances that the economy grows faster than forecast and leads to a slightly faster pace of rate rises, Mr. Bostic said… This marks a reversal after several years when the greater risk was that growth would disappoint, forcing the Fed dial down its rate-increase projections, he said. 'The risks are more to the upside now,' he said. The prospect for stronger-than-anticipated growth, which could require more rate increases than currently envisioned, is especially the case for 2019 and 2020, he said."

March 27 - Reuters (Ann Saphir): "The head of the Federal Reserve Bank of Atlanta, Raphael Bostic, waded into a potentially contentious debate at the U.S. central bank… over whether to replace its 2% inflation target, saying he favors a new and nearly untested monetary policy strategy known as price-level targeting. That strategy, unlike the inflation-targeting approach in current use by the Fed and many other central banks, requires a central bank to allow inflation to run high to make up for periods of low inflation. 'I am going to add myself to the list of people sympathetic to a policy framework that has a form of price-level targeting at its center,' Bostic said in a post on the Atlanta Fed's blog."

U.S. Bubble Watch:

March 28 - Bloomberg (Sho Chandra): "The U.S. economy grew in the fourth quarter at a faster pace than last estimated, helped by an upward revision to household spending on services and a smaller drag from inventories… Gross domestic product grew at a 2.9% annualized rate, (est. 2.7%) revised from 2.5%. Consumer spending, biggest part of the economy, grew 4% (est. 3.8%) revised from 3.8%... Nonresidential fixed investment rose 6.8%, revised from 6.6% gain."

March 29 - Bloomberg (Katia Dmitrieva): "Consumer sentiment in March reached the highest level since 2004 as a solid labor market and growth expectations offset concerns about tariffs and stock-market volatility, a University of Michigan survey showed Thursday."

March 27 - Bloomberg (Katia Dmitrieva): "A limited number of properties for sale against a backdrop of steady demand helped keep home prices elevated in January, according to S&P CoreLogic Case-Shiller data… 20-city home-price index increased 6.4% y/y (est. 6.2%)… National gauge of home prices rose 6.2% y/y. Seasonally adjusted 20-city index advanced 0.8% m/m (est. 0.6%)."

March 28 - Wall Street Journal (Steven Russolillo): "The clobbering tech shares have taken in recent days has magnified not only how influential these companies have become in people's everyday lives, but how much sway they've gained in global stock markets. The NYSE FANG+ Index-which tracks 10 global tech heavyweights, including Facebook Inc., FB +1.46% Apple Inc. and China's Alibaba Group Holding BABA -1.24% -slumped 5.6% on Tuesday, its worst one-day drop in data going back to September 2014. Investors' concern is that these companies have in recent years grown so much and so fast that they now have outsize influence on broader stock indexes… Their rapid gains have come alongside heavy inflows into passive funds that track these indexes, leaving millions of investors susceptible to greater downside should tech stocks struggle more."

March 26 - Bloomberg (Sarah Ponczek and Dani Burger): "Hot money fled a major U.S. equity exchange-traded fund last week at a pace never seen before. Investors yanked nearly $11 billion from BlackRock Inc.'s iShares Core S&P 500 ETF…, its largest weekly outflow since its inception in 2000… That's about three-and-a-half times the biggest prior outflow, which occurred in 2014."

March 26 - Financial Times (Kate Beioley): "…The volume of assets invested in exchange traded funds (ETFs) fell in February, marking a significant cooling off by investors who have been pouring money into ETFs in recent years… Attracting record-breaking inflows from retail and institutional investors, the volume of assets held in ETFs has grown dramatically in recent years. In 2017, ETFs took in over $460bn globally, equivalent to nearly $1.8bn of new money every working day of the year. But recent market volatility and a downturn in popularity in certain sectors, in particular US equities, meant that assets invested in ETFs and exchange traded products (ETPs) listed globally decreased by a record $180.1bn last month."

March 26 - Bloomberg (Dani Burger): "Among those making heavy bets on technology stocks during the sector's worst week in nearly eight years were quant funds. As of Wednesday, firms that use technology and formulas to automate the investment process had their highest gross exposure to the sector on record, according to Credit Suisse Group AG prime services data going back to 2013. At 18.4%, the measure of firms' long and short positioning was nearly 2 percentage points higher than for February."

March 26 - Bloomberg (Sara Forden): "The U.S. Federal Trade Commission confirmed it has an open, non-public investigation into Facebook Inc.'s privacy practices. 'The FTC is firmly and fully committed to using all of its tools to protect the privacy of consumers,' Tom Pahl, the acting director of the FTC's Bureau of Consumer Protection said…"

March 26 - Wall Street Journal (Telis Demos): "The average banker bonus in New York City was $184,220 last year, the biggest annual haul for Wall Street employees since before the financial crisis. Those bonuses, which totaled $31.7 billion, up 17% from 2016, tracks with a broader rebound for bank stocks last year, were boosted by the prospects of rising interest rates, faster growth and deregulation. The jump, the largest in percentage terms since 2013, continues a long rebound… from their postcrisis nadir in 2008, when they averaged just over $100,000… Last year's average payout was just shy of the high of $191,360 in 2006."

March 26 - Bloomberg (Olga Kharif and Camila Russo): "As the red-hot initial coin offering market comes under closer scrutiny from regulators, venture capitalist interest in crypto is also picking up. While ICOs were supposed to disrupt venture capital, such funding in blockchain-based companies is surging, with startups raising $434 million since December, the most ever in a three-month period, according to CoinDesk data."

March 25 - Wall Street Journal (Adrienne Roberts): "As the automotive industry braces for changes including electrification and autonomy, dealers across the U.S. are worried about something much simpler: the price of a new car. After decades of fighting to protect their businesses and advocating for dealers to Congress and the federal government, dealers see their new mission as advocating for the consumer to keep the cost of a new vehicle low. The average price of a car to date through February is about $32,200, about $500 more than the price of a vehicle last year, according to J.D. Power… Customers are also buying more SUVs and pickup trucks, which come with a higher transaction price compared with sedans."

March 26 - CNBC (Nyshka Chandran): "Washington's trade imbalance with Beijing - the stated motivation behind President Donald Trump's punitive tariffs - will continue expanding in the years ahead, according to Yale University's Stephen Roach. America's trade deficits with China and other countries fundamentally reflect 'the fact that we don't save enough,' said Roach, a former Morgan Stanley Asia chairman. 'When you don't save and you want to spend and grow, you import surplus savings from abroad and you run these massive balance of payments and trade deficits to attract the foreign capital,' he told CNBC Monday at the annual China Development Forum. 'That's the way it's always worked.'"

March 29 - Reuters (Shravanth Vijayakumar): "U.S. office vacancy rate for the first quarter rose to 16.5%, the highest since 2015, despite a healthy job market, according to real estate research firm Reis Inc…"

China Watch:

March 26 - CNBC: "Premier Li Keqiang said… China and the United States should maintain negotiations and he reiterated pledges to ease access for American businesses, as China scrambles to avert a trade war. Li told a conference that included global chief executives that China would treat foreign and domestic firms equally, would not force foreign firms to transfer technology and would strengthen intellectual property rights, repeating promises that have failed to placate Washington."

March 25 - Reuters (Gabriel Wildau and Tom Mitchell): "China's Communist party will appoint Guo Shuqing as party secretary of the central bank, according to two people… Mr Guo's promotion elevates him above newly appointed central bank governor Yi Gang and underscores President Xi Jinping's efforts to exert party control over the civil bureaucracy. Like Mr Yi, the English-speaking Mr Guo is seen as an experienced, liberal-minded reformer who understands financial markets and the concerns of foreign investors. But Mr Guo's greater political heft will supplement the technocratic expertise of the former economics professor Mr Yi, whom China's rubber-stamp parliament approved as central bank chief last week. 'It does undercut Yi Gang's authority at the central bank, there's no question about that,' said a person briefed on Mr Guo's appointment…"

March 25 - Bloomberg: "Two of the world's biggest oil traders gave China's crude futures contract a go on its long-anticipated trading debut. Commodity giants Glencore Plc and Trafigura Group were among foreign participants as the yuan-denominated futures started on the Shanghai International Energy Exchange Monday. After an initial surge in volume that outpaced overnight transactions in global benchmark Brent crude in London, trading tapered off toward the end of the session…"

March 29 - Reuters (Sumeet Chatterjee and Meng Meng): "China is taking its first steps towards paying for imported crude oil in yuan instead of the U.S. dollar, three people with knowledge of the matter told Reuters, a key development in Beijing's efforts to establish its currency internationally. Shifting just part of global oil trade into the yuan is potentially huge. Oil is the world's most traded commodity, with an annual trade value of around $14 trillion, roughly equivalent to China's gross domestic product last year. A pilot program for yuan payment could be launched as early as the second half of this year…"

March 25 - Reuters: "The total outstanding short-term borrowing instruments issued by Chinese banks has reached a record high, highlighting the difficulties Chinese regulators face in pushing through measures to contain financial risk. As of Friday, the value of outstanding negotiable certificates of deposit (NCDs) issued by Chinese banks had reached 9.15 trillion yuan ($1.45 trillion), …the highest since the instruments were introduced in 2013. At the same time, quarterly issuance of NCDs had reached 5.07 trillion yuan, according to CFETS data, compared with 5.26 trillion yuan in the fourth quarter of 2017. The continued strong issuance comes despite attempts by regulators to bring NCDs under control."

March 26 - Bloomberg: "CEFC China Energy Co., the sprawling conglomerate that's come under increasing government scrutiny, plans to sell its entire global property portfolio with a book value of more than 20 billion yuan ($3.2 billion)… Almost 100 properties are up for sale, including its headquarters in an upscale Shanghai neighborhood, four floors of the Hong Kong Convention & Exhibition Centre and a condominium at the Trump World Tower in Manhattan, as well as hotels, residential apartments and industrial facilities, said the people, asking not to be identified because the deliberations haven't been publicly disclosed."

Central Bank Watch:

March 29 - Bloomberg (Ruben Munsterman and Wout Vergauwen): "The world no longer needs 'extraordinary' monetary stimulus and the European Central Bank should play its part by ending its own bond-buying program after September, according to Dutch central bank Governor Klaas Knot. 'The top priority is to normalize monetary policy and strengthen the economic and monetary union,' Knot, who sits on the ECB's Governing Council, said… 'This is now a widely-shared realization, certainly also in the financial markets.'"

Global Bubble Watch:

March 28 - Bloomberg (Brian Chappatta): "A phenomenon rippling through global funding markets is poised to keep overseas investors wary of Treasuries just as the U.S. needs them most. It starts with the London interbank offered rate, among the most-watched benchmarks in finance lately. The rate on the three-month maturity has climbed for 36 straight sessions, raising the baseline for many bonds, loans and mortgages. The surge has also made it much more expensive for European and Japanese investors to buy Treasuries and hedge out currency risk. The main reason: Paying U.S. Libor is part of such transactions."

March 28 - Bloomberg (Stephen Spratt): "Blame it on a piece of financial plumbing. A gauge of borrowing costs for Australian banks, the three-month bank bill swap rate, has jumped 24 bps in March, heading for the biggest monthly gain since September 2010. What's behind this? One of the reasons can be found 10,000 miles away with the rise of U.S. dollar borrowing costs, but another is closer to home: the local repurchase market. Rates have been surging in Australia's repo market, which bondholders use when they need to borrow cash. The increase in the secured borrowing rate is helping push up the unsecured funding rates that banks have to pay."

March 28 - Financial Times (Eric Platt, Javier Espinoza and Don Weinland): "More than $50bn worth of takeovers were being lined up on Wednesday, in a final flurry of dealmaking that saw global volumes exceed $1.2tn in a record-breaking quarter… Despite a heightened level of political uncertainty, a potential US-led trade war against China and fraught Brexit negotiations, companies have embarked on an unprecedented number of big acquisitions this year. The value of $5bn-plus deals is more than triple year-ago levels…"

March 27 - Bloomberg (Steven Arons): "Deutsche Bank AG Chairman Paul Achleitner has held talks with potential successors to Chief Executive Officer John Cryan as part of plans to replace the executive should a better candidate emerge… Achleitner has sounded out potential replacements as part of normal succession planning, they said. One top shareholder -- asking not to be identified discussing sensitive matters -- said Cryan remains the best choice as CEO of the bank."

Fixed-Income Bubble Watch:

March 29 - Bloomberg (Cecile Gutscher and Neil Denslow): "They may have saved Inc. from the dot-com bust, but for many young tech firms convertible bonds could turn into more of a headache than helping hand. Twitter Inc. bonds are now among $30.6 billion of convertibles that are 'out of the money,' meaning the stock is trading below the threshold needed to turn the debt securities into equity… As the rally that pushed U.S. technology heavyweights to the sky shows cracks, the possibility of further declines could force even more convertibles into the out-of-the-money club. For firms that relied on cheap funding to fuel growth, that's a problem. If a company's shares haven't hit their conversion price when the bonds come due, investors have to rely on the company to repay the outstanding debt at a potentially inconvenient time."

March 29 - Reuters (Kate Duguid): "The junk bond rally may be over, but investors should not expect a sharp unraveling. Low supply in new high-yield bond offerings has kept prices afloat despite persistent investor outflows. High-yield bond funds have had net outflows in 10 of 13 weekly periods this year, totaling roughly $18 billion, according to Lipper data… Issues of new high-yield corporate debt in March are currently at $24 billion, half the issuance in the same month last year, according to JPMorgan. New supply in the year to date is $68.3 billion, 25% below the same period last year."

March 24 - Bloomberg (Brian Chappatta): "Bond bulls who enjoyed a rare rally in short-term Treasuries last week might not want to get too comfortable: The world's biggest debt market is about to be inundated with an unprecedented wave of issuance. The U.S. Treasury will probably auction about $294 billion of bills and notes this week, its largest slate of supply ever."

Japan Watch:

March 25 - Wall Street Journal (Suryatapa Bhattacharya and Kosaku Narioka): "It is the world's second-largest government bond market after the U.S., with some $9 trillion in outstanding debt. Yet in Japan, the daily volume of government-bond trading is often measured these days not in trillions or billions, but in millions of dollars-and sometimes just with a single digit, zero. The central bank is swallowing up so much of the new bond issuance that traders say there is just not much to do. 'It's becoming like a deserted village. All that's left is for us to fade away and die,' said Jun Fukashiro, who oversees bond investments for Sumitomo Mitsui Asset Management Co… Activity has especially shrunk since September 2016, when the Bank of Japan, the nation's central bank, said it would seek to keep the yield on the benchmark 10-year government bond around zero."

Leveraged Speculator Watch:

March 28 - Bloomberg (Brian Chappatta): "Hedge fund manager Alan Fournier is returning client capital at his $1.5 billion Pennant Capital Management after almost two decades, the latest veteran stock-picker to close his fund following struggles to make money since the financial crisis. 'While I take great pride in our long term returns, especially in light of our consistent low risk portfolio structure, our recent returns have been disappointing,' Fournier wrote… to investors."

Geopolitical Watch:

March 26 - New York Times (Peter S. Goodman): "History was not supposed to turn out this way. In the aftermath of World War II, the victorious Western countries forged institutions - NATO, the European Union, and the World Trade Organization - that aimed to keep the peace through collective military might and shared prosperity. They promoted democratic ideals and international trade while investing in the notion that coalitions were the antidote to destructive nationalism. But now the model that has dominated geopolitical affairs for more than 70 years appears increasingly fragile. Its tenets are being challenged by a surge of nationalism and its institutions under assault from some of the very powers that constructed them - not least, the United States under President Trump. In place of shared approaches to societal problems - from trade disputes, to security, to climate change - national interests have captured primacy."

March 26 - CNBC (Amanda Macias): "President Donald Trump… ordered the expulsion of 60 Russians from the United States and the closure of the Russian consulate in Seattle… The shutdown of the consulate in Seattle is due to its proximity to a U.S. submarine base as well as defense giant Boeing's operations there. 'The United States takes this action in conjunction with our NATO allies and partners around the world in response to Russia's use of a military-grade chemical weapon on the soil of the United Kingdom, the latest in its ongoing pattern of destabilizing activities around the world,' said a senior administration official…"

March 24 - New York Times (David E. Sanger and Gardiner Harris): "The incoming national security adviser has called for the 'swift takeover' of North Korea by the South. He and the newly nominated secretary of state have urged withdrawal from the 2015 nuclear deal with Iran. The pick for C.I.A. director once oversaw interrogations in which terrorism suspects were tortured. The two generals celebrated by President Trump for their reputations for toughness are now considered the moderates - and at risk of falling out of favor. Not since the immediate aftermath of Sept. 11, 2001, have key national security leaders so publicly raised the threat of military confrontation if foreign adversaries do not meet America's demands."

March 28 - Bloomberg (David Tweed): "Kim Jong Un just sent a powerful message to U.S. President Donald Trump ahead of planned talks: China is back on North Korea's side. The North Korean leader and his wife received a warm welcome in his first trip abroad since taking power in 2011, holding talks with President Xi Jinping and meeting a host of dignitaries. Xi told Kim that China has made a 'strategic choice' to have friendly ties with North Korea, and they would 'remain unchanged under any circumstances.'"

March 27 - Reuters (Ben Blanchard and Joyce Lee): "North Korea's leader Kim Jong Un pledged his commitment to denuclearization and to meet U.S. officials, China said… after his meeting with President Xi Jinping, who promised China would uphold friendship with its isolated neighbor. After two days of speculation, China and North Korea both confirmed that Kim had traveled to Beijing and met Xi during what China called an unofficial visit from Sunday to Wednesday. The visit was Kim's first known trip outside North Korea since he assumed power in 2011 and is believed by analysts to serve as preparation for upcoming summits with South Korea and the United States."

March 27 - Reuters (James Pearson and Greg Torode): "Dozens of Chinese naval vessels are exercising this week with an aircraft carrier in a large show of force off Hainan island in the South China Sea, satellite images obtained by Reuters show. The images, provided by Planet Labs Inc, confirm a Chinese carrier group has entered the vital trade waterway as part of what the Chinese navy earlier described as combat drills that were part of routine annual exercises… The photos… show what appear to be at least 40 ships and submarines flanking the carrier Liaoning in what some analysts described as an unusually large display of the Chinese military's growing naval might."

March 24 - Reuters (Lusha Zhang and Ben Blanchard): "China's air force has held another round of drills in the disputed South China Sea and the Western Pacific after passing though Japan's southern islands, the air force said…, calling such exercises the best preparation for war. China is in the midst of an ambitious military modernization program overseen by President Xi Jinping with a heavy focus on its air force and navy, from building stealth fighters to adding aircraft carriers. China insists it has no hostile intent, but its sabre-rattling in the busy South China Sea waterway, and around Taiwan, has touched a nerve in the region and in Washington."