Friday, May 22, 2020

Weekly Commentary: Just the Facts, May 22, 2020

For the Week:

The S&P500 rallied 3.2% (down 8.5% y-t-d), and the Dow rose 3.3% (down 14.3%). The Utilities gained 2.8% (down 12.2%). The Banks jumped 5.9% (down 40%), and the Broker/Dealers rose 5.0% (down 16.6%). The Transports surged 9.1% (down 22.3%). The S&P 400 Midcaps jumped 7.4% (down 17.8%), and the small cap Russell 2000 surged 7.8% (down 18.8%). The Nasdaq100 gained 2.9% (up 7.8%). The Semiconductors surged 6.0% (down 2.6%). The Biotechs increased 2.3% (up 10.9%). With bullion down $9, the HUI gold index slumped 4.0% (up 17.9%).

Three-month Treasury bill rates ended the week at 0.1125%. Two-year government yields added two bps to 0.17% (down 140bps y-t-d). Five-year T-note yields increased three bps to 0.34% (down 136bps). Ten-year Treasury yields rose two bps to 0.66% (down 126bps). Long bond yields gained four bps to 1.37% (down 102bps). Benchmark Fannie Mae MBS yields added two bps to 1.58% (down 113bps).

Greek 10-year yields sank 36 bps to 1.69% (up 26bps y-t-d). Ten-year Portuguese yields dropped 15 bps to 0.73% (up 29bps). Italian 10-year yields sank 27 bps to 1.60% (up 19bps). Spain's 10-year yields fell 13 bps to 0.63% (up 16bps). German bund yields rose four bps to negative 0.49% (down 30bps). French yields dipped one basis point to negative 0.03% (down 15bps). The French to German 10-year bond spread narrowed five to 46 bps. U.K. 10-year gilt yields declined six bps to 0.17% (down 65bps). U.K.'s FTSE equities index jumped 3.3% (down 20.5%).

Japan's Nikkei Equities Index gained 1.8% (down 13.8% y-t-d). Japanese 10-year "JGB" yields were unchanged at 0.00% (up 1bp y-t-d). France's CAC40 rallied 3.9% (down 25.7%). The German DAX equities index recovered 5.8% (down 16.4%). Spain's IBEX 35 equities index rose 3.4% (down 29.9%). Italy's FTSE MIB index gained 2.8% (down 26.3%). EM equities were mixed. Brazil's Bovespa index rallied 6.0% (down 28.9%), and Mexico's Bolsa increased 0.3% (down 17.8%). South Korea's Kospi index gained 2.2% (down 10.4%). India's Sensex equities index declined 1.4% (down 25.6%). China's Shanghai Exchange fell 1.9% (down 7.7%). Turkey's Borsa Istanbul National 100 index recovered 3.3% (down 10.0%). Russia's MICEX equities index rallied 4.5% (down 11.0%).

Investment-grade bond funds saw inflows of $5.330 billion, and junk bond funds posted inflows of $1.637 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates fell four bps to 3.24% (down 82bps y-o-y). Fifteen-year rates slipped two bps to 2.70% (down 81bps). Five-year hybrid ARM rates declined a basis point to 3.17% (down 51bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down three bps to 3.64% (down 57bps).

Federal Reserve Credit last week surged $180bn to a record $6.922 TN, with a 37-week gain of $3.200 TN. Over the past year, Fed Credit expanded $3.098 TN, or 81%. Fed Credit inflated $4.111 Trillion, or 146%, over the past 393 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt jumped $21.9 billion last week to $3.388 TN. "Custody holdings" were down $80.5bn, or 2.3%, y-o-y.

M2 (narrow) "money" supply surged $225.8bn last week to a record $17.991 TN, with an unprecedented 11-week gain of $2.483 TN. "Narrow money" surged $3.404 TN, or 23.3%, over the past year. For the week, Currency increased $7.6bn. Total Checkable Deposits jumped $63bn, and Savings Deposits rose $154.9bn. Small Time Deposits declined $3.6bn. Retail Money Funds added $3.5bn.

Total money market fund assets added $1.4bn to a record $4.789 TN. Total money funds surged $1.659 TN y-o-y, or 53%.

Total Commercial Paper declined $4.0bn to $1.057 TN. CP was down $25bn, or 2.3% year-over-year.

Currency Watch:

For the week, the U.S. dollar index slipped 0.5% to 99.863 (up 3.5% y-t-d). For the week on the upside, the Brazilian real increased 5.9%, the South African rand 5.5%, the Mexican peso 5.4%, the New Zealand dollar 2.7%, the Norwegian krone 2.4%, the Swedish krona 2.0%, the Australian dollar 1.9%, the Canadian dollar 0.8%, the euro 0.8%, the British pound 0.5%, and the Singapore dollar 0.1%. For the week on the downside, the Japanese yen declined 0.5% and the South Korean won 0.5%. The Chinese renminbi declined 0.48% versus the dollar this week (down 2.43% y-t-d).

Commodities Watch:

The Bloomberg Commodities Index rallied 1.8% (down 22.4% y-t-d). Spot Gold slipped 0.5% to $1,731 (up 14.3%). Silver jumped 3.6% to $17.693 (down 1.3%). WTI crude surged $3.82 to $33.25 (down 46%). Gasoline rose 7.0% (down 39%), and Natural Gas gained 5.2% (down 21%). Copper recovered 2.4% (down 15%). Wheat rallied 1.7% (down 9%). Corn slipped 0.4% (down 18%).

Coronavirus Watch:

May 21 – Associated Press (Michael Tackett): “We are becoming a nation of amateur actuaries, calculating the risk of restarting our lives. Can we go outside? Can we go back to work? Can we go to a restaurant or bar? Can we go to the beach? Can our children go back to school? Can we visit grandma? The questions have an infinite run. The answers are less a product of math and hard science than one of highly variable, and often emotional assessment of the benefit relative to the cost.”

May 21 – Reuters (Joseph Ax and Julie Steenhuysen): “A quarter of Americans have little or no interest in taking a coronavirus vaccine, a Reuters/Ipsos poll… found, with some voicing concern that the record pace at which vaccine candidates are being developed could compromise safety… Less than two-thirds of respondents said they were ‘very’ or ‘somewhat’ interested in a vaccine, a figure some health experts expected would be higher given the heightened awareness of COVID-19 and the more than 92,000 coronavirus-related deaths in the United States alone.”

May 18 – CNBC (Berkeley Lovelace Jr.): “Moderna’s closely watched early-stage human trial for a coronavirus vaccine produced Covid-19 antibodies in all 45 participants, the biotech company announced Monday, sending the company’s shares surging nearly 20%. Each participant received a 25, 100 or 250 microgram dose, with 15 people in each dose group. Participants received two doses of the potential vaccine via intramuscular injection in the upper arm approximately 28 days apart.”

May 20 – Reuters (Deena Beasley): “A top U.S. scientist said… governments should not count on a successful vaccine against COVID-19 being developed anytime soon when deciding whether to ease restrictions imposed to curb the pandemic. William Haseltine, a groundbreaking researcher of cancer, HIV/AIDS and human genome projects, said the better approach now is to manage the disease through careful tracing of infections and strict isolation measures whenever it starts spreading. While a COVID-19 vaccine could be developed, he said, ‘I wouldn’t count on it.’ Vaccines developed previously for other types of coronavirus had failed to protect mucous membranes in the nose where the virus typically enters the body, he said.”

May 20 – Reuters (Ben Klayman): “Ford Motor Co… closed two U.S. assembly plants as the coronavirus pandemic wreaked early havoc with the No. 2 U.S. automaker’s plan to restart North American production and begin making its most profitable vehicles again. Ford closed its Dearborn, Michigan, plant due to a positive COVID-19 test by one worker, while its Chicago assembly plant was closed due to a parts shortage…”

May 21 – Financial Times (Bryan Harris and Andres Schipani): “More than 100,000 Brazilians are likely to die from Covid-19, according to public health experts and professionals, who have warned the country’s widespread poverty and social inequality will fuel an explosive rise in cases. ‘There is no question the epicentre of this pandemic is moving to Brazil. But in Brazil the pandemic will find a population that is very, very precarious,’ said Alexandre Kalache, a former senior official at the WHO and president of the International Longevity Centre. ‘If we carry on this curve, we will reach 120,000 deaths. We can reach the US total in the next few weeks.’”

May 20 – Bloomberg: “Chinese doctors are seeing the coronavirus manifest differently among patients in its new cluster of cases in the northeast region compared to the original outbreak in Wuhan, suggesting that the pathogen may be changing in unknown ways and complicating efforts to stamp it out. Patients found in the northern provinces of Jilin and Heilongjiang appear to carry the virus for a longer period of time and take longer to test negative, Qiu Haibo, one of China’s top critical care doctors, told state television…”

Market Instability Watch:

May 22 – CNBC (Weizhen Tan): “Already bad friction between the U.S. and China has ratcheted higher in recent weeks, and now it’s expanded onto another front: the stock market. As the coronavirus crisis draws on, the relationship has gotten more strained, with each country blaming the other about the true extent and origin of the coronavirus outbreak. U.S. President Donald Trump also threatened tariffs on China again this month. In the latest move, the U.S. Senate passed legislation on Wednesday that could restrict Chinese companies from listing on American exchanges or raise money from U.S. investors, unless they abide by Washington’s regulatory and audit standards.”

May 21 – Financial Times (Gillian Tett): “When Jay Powell, US Federal Reserve chair, was grilled in Congress this week, the focus was on how the central bank has helped American companies and consumers during the pandemic. Senators should have also asked — but did not — what the Fed has done recently to help dollar markets outside US shores. That was a big oversight. When future financial historians study the Covid-19 shock, they will conclude that the Fed’s intervention in offshore dollar markets via swaps deals with other central banks was one of its most significant policy moves. Not only has the Fed’s action calmed markets, it has shored up the hegemony of the dollar-based global financial system for years to come… In mid-March, panic erupted again in offshore dollar markets. The Fed responded and even doubled down. First, it reactivated swaps deals with the five original central banks. Then it added nine players, including Mexico and Brazil. Last, it offered a new ‘repurchase’ facility allowing entities outside the 14-member club to swap assets such as Treasury bonds for dollars.”

May 17 – Financial Times (Steve Johnson): “The broadest-ever effort to pump dollars into the global economy has bypassed some major emerging markets, leaving them struggling to get their hands on the liquidity they need, according to analysts. The US Federal Reserve and the IMF have both launched schemes to lend dollars to countries in need as part of their efforts to help combat the economic impact of the coronavirus pandemic. For example, the Fed’s temporary dollar swap lines cover 14 central banks, including those of Brazil, Mexico, South Korea and Singapore. But nations including Turkey, South Africa, Nigeria and Indonesia are all shut out of the system, despite having heavy dollar-based financing needs.”

May 19 – New York Times (Matt Phillips): “During the 2008 financial crisis, Wall Street banks and other big financial institutions were deemed ‘too big to fail.’ The crisis unleashed by the pandemic has broadened that elite status to a significant swath of the American private sector. In a bid to soften the coronavirus’s economic blow, the government has stretched its financial safety net wide — from strategically sensitive companies, to entire industries such as energy and airlines, to the market for corporate bonds. ‘The ‘too big to fail’ that existed for banks has now extended to a lot of other firms,’ said Luigi Zingales, a University of Chicago professor of finance… A decade ago, the Federal Reserve was instrumental in keeping the banking system from going bust. This time around, the Fed’s actions are far more sweeping, and it has essentially propped up entire financial markets with its bottomless ability to buy assets with freshly created money.”

May 16 – Bloomberg (Jack Farchy, Nishant Kumar and Ranjeetha Pakiam): “Forget plunging oil prices and a collapse in consumer spending. Some of the world’s most-prominent investors are raising alarm bells over the looming threat of inflation, and turning to gold for protection. Money printing by central banks and vast state stimulus packages are rekindling interest in one of the oldest stores of wealth. It’s a revival of a trade that became popular in the wake of the 2008 crisis… Yet the unprecedented scale of the government response to the coronavirus crisis is feeding the argument that this time will be different. Hedge fund luminaries including Paul Singer, David Einhorn, and Crispin Odey are among those bullish on gold… So are large asset managers like Blackrock Inc. and Newton Investment Management.”

May 19 – Bloomberg (Todd White): “American financial conditions have loosened at the fastest pace since at least 1990, belying mounting investor skepticism that a V-shaped economic recovery will follow the pandemic-induced crash. A Bloomberg measure of market health across bond, stock and liquidity indexes has staged a revival like never before -- bouncing back to early March levels, when recorded coronavirus cases globally were around 90,000 versus more than 4.8 million today. All told, this gauge of animal spirits has improved from the nadir by 5.4 standard deviations in just 37 trading days, a feat that took 50 days back in 2008.”

May 20 – Reuters (Kate Duguid): “Companies hard-hit by the pandemic rushed to raise debt last month, encouraged by the Federal Reserve’s intervention to support the credit market. But for some of the riskier names, those bond offerings have quickly curdled. Since March 24, the day after the Fed announced its unprecedented stimulus programs, 23 companies have borrowed money in the public market at a rate of 9% or higher, according to data from Tom Graff, head of fixed income at Brown Advisory… Of those 23, new bonds from pharmaceutical company Mallinckrodt, movie theater chain AMC Entertainment and billboard giant Clear Channel Outdoor are trading around 80 cents on the dollar, a 20 point fall in the two months since they were issued…”

Global Bubble Watch:

May 20 – Bloomberg (Tom Orlik and Scott Johnson): “Collapsing tax revenue and soaring stimulus costs mean the Covid-19 recession is set to result in a historic increase in government debt. Taken together, by year-end 2021 G-20 economies are set to add $13.1 trillion to their debt stock. For advanced economies that will be a burden for years to come.”

May 19 – Reuters (Swati Pandey): “Australian retail sales slumped in April after a record surge the previous month as widespread restrictions to curb the spread of the coronavirus hit demand for clothing, travel and dining out. The Australian Bureau of Statistics (ABS) reported… retail sales plunged a seasonally adjusted 17.9% in April, its biggest ever…”

May 21 – Bloomberg (Michael Heath): “Australia’s AAA credit rating outlook was cut to negative by Fitch Ratings Ltd., reflecting the economy’s spiral toward a recession that will result in a severe deterioration of the nation’s fiscal position. ‘Government spending in response to the health and economic crisis will cause large fiscal deficits and a sharp increase in government debt/GDP,’ Fitch said…”

Trump Administration Watch:

May 19 – Reuters (Richard Cowan and Susan Cornwell): “Republican leaders in the U.S. Congress said… they were in no hurry to work on another coronavirus relief package, despite the House of Representatives’ passage last week of a $3 trillion measure. ‘We need to assess what we’ve already done, take a look at what worked and what didn’t work, and we’ll discuss the way forward in the next couple of weeks,’ Senate Majority Leader Mitch McConnell told reporters after President Donald Trump spoke to a Senate Republican luncheon.”

May 21 – Bloomberg (Daniel Ten Kate): “President Donald Trump escalated his rhetoric against China, suggesting that the country’s leader, Xi Jinping, is behind a ‘disinformation and propaganda attack on the United States and Europe.’ ‘It all comes from the top,’ Trump said in a series of tweets… He added that China was ‘desperate’ to have former Vice President Joe Biden, the presumptive Democratic nominee, win the presidential race. While Trump has often blamed China for failing to prevent a pandemic now ravaging the global economy, he has been careful to maintain that his relationship with Xi remains strong… Trump and other Republicans have been ratcheting up efforts to paint China as the villain, as the U.S. economy drifts into recession and the president’s handling of the crisis jeopardizes the party’s grip on the executive branch.”

May 20 – Reuters (Huizhong Wu and Lusha Zhang): “China said… U.S. Secretary of State Mike Pompeo is ‘blackmailing’ the Hong Kong government with the Hong Kong Human Rights and Democracy Act and that Washington's recent actions amount to blatant interference on China's internal affairs. Pompeo said on Wednesday the recent treatment of pro-democracy activists in Hong Kong makes it harder to assess whether the territory remains highly autonomous from China, a requirement for special treatments the city gets under American law.”

May 19 – Bloomberg (Josh Wingrove): “President Donald Trump’s economic adviser Larry Kudlow said nobody can invest confidently in Chinese companies and that the U.S. needs to protect investors from the country’s lack of transparency and accountability. ‘We have learned that Chinese companies are not transparent,’ Kudlow said… on Fox Business Network. ‘They do not meet the norms, the regulations.’ Kudlow pointed to potential lawsuits related to the coronavirus, saying ‘until that stuff is sorted out, nobody really can invest with confidence in China.’”

May 18 – CNBC (Christine Wang): “President Donald Trump threatened to permanently cut off U.S. funding of the World Health Organization, in a letter… Trump said that if the WHO ‘does not commit to major substantive improvements within the next 30 days, I will make my temporary freeze of United States funding to the World Health Organization permanent and reconsider our membership in the organization.’”

May 17 – Reuters (Andrea Shalal, Alexandra Alper, Patricia Zengerle): “U.S. lawmakers and officials are crafting proposals to push American companies to move operations or key suppliers out of China that include tax breaks, new rules, and carefully structured subsidies. Interviews with a dozen current and former government officials, industry executives and members of Congress show widespread discussions underway - including the idea of a ‘reshoring fund’ originally stocked with $25 billion - to encourage U.S. companies to drastically revamp their relationship with China. President Donald Trump has long pledged to bring manufacturing back from overseas, but the recent spread of the coronavirus and related concerns about U.S. medical and food supply chains dependency on China are ‘turbocharging’ new enthusiasm for the idea in the White House.”

May 19 – Reuters (Andrea Shalal): “The U.S. Chamber of Commerce… warned the U.S. government against overdoing a major effort underway to rip U.S. supply chains out of China in the wake of the coronavirus pandemic, saying such moves could harm the economy. ‘Protecting the resiliency of our supply chain doesn’t have to mean reshoring all production in the United States,’ Chamber Chief Executive Thomas Donohue told an online conference. He said there may be a need in future to increase domestic production in some industries ‘but there will also need to continue to be a huge place in the U.S. economy for a global supply chain.’”

May 16 – Bloomberg (Daniel Zuidijk): “Donald Trump accused Facebook Inc, Twitter Inc and Alphabet Inc’s Google of being controlled by the ‘Radical Left’ and said that his administration is working to remedy what he called an ‘illegal situation.’ In a tweet that also mentions the Facebook-owned Instagram, the U.S. president commented on a clip by conservative blogger Michelle Malkin lambasting the so-called deplatforming of conservative voices by technology companies. Trump didn’t elaborate on potential measures targeting the tech giants.”

Federal Reserve Watch:

May 21 – MarketWatch (Sunny Oh): “The numbers: The Federal Reserve’s balance sheet increased to $7.09 trillion for the week ending in May 20, up from $6.98 trillion in the previous week… What happened: The Fed’s holdings in its corporate credit facility grew by $1.50 billion to $1.80 billion, after the central bank announced… it would buy corporate bond exchange-traded funds… Mortgage-bond purchases outpaced the Fed’s buying of U.S. government paper. Holdings of agency mortgage-backed securities rose by $79 billion to $1.86 trillion, while holdings of Treasurys increased by a more modest $32 billion to $4.09 trillion.”

May 17 – CNBC (Jeff Cox): “The U.S. economy could shrink by upwards of 30% in the second quarter but will avoid a Depression-like economic plunge over the longer term, Federal Reserve Chairman Jerome Powell told ‘60 Minutes’… The central bank chief also conceded that jobless numbers will look a lot like they did during the 1930s, when the rate peaked out at close to 25%. However, he said the nature of the current distress coupled with the dynamism of the U.S. and the strength of its financial system should pave the way for a significant rebound.”

May 21 – New York Times (Jeanna Smialek and Alan Rappeport): “Jerome H. Powell… and other top central bank officials warned… that the United States was experiencing an exceptional shock in the coronavirus pandemic, and that it was wildly unclear when and how low unemployment and widespread prosperity would return. The United States economy is in a ‘downturn without modern precedent,’ Mr. Powell said. ‘In the best of times, predicting the path of the economy with any certainty is difficult,’ he added. ‘We are now experiencing a whole new level of uncertainty, as questions only the virus can answer complicate the outlook.’”

May 18 – Wall Street Journal (Nick Timiraos): “The Federal Reserve is preparing to lend directly to middle-market businesses, filling a hole left by the government’s economic crisis relief efforts, and it is shaping up to be one of the trickiest things it has ever done. The risk for the Fed is that it goes where the central bank has rarely ventured and that not many businesses seek help, creating both financial and political headaches. The program is designed to assist companies like LMI Aerospace… that is too large to get help under the Small Business Administration’s loan program but too small to benefit from the Fed’s other corporate-lending backstops. Under the Fed’s middle-market program, a company would get a loan from a bank, which would then sell up to 95% of the debt to the Fed. This leaves the bank with less additional debt on its books and free to make more loans to other borrowers.”

May 20 – Bloomberg (Christopher Condon and Rich Miller): “U.S. central bankers saw the coronavirus pandemic posing a severe threat to the economy when they met last month and were also concerned by the risks to financial stability. Officials agreed the ‘economic effects of the pandemic created an extraordinary amount of uncertainty and considerable risks to economic activity in the medium term,’ minutes… of the April 28-29 Federal Open Market Committee meeting showed. ‘A number of participants commented on potential risks to financial stability. Participants were concerned that banks could come under greater stress.’ Fed officials left interest rates near zero when they gathered in late April.”

U.S. Bubble Watch:

May 19 – CNBC (Jeff Cox): “The Congressional Budget Office released its own bleak outlook… for economic growth, unemployment and the federal budget, predicting job gains later this year but an overall climate that will remain subdued through 2021. In its latest projections, the CBO sees GDP capsizing 38% on an annualized basis in the second quarter with the 26 million more unemployed Americans than there were at the end of 2019.”

May 21 – CNBC (Jeff Cox): “First-time filings for unemployment insurance totaled 2.44 million last week as the tail effects of the coronavirus shutdown continued to impact the U.S. jobs market… In the nine weeks since the coronavirus-induced lockdown has closed large parts of the U.S. economy, some 38.6 million workers have filed claims.”

May 20 – CNBC (Jeff Cox): “Heavily indebted ‘zombie’ companies happen to control nearly 2.2 million jobs at a time when the U.S. is in a deep employment crisis. The companies occupy a large swath of American industry, from big conglomerates to the restaurants and bars that have suffered so much during the coronavirus pandemic and the associated social distancing measures that have torn a hole through the U.S. economy. They’re generally designated as companies that continue to operate even without the revenue stream to pay off their debts. At the sector level, they range from the 233,000 jobs in industrial to conglomerates to 738 in the insurance business, according to… Arbor Data Science.”

May 18 – Wall Street Journal (Gerald F. Seib): “The coronavirus crisis once seemed to be the kind of gut-wrenching shock that would pull together a politically divided nation. Increasingly, though, it is pulling the nation apart along familiar lines. To see why, start by looking at how the pandemic’s effects are falling along partisan lines… Political power in the country’s states today is almost evenly split between the two parties: 26 have Republican governors, 24 have Democratic governors. Yet the coronavirus’s effects aren’t even close to falling evenly between red and blue states. Two-thirds of confirmed coronavirus cases are in states with Democratic governors. When states are measured by the sheer number of coronavirus cases, six of the top seven have Democratic governors. Together, those six blue states have about half of the nation’s cases, though only about a third of its population.”

May 21 – CNBC (Maggie Fiztgerald): “The U.S. government passed the largest piece of stimulus legislation in our nation’s history to allow people to keep paying their bills during the forced economic shutdowns due to the coronavirus. Consumers, in turn, used a lot of that money to speculate in the stock market. Securities trading was among the most common uses for the government stimulus checks in nearly every income bracket, according to software and data aggregation company Envestnet Yodlee.”

May 21 – Bloomberg (John Gittelsohn): “Delinquencies on U.S. home loans surged by 1.6 million in April, the biggest one-month gain ever, as soaring job losses fueled a jump in missed payments and government programs offered penalty-free delays. Mortgages at least 30 days in arrears almost doubled to 6.45%, the highest rate since January 2015, according to… Black Knight Inc. About 3.4 million loans were more than 30 days late and an additional 211,000 properties were in foreclosure or on track for repossession by lenders. A federal relief program allows borrowers impacted by the virus an initial six-month payment deferral without penalty. About 4.7 million borrowers were in forbearance as of May 12…”

May 18 – Reuters (Lindsay Dunsmuir): “Roughly 4.1 million U.S. mortgage borrowers have had their payments paused or reduced as the novel coronavirus outbreak hits household finances, but the increase in the number of people needing such help is slowing, the latest weekly survey from the Mortgage Bankers Association showed… The share of mortgages in forbearance rose to 8.16% from 7.91% in the May 4-10 period…”

May 20 – Wall Street Journal (AnnaMaria Andriotis): “Millions of people are behind on their credit-card and auto-loan payments, the latest sign of the coronavirus pandemic’s financial devastation. Lenders in April had nearly 15 million credit cards in ‘financial hardship’ programs, such as deferral programs that let borrowers temporarily stop making payments, according to estimates by credit-reporting firm TransUnion. That accounts for about 3% of the credit-card accounts the company tracks, TransUnion said… Nearly three million auto loans were in these hardship programs, accounting for about 3.5% of those tracked. The numbers have surged from a year ago, when 0.03% of credit cards and about 0.5% of auto loans were in financial-hardship programs.”

May 19 – Wall Street Journal (Konrad Putzier): “A rising number of office- and apartment-building owners are falling behind on their mortgages, a sign the economic shutdown is harming stabler property types and raising the prospect of widespread industry damage. Office leasing has mostly dried up in recent weeks and companies increasingly say they want to use less office space in the future… At the same time, the economic and business collapse is leaving many people unable or unwilling to pay rent for their apartments. Owners of hotels and retail properties were the first to run out of money and start to default back in March… Hotels are the most economically sensitive because of their short-term stays and easy cancellation policies. Shopping centers were already under assault from e-commerce before malls started to shut down under government orders.”

May 19 – Wall Street Journal (Esther Fung and Heather Haddon): “National restaurant chains and other stable businesses are prodding their landlords for rent relief as the economic picture sours, setting the stage for court battles and protracted clashes between big tenants and property owners. A number of blue-chip companies that made rent payments the past two months have indicated they reached their limit with June. Chipotle Mexican Grill Inc. and Shake Shack Inc. said they are lobbying property owners to renegotiate the leases or offer deferred rent payments. Starbucks Corp. sent a letter to landlords asking for a range of concessions, including changes to lease terms and base rent for at least 12 months, starting next month.”

May 22 – Bloomberg (Lauren Coleman-Lochner, Jordyn Holman and Natalie Wong): “Retail landlords are sending out thousands of default notices to tenants, a situation that could tip already-ailing retailers into bankruptcy or total collapse. Department stores, restaurants, apparel merchants and specialty chains have been getting the notices as property owners who’ve gone unpaid for as long as three months lose patience… ‘The default letters from landlords are flying out the door,’ said Andy Graiser, co-president of A&G Real Estate Partners, whose firm works with retailers and other commercial tenants. ‘It’s creating a real fear in the marketplace,’ Graiser said.”

May 19 – Reuters: “U.S. homebuilding dropped to a five-year low in April… Housing starts tumbled 30.2% to a seasonally adjusted annual rate of 891,000 units last month, the lowest level since early 2015… Economists polled by Reuters had forecast housing starts would fall to a pace of 927,000 units in April. Housing starts dropped 29.7% on a year-on-year basis in April.”

May 20 – CNBC (Diana Olick): “If mortgage demand is an indicator, buyers are coming back to the housing market far faster than anticipated… Mortgage applications to purchase a home rose 6% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Purchase volume was just 1.5% lower than a year ago, a rather stunning recovery from just six weeks ago, when purchase volume was down 35% annually.”

May 21 – CNBC (Diana Olick): “The economic fallout from the coronavirus hit the housing market hard in April. Sales of existing homes fell 17.8% month to month, and were 17.2% lower than April 2019, seasonally adjusted… That puts the annualized pace at 4.33 million units, the slowest sales rate since September 2011. These numbers are based on closed sales…, so they represent contracts signed in late February and March.”

May 17 – Bloomberg (Brendan Murray): “It’s not quite a new Cold War yet. Just the cold shoulder. Some 40% of Americans said they won’t buy products from China, according to a survey of 1,012 adults conducted May 12-14 by Washington-based FTI Consulting…”

May 16 – Bloomberg (David McLaughlin): “The U.S. Justice Department is drafting a lawsuit against Alphabet Inc.’s Google, accusing the internet giant of violating antitrust laws, according to a person familiar with the matter. The Justice Department has been investigating Google for nearly a year over whether the company is thwarting competition in the digital advertising market… A draft complaint doesn’t necessarily mean the government will ultimately sue Google, but it signals investigators working on the case believe there is enough evidence to start preparing for litigation…”

May 21 – CNBC (Robert Frank): “America’s billionaires saw their fortunes soar by $434 billion during the U.S. lockdown between mid-March and mid-May… Amazon’s Jeff Bezos and Facebook’s Mark Zuckerberg had the biggest gains, with Bezos adding $34.6 billion to his wealth and Zuckerberg adding $25 billion, according to the report from Americans for Tax Fairness and the Institute for Policy Studies’ Program for Inequality. The report is based on Forbes data for America’s more than 600 billionaires between March 18, when most states were in lockdown, and May 19.”

May 18 – Bloomberg (Devon Pendleton and Tom Maloney): “Another early investor of Moderna Inc. is on the cusp of owning a stake worth at least $1 billion after the biotech firm reported encouraging early trial results for an experimental Covid-19 vaccine. The value of board member Bob Langer’s 3.2% holding… rose to $934.3 million Monday… Langer, a professor at the Massachusetts Institute of Technology, would be at least the third individual with Moderna holdings topping $1 billion, joining Chief Executive Officer Stephane Bancel and Harvard University professor Timothy Springer.”

Fixed-Income Bubble Watch:

May 20 – Wall Street Journal (Andrew Ackerman): “A top federal regulator said… mortgage giants Fannie Mae and Freddie Mac should hold $240 billion in capital after they are returned to private ownership. The figure proposed by the Federal Housing Finance Agency sets a high hurdle for the companies, which together insure half of the $11 trillion mortgage market and were taken over by the government during the 2008-2009 financial crisis. Fannie and Freddie currently hold about $23.5 billion of capital between them. In 2018, when the FHFA was still run by an Obama appointee, the agency estimated that they would need to hold about $180 billion in loss absorbing capital after exiting government control.”

May 20 – Bloomberg (Katherine Greifeld): “The world’s largest credit ETF has ballooned since the Federal Reserve said it will backstop the market. Total assets in BlackRock’s iShares iBoxx $ Investment Grade Corporate Bond exchange-traded fund, ticker LQD, touched a record $46.7 billion on Tuesday… That compares to $28.2 billion on March 19, just days before the central bank said it would purchase investment-grade corporate bonds and certain ETFs that tracked them… ‘Investment-grade credit is particularly attractive at the moment -- it captures large corporates with solid balance sheets and good access to market financing to weather this recession,’ said Al-Hussainy, a senior strategist at the firm. ‘And of course, the asset class has an explicit Fed backstop.’”

May 20 – Bloomberg (Amanda Albright and Shruti Date Singh): “Illinois may be one of the first -- and most high-profile -- governments to test the Federal Reserve’s $500 billion lending lifeline for states and cities. The state is working on a so-called notice of interest that it will submit to the Fed, the first step toward borrowing from the central bank… The move comes after Illinois postponed the planned auction of $1.2 billion short-term debt earlier this month as its bond yields surged amid concern about the financial hit it faces from the coronavirus shutdown.”

China Watch:

May 17 – Reuters (Stella Qiu and Gabriel Crossley): “Global demand has slumped significantly due to the coronavirus outbreak and trade faces unprecedented challenges, China’s commerce minister said… Companies are having an extremely difficult time due to the outbreak, which has caused a huge shock to China’s economic and social development, Zhong Shan said… ‘As the global epidemic spreads, international market demand has fallen significantly, and China faces unprecedented challenges in foreign trade this year,’ said Zhong.”

May 22 – Reuters (Kevin Yao, Judy Hua, Stella Qiu, Yawen Chen, Cheng Leng, Lusha Zhang, Colin Qian, Roxanne Liu, Huizhong Wu, Gabriel Crossley, Yew Lun Tian, Se Young Lee, Tony Munroe, and Ryan Woo): “China dropped its annual growth target for the first time on Friday and pledged more government spending as the COVID-19 pandemic hammers the world’s second-biggest economy, setting a sombre tone to this year’s meeting of parliament. The omission from Premier Li Keqiang’s work report marks the first time China has not set a target for gross domestic product (GDP) since the government began publishing such goals in 1990.”

May 18 – New York Times (Maria Abi-Habib and Keith Bradsher): “As the coronavirus spread around the globe, Pakistan’s foreign minister called his counterpart in Beijing last month with an urgent request: The country’s economy was nose-diving, and the government needed to restructure billions of dollars of Chinese loans. Similar requests have come flooding in to Beijing from Kyrgyzstan, Sri Lanka and a number of African nations, asking to restructure, delay repayments or forgive tens of billions of dollars of loans coming due this year. With each request, China’s drive to become the developing world’s biggest banker is backfiring. Over the last two decades it unleashed a global lending spree, showering countries with hundreds of billions of dollars, in an effort to expand its influence and become a political and economic superpower. Borrowers put up ports, mines and other crown jewels as collateral. Now, as the world economy reels, countries are increasingly telling Beijing they can’t pay the money back.”

May 18 – Bloomberg: “In the battle to keep millions of China’s smaller businesses afloat, banks are counting on being allowed another round of exceptions for borrowers falling behind on payments. The regulator and some lenders have discussed extending loan relief beyond a June 30 deadline for corporates hurt by the pandemic… The guidance from Beijing is to offer flexibility on principal and interest payments, the people said. Banks would see a surge in bad loans in the second half without such measures, weakening their ability to keep credit flowing, according to bankers and analysts.”

May 21 – Bloomberg: “Beijing is accelerating its bid for global leadership in key technologies, planning to pump more than a trillion dollars into the economy through the rollout of everything from wireless networks to artificial intelligence. In the masterplan backed by President Xi Jinping himself, China will invest an estimated $1.4 trillion over six years to 2025, calling on urban governments and private tech giants like Huawei Technologies Co. to lay fifth generation wireless networks, install cameras and sensors, and develop AI software that will underpin autonomous driving to automated factories and mass surveillance.”

May 17 – Associated Press: “China’s commerce ministry says it will take ‘all necessary measures’ in response to new U.S. restrictions on Chinese tech giant Huawei’s ability to use American technology, calling the measures an abuse of state power and a violation of market principles. An unidentified spokesperson quoted… on the ministry’s website said the regulations also threatened the security of the ‘global industrial and supply chain.’ ‘The U.S. uses state power, under the so-called excuse of national security, and abuses export control measures to continuously oppress and contain specific enterprises of other countries,’ the statement said.”

May 17 – Bloomberg: “Huawei Technologies Co. warned the latest U.S. curbs on its business will inflict a ‘terrible price’ on the global technology industry, inflaming tensions between Washington and Beijing while harming American interests. China’s largest technology company said it will be ‘significantly affected’ by a Commerce Department decree barring any chipmaker using American equipment from supplying Huawei without U.S. government approval. That means companies like Taiwan Semiconductor Manufacturing Co. and its rivals will have to cut off the Chinese company unless they get waivers -- effectively severing Huawei’s access to cutting-edge silicon it needs for smartphones and networking gear.”

May 17 – Bloomberg: “China’s house-price growth accelerated in April as the central bank’s credit easing gave the property market a much-needed lift out of the coronavirus shutdown. New-home prices in 70 major cities… gained 0.42% in April… That’s up from a 0.13% increase in March. Prices in the secondary market, which is free from government intervention, rose 0.22% last month after edging up just 0.05% in March.”

May 19 – CNBC (Huileng Tan): “China has been building up its food and energy stockpile this year, taking advantage of slumping crude oil prices even before the coronavirus pandemic disrupted supplies. The world’s second largest economy, which has limited arable land, is facing pressure to shore up its food supplies as prices for food started ticking higher last year, prior to the virus outbreak… ‘People there (in China) are panicked that coronavirus will eventually shut down the world’s ports, making it impossible for them to import,’ said Arlan Suderman, chief commodities economist for INTL FCStone… ‘As such, they are hoarding supplies now while they are cheap and available.’”

Central Bank Watch:

May 20 – Financial Times (Chris Giles): “The Bank of England is eyeing the introduction of negative interest rates for the first time in its 324-year history in a move to help stimulate an economic recovery. Andrew Bailey, the BoE governor, confirmed negative rates were under ‘active review’, under questioning from MPs on a day when bond investors accepted that they would need to pay to lend money to the UK government. The interest rate in a gilts auction fell below zero for the first time.”

May 22 – Bloomberg (Anirban Nag and Vrishti Beniwal): “India’s central bank cut interest rates in an unscheduled announcement on Friday and kept the door open for further easing to help an economy it expects will contract for the first time in more than four decades. Governor Shaktikanta Das reduced the benchmark repurchase rate by 40 bps to 4%, the lowest since the measure was introduced in 2000, and pledged to take ‘whatever measures are necessary’ to support the economy.”

Europe Watch:

May 20 – Associated Press (Mike Corder): “Living up to their reputations for budgetary frugality — the Netherlands, Austria, Denmark and Sweden are working on a proposal for a European recovery fund that will have tough conditions attached for countries that seek financial help. And it could derail or water down a French-German plan presented Monday that was seen as a groundbreaking way to deal with the economic fallout of the coronavirus crisis. Dutch Prime Minister Mark Rutte… mentioned - but pointedly did not endorse - the French-German proposal for a 500 billion euros ($550bn) fund that would see countries borrow together and make outright grants to help countries through the recession.”

May 20 – Reuters (Thomas Seythal): “A Franco-German proposal for a half-trillion euro fund to support European Union countries worst hit by the coronavirus pandemic is not about joint borrowing or joint bonds, a German government spokesman said… The bloc’s budget rules would still apply, Chancellor Angela Merkel’s spokesman Steffen Seibert said... ‘There is also a binding repayment plan… It is distinctly different from joint borrowing,’ Seibert said, adding the proposal does not mean there would be joint bonds in disguise.”

May 18 – Wall Street Journal (Anna Hirtenstein): “Investors are lapping up a record amount of Southern European sovereign debt in a hunt for yield, while counting on the region’s central bank to backstop the riskiest bonds. Italy raised €16 billion ($17.3bn) in late April in its largest-ever syndicated deal… A day later, Spain set a record selling €15 billion of 10-year debt. That might be just the start. The coronavirus pandemic has dealt a hard blow to countries already wrestling with high debt loads and faltering economic growth… That is forcing governments to raise funds to revive their economies as the eurozone heads into its worst-ever recession. Italy and France might raise more debt in 2020 than they have in any of the last 30 years, according to forecasts from UniCredit SpA. Spain is expected to issue its most since the 2008 financial crisis.”

Brazil Watch:

May 21 – Reuters (Pedro Fonseca): “Brazil registered a record of 1,188 daily coronavirus deaths on Thursday, with more than 20,000 total fatalities from the coronavirus outbreak… Brazil now has 310,087 confirmed cases, the ministry said, just a few thousand fewer than world No. 2 hot spot Russia, which trails the United States.”

May 19 – Reuters (Marcela Ayres): “Brazil will finance emergency crisis-fighting spending by selling debt of up to three years maturity, beyond which borrowing costs start to get very high, Treasury Secretary Mansueto Almeida said… Almeida said the economy could shrink this year by more than 5%, and that the budget deficit could exceed 9% of gross domestic product.”

May 18 – Reuters (Jamie McGeever): “Credit rating agency Moody’s… warned of the growing risks to its ‘stable’ outlook on Brazil’s sovereign debt rating, noting that an even deeper recession than currently forecast could require prolonged fiscal support from the government. Moody’s expects Latin America’s largest economy to shrink by 5.2% this year due to the coronavirus-fueled crisis, a forecast broadly in line with the market consensus and which would mark the biggest annual downturn since records began in 1900.”

EM Watch:

May 22 – Bloomberg (Patrick Gillespie and Jorgelina do Rosario): “Argentina’s leader Alberto Fernandez faces a defining moment in his presidency Friday as the nation braces for its ninth sovereign debt default. After five months in office grappling with recession, 50% inflation and a crash in the unofficial peso rate, Fernandez is trying to strike a deal with bondholders over the coming weeks to prevent even worse chaos. If he succeeds, there may be light at the end of the tunnel for an economy that was in deep trouble even before the coronavirus pandemic… If he fails, and there’s a disorderly default on $65 billion of overseas debt, it’ll be another major blow to the rapidly shrinking economy. ‘A hard default would mean Argentina loses its chance at an orderly economic recovery,’ said Alejandro Catterberg, director of Argentine consulting firm Poliarquia.”

May 20 – Wall Street Journal (Caitlin Ostroff and Avantika Chilkoti): “Turkey’s economy… has a major vulnerability: its local banks’ foreign debt. Investors are worried Turkish banks won’t have enough euros and dollars to hand and will struggle to raise funds overseas as a wall of debt comes due over the next year. Turkish banks’ funding vulnerability has been highlighted in recent weeks as the central bank borrowed dollars and euros from local lenders. The central bank sold the foreign exchange to stem a sharp decline in the lira against the dollar… The sector is arguably in a worse position than it was during Turkey’s 2018 currency crisis. While external debt has edged lower in recent years, the banks still have nearly $81 billion in foreign currency debt coming due in the next year, equivalent to more than 10% of the nation’s total economic output. That compares with an estimated $30 billion that the banks have in reserves at Turkey’s central bank, having drawn down on those in recent years to repay debts.”

May 20 – Bloomberg (Cagan Koc): “Turkey secured a fresh source of foreign exchange from Qatar, leaning again on the gas-rich Gulf nation that’s consistently come to the rescue as part of an alliance born after a coup attempt against President Recep Tayyip Erdogan. Turkish and Qatari central banks are tripling the limit of their existing swap deal to $15 billion… The deal highlights the strength of an alliance that began to deepen after the failed 2016 coup, when Erdogan received backing from Qatar’s rulers. Turkey returned the favor a year later by siding with Qatar after it came under an economic boycott from a group of countries led by Saudi Arabia.”

May 20 – Bloomberg (Kerim Karakaya, Cagan Koc and Asli Kandemir): “Turkey’s push for faster credit growth is inadvertently eroding returns on lira savings, a consequence of pro-growth policies that officials fear might fuel demand for dollars. The government last month set ambitious targets for banks to boost lending and mitigate the economic fallout from the coronavirus pandemic. But instead of rolling out new loans, some private lenders began aggressive cuts to interest rates on deposits after the banking regulator said they must raise a newly defined asset ratio to above 100%. Policy makers are now concerned lower rates might result in a rush for more dollars and create another source of imbalance as they try to stimulate the $750 billion economy…”

May 19 – Bloomberg (Anirban Nag and Vrishti Beniwal): “On the night of May 12, India’s Prime Minister Narendra Modi set the nation of 1.3 billion people abuzz with promises of unleashing a massive stimulus to shore up an economy facing its deepest recession in decades. A week later and after five drawn-out press conferences by his Finance Minister Nirmala Sitharaman, the entire package of about 21 trillion rupees ($277 billion), or 10% of India gross domestic product, underwhelmed economists and investors alike… The looming threat of a credit rating downgrade to junk may have held officials back from delivering a more immediate boost to the economy…”

May 20 – Bloomberg (Subhadip Sircar and Divya Patil): “Borrowings by India’s federal government, provinces, and state-run firms are set to cross 13% of the nation’s gross domestic product, threatening to crowd out the private sector from the debt market, according to an HSBC Holdings Plc. note.”

May 20 – Bloomberg (Divya Patil): “India’s central bank will break with tradition and purchase debt sold by shadow lenders, to stave off defaults as record repayments come due next month. Under the fine print of a rescue plan unveiled Wednesday, the Reserve Bank of India will pour as much as 300 billion rupees ($4bn) into a stressed asset fund, which will then buy debt of shadow lenders… The move follows a lukewarm response to previous attempts to steady these lenders, which have been reeling under a cash crunch for almost two years.”

May 19 – Bloomberg (Anna Andrianova): “Russia’s overall output shrunk by a quarter last month as the pandemic lockdown limited economic activity and slashed incomes, according to Bloomberg Economics… ‘With lockdown effects lingering through May, the decline in GDP in the second quarter is likely to be deeper than during the global financial crisis,’ said Scott Johnson, an analyst at Bloomberg Economics.”

May 21 – Bloomberg (Fiona MacDonald): “Crisis economics gets complicated when the budget deficit could be equivalent to two-fifths of a nation’s entire output. It’s the case in Kuwait, among the world’s richest nations… A government announcement this week that could result in added assistance for Kuwaitis in the private sector might stretch the budget deficit further. National Bank of Kuwait SAK, the country’s biggest lender, already predicts the shortfall will reach 40% of gross domestic product in the fiscal year that started April 1, or double what Fitch Ratings forecast a month ago.”

Japan Watch:

May 20 – Reuters (Tetsushi Kajimoto): “Japan’s exports fell the most since the 2009 global financial crisis in April as the coronavirus pandemic slammed world demand for cars, industrial materials and other goods, likely pushing the world’s third-largest economy deeper into recession. …Japan’s exports fell 21.9% in April year-on-year as U.S.-bound shipments slumped 37.8%, the fastest decline since 2009, with car exports there plunging 65.8%.”

Leveraged Speculation Watch:

May 21 – Bloomberg (Justina Lee): “Hedge fund exposure to stocks is at the highest in at least a decade, powered by bets that safer companies will keep winning in this historic market turnaround. As the S&P 500 enjoys a 32% jump in the midst of the economic downturn, long-short managers are lavishing cash on steady equities while wagering against volatile counterparts, according… Credit Suisse Group AG’s prime brokerage.”

May 15 – Wall Street Journal (Paul J. Davies and Noemie Bisserbe): “France’s biggest banks reported substantial trading losses in recent weeks, highlighting the risks they have accumulated selling complex investment products promising high returns when markets are calm. Société Générale and BNP Paribas both reported roughly €200 million ($216 million) hits to their revenue related to ‘structured products’ the banks cook up for yield-starved clients. During good times, these products can generate substantial fee income for the banks. But the nature of the coronavirus selloff caught the banks off guard.”

May 18 – Bloomberg (Claire Ballentine): “JPMorgan Chase & Co. is planning to close a handful of ETFs that echo strategies used by hedge funds. The $22.6 million JPMorgan Long/Short ETF (JPLS), the $53.9 million JPMorgan Managed Futures Strategy ETF (JPMF), the $53.8 million JPMorgan Diversified Alternatives ETF (JPHF) and the $25.1 million JPMorgan Event Driven ETF (JPED) will be liquidated in June…”

Geopolitical Watch:

May 22 – Bloomberg: “On the first day of China’s biggest political event of the year, Xi Jinping sent a clear message to Donald Trump: We’re going to do what we want in Hong Kong, and we’re not scared of the consequences. China confirmed… that it would effectively bypass the city’s legislature to implement national security laws, which have long been resisted by residents who fear they will erode freedoms of speech, assembly and the press. The announcement… triggered immediate calls for fresh protests and sent the MSCI Hong Kong index to its worst loss since 2008. For Xi, the move allows Beijing to reassert dominance over a piece of Chinese territory where his government was rendered impotent during sometimes-violent protests last year.”

May 20 – Bloomberg: “China denounced a rare message from Secretary of State Michael Pompeo to Taiwan’s president as ‘wrong and very dangerous,’ as tensions between the two sides flared anew over U.S. overtures toward the democratically ruled island. The Ministry of National Defense said… the military would ‘take all necessary measures to firmly safeguard’ China’s sovereignty, while the country’s foreign ministry separately threatened retaliation. The warnings came after Pompeo broke with past U.S. practice Tuesday and issued a statement congratulating Tsai Ing-wen ahead of her inauguration to a second term as Taiwan’s president.”

May 19 – Wall Street Journal (Chun Han Wong and Chao Deng): “Beijing’s envoy in Paris promised a fight with France should China’s interests be threatened, then engaged in a public spat with his host country over the coronavirus pandemic. The Chinese embassy in Sri Lanka boasted of China’s handling of the pandemic to an activist on Twitter who had fewer than 30 followers. Beijing canceled a nationwide tour by the Prague Philharmonic Orchestra after a tussle with the city’s mayor over Taiwan. As China asserts itself globally, its diplomats around the world are taking on foes big and small. The brash new attitude… marks a turn for China’s once low-key diplomats. It’s part of a deliberate shift within the Foreign Ministry, spurred on by Chinese leaders seeking to claim what they see as their nation’s rightful place in the world, in the face of an increasingly inward-looking U.S. China’s state media describe it as a ‘Wolf Warrior’ ethos—named for a nationalistic Chinese film franchise about a Rambo-like soldier-turned-security contractor who battles American-led mercenary groups.”

May 21 – Reuters (Yew Lun Tian and Yimou Lee): “Chinese Premier Li Keqiang left out the word ‘peaceful’ on Friday in referring to Beijing’s desire to ‘reunify’ with Chinese-claimed Taiwan, an apparent policy shift that comes as ties with Taipei continue on a downward spiral. Taiwan has complained of increased Chinese military harassment since the coronavirus pandemic began, with fighter jets and naval vessels regularly approaching the island on drills China has described as routine. China says Taiwan is its most sensitive and important territorial issue, and has never renounced the use of force to bring what it views as a Chinese province under its control, making the Taiwan Strait a potential military flashpoint.”

May 19 – Reuters (Huizhong Wu): “China said the United States was trying to shift the blame for Washington’s own mishandling of the COVID-19 crisis, responding to President Donald Trump’s letter threatening to halt funding to the World Health Organization… Chinese Foreign ministry spokesman Zhao Lijian told reporters… that the United States was trying to smear China and had miscalculated by trying to use China to avoid its own responsibility.”

May 22 – Reuters (Lisa Lambert, Susan Heavey, Matt Spetalnick and David Brunnstrom): “U.S. Secretary of State Mike Pompeo… called China’s proposed national security legislation on Hong Kong disastrous and said it could have an impact on the favorable economic treatment the territory receives from the United States. ‘The United States condemns the ... proposal to unilaterally and arbitrarily impose national security legislation on Hong Kong,’ Pompeo said. ‘The United States strongly urges Beijing to reconsider its disastrous proposal, abide by its international obligations, and respect Hong Kong’s high degree of autonomy, democratic institutions, and civil liberties, which are key to preserving its special status under U.S. law.’”

May 17 – Bloomberg (DebWu and Ian King): “Since its founding more than three decades ago, Taiwan Semiconductor Manufacturing Co. has built its business by working behind the scenes to make customers like Apple Inc. and Qualcomm Inc. shine. Now the low-profile chipmaker has landed squarely in the middle of the U.S.-China trade war, an incalculably valuable asset that both sides are vying to control. The Trump administration opened up a new front in the conflict on Friday by barring any chipmaker using American equipment from supplying China’s Huawei Technologies Co. without U.S. government approval. That means TSMC and rivals will have to cut off Huawei unless they get waivers from the U.S. Commerce Dept. TSMC has already stopped accepting new orders from Huawei… The move threatens to wreak havoc throughout the complex ecosystem that produces technology for consumers and companies around the world. An attack on Huawei threatens not just its workers and its standing as a world leader in making smartphones and telecom equipment, but also hundreds of suppliers.”

May 21 – CNN (Ryan Browne): “The Trump administration announced… it had approved a potential $180 million arms sale to Taiwan, a move that is bound to anger Beijing amid increasing tensions. The State Department authorized a possible sale of eighteen MK-48 Mod6 Advanced Technology Heavy Weight Torpedoes and related equipment for an estimated cost of $180 million… ‘The proposed sale will improve the recipient’s capability in current and future defensive efforts. The recipient will use the enhanced capability as a deterrent to regional threats and to strengthen homeland defense,’ the announcement said.”

May 20 – Financial Times (Aime Williams): “The US Senate passed a bill… that could force some Chinese companies to de-list from US exchanges if they do not comply with American accounting regulations. The legislation, which needs also to be passed by the House of Representatives, calls for a company to be barred from listing securities on US exchanges if it has not complied with the US accounting board’s audits for three consecutive years. It would also require listed companies to disclose whether they are owned or controlled by a foreign government. The Public Company Accounting Oversight Board, which audits the accounts of public companies, is prohibited from inspecting the accounts of companies registered in China or Hong Kong, according to one of the bill’s sponsors, John Kennedy, a Republican senator from Louisiana.”

May 20 – Reuters (David Brunnstrom and Humeyra Pamuk): “U.S. Secretary of State Mike Pompeo took fresh aim at China over the coronavirus…, calling the $2 billion Beijing has pledged to fight the pandemic ‘paltry’ compared to the hundreds of thousands of lives lost and trillions of dollars of damage… ‘President Xi claimed this week that China is acting with openness, transparency responsibility. I wish it were so,’ Pompeo told a… news conference, charging that Beijing continued to withhold virus samples and access to facilities, to censor discussion, ‘and much, much more.’”

May 19 – Reuters (Phil Stewart and Idrees Ali): “In an alert that appeared aimed squarely at Iran, the U.S. Navy issued a warning… to mariners in the Gulf to stay 100 meters (yards) away from U.S. warships or risk being ‘interpreted as a threat and subject to lawful defensive measures.’”

Friday Afternoon Links

[Reuters] Wall Street flat amid Sino-U.S. tensions, economic uncertainty

[CNBC] Trump administration warms up to sending out more coronavirus relief money

[Reuters] China's planned security agencies for Hong Kong a 'death knell' for autonomy: Pompeo

[Reuters] Explainer: How ending Hong Kong's 'special status' could affect U.S. companies

[Yahoo/Bloomberg] Argentina’s Stumble to Default Caps Brutal Four-Year Decline

[Yahoo/Bloomberg] Brazil Markets Are a Mess and Just a Few See a Respite Soon

[MarketWatch] Investors keep eye on Brazil’s economy minister as coronavirus outbreak worsens

[MarketWatch] An emerging market debt crisis could be the next front in U.S.-China conflict

[CNBC] South America is a ‘new epicenter’ of the coronavirus pandemic, WHO says

[Reuters] Disruption to global immunization system could delay COVID-19 vaccinations

[Reuters] Brazil govt revises 2020 primary budget deficit forecast to $97 bln

[Bloomberg] Muni Bonds Set for Best Month Since 2009, Shaking Off Fiscal Hit

[Bloomberg] El-Erian: China Tests Global Diplomacy and Economy

[FT] Scientists vs politicians: the reality check for ‘warp speed’ vaccine research

[FT] US oil production is falling much more quickly than thought

[FT] Beijing has thrown down the gauntlet to Hong Kong