Saturday, April 14, 2018

Saturday's News Links

[CNBC] Oil prices vulnerable to 'super spikes' again as geopolitics heats up

[CNBC] Russia warns of 'consequences' for US-led strike on Syria

[Bloomberg] Russia calls for UN meeting on Syria, mulls supplies of S-300 systems

[SCMP] China opposes Western air strikes on Syria, calls for talks

[NYT] A $76,000 Monthly Pension: Why States and Cities Are Short on Cash

Weekly Commentary: Bizarre and Ominous

Please join me and David McAlvany for the MWM Tactical Short Second-Quarter 2018 Conference Call: "Market Structure, Trump Tariffs, Higher Rates… Markets at a Precipice?" Thursday, April 19th, at 4:30pm EST (2:30pm MST): Click here to register:

Things have gone from surreal to the bizarre. The President points blame directly at Putin for a chemical attack in Syria. Russia threatens to shoot down any missiles fired into Syria. President Trump tweets "Get ready Russia, because [missiles] will be coming, nice and new and 'smart!'" A presidential tweet the next morning provided an unequivocal update: "Could Take Place Very Soon Or Not So Soon At All." Russia claims false flag. "U.S. Says Syria Has Used Chemical Weapons at Least 50 Times During War." Missiles were flying Friday night.

The President's personal attorney, target of a criminal investigation, had his office and residences raided by the FBI. An enraged President is said to be considering firing the special counsel and/or the Deputy Attorney General. "Trump Sees Inquiry Into Cohen as Greater Threat Than Mueller." The Speaker of the House announces he's through with Washington.

The former Director of the FBI will release his memoirs next week, with interviews lined up. It's not going to be pretty. Leaks began to flow this week. James Comey likens the "unethical" President to a "mob boss." The President tweeted that Comey is an "untruthful slime ball."

Department of the Treasury announced the U.S. budget deficit had reached $600 billion during the first-half of the fiscal year. March's deficit of $209 billion was 12% above the consensus estimate. Federal spending during the month was up 7% y-o-y, while revenues increased 2.7%. The CBO announced that Trillion dollar annual deficits will commence soon - about two-years sooner than expected only recently.

"President Xi Jinping presided over the Chinese navy's largest-ever military display on Thursday…, the country's latest show of force in the disputed South China Sea." On board a navy destroyer dressed in full military garb, XI announced China would hold live-fire military drills in the Taiwan Strait next week. "…The task of building a strong navy 'has never been as urgent as present.'"

Russian stocks sank 4.5% this week. Russian bond yields surged 43 bps to 7.49%, and the ruble fell 6.2%. Russia canceled a ruble bond auction, as Russian sovereign CDS posted their biggest jump in five years. "The Russian government on Monday called the latest US sanctions against the country 'scandalous' and 'illegal' and vowed it would retaliate…" Russia is putting together a list of banned U.S. imports, including rocket engines and titanium. With the lira down another 1.3% to record lows, Turkish President Erdogan warned that those committing "economic terror" would pay a steep price.

"Vitaly Churkin, Russia's ambassador at the United Nations, said he unfortunately 'cannot exclude any possibilities' when asked about the danger of war between the US and Russia." An ominous Friday evening Bloomberg headline: "Russia, U.S. Near Brink in Syrian Standoff With Nuclear Risks."

The Hong Kong Monetary Authority intervened three straight sessions to support the Hong Kong dollar peg against the U.S. dollar. It was their first currency intervention since 2005.

Aluminum prices surged 15% this week. Palladium jumped 9.2%, and Nickel increased 3.0%. Crude (WTI) surged 8.6%, trading at a three-year high. "Americans Face Highest Pump Prices in Years." Gasoline rose 5.7% this week, and heating oil jumped 7.3%. The GSCI Commodities index jumped 5.5% this week to the high since December 2014.

FOMC minutes offered added confirmation that the Powell Fed is not rushing to coddle the markets. Increasingly, they see upside risks to both growth and inflation. Rates remain much too low. "Fed Leans to Faster Pace of Hikes…" "Excluding food and energy, the core consumer-price index rose 2.1% from March 2017, the most in a year…" "U.S. wholesale prices advanced in March by more than forecast, reflecting broad increases in the costs of services and goods…" Even Chicago Fed President Charles Evans is calling for more hikes.

April 11 - Wall Street Journal (Nick Timiraos): "Federal Reserve officials at their meeting last month expressed greater confidence inflation would rise to their 2% target over the coming year, a development that could affect how much they raise interest rates in coming years. They also debated the costs and benefits of allowing the economy to run hot and discussed how they might need to later raise rates to a level that would deliberately slow growth… The minutes highlight just how much Fed officials' outlook has changed since last fall, when surprisingly slow inflation raised questions about the need for continued rate increases."

April 10 - Bloomberg (Alexandre Tanzi): "Global debt rose to a record $237 trillion in the fourth quarter of 2017, more than $70 trillion higher from a decade earlier, according to… the Institute of International Finance. Among mature markets, household debt as a percentage of GDP hit all-time highs in Belgium, Canada, France, Luxembourg, Norway, Sweden and Switzerland. That's a worrying signal, with interest rates beginning to rise globally… Still, the ratio of global debt-to-gross domestic product fell for the fifth consecutive quarter as the world's economic growth accelerated. The ratio is now around 317.8% of GDP, or 4 percentage points below the high in the third quarter of 2016…"

Failing to make the top 1000 newsworthy items of the week, Chinese Credit data nonetheless continue to fascinate. China's March growth in total Social Finance was reported much weaker than expect. At $212 billion (1.33 trillion yuan), growth was about 25% below estimates. Bank loan growth ($180bn) slightly missed estimates. The big story is the intensifying slowdown in shadow lending, which posted a net contraction during the month. Total Social Finance has expanded about $1.49 TN over the past six months, down 17% from the comparable year ago period.

The marked slowdown in system lending is leading a deceleration in money supply growth. March saw a notable slowdown. M2 money supply expanded 8.2% y-o-y versus estimates of 8.9%. And at this point it would appear the slowdown in money and Credit has impact general pricing pressures. March CPI was reported up 2.1% y-o-y versus estimates of 2.6%. PPI came in up 3.1% y-o-y against estimates of 3.3%.

Curiously, China also report disappointing March trade data. China posted a trade deficit of $5.8 billion, the first deficit since February 2017. Imports surged a stronger-than-expected 14.4% y-o-y, while imports were down 2.7% (after a huge February). It's worth noting that China's first quarter trade surplus with the U.S. was up 19.4% to $58.25bn.

Stocks, well, they enjoyed just a splendid week. The S&P500 rose 2.0%, outdone by the Nasdaq100's 3.0% jump. The Biotechs surged 8.6%, and the Semiconductors advanced 5.0%. The DJIA was up about 440 points at Monday's trading highs following Chinese President Xi's "conciliatory" weekend speech. Not enamored with the interpretation, Chinese officials pushed back: "Beijing says Xi speech wasn't a concession to US, it's ready to hit back at any escalation." With option expiration next Friday, it's been another month to tease - then torment - put buyers.

Earnings season started off with a bang. "JPMorgan Q1 Earnings Beat on Better Rates and Trading." "Citi beats, profits jump 13%." "Wells Fargo beats by $0.05 and beats on revenue." On Friday's earnings reports, JPMorgan's stock fell 2.7%, Citigroup dropped 1.6% and Wells Fargo sank 3.4%. Mark Zuckerberg travels to the nation's capital and is grilled for 10 hours. My nine-year-old son asked me why the Democrats were meaner to him than the Republicans. Reasonable question. Facebook rallied 4.7% this week.

Treasuries were a little worried that stocks remain oblivious to an extraordinary host of mounting risks. Ten-year Treasury yields added five bps to 2.83%. Two-year yields jumped nine bps to 2.36%, the high since August 2008.

It will be interesting to see how markets respond to tonight's missile strikes on Syria. It appears as many as 100 missiles hit at least three targets, in a more intensive operation than a year ago.

"Russia's ambassador in Washington Anatoly Antonov said in a statement on Friday immediately after the first strikes on Syria. 'The worst expectations have materialized. Our warnings fell on deaf ears. A pre-planned scenario is being acted on. We are being threatened again. We have warned that such actions will not remain without consequences. All responsibility for them rests upon Washington, London and Paris. Antonov stressed that insulting the Russian president was inadmissible.'"

The week was bizarre and ominous. Reports had President Trump livid after Monday's FBI raid on his personal attorney. I can imagine Putin is absolutely livid in Moscow. For different reasons, I worry increasingly about them both.

For the Week:

The S&P500 jumped 2.0% (down 0.6% y-t-d), and the Dow rose 1.8% (down 1.5%). The Utilities fell 1.4% (down 5.9%). The Banks gained 1.2% (down 0.3%), while the Broker/Dealers rose 1.5% (up 7.2%). The Transports rallied 2.2% (down 2.3%). The S&P 400 Midcaps gained 1.6% (down 0.9%), and the small cap Russell 2000 jumped 2.4% (up 0.9%). The Nasdaq100 recovered 3.0% (up 3.6%). The Semiconductors surged 5.1% (up 6.1%). The Biotechs jumped 8.6% (up 9.5%). With bullion up $12, the HUI gold index advanced 3.3% (down 4.6%).

Three-month Treasury bill rates ended the week at 1.72%. Two-year government yields jumped nine bps to 2.36% (up 47bps y-t-d). Five-year T-note yields gained nine bps to 2.67% (up 47bps). Ten-year Treasury yields rose five bps to 2.83% (up 42bps). Long bond yields added a basis point to 3.03% (up 29bps).

Greek 10-year yields jumped nine bps to 4.07% (unchanged y-t-d). Ten-year Portuguese yields declined four bps to 1.65% (down 29bps). Italian 10-year yields added one basis point to 1.80% (down 22bps). Spain's 10-year yields increased a basis point to 1.24% (down 33bps). German bund yields gained a basis point to 0.51% (up 8bps). French yields rose one basis point to 0.74% (down 7bps). The French to German 10-year bond spread was unchanged at 23 bps. U.K. 10-year gilt yields rose four bps to 1.44% (up 25bps). U.K.'s FTSE equities index advanced 1.1% (down 5.5%).

Japan's Nikkei 225 equities index rose 1.0% (down 4.3% y-t-d). Japanese 10-year "JGB" yields were down one basis point to 0.04% (down 1bp). France's CAC40 gained 1.1% (unchanged). The German DAX equities index rose 1.6% (down 3.7%). Spain's IBEX 35 equities index increased 0.9% (down 2.8%). Italy's FTSE MIB index jumped 1.7% (up 6.8%). EM equities were mixed. Brazil's Bovespa index slipped 0.6% (up 10.4%), while Mexico's Bolsa rose 1.8% (down 1.2%). South Korea's Kospi index gained 1.0% (down 0.5%). India’s Sensex equities index advanced 1.7% (up 0.4%). China’s Shanghai Exchange rallied 0.9% (down 4.5%). Turkey's Borsa Istanbul National 100 index sank 4.5% (down 5.0%). Russia's MICEX equities was hit 4.6% (up 3.1%).

Investment-grade bond funds saw inflows of $3.346 billion, and junk bond funds posted inflows of $989 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates added two bps to 4.42% (up 34bps y-o-y). Fifteen-year rates were unchanged at 3.87% (up 53bps). Five-year hybrid ARM rates slipped a basis point to 3.61% (up 43bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down one basis point to 4.48% (up 33bps).

Federal Reserve Credit last week declined $9.6bn to $4.342 TN. Over the past year, Fed Credit contracted $92.2bn, or 2.0%. Fed Credit inflated $1.531 TN, or 54%, over the past 284 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt jumped $12.4bn last week to $3.450 TN. "Custody holdings" were up $238bn y-o-y, or 7.4%.

M2 (narrow) "money" supply added $4.5bn last week to a record $13.940 TN. "Narrow money" gained $575bn, or 4.3%, over the past year. For the week, Currency increased $0.3bn. Total Checkable Deposits fell $7.9bn, while savings Deposits rose $10.0bn. Small Time Deposits gained $3.6bn. Retail Money Funds dipped $1.5bn.

Total money market fund assets declined $5.3bn to $2.827 TN. Money Funds gained $183bn y-o-y, or 6.9%.

Total Commercial Paper gained $10.0bn to $1.058 TN. CP gained $72.9bn y-o-y, or 7.4%.

Currency Watch:

April 11 - Bloomberg (Justina Lee and Emma Dai): "Hong Kong's dollar fell to the weak end of its permitted band for the first time since the range was imposed in 2005, a warning sign for a city where easy money has stoked a property boom and underpinned the stock market's record rally. The spot rate reached HK$7.85 per dollar on Thursday… The Hong Kong Monetary Authority, which is obligated to defend the band, said in a statement that it stands ready to fulfill any requests from banks to support the currency."

The U.S. dollar index slipped 0.3% to 89.80 (down 2.5% y-t-d). For the week on the upside, the New Zealand dollar increased 1.4%, the Canadian dollar 1.4%, the Mexican peso 1.4%, the Australian dollar 1.0%, the British pound 1.0%, the Norwegian krone 0.7%, the euro 0.4% and the Singapore dollar 0.3%. For the week on the downside, the Brazilian real declined 1.6%, the Swedish krona 1.0%, the Japanese yen 0.4%, the South African rand 0.3%, and the Swiss franc 0.3%. The Chinese renminbi gained 0.45% versus the dollar this week (up 3.69% y-t-d).

Commodities Watch:

April 11 - Bloomberg (Thomas Wilson): "Aluminum approached a six-year high after top exchanges said they'll stop accepting metal from United Co. Rusal, increasing concerns about how the market will replace supplies from the Russian smelting giant hobbled by U.S. sanctions."

The Goldman Sachs Commodities Index surged 5.5% (up 5.8% y-t-d). Spot Gold added 0.9% to $1,345 (up 3.3%). Silver gained 1.8% to $16.658 (down 2.8%). Crude jumped $5.33 to $67.39 (up 12%). Gasoline surged 5.7% (up 15%), and Natural Gas gained 1.3% (down 7%). Copper increased 0.4% (down 7%). Wheat jumped 3.6% (up 15%). Corn declined 0.6% (up 13%).

Trump Administration Watch:

April 11 - Wall Street Journal (Michael R. Gordon, Sune Rasmussen and Thomas Grove): "A series of exchanges between President Donald Trump and Moscow raised the prospect of a clash between U.S. and Russian military forces in Syria, a confrontation that would pit advanced American missile technology against Russia's integrated air defense. After a Russian diplomat said his country's forces would shoot down U.S. missiles launched at Syria, Mr. Trump in three tweets said U.S.-Russian relations were worse than ever, including during the Cold War, and said missiles 'will be coming.' 'Get ready, Russia,' he wrote. The saber rattling on Wednesday morning threatened to elevate U.S. outrage over a suspected Syrian chemical attack into a potential military skirmish between the two military powers. Mr. Trump vowed that U.S. technology would prevail, although current and former U.S. military officials acknowledge that Russian defenses are formidable…"

April 9 - CNBC (Berkeley Lovelace Jr.): "White House economic advisor Larry Kudlow told CNBC on Monday that President Donald Trump is warning China about its trade practices with tariffs. 'This president's got some backbone, others didn't and he's raising the issue in full public view, setting up a process that may include tariffs. Hopefully, it will be mostly negotiations,' Kudlow said… 'I don't know if we'll have tariffs or not… [Trump] is responding to decades of misdeeds by China [on] trade… It's high time we did that… Somebody's got to do it. Somebody's got to say to China, 'you are no longer a Third World country. You are a First World country and you have to act like it… The president's got to stick up for himself and the United States.'"

April 10 - Bloomberg (Keith Zhai): "Trade talks between the world's biggest economies broke down last week after the Trump administration demanded that China curtail support for high-technology industries, a person familiar with the situation said, signaling that a resolution may be some ways off. Liu He, a vice premier overseeing economics and finance, told a group of officials… that Beijing had rejected a U.S. request to stop subsidizing industries related to its 'Made in China 2025' initiative, the person said. The U.S. has accused China of using the policy to force companies into transferring technology in areas like robotics, aerospace and artificial intelligence."

April 11 - Bloomberg (Justin Sink, Billy House, and Anna Edgerton): "House Speaker Paul Ryan said… he won't seek re-election in November, dealing a blow to congressional Republicans already facing a possible Democratic takeover of the House in the November elections and setting off a GOP leadership battle. 'I will be retiring in January, leaving this majority in good hands with what I believe is a very bright future,' Ryan, 48, said… 'I think we have achieved a heck of a lot.'"

April 9 - CNBC (Erik Wasson and Sarah McGregor): "The U.S. budget deficit will surpass $1 trillion by 2020, two years sooner than previously estimated, as tax cuts and spending increases signed by President Donald Trump do little to boost long-term economic growth, according to the Congressional Budget Office. Spending will exceed revenue by $804 billion in the fiscal year through September, jumping from a projected $563 billion shortfall forecast in June… In fiscal 2019, the deficit will reach $981 billion, compared with an earlier projection of $689 billion… The report includes new projections for the effects of the tax legislation -- saying it will increase the deficit by almost $1.9 trillion over the next 11 years…"

April 10 - Wall Street Journal (Rebecca Ballhaus, Del Quentin Wilber and Kristina Peterson): "The White House said… that President Donald Trump believes he has the authority to fire special counsel Robert Mueller, as lawmakers from both parties warned against doing so one day after the FBI raided properties tied to the president's longtime lawyer. Senate Majority Leader Mitch McConnell (R., Ky.) said that Mr. Mueller 'should be allowed to finish his job,' though he rebuffed calls for legislation to protect the special counsel."

April 9 - CNBC (Dan Mangan): "The FBI on Monday raided the New York City office and residence of President Donald Trump's personal attorney Michael Cohen, seeking evidence related to the payment Cohen made to porn star Stormy Daniels on the eve of the 2016 presidential election. The Washington Post… reported that Cohen is being investigated for crimes possibly related to bank fraud and campaign finance violations. The raids came after federal prosecutors in New York City obtained a search warrant following a referral from special counsel Robert Mueller, Cohen's lawyer said."

April 10 - Politico (Andrew Restuccia and Nancy Cook): "The Trump White House punched back at its own Justice Department on Tuesday, with President Donald Trump and senior officials expressing outrage over law enforcement raids on lawyer Michael Cohen - and making thinly veiled threats to fire Russia special prosecutor Robert Mueller. 'We've been advised the president certainly has the power to make that decision,' White House press secretary Sarah Huckabee Sanders said when asked whether Trump could fire Mueller… Trump began the day tweeting in defense of Cohen, a longtime Trump Organization associate. 'A TOTAL WITCH HUNT!!!' Trump tweeted... He added: 'Attorney-client privilege is dead!'"

Federal Reserve Watch:

April 11 - Bloomberg (Craig Torres): "Federal Reserve officials leaned toward a slightly faster pace of policy tightening at their March meeting as their growth outlook and confidence in hitting their inflation target strengthened, according to minutes of the gathering… A number of officials viewed a stronger economic outlook and greater confidence for higher inflation implying 'the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected,' the Federal Open Market Committee said in the records of its March 20-21 meeting. The minutes showed U.S. central bankers wrestling to match a policy to an economy that is receiving a boost from tax cuts and government spending at a time when unemployment is low and growth, by their estimate, is above its long-run speed limit."

U.S. Bubble Watch:

April 11 - Reuters (David Lawder and Lindsay Dunsmuir): "The U.S. government ran a $209 billion budget deficit in March as outlays grew and receipts fell… That compared with a budget deficit of $176 billion in the same month last year, according to Treasury's monthly budget statement."

April 11 - Bloomberg (Sarah McGregor): "The U.S. budget deficit widened to $600 billion halfway through the fiscal year, as spending growth outstripped revenue. Receipts rose by 1.6% to $1.5 trillion between October and March compared with a year earlier, while outlays climbed by 4.8% to $2.1 trillion, the Treasury Department said in its monthly budget statement on Wednesday. Corporate income taxes fell to $78.6 billion in the first half of fiscal 2018, from $100.2 billion a year earlier."

April 11 - Bloomberg (Sho Chandra): "A key measure of U.S. inflation finally got a bump in March thanks to a fading drag from mobile-phone service costs, bearing out the Federal Reserve's forecast for a pickup in price gains. Excluding food and energy, the core consumer-price index rose 2.1% from March 2017, the most in a year and matching the median estimate…, after a 1.8% gain in February… Including all components, the CPI was down 0.1% from February on a drop in gasoline costs; overall prices were up an annual 2.4%, also the biggest advance in a year."

April 10 - Wall Street Journal (Laura Kusisto and Christina Rexrode): "More Americans are stretching to buy homes, the latest sign that rising prices are making homeownership more difficult for a broad swath of potential buyers. Roughly one in five conventional mortgage loans made this winter went to borrowers spending more than 45% of their monthly incomes on their mortgage payment and other debts, the highest proportion since the housing crisis… That was almost triple the proportion of such loans made in 2016 and the first half of 2017, CoreLogic said. Economists said rising debt levels are a symptom of a market in which home prices are rising sharply in relation to incomes, driven in part by a historic lack of supply that is forcing prices higher."

April 10 - Bloomberg (Jesse Hamilton): "Wall Street banks could face higher capital hurdles under a Federal Reserve proposal that would mark the most significant rewrite of requirements put in place after the 2008 financial crisis. The new 'stress capital buffer' announced by the Fed… is meant to streamline competing regulatory demands on lenders and better tailor standards to each bank's specific business. The central bank's proposal would also relax parts of its annual stress tests. For financial firms anticipating a deregulatory wave under President Donald Trump, it's a mixed bag. The proposal could make capital requirements a bit tougher for megabanks but the industry's overall demands may fall by tens of billions of dollars."

April 10 - Bloomberg (Sho Chandra): "U.S. wholesale prices advanced in March by more than forecast, reflecting broad increases in the costs of services and goods… Producer-price index rose 0.3% m/m (est. 0.1%) after 0.2% gain the previous month. PPI climbed 3% from a year earlier, the most since November, after 2.8% gain in prior 12-month period."

April 10 - Bloomberg (Matthew Boesler): "One sign U.S. inflation may be heading higher, from the NFIB monthly survey of small businesses: the net percentage of respondents saying they're raising prices. That number rose to 16% in March, the highest level since September 2008."

April 10 - Wall Street Journal (Peter Rudegeair, Rachel Louise Ensign and Coulter Jones): "These days, Wells Fargo… and Citigroup Inc. are unlikely to make a $14,000 auto loan to a borrower with a subprime credit score. That is now the domain of direct lenders such as Exeter Finance LLC, based in Irving, Texas. But where does Exeter get the money to make subprime auto loans? From Wells Fargo and Citigroup. They have helped lend Exeter $1.4 billion for that very purpose. Bank loans to Exeter and other nonbank financial firms have increased sixfold between 2010 and 2017 to a record high of nearly $345 billion… They are now one of the largest categories of bank loans to companies."

China Watch:

April 9 - Reuters (Kevin Yao and Lindsay Dunsmuir): "China stepped up its attacks on the Trump administration on Monday over billions of dollars worth of threatened tariffs, but U.S. President Donald Trump again voiced optimism the two sides would hammer out a trade deal. The comments from both countries followed a week of escalating tariff threats sparked by U.S. frustration with China's trade and intellectual property policies, worrying financial markets over potential damage to global growth. 'When we do a deal with China, which, probably, we will - if we don't, they'll have to pay pretty high taxes to do business with our country,' Trump said…"

April 10 - Bloomberg: "Chinese President Xi Jinping reiterated pledges to open sectors from banking to auto manufacturing in a speech that also warned against returning to a 'Cold War mentality' amid trade disputes with U.S. counterpart Donald Trump. Xi pledged a 'new phase of opening up' in his keynote address… to the Boao Forum for Asia, China's answer to Davos. While the speech offered little new policy, Xi affirmed or expanded on proposals to increase imports, lower foreign-ownership limits on manufacturing and expand protection to intellectual property -- all central issues in Trump's trade gripes."

April 10 - Politico (Megan Cassella and Adam Behsudi): "Chinese President Xi Jinping's promise to reduce auto tariffs is not the win for President Donald Trump that it appears to be. While Trump praised Xi's proposals on Twitter - 'Very thankful for President Xi of China's kind words on tariffs and automobile barriers,' he posted - analysts and business leaders shrugged off Xi's promises to open markets as old pledges that have yet to be fulfilled. They also dismissed his vow to reduce auto tariffs as inconsequential without other, larger changes. 'The Chinese are great at saying what folks want to hear,' said a U.S. industry aide… 'Hope springs eternal, and it would be great if the takeaway from this speech is that the Chinese are truly now committed to a level playing field. I think it's really, quite frankly, a stretch to make that case.'"

April 9 - Bloomberg: "China is evaluating the potential impact of a gradual yuan depreciation, people familiar with the matter said, as the country's leaders weigh their options in a trade spat with U.S. President Donald Trump that has roiled financial markets worldwide. Senior Chinese officials are studying a two-pronged analysis of the yuan that was prepared by the government, the people said. One part looks at the effect of using the currency as a tool in trade negotiations with the U.S., while a second part examines what would happen if China devalues the yuan to offset the impact of any trade deal that curbs exports."

April 10 - Bloomberg (John Ruwitch): "Chinese investment in the United States fell more than a third last year to $29 billion from a record $46 billion in 2016, the first major correction in a decade, a report by the Rhodium Group and the National Committee on U.S.-China Relations showed."

April 8 - Reuters (Kevin Yao and Stella Qiu): "China should make better use of the country's funds by looking to invest its large capital reserves in real assets, not United States Treasury bonds, an adviser to China's central bank said… 'We are a low income country, but we are a high wealth country...we should make better use of the capital. Rather than investing in U.S. government debt, it's better to invest in some real assets,' Fan Gang, director of the National Economic Research Institute and a member of the People's Bank of China's (PBOC) Monetary Policy Committee, said."

April 10 - Bloomberg: "China's factory inflation slowed for a fifth month while the consumer price index retreated from a four-year high. The producer price index rose 3.1% in March from a year earlier, compared with the projected 3.3 percent rise in a Bloomberg survey and 3.7% in February. The consumer price index climbed 2.1%... versus a forecast of 2.6% and 2.9% in February."

Global Bubble Watch:

April 9 - Bloomberg (Cormac Mullen): "A breakdown in the relationship between dollar weakness and Asian central bank intervention poses a risk to Treasuries, stocks and all risky assets, according to Deutsche Bank AG. Attempts by the Trump administration to clamp down on currency manipulation have limited the ability of central banks across the region to buy U.S. assets when the dollar weakens, and dampen the appreciation of their currencies, strategist Alan Ruskin wrote… These purchases have historically limited the greenback's downside and acted as a 'put' on Treasury market weakness, he wrote."

April 8 - Reuters (Hideyuki Sano): "Japanese investors sold a record amount of U.S. dollar bonds in February as the soaring cost of currency-hedging undercut yields while they extended their purchases of euro-denominated bonds… Investors sold 3.924 trillion yen ($36.68bn) of U.S. dollar bonds in February but scooped up 1.059 trillion yen (8.06 billion euros) of euro-denominated bonds - which offer higher yields after currency hedging."

EM Bubble Watch:

April 9 - Bloomberg (Ksenia Galouchko): "Russian stocks had their biggest drop in four years and the ruble slumped the most in the world after the U.S. slapped new sanctions on Kremlin-connected billionaires and tensions with the U.S. spiraled following the latest chemical attack in Syria. The benchmark MOEX Russia Index sank 8.7% on Monday, the steepest slide since March 2014, when Moscow's annexation of the Crimean peninsula triggered international penalties. The ruble and local bonds had their biggest drop since 2016 and the cost of insuring sovereign notes against default was set for the sharpest increase since December 2014."

April 10 - Financial Times (Kathrin Hille and Max Seddon): "It was standing room only at Russia's largest stock exchange on Tuesday as the country's top economic policymakers faced an unenviable job: trying to persuade a crowd of skittish investors that the economy can weather the latest sanctions imposed by the US. Even while officials including Maxim Oreshkin,economy minister, made their pitch at the Moscow Exchange, the rouble fell nearly 5% in less than an hour to more than 63 to the dollar. Bankers made frantic phone calls and streamed out of the room."

April 11 - Bloomberg (Constantine Courcoulas): "Shorting the Turkish lira is becoming one of the easiest trades in town. The wager is simple: the central bank is going to hesitate to defend the currency by raising interest rates given President Recep Tayyip Erdogan's explicit criticism of high borrowing costs. And that's allowing hedge funds and other speculators to pile up one-sided bets against the lira as it extends one of the biggest declines in emerging markets this year, hitting record lows against both the dollar and euro."

April 12 - Bloomberg (Selcan Hacaoglu and Cagan Koc): "Turkish President Recep Tayyip Erdogan said his government will punish anyone attempting to exploit developments in neighboring Syria in order to wage 'economic terrorism' on Turkey. The warning was directed specifically at actors in business and financial markets. 'Those playing an active role in the economy, those within the financial system, if you are attempting to wage economic terror against our country by using developments in Syria as pretext, you'll be making a mistake,' the president said… 'When the time comes, you'll be held accountable and pay the price.'"

Leveraged Speculator Watch:

April 9 - Bloomberg (Ivan Levingston): "The outlook for one of the most popular currency-trading strategies is in doubt, even after a two-week rebound, so one analyst says investors should consider the reverse approach. The carry trade, where investors borrow in low-yielding currencies to buy assets where rates are higher, has pared its loss for the last year to about 6%, according to a Deutsche Bank AG index. Nonetheless, the potential for volatility ahead means the strategy is likely to underperform and possibly unwind, according to Alice Leng, an FX strategist at Bank of America… 'The current movement is the opposite of what you would want from a carry trade,' Leng said. 'The opposite of a carry strategy should be able to perform well from a systematic perspective.'"

April 10 - Bloomberg (Lananh Nguyen): "After suffering unprecedented losses last year, currency-focused hedge funds were hoping a bit of market turbulence would help them get back on track in 2018. Things could hardly have gone worse. A BarclayHedge gauge of foreign-exchange trading programs slumped 2.5% over the first three months of 2018, extending last year's record 11% plunge. Even FX stalwarts… haven't been immune, sliding along with peers after years of dominant returns."

Geopolitical Watch:

April 9 - Financial Times (Kathrin Hille): "The Russian government on Monday called the latest US sanctions against the country 'scandalous' and 'illegal' and vowed it would retaliate and protect those hit by Washington's measures from the fallout. Russian prime minister Dmitry Medvedev ordered the cabinet to start work on a list of potential retaliatory measures. He also ordered that a plan be worked out to support sanctioned companies."

April 10 - Bloomberg (Natasha Doff): "The trail of destruction left by U.S. sanctions against Russia's most influential oligarchs spread to President Vladimir Putin's government as surging borrowing costs forced the Finance Ministry and the biggest state bank to pull bond sales. It's the first debt auction Russia abandoned since cancellations in 2014 and 2015, when Putin's annexation of Crimea soured relations with the U.S. and European Union. Growing panic over how far America will go at blacklisting wealthy Russians and their businesses sent the ruble and bonds tumbling."

April 9 - Reuters (Michelle Nichols): "Russian U.N. Ambassador Vassily Nebenzia said on Monday that Moscow has warned the United States of 'grave repercussions' if it carries out an attack against Syrian government forces over reports of a deadly chemical weapons attack. 'There was no chemical weapons attack,' Nebenzia told the U.N. Security Council. 'Through the relevant channels we already conveyed to the U.S. that armed force under mendacious pretext against Syria - where, at the request of the legitimate government of a country, Russian troops have been deployed - could lead to grave repercussions,' he said."

April 9 - Wall Street Journal (Michael R. Gordon and Jeremy Page): "China has installed equipment on two of its fortified outposts in the Spratly Islands capable of jamming communications and radar systems, a significant step in its creeping militarization of the South China Sea, U.S. officials say. The move strengthens China's ability to assert its extensive territorial claims and hinder U.S. military operations in a contested region that includes some of the world's busiest shipping routes."

April 10 - Bloomberg (Karen Lema): "In a span of 20 minutes, 20 F-18 fighter jets took off and landed on the USS Theodore Roosevelt aircraft carrier, in a powerful display of military precision and efficiency. The nuclear-powered warship, leading a carrier strike group, was conducting what the U.S. military called routine training in the disputed South China Sea on Tuesday, headed for a port call in the Philippines, a defense treaty ally. The United States is not alone in carrying out naval patrols in the strategic waterway, where Chinese, Japanese and some Southeast Asian navies operate, possibly increasing tensions and risking accidents at sea."