Friday, March 1, 2019

Weekly Commentary: Just the Facts 3/1/2019

For the Week:

The S&P500 added 0.4% (up 11.8% y-t-d), while the Dow was little changed (up 11.6%). The Utilities slipped 0.3% (up 8.0%). The Banks increased 0.6% (up 17.2%), while the Broker/Dealers were little changed (up 13.8%). The Transports fell 1.2% (up 14.1%). The S&P 400 Midcaps slipped 0.4% (up 15.8%), while the small cap Russell 2000 was about unchanged (up 17.9%). The Nasdaq100 increased 0.9% (up 13.0%). The Semiconductors were little changed (up 18.0%). The Biotechs surged 4.3% (up 21.8%). With bullion dropping $35, the HUI gold index sank 5.6% (up 2.5%).

Three-month Treasury bill rates ended the week at 2.38%. Two-year government yields gained six bps to 2.55% (up 6bps y-t-d). Five-year T-note yields rose nine bps to 2.56% (up 4bps). Ten-year Treasury yields jumped 10 bps to 2.75% (up 7bps). Long bond yields gained 11 bps to 3.12% (up 11bps). Benchmark Fannie Mae MBS yields surged 13 bps to 3.53% (up 4bps).

Greek 10-year yields dropped 16 bps to 3.63% (down 71bps y-t-d). Ten-year Portuguese yields were unchanged at 1.49% (down 22bps). Italian 10-year yields fell 11 bps to 2.73% (down 1bp). Spain's 10-year yields added two bps to 1.20% (down 22bps). German bund yields jumped nine bps to 0.18% (down 6bps). French yields rose six bps to 0.58% (down 13bps). The French to German 10-year bond spread narrowed three to 40 bps. U.K. 10-year gilt yields surged 14 bps to 1.30% (up 2bps). U.K.'s FTSE equities index declined 1.0% (up 5.6% y-t-d).

Japan's Nikkei 225 equities index added 0.8% (up 7.9% y-t-d). Japanese 10-year "JGB" yields rose three bps to negative 0.01% (down 1bp y-t-d). France's CAC40 gained 0.9% (up 11.3%). The German DAX equities index rose 1.3% (up 9.9%). Spain's IBEX 35 equities index increased 0.7% (up 8.5%). Italy's FTSE MIB index jumped 2.1% (up 12.9%). EM equities were mixed. Brazil's Bovespa index sank 3.4% (up 7.6%), and Mexico's Bolsa fell 2.6% (up 2.4%). South Korea's Kospi index lost 1.6% (up 7.6%). India's Sensex equities index increased 0.5% (unchanged). China's Shanghai Exchange surged 6.8% (up 20.1%). Turkey's Borsa Istanbul National 100 index was little changed (up 13.1%). Russia's MICEX equities index slipped 0.4% (up 5.1%).

Investment-grade bond funds saw inflows of $3.903 billion, and junk bond funds posted inflows of $698 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates were unchanged at a one-year low 4.35% (down 8bps y-o-y). Fifteen-year rates slipped a basis point to 3.77% (down 13bps). Five-year hybrid ARM rates were unchanged at 3.84% (up 22bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up seven bps to 4.42% (down 19bps).

Federal Reserve Credit last week declined $12.3bn to $3.940 TN. Over the past year, Fed Credit contracted $426bn, or 9.8%. Fed Credit inflated $1.129 TN, or 40%, over the past 329 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt rose $10.4bn last week to $3.442 TN. "Custody holdings" gained $24bn y-o-y, or 0.7%.

M2 (narrow) "money" supply declined $24.5bn last week to $14.463 TN. "Narrow money" gained $620bn, or 4.5%, over the past year. For the week, Currency declined $1.4bn. Total Checkable Deposits fell $26.1bn, while Savings Deposits added $0.9bn. Small Time Deposits increased $3.1bn. Retail Money Funds declined $1.2bn.

Total money market fund assets gained $6.9bn to $3.078 TN. Money Funds gained $237bn y-o-y, or 8.3%.

Total Commercial Paper jumped $9.8bn to $1.071 TN. CP declined $21.3bn y-o-y, or 2.0%.

Currency Watch:

The U.S. dollar index was little changed at 96.527 (up 0.4% y-t-d). For the week on the upside, the British pound increased 1.1%, the Swedish krona 0.8%, the Norwegian krone 0.4%, the euro 0.3%, the Swiss franc 0.1%, and the South Korean won 0.1%. For the week on the downside, the South African rand declined 1.6%, the Canadian dollar 1.2%, the Japanese yen 1.1%, the Brazilian real 0.8%, the Australian dollar 0.7%, the New Zealand dollar 0.7%, the Mexican peso 0.7% and the Singapore dollar 0.3%. The Offshore Chinese renminbi increased 0.11% versus the dollar this week (up 2.57% y-t-d).

Commodities Watch:

The Goldman Sachs Commodities Index dropped 1.9% (up 12.6% y-t-d). Spot Gold fell 2.6% to $1,293 (up 0.9%). Silver sank 4.7% to $15.256 (down 1.8%). Crude fell $1.46 to $55.80 (up 23%). Gasoline declined 2.1% (up 33%), while Natural Gas rose 4.4% (down 3%). Copper slipped 0.5% (up 11%). Wheat sank 7.0% (down 9%). Corn fell 3.0% (down 1%).

Trump Administration Watch:

February 24 – Reuters (Jeff Mason and David Lawder): “President Donald Trump said… he would delay an increase in U.S. tariffs on Chinese goods thanks to ‘productive’ trade talks and that he and Chinese President Xi Jinping would meet to seal a deal if progress continued. The announcement was the clearest sign yet that China and the United States are closing in on a deal to end a months-long trade war that has slowed global growth and disrupted markets. Trump had planned to raise tariffs to 25% from 10% on $200 billion worth of Chinese imports into the United States if an agreement between the world’s two largest economies were not reached by Friday.”

February 28 – Reuters (David Lawder and Tim Ahmann): “The United States is working to hammer out a detailed trade agreement with China that will include specific structural commitments, U.S. Treasury Secretary Steven Mnuchin told CNBC… The two sides have made a lot of progress in recent talks and hope to make more progress in the weeks ahead, Mnuchin said…”

February 28 – Reuters (Susan Heavey, Alexandra Alper and Makini Brice): “U.S. President Donald Trump on Thursday warned he could walk away from a trade deal with China if it were not good enough, even as his economic advisers touted ‘fantastic’ progress toward an agreement to end a dispute with the Asian country… ‘I am always prepared to walk,’ Trump said in Hanoi, after cutting short a summit meeting with North Korea’s Kim Jong Un that failed to reach a nuclear deal. ‘I’m never afraid to walk from a deal. And I would do that with China, too, if it didn’t work out.’”

February 27 – Reuters (David Lawder): “The United States will need to maintain the threat of tariffs on Chinese goods for years even if Washington and Beijing strike a deal to end a costly tariff war, President Donald Trump’s chief trade negotiator told lawmakers… U.S. Trade Representative Robert Lighthizer cautioned that much work was still needed to nail down a U.S.-China trade agreement, including working out how it will be enforced. ‘If we can complete this effort - and again I say if ... we might be able to have an agreement that helps us turn the corner in our economic relationship with China,’ Lighthizer said…”

February 25 – CNBC (Kate Fazzini): “The brewing technology battle between the U.S. and China isn't just about 5G telecom equipment Chinese companies want to bring to the U.S. It's already starting to bleed into other tech categories, as shown in a new letter posted Monday from 11 senators and top officials from the departments of Energy and Homeland Security that called for a ban of Huawei-made solar technology. The letter sets the U.S. up to not only block smartphones and telecom equipment from Chinese companies such as Huawei, but nearly all tech it sees as a potential security threat. The authors of the letter, including DHS Secretary Kirstjen Nielsen and Energy Secretary Rick Perry, say Huawei's ‘smart’ solar grid products, which include control systems called ‘inverters’ that are capable of connecting to the wider electrical grid, present a danger to ‘critical U.S. electrical systems and infrastructure.’”

Federal Reserve Watch:

February 26 – Bloomberg (Robert Burgess): “At first glance, it would appear that Federal Reserve Chairman Jerome Powell stuck to the script in prepared testimony to the Senate Banking Committee by saying a healthy U.S. economy has faced some ‘crosscurrents and conflicting signals.’ Although that’s nothing he hasn’t said before, there was still something potentially significant for markets in Powell’s delivery. In describing those crosscurrents, the first thing Powell highlighted was how ‘financial markets became more volatile’ at the end of last year and how ‘financial conditions are now less supportive of growth.’ …Mentioning financial markets before the economy is as clear a signal as any that the Fed’s top priority is preventing another plunge in the stock market like the one in December… ‘Keeping asset prices elevated is officially the #3 mandate of the Federal Reserve,’ Bleakley Financial Group chief investment officer Peter Boockvar wrote… The Fed’s first two mandates are full employment and stable consumer prices. In that context, Powell’s testimony should only further cement the idea of a ‘Fed Put’ that underpins riskier assets.”

February 22 – Reuters (Trevor Hunnicutt and Ann Saphir): “When Federal Reserve policymakers last month put a three-year rate-hike campaign on hold and backed ending a yearlong push to shrink their $4 trillion balance sheet, they cited increased risks to U.S. economic growth and the need for more time to sort through the data. But whether by design or by happenstance, their policy pause effectively cleans the central bank’s slate ahead of what could be a massive overhaul of how they manage the U.S. economy, including what tools it uses and how it communicates to the public.”

February 27 – CNBC (Jeff Cox): “The Federal Reserve is close to a timetable on when it will stop reducing the amount of bonds it is holding on its balance sheet, Chairman Jerome Powell said… Determining the ultimate size and composition of the fixed income portfolio has been a key concern for investors nervous about how much further the Fed will tighten monetary policy… ‘We're close to agreeing on a plan which would light then way to the end of the process,’ Powell said during testimony before the House Financial Services Committee.”

February 24 – Wall Street Journal (Nick Timiraos): “Federal Reserve officials are considering whether to allow inflation to rise above their 2% target more often as they grapple with the likelihood that interest rates are likely to remain much lower than in the past. The discussions are preliminary but are heating up now because the Fed formally kicks off a monthslong review of its policy framework with a national listening tour… Animating the review is the uncomfortable prospect that the Fed’s benchmark short-term rate could peak at or slightly above the current range between 2.25% and 2.5%.”

February 28 – CNBC (Matthew J. Belvedere): “William Dudley, former New York Fed president, has a message for Wall Street: Stop blaming the central bank when the stock market declines. Dudley… said… that the Federal Reserve's actions have become a ‘convenient whipping boy.’ …‘Look what happened. The balance sheet is still running off, and the stock market has recovered in the first quarter,’ Dudley told CNBC's Steve Liesman… ‘It was a convenient whipping boy; the Fed's seeming inflexibility in the space of all these market developments for a while was a convenient whipping boy. The markets occasionally go down for a whole host of reasons,’ Dudley said.”

February 27 – Reuters (David Lawder): “The U.S. Federal Reserve needs to be ‘especially’ focused on incoming economic data in the current era and less tied to predictions that may lead it to a mistake, Fed vice chair Richard Clarida said… In comments that suggested the Fed will need to see solid evidence of higher inflation before raising interest rates again, Clarida said central bankers should be particularly sensitive to the limitations of their economic models…”

U.S. Bubble Watch:

February 27 – Reuters (Lucia Mutikani; Editing by Chizu Nomiyama): “The U.S. goods trade deficit widened sharply in December as slowing global demand and a strong dollar weighed on exports, another sign that economic growth slowed in the fourth quarter. The… goods trade gap jumped 12.8% to $79.5 billion in December, also with a boost from an increase in imports. Exports declined 2.8% and imports rose 2.4% in December.”

March 1 – Reuters: “U.S. personal income fell for the first time in more than three years in January as dividends and interest payments dropped, pointing to moderate growth in consumer spending after it fell by the most since 2009 in December. …Personal income slipped 0.1% in January. That was the first decline since November 2015 and followed a 1.0% jump in December. Income was weighed down by decreases in dividend, farm proprietors' and interest income. Wages increased 0.3% in January after rising 0.5% in December.”

February 28 – Wall Street Journal (Harriet Torry): “The U.S. economy completed one of the best years of a nearly decadelong expansion, growing at a modest pace in the fourth quarter despite slowdowns elsewhere in the world, turbulent financial markets, trade disputes with China and a partial government shutdown late in the year. Consumer spending was robust thanks to a strong job market, tax cuts and household income gains, while business investment, after faltering in the third quarter, bounced back in the final three months of the year… Gross domestic product… expanded at a 2.6% annual rate in October through December, adjusted for seasonal swings in business activity and inflation, the government said. That followed a 3.4% growth rate in the third quarter and a 4.2% growth rate in the second, and it beat economist expectations for a 2.2% reading.”

February 27 – CNBC (Diana Olick): “The supply of homes for sale is finally rising, but fewer buyers are able to afford these homes. That could result in a much slower spring market. Spring is usually the high season for housing, but high home prices have been taking their toll for months. The numbers point to potential trouble ahead. The median price of a home listed in February jumped 7% annually to $294,800, according to The price increase came as the number of listings rose 6%, with an additional 73,000 listings compared with a year ago. ‘This is the fifth consecutive month that we've seen housing inventory increase, especially in large markets,’ said Danielle Hale,'s chief economist.”

February 27 – Reuters (Lucia Mutikani): “U.S. homebuilding tumbled to a more than two-year low in December as construction of both single and multi-family housing declined, the latest indication that the economy had lost momentum in the fourth quarter… Housing starts dropped 11.2% to a seasonally adjusted annual rate of 1.078 million units in December, the weakest reading since September 2016. Data for November was revised down to show starts at a 1.214 million unit rate instead of the previously reported pace of 1.256 million units.”

February 27 – Reuters (Howard Schneider): “Contracts to buy previously owned homes rose in January, the National Association of Realtors said… The NAR’s pending home sales index increased to a reading of 103.2, up 4.6% from the prior month. December’s index was revised to 98.7 from 99.0.”

February 27 – CNBC (Diana Olick): “Homebuyers have a limit to what they can afford, and sellers are slowly having to adjust to that new reality. Home prices increased 4.7% annually in December, down from 5.1% in November, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index. That is the slowest pace since August 2015. The 10-city composite annual increase came in at 3.8%, down from 4.2% the previous month… ‘Even at the reduced pace of 4.7% per year, home prices continue to outpace wage gains of 3.5% to 4% and inflation of about 2%,’ said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices. ‘A decline in interest rates in the fourth quarter was not enough to offset the impact of rising prices on home sales.’”

February 28 – Bloomberg (Prashant Gopal): “The U.S. homeownership rate rose to the highest level since 2014, led by a growing share of buyers in their mid-30s and early 40s. The rate for Americans age 35 to 44 rose to 61.1% in the fourth quarter from 58.9% a year earlier, according to Census Bureau data… For buyers under age 35, the share was 36.5%, up from 36%.”

February 27 – Reuters (Lucia Mutikani): “The U.S. economy fell short of the Trump administration’s 3% annual growth target in 2018 despite $1.5 trillion in tax cuts and a government spending blitz, and economists say growth will only slow from here. A better-than-expected performance in the fourth quarter pushed gross domestic product up 2.9% for the year, just shy of the goal…”

February 27 – Associated Press (Roxana Hegeman): “The nation’s farmers are struggling to pay back loans after years of low crop prices and a backlash from foreign buyers over President Donald Trump’s tariffs, with a key government program showing the highest default rate in at least nine years. Many agricultural loans come due around Jan. 1, in part to give producers enough time to sell crops and livestock and to give them more flexibility in timing interest payments for tax filing purposes. ‘It is beginning to become a serious situation nationwide at least in the grain crops — those that produce corn, soybeans, wheat,’ said Allen Featherstone, head of the Department of Agricultural Economics at Kansas State University.”

March 1 – Wall Street Journal (Christopher M. Matthews and Rebecca Elliott): “West Texas has seen its share of oil booms, but the people there say this one is unlike any they’ve seen. Driven by shale drilling, a gusher of crude production has transformed the Permian Basin into America’s hottest oilfield, turning what was a remote stretch of towns spread among mesquite trees and scrubland into an industrial zone, seemingly overnight. Fortunes are being made in this fracking-related gold rush, and money and workers are flooding in. But many necessities in the area now cost a small fortune, creating opportunities for businesses selling everything from dipping tobacco to sand for fracking. It can be hard to get a haircut, grab a plate of good Texas barbecue, or find a table at a popular bar, because demand outstrips supply. Housing is scarce and hotel room prices sometimes rival those of New York City at more than $500 a night.”

China Watch:

February 28 – Wall Street Journal (Kevin Kingsbury): “China’s benchmark Shanghai Composite Index has jumped 18% this year, its best two-month start since 2000. The index is one of the strongest performers in a global rally spanning stocks, corporate credit and commodities. Investors have reassessed the worries that produced sharp fourth-quarter declines, from U.S.-China trade tensions and the prospect of further U.S. interest-rate increases to slowing global economic growth.”

February 24 – Bloomberg: “There could be ‘new uncertainties’ in the final stage of the China-U.S. trade negotiations and China should do its best while preparing for the worst, according to a commentary by the Chinese state news agency Xinhua. ‘Trade talks will be harder at the final stage, and new uncertainties can’t be ruled out. There needs to be a sober mind about the fact that the China-U.S. trade frictions are long-term, complicated and arduous,’ Xinhua wrote…”

February 27 – Associated Press (Joe McDonald): “Chinese manufacturing activity fell to a three-year low in February amid a tariff battle with Washington and weak global demand, a survey showed… The monthly purchasing managers’ index by the government statistics bureau and an industry group fell 0.3 points to 49.2 on a 100-point scale on which numbers below 50 indicate activity contracting. That was the lowest level since February 2016.”

February 25 – Financial Times (Sherry Fei Ju and Lucy Hornby): “Warnings coming out of Beijing over systemic financial risks carry echoes of 2017, when China launched a crackdown on capital flight by the country’s largest and best-connected private conglomerates. The government needs to ‘gear up for fighting a hard and enduring battle,’ Wang Zhaoxing, vice-chairman of China Banking and Insurance Regulatory Commission, told reporters… He cited ‘complicated and grim-looking circumstances’ even though risks in the banking and insurance industries had been generally under control amid the economic downturn. In a more positive note, a press handout noted that ‘structural deleveraging has reached its expected target’. But Mr Wang was undeterred. ‘Even if the original risks are resolved, some risks may become new risks; even if previous risks in-stock are resolved, there may be new incremental risks,” he added.”

February 25 – Bloomberg (Shuli Ren): “Last August, when a paramilitary group almost became the first default among local government financing vehicles, few would have thought that another asset frenzy was afoot in China. Yet off-budget local government debt is having a fun ride. After that scare, yields for AA rated, three-year bonds issued by local government financing vehicles compressed to 3.9% from about 5%… For yield-thirsty investors, off-balance sheet local government debt can be very attractive: Such bonds offer corporate bond yields while seemingly having quasi-sovereign credit status. Don’t get too comfortable – after all, China has accumulated nearly 30 trillion yuan ($4.49 trillion) of LGFV debt, according to HSBC Holdings Plc.”

February 23 – Bloomberg: “For almost two years, the question has lingered over China’s market-roiling crackdown on financial leverage: How much pain can the country’s policy makers stomach? Evidence is mounting that their limit has been reached. From bank loans to trust-product issuance to margin-trading accounts at stock brokerages, leverage in China is rising nearly everywhere you look. While seasonal effects explain some of the gains, analysts say the trend has staying power as authorities shift their focus from containing the nation’s $34 trillion debt pile to shoring up the weakest economic expansion since 2009. The government’s evolving stance was underscored by President Xi Jinping’s call for stable growth late last week, while on Monday the banking regulator said the deleveraging push had reached its target. ‘Deleveraging is dead,’ said Alicia Garcia Herrero, chief Asia Pacific economist at Natixis…”

February 25 – Bloomberg: “Eager to pile into the world’s most-volatile major stock market with 10-to-1 leverage? China’s shadow bankers are happy to help -- and that has the nation’s policy makers worried. Just hours after China’s CSI 300 Index notched a 6% surge on Monday… the country’s securities regulator warned of a rise in unregulated margin debt and asked brokerages to increase monitoring for abnormal trades… While margin debt in China is much lower today than when it helped precipitate a market collapse in 2015, investors are boosting leverage quickly as they chase a rally that added more than $1 trillion to stock values since the start of 2019.”

February 28 – Financial Times (Gabriel Wildau): “The Tibetan plateau… was the unlikely setting for a bond default scare this week. Qinghai Provincial Investment Group unexpectedly missed payments on bonds sold both within and outside China, marking the first offshore default by a state-owned enterprise (SOE) in more than 20 years. The episode highlights how interpreting political relationships is as important as analysing cash flows in assessing the danger of default at Chinese SOEs. Many of these businesses have very stretched balance sheets, but their ultimate creditworthiness depends on the degree to which their local-government parents are willing and able to provide support. Qinghai Provincial eventually made the Rmb21.4m ($3.2m) principal and interest payment on the onshore bond just hours after the official deadline on Monday…”

February 23 – New York Times (Li Yuan): “Chen Tianyong, a Chinese real estate developer in Shanghai, boarded a flight to Malta last month with no plans to return anytime soon. After landing, Mr. Chen, a former judge and lawyer, shared on social media a 28-page article explaining himself. ‘Why I Left China,’ read the headline, ‘An Entrepreneur’s Farewell Admonition.’ ‘China’s economy is like a giant ship heading to the precipice,” Mr. Chen wrote. ‘Without fundamental changes, it’s inevitable that the ship will be wrecked and the passengers will die.’ ‘My friends,’ he urged, ‘if you can leave, please make arrangements as early as possible.’ It is unclear how many people saw the article before it disappeared from China’s heavily censored internet. But Mr. Chen said publicly what many businesspeople in China are saying privately: China’s leadership has mismanaged the world’s second-largest economy, and China’s entrepreneur class is losing confidence in the country’s future.”

February 24 – Bloomberg: “China’s drive to funnel more credit to private companies is set to hit resistance from banks controlled by local governments. ‘I’m not expecting a big reversal in the flow of loans in favor of private companies any time soon,’ says veteran China watcher Nicholas Lardy of the Peterson Institute for International Economics… ‘There’s so much lending from city and rural commercial banks that’s just blowing up their balance sheets to support very under-performing local state companies.’”

February 28 – Reuters (Shu Zhang): “Dianrong, one of China’s biggest peer-to-peer (P2P) lenders, is shutting down 60 of its 90 offline stores and laying off an estimated 2,000 employees, a source with direct knowledge of the matter told Reuters… The shrinking of Shanghai-based Dianrong comes amid Beijing’s multi-year crackdown on risky practices and excessive leverage in the financial system that has seen a wave of P2P company collapses and triggered protests by angry investors who lost their savings.”

Central Bank Watch:

February 27 – Financial Times (Claire Jones): “As Mario Draghi tries to steer the European Central Bank through the eurozone’s economic slowdown, there is a consolation: dissenting voices on the president’s governing council are falling into line. Trying to curtail sniping from the sidelines by policy hawks, such as Bundesbank president Jens Weidmann and the head of the Dutch central bank, Klaas Knot, has been as much a feature of Mr Draghi’s eight years in charge as his pledge to do ‘whatever it takes’ to prevent the currency union from collapse. But with just over eight months to go before Mr Draghi steps down, there are signs that the hawks are becoming quieter… Mr Weidmann, the most troublesome dissenter for Mr Draghi, acknowledged… that there was ‘much to suggest’ that Germany’s below par growth during the second half of last year was persisting in 2019 — and that the eurozone’s economic powerhouse would expand at a rate well below its potential.”

Brexit Watch:

February 25 – Financial Times (James Blitz): “There are just 32 days left to March 29, the day the UK is supposed to leave the EU. And the calendar for these critical final days is falling into place. We still don’t know for sure whether Theresa May will secure a deal, whether there will be a significant Article 50 extension or whether the UK will crash out of the bloc. But the dates on which key decisions must be made are becoming clear. First, the prime minister has announced that she will re-hold the meaningful vote on her deal in the Commons on Tuesday March 12 at the latest…. Second, we know that the following day — Wednesday March 13 — is critical. This is because of an amendment tabled by two MPs, Yvette Cooper and Oliver Letwin, to be voted on this week.”

February 25 – Reuters (Elizabeth Piper and Aidan Lewis): “Prime Minister Theresa May said a timely exit for Britain from the European Union is ‘within our grasp’ and insisted… that delaying Brexit would be no way to solve the impasse in parliament over the departure. Her comments came as the opposition Labour Party said it would support calls for a second referendum on Brexit, a potentially significant policy shift that could further damage May’s hopes of getting a divided parliament to approve her exit deal. May said she wanted Brexit to happen as planned on March 29 and shrugged off expectations that she will be forced to delay to avoid leaving the EU in a disorderly way without an agreement.”

EM Watch:

February 28 – Financial Times (Stephanie Findlay): “The Indian economy expanded at its slowest pace in more than a year, casting doubt on Prime Minister Narendra Modi’s claims that he can deliver strong growth just months before a general election. Gross domestic product in the third quarter increased by 6.6%... The economy is being restrained by weak consumer spending, reflected by subdued auto sales, and muted farm and manufacturing growth. The government revised its growth estimate for the current fiscal year downwards to 7% from 7.2%.”

February 24 – Reuters (Alfonce Mbizwo and Alexander Winning): “Zimbabwe’s government has a trust problem as it introduces a discounted currency in a bid to reverse chronic cash shortages that left people struggling to get hold of basic goods. Business people and economists welcomed last week’s decision to abandon an unrealistic dollar peg for the country’s surrogate bond notes and electronic dollars, which were merged into a new currency called the Real Time Gross Settlement (RTGS) dollar.”

Global Bubble Watch:

February 21 – Reuters (Marc Jones): “Another jump in borrowing by governments will take the global mountain of sovereign debt to $50 trillion this year, ratings agency S&P Global forecast… The firm predicted sovereigns will borrow an equivalent of $7.78 trillion this year, which would be up 3.2% on 2018. ‘Some 70%, or $5.5 trillion, of sovereigns' gross borrowing will be to refinance maturing long-term debt, resulting in an estimated net borrowing requirement of about $2.3 trillion, or 2.6% of the GDP of rated sovereigns,’ said S&P Global Ratings credit analyst Karen Vartapetov.”

February 27 – Bloomberg (Michael Heath): “Australian home lending slowed to the weakest since President Ronald Reagan and Prime Minister Margaret Thatcher dominated the global arena in the 1980s. Loans to buy houses advanced just 0.2% in January from the prior month… That was the lowest level since July 1984, when Australia was initiating a deregulation campaign to kickstart a moribund economy. Sydney and Melbourne’s property markets are tumbling as stratospheric prices, tighter lending standards and new supply combine to spook buyers.”

Fixed-Income Bubble Watch:

March 1 – Wall Street Journal (Asjylyn Loder): “Mortgages are suddenly hot with investors. An iShares exchange-traded fund that invests in mortgage-backed securities has raised $3.1 billion since the start of 2019, making it the third-most popular ETF so far this year, according to FactSet. Reasons for the surge in popularity: stock market mayhem and the Federal Reserve… Mortgages, or at least government-backed ones, provide a compromise between safety and returns. They offer an escape from the risks that come with buying equities or junk-rated debt, and better yields than ultrasafe U.S. Treasurys.”

Geopolitical Watch:

February 27 – Financial Times (Amy Kazmin and Farhan Bokhari): “Pakistan and India were facing their worst conflict in almost half a century on Wednesday after an Indian military jet was shot down over disputed Kashmir territory and an Indian fighter pilot was captured by Pakistani forces. Tension between the nuclear-armed neighbours has escalated sharply since India carried out a ‘pre-emptive strike’ on a terrorist training camp in Pakistan…, saying it had killed a ‘large number’ of prospective jihadis. Islamabad denounced the strike and vowed to retaliate.”

February 25 – Reuters (Idrees Ali): “The United States sent two Navy ships through the Taiwan Strait on Monday as the U.S. military increased the frequency of movement through the strategic waterway despite opposition from China. The voyage risks further raising tensions with China but will likely be viewed by self-ruled Taiwan as a sign of support from the Trump administration amid growing friction between Taipei and Beijing.”

February 28 – Reuters (Marc Jones): “U.S Secretary of State Mike Pompeo said… that the world should be ‘eyes wide open’ about the risks of using Chinese technology, and that there could be problems for American firms operating in certain places where Huawei equipment was deployed. Pompeo was asked during a visit to Manila about the prospect of the Philippines using Huawei 5G technology in future as it seeks to modernize outdated telecoms infrastructure. ‘Our task has been to share with the world the risks associated with that technology: the risks to the Philippine people, the risk to Philippine security, the risk that America may not be able to operate in certain environments if there is Huawei technology adjacent to that,’ he told a news conference.”