Friday, June 19, 2020

Weekly Commentary: Update COVID-19

Can we even attempt a reasonable discussion? Someone’s got this wrong.

June 12 – Reuters (Judy Hua, Cate Cadell, Winni Zhou and Andrew Galbraith): “A Beijing district put itself on a ‘wartime’ footing and the capital banned tourism and sports events on Saturday after a cluster of novel coronavirus infections centred around a major wholesale market sparked fears of a new wave of COVID-19… ‘In accordance with the principle of putting the safety of the masses and health first, we have adopted lockdown measures for the Xinfadi market and surrounding neighbourhoods,’ Chu said.”

June 14 – Financial Times (Don Weinland): “Over the weekend, authorities closed the Xinfadi market, a sprawling complex that provides most of Beijing’s fresh seafood, fruits and vegetables. Several residential compounds on the west side of the city have been locked down and more than 100 people have been put in quarantine… China has adopted a ‘zero tolerance’ stance toward new cases. Areas that present any new cases have been quickly locked down, often trapping millions of people.”

June 19 – CNN (Nectar Gan): “Within a matter of days, the metropolis of more than 20 million people was placed under a partial lockdown. Authorities reintroduced restrictive measures used earlier to fight the initial wave of infections, sealing off residential neighborhoods, closing schools and barring hundreds of thousands of people deemed at risk of contracting the virus from leaving the city.”

China is said to have mobilized its 100,000-strong infection tracing force. More than 1.1 million tests were administered in Beijing over the past week. From the UK Guardian (Lily Kuo): “Officials have ordered all residents to avoid non-essential travel outside of the capital, and suspended hundreds of flights and all long-distance buses. Other cities and provinces have begun to impose quarantine measures on travellers from Beijing… ‘Everyone is scared. No one wanted this to happen,’ says Zhang, waiting in the queue near Chaoyang park.”

June 19 – CNBC (Berkeley Lovelace Jr.): “White House health advisor Dr. Anthony Fauci said Friday that he is frustrated Americans aren’t following recommended health guidelines to prevent the spread of the coronavirus. ‘Clearly, we have not succeeded in getting the public as a whole uniformly to respond in a way that is a sound scientific, public health and medical situation,’ Fauci, director of the National Institute of Allergy and Infectious Diseases, told CBS News… ‘And it’s unfortunate. And it’s frustrating.’”

Florida's new positive COVID cases surged to 3,822 Friday – almost 20% ahead of the previous day’s record infections (3,207). From CNBC: “Earlier this week, Republican Gov. Ron DeSantis said the state would not reimplement more restrictions or delay its reopening progress. ‘We’re not shutting down. We’re going to go forward. ... We’re not rolling back,’ the governor said at a news briefing Tuesday. ‘You have to have society function.’” This week marked a notable jump in the percentage of positive test results, with between 10 and 12% returning positive Tuesday, Wednesday and Thursday (versus less than 5% early in the month).

New cases in California jumped three straight days to Friday’s 4,317 – the single-largest increase yet – surpassing 4,000 for the first time (some delayed results were reported Friday). Hospitalizations also rose to a new high. From Politico: “California Gov. Gavin Newsom announced Thursday he will require masks in most public settings statewide in an effort to slow the spread of Covid-19 as the state is still setting daily records for new infections.”

Arizona announced 3,246 new cases Friday – about 30% above Thursday’s previous record (2,519). Prior to June, Arizona only reported two days with new infections above 500. Early this month is had its first 1,000 infection day. From KVOA: “Since June 2, the percentage [of positive results] has spiked back up from 5.7% to 7.8%.” And from Harvard epidemiologist Feigl-Ding (reported by Fox10): “Arizona is currently the worst off. In terms of a per capita basis, on a 7-day average, Arizona has 212 cases per million population and Arizona ranks number one.” Apparently, 20% of Arizona COVID tests came back positive Thursday.

Texas reported 3,516 new infections Thursday, 12% above the previous high on Wednesday (3,129). Total infections surpassed 100,000, as hospitalizations rose for eight straight days. From Community Impact: “In the last two weeks, Texas Medical Center-affiliated hospitals have seen its COVID-19 patient numbers increase to 883 as of June 18, a 41% increase in two weeks… The jump in hospitalizations at the medical center comes as the Greater Houston area has experienced an influx of new COVID cases…” Covid hospitalizations in Dallas County were also up 40% in two weeks.

From the Brownsville Herald: “In Austin and Travis County, health authorities said earlier this week that community transmission is now widespread in the area. The challenge is that many people who have tested positive have visited many different locations, which makes the exact infection site ‘difficult to pin down to one particular location’ where the virus is being spread, said Mark Escott, Austin Public Health’s interim medical director and health authority.”

Friday saw South Carolina new cases surpass Thursday’s record by 5% to 1,018. Total cases reached 22,608. Oklahoma on Thursday reported a record 450 new positive infections.

June 19 – New York Times: “The World Health Organization issued a dire warning on Friday that the coronavirus pandemic is accelerating, and noted that Thursday was a record day for new cases — more than 150,000 globally. ‘The world is in a new and dangerous phase,’ said Dr. Tedros Adhanom Ghebreyesus, the director general of the W.H.O. ‘Many people are understandably fed up with being at home. Countries are understandably eager to open up their societies and their economies. But the virus is still spreading fast. It is still deadly, and most people are still susceptible.’ If the outbreak was defined early on by a series of shifting epicenters — including Wuhan, China; Iran; northern Italy; Spain; and New York — it is now defined by its wide and expanding scope. According to a Times database, 81 nations have seen a growth in new cases over the past two weeks, while only 36 have seen declines. Dr. Tedros said that almost half of the new cases reported on Thursday came from the Americas. Large numbers are also being reported from Africa, South Asia and the Middle East.”

June 19 – Bloomberg: “Brazil exceeded 1 million coronavirus infections, the second nation to reach the mark, as the disease shows no sign of slowing in Latin America’s largest nation months after the first cases were recorded. The country registered a record 54,771 cases on Friday, bringing the total to 1,032,913. The data compiled by Brazilian states also showed 1,206 fatalities, raising the toll to 48,954. In both counts, Brazil trails only the U.S., which had 2,206,333 on Friday… Brazil’s response, plagued by political infighting and mismatched quarantine orders, has made it harder for experts to pinpoint when the disease will peak in the nation of 210 million.”

India reported a record 14,574 new cases Friday.

Beijing goes to “wartime” footing with a 100-case outbreak. The U.S. on Friday reported 33,000 new infections, the largest increase in weeks. Expectations that our outbreak would follow the path of Italy, Spain, Germany and others were much too optimistic. The U.S. “curve” not only hasn’t declined as expected, it is turning higher. But there will be no U.S. mobilization. Former FDA Commissioner Dr. Scott Gottlieb asked the pertinent question Thursday on CNBC: “Can we keep this from getting out of control. This is a virus that wants to infect a very large portion of the population.”

The U.S. is more deeply divided today than it has been in decades. Divisions fall along political, racial, economic and generational lines. These lines seem to harden by the week. Part of the country will look to Tulsa this weekend with pride and enthusiasm. A segment of society will see the President’s rally as a repulsive display of ignorance and recklessness. Only in this extraordinary environment could masks become a political statement.

The pandemic is worsening – at home and abroad. Here in the U.S., states will be hesitant to reimpose lockdowns. Yet it’s difficult for me to see how deteriorating conditions in many states – including large ones – don’t come with serious economic ramifications. A return to normalcy will be postponed. Consumers will remain hesitant to venture far from home. Recovery for scores of businesses will be further delayed. Lockdown or otherwise, a virus resurgence would equate to more business failures, permanent job losses and Credit problems.

Brazil has a population of 210 million. India is approaching 1.4 billion. Both nations are staring at potential health and economic catastrophes. With a record 180,000 new global infections reported Friday, scores of countries are at risk of the pandemic spiraling out of control. When it comes to global recovery prospects, markets are much too complacent.

June 18 – Bloomberg: “China’s central bank wants the total flow of credit to rise by almost a fifth this year, as part of efforts to push the economy out of the coronavirus-induced slump. That’s to be achieved through record special-purpose bond issuance as well as a 19% increase in bank loans, according to People’s Bank of China Governor Yi Gang. In all, total social financing flow should rise to at least 30 trillion yuan ($4.2 trillion) this year, Yi said… That would represent a 17% expansion from 2019’s 25.6 trillion yuan in new credit including government bond issuance… Even so, the depth of China’s first-quarter contraction and the chance that the virus shutdowns will return in earnest imply that the increase may not be enough.”

Beijing is coming to grips with the reality of deteriorating economic recovery prospects. China’s Bubble is faltering. Inflated consumer confidence has fallen back to earth, portending an extended period of weak domestic demand. Meanwhile, China’s manufacturers remain highly exposed to ongoing weak global demand.

I’m tempted to label markets as “crazy” for downplaying pandemic and myriad risks. But markets are just playing a different game. In the U.S., a resurgent COVID ensures an extended period of massive fiscal and monetary stimulus. A weak China guarantees Beijing slams the Credit accelerator. Global weakness ensures the BOJ, ECB and others continue to flood global markets with liquidity. It’s a replay of earlier in the year when manic markets disregarded pandemic risks. And expect a replay of March dynamics when the latest speculative Bubble iteration ruptures. How will central banks react – after already flooding the world with Trillions of liquidity?

I wanted to circle back to document the final question and reply from Chairman Powell’s June 10th post-FOMC meeting press conference:

Bloomberg’s Michael McKee: “I came across a statistic the other day that amazed me. Since your March 23rd emergency announcement, every single stock in the S&P 500 has delivered positive returns. I’m wondering, given the levels of the market right now, whether you or your colleagues feel there is a possible bubble blowing that could pop and setback the recovery significantly, or that we might see capital misallocation that will leave us worse off when this is over? Second, inequality is not just about wages, it’s also about wealth, and a number of studies have suggested that by keeping rates low for so long and targeting the markets after the great financial crisis, that the Fed did contribute to wealth inequality in this country. And I’m wondering if you think there is some tweak or some message you could give that would affect that?”

Powell: “What we’ve targeted is broader financial conditions. If you go back to the end of February and early March, you had basically the world markets realized at just about the same time… that there was going to be a global pandemic and that this possibility that it would be contained in one province in China, for all practical purposes, was not going to happen. It was… Iran, Italy, Korea, and then it became clear in markets. From that point forward, investors everywhere in the world for a period of weeks wanted to sell everything that wasn't cash or a short-term Treasury instrument. They didn’t want to have any risk at all. And so, what happened is markets stopped working. They stopped working and companies couldn’t borrow; they couldn’t roll over their debt. People couldn’t borrow. So, that’s the kind of situation that can be -- financial turbulence and malfunction. A financial system that’s not working can greatly amplify the negative effects of what was clearly going to be a major economic shock.

So, what our tools were put to work to do was to restore the markets to function. And I think, some of that has really happened… and that’s a good thing. So, we’re not looking to achieve a particular level of any asset price. What we want is investors to be pricing in risk, like markets are supposed to do. Borrowers are borrowing, lenders are lending. We want the markets to be working. And again, we’re not looking to a particular level. I think our principal focus, though, is on the state of the economy and on the labor market and on inflation. Now inflation, of course, is low, and we think it’s very likely to remain low for some time below our target. So, really, it’s about getting the labor market back and getting it in shape. That’s been our major focus. And I would say, if we were to hold back because - we would never do this - but just the concept that we would hold back because we think asset prices are too high, others may not think so, but we just decided that that’s the case, what would happen to those people?

What would happen to the people that we’re actually, legally supposed to be serving? We’re supposed to be pursuing maximum employment and stable prices, and that’s what we’re pursuing. We’re also pursuing financial stability, but there you have a banking system that is so much better capitalized, so much stronger, better aware of its risks, better at managing its risks, more highly liquid. You have all of those things and they’ve been lending, they’ve been taking in deposits, they’ve been a source of strength in this situation. So, I would say that we’re tightly focused on our real economy goals. And again, we’re not focused on moving asset prices in a particular direction at all. It’s just, we want markets to be working. And I think partly as a result of what we’ve done, they are working and we hope that continues.”

The Chairman’s rambling (non-answer) reply could be summarized in four words: “The Fed is trapped.” It’s trapped by Bubble Dynamics – a historic Bubble that either inflates or collapses. What the Fed labels as “markets functioning” is at this point a “functioning” speculative Bubble. And feeding this dynamic exacerbates inequality, social instability and financial and economic fragility.

The Fed “pursuing financial stability”? It’s difficult to imagine a backdrop with greater instability. At this faltering Bubble phase, throwing Trillions at efforts to aggressively pursue employment and inflation mandates essentially destroys the prospect for any semblance of financial stability.

For the Week:

The S&P500 gained 1.9% (down 4.1% y-t-d), and the Dow rose 1.0% (down 9.3%). The Utilities dropped 2.4% (down 10.9%). The Banks increased 0.8% (down 30.7%), and the Broker/Dealers gained 0.7% (down 6.0%). The Transports were unchanged (down 16.7%). The S&P 400 Midcaps rose 1.4% (down 13.5%), and the small cap Russell 2000 gained 2.2% (down 15.0%). The Nasdaq100 advanced 3.6% (up 14.6%). The Semiconductors jumped 3.3% (up 6.3%). The Biotechs surged 7.1% (up 15.0%). With bullion rising $13, the HUI gold index gained 1.8% (up 10.3%).

Three-month Treasury bill rates ended the week at 0.145%. Two-year government yields slipped a basis point to 0.19% (down 138bps y-t-d). Five-year T-note yields were unchanged at 0.33% (down 136bps). Ten-year Treasury yields declined a basis point to 0.70% (down 122bps). Long bond yields were unchanged at 1.46% (down 93bps). Benchmark Fannie Mae MBS yields jumped nine bps to 1.66% (down 105bps).

Greek 10-year yields added a basis point to 1.27% (down 16bps y-t-d). Ten-year Portuguese yields fell six bps to 0.51% (up 6bps). Italian 10-year yields dropped nine bps to 1.36% (down 5bps). Spain's 10-year yields fell ten bps to 0.49% (up 3bps). German bund yields increased two bps to negative 0.42% (down 23bps). French yields dropped five bps to negative 0.09% (down 21bps). The French to German 10-year bond spread narrowed seven to 33 bps. U.K. 10-year gilt yields gained three bps to 0.24% (down 58bps). U.K.'s FTSE equities index rallied 3.1% (down 16.6%).

Japan's Nikkei Equities Index gained 0.8% (down 5.0% y-t-d). Japanese 10-year "JGB" yields added a basis point to 0.02% (down 3bps y-t-d). France's CAC40 recovered 2.9% (down 16.7%). The German DAX equities index rallied 3.2% (down 6.9%). Spain's IBEX 35 equities index rose 1.7% (down 22.4%). Italy's FTSE MIB index jumped 3.9% (down 16.5%). EM equities mostly rallied. Brazil's Bovespa index surged 4.1% (down 16.5%), and Mexico's Bolsa gained 1.9% (down 11.8%). South Korea's Kospi index increased 0.4% (down 2.6%). India's Sensex equities index gained 2.8% (down 15.8%). China's Shanghai Exchange rose 1.6% (down 2.7%). Turkey's Borsa Istanbul National 100 index recovered 3.4% (down 0.7%). Russia's MICEX equities index increased 0.5% (down 9.4%).

Investment-grade bond funds saw inflows of $4.262 billion, and junk bond funds posted inflows of $1.239 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates dropped eight bps to 3.13% (down 71bps y-o-y). Fifteen-year rates fell four bps to 2.58% (down 67bps). Five-year hybrid ARM rates slipped a basis point to 3.09% (down 39bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up three bps to 3.49% (down 63bps).

Federal Reserve Credit last week declined $28.0bn to $7.085 TN, with a 41-week gain of $3.363 TN. Over the past year, Fed Credit expanded $3.276 TN, or 86%. Fed Credit inflated $4.279 Trillion, or 152%, over the past 397 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt gained $12.3 billion last week to $3.419 TN. "Custody holdings" were down $58.1bn, or 1.7%, y-o-y.

M2 (narrow) "money" supply surged $100.1bn last week to a record $18.252 TN, with an unprecedented 15-week gain of $2.745 TN. "Narrow money" surged $3.509 TN, or 23.8%, over the past year. For the week, Currency increased $9.4bn. Total Checkable Deposits surged $79.2bn, while Savings Deposits rose $23.7bn. Small Time Deposits fell $7.5bn. Retail Money Funds declined $4.7bn.

Total money market fund assets fell $33.2bn to $4.685 TN. Total money funds surged $1.500 TN y-o-y, or 47.1%.

Total Commercial Paper dropped $16.8bn to $1.011 TN. CP was down $101bn, or 9.1% year-over-year.

Currency Watch:

June 12 – Bloomberg (Tian Chen and George Lei): “Hong Kong’s de facto central bank intervened for the sixth straight day to defend the city’s currency peg to the greenback, the longest run of operations in five years. The Hong Kong Monetary Authority sold HK$1.434 billion ($185 million) worth of local dollars on Friday, taking the total since it began intervening in April to HK$49.45 billion.”

For the week, the U.S. dollar index increased 0.3% to 97.623 (up 1.2% y-t-d). For the week on the upside, the Japanese yen increased 0.5%. For the week on the downside, the Brazilian real declined 4.9%, the Mexican peso 1.6%, the British pound 1.5%, the Swedish krona 1.5%, the South African rand 1.5%, the euro 0.7%, the New Zealand dollar 0.6%, the South Korean won 0.5%, the Australian dollar 0.5%, the Singapore dollar 0.3%, and the Canadian dollar 0.1%. The Chinese renminbi increased 0.19% versus the dollar this week (down 1.52% y-t-d).

Commodities Watch:

June 18 – Reuters (Simon Jessop and Brenna Hughes Neghaiwi): “As stock markets roar back from the coronavirus-led rout, advisers to the world’s wealthy are urging them to hold more gold… Before the COVID-19 pandemic, most private banks recommended their clients hold none or just a tiny amount of gold. Now some are channelling up to 10% of their clients’ portfolios into the yellow metal as the massive central bank stimulus reduces bond yields - making non-yielding gold more attractive - and raises the risk of inflation that would devalue other assets and currencies.”

The Bloomberg Commodities Index recovered 1.4% (down 20.2% y-t-d). Spot Gold gained 0.8% to $1,744 (up 14.9%). Silver jumped 3.1% $18.022 (up 0.6%). WTI crude jumped $3.49 to $39.75 (down 35%). Gasoline surged 13.1% (down 24%), while Natural Gas fell 3.6% (down 24%). Copper increased 0.4% (down 6%). Wheat sank 4.4% (down 13%). Corn gained 0.8% (down 13%).

Coronavirus Watch:

June 18 – CNBC (William Feuer): “Arizona, Florida, California, South Carolina and Texas all reported record-high single-day increases in coronavirus cases on Thursday… Arizona health officials reported 2,519 confirmed cases on Thursday, surpassing the previous single-day high of 2,392 reported on Tuesday. Florida officials announced 3,207 new cases Thursday morning, shattering the state’s previous single-day high of 2,783 new cases also reported on Tuesday. California officials reported Thursday 4,084 new cases that were confirmed on Wednesday. South Carolina officials reported 987 new cases Thursday…”

June 18 – CNN (Madeline Holcombe and Ray Sanchez): “Ten states saw a record number of new Covid-19 cases this week, and one of them could be the next epicenter of the national health crisis. Florida reported 3,207 additional coronavirus cases on Thursday -- the largest single-day count in the state since the pandemic… Florida’s total reported cases climbed to nearly 86,000… The Sunshine State has ‘all the markings of the next large epicenter of coronavirus transmission,’ and risks being the ‘worst it has ever been,’ according to projections from a model by scientists at Children's Hospital of Philadelphia and the University of Pennsylvania. ‘That makes me very worried because, at the numbers they're now seeing, it's very easy to start doubling and lose control of the epidemic,’ Dr. David Rubin, director of PolicyLab at Children's Hospital of Philadelphia, told CNN…”

June 18 – Politico (Carla Marinucci and Victoria Colliver): “California Gov. Gavin Newsom announced Thursday he will require masks in most public settings statewide in an effort to slow the spread of Covid-19 as the state is still setting daily records for new infections.”

June 19 – CNBC: “In addition to disproportionately affecting people of color in the U.S., the coronavirus pandemic has also posed outsized challenges for Black-owned businesses. The number of Black business owners who were actively working fell 41% from February through April, compared with an overall drop of 22% in active business owners nationwide, CNBC’s Kate Rogers and Betsy Spring report…”

June 18 – Reuters (Roxanne Liu and Tony Munroe): “China has found the trading sections for meat and seafood in Beijing’s wholesale food market to be severely contaminated with the new coronavirus and suspects the area’s low temperature and high humidity may have been contributing factors, officials said… Their preliminary report comes as the country’s capital tackles a resurgence of COVID-19 cases over the past week linked to the massive Xinfadi food center, which houses warehouses and trading halls in an area the size of nearly 160 soccer pitches.”

June 14 – CNBC (Saheli Roy Choudhury): “India’s coronavirus cases have spiked in recent days, fueling concerns the situation could spiral out of control even as the country starts to reopen after weeks of stringent lockdown. India is the fourth worst-hit nation in the world, with cumulative infection numbers over 320,000 — behind only the United States, Brazil and Russia… Daily reported cases in South Asia’s most populous nation hovered near, and sometimes exceeded, 10,000 per day over the last several days.”

June 18 – CNBC (Berkeley Lovelace Jr.): “Coronavirus antibodies may last only two to three months after a person becomes infected with Covid-19, according to a new study published… in Nature Medicine. Researchers examined 37 asymptomatic people, those who never developed symptoms, in the Wanzhou District of China. They compared their antibody response to that of 37 people with symptoms. The researchers found people without symptoms had a weaker antibody response than those with symptoms. Within eight weeks, 81% of the asymptomatic people saw a reduction in neutralizing antibodies, compared with 62% of symptomatic patients. Additionally, antibodies fell to undetectable levels in 40% of asymptomatic people, compared with 12.9% of symptomatic people…”

Market Instability Watch:

June 17 – CNBC (Kate Rooney): “For a trading firm, there are few bigger blunders than clients being unable to move money when markets hit historic highs. Yet that’s exactly what happened at start-up brokerage firm Robinhood earlier this year. The aftermath? A surge in new users, record trading activity and a new round of venture capital funding. Despite its missteps, the company has quickly ushered in 10 million users, most of whom are millennials and new entrants to the stock market… ‘We’ve seen a major paradigm shift for broader financial services,’ Robinhood co-CEO Baiju Bhatt told CNBC… ‘People that previously didn’t feel like the markets were for them are for the first time feeling a sense of inclusivity.’”

June 17 – Bloomberg (David Welch): “Hertz Global Holdings Inc. suspended plans to raise cash by selling new shares that the bankrupt car renter described as potentially ‘worthless’ after its proposal failed to pass muster with U.S. regulators. The company halted sales while it deals with issues brought up by Securities and Exchange Commission officials… The stock, whose trading had been halted earlier in the day, rose 5 cents to $2 Wednesday, while its bonds tumbled.”

June 18 – Bloomberg (Anchalee Worrachate): “The U.S. dollar’s growing dominance in international finance means that American problems can quickly pose a threat to the entire world. That’s one takeaway from a report by a committee at the Bank for International Settlements, which noted that the greenback’s share as an international funding currency has grown to levels not seen since the early 2000s. Stresses in global funding markets earlier this year as the coronavirus began harming the U.S. economy highlight how easily a dollar-related shock can spread. ‘The widespread use of the U.S. dollar has benefited participants, but the resulting interconnectedness of the market can also create vulnerabilities,’ said the report… ‘The structural shifts have increased market complexity as well as the speed and scope of stress transmission throughout the global financial system.’”

June 16 – Bloomberg (Masaki Kondo, Chester Yung, and Kartik Goyal): “Carry trades are back in focus, thanks to the Federal Reserve’s pledge to keep interest rates near zero, and the Indonesian rupiah is emerging as the most attractive currency… Developing-nation carry trades have bounced back from their biggest-ever quarterly loss as optimism about the global economic recovery bolstered risk appetite.”

June 14 – Yahoo Finance (Ethan Wolff-Mann): “There’s been a surge of interest in stocks of companies in financial trouble, most notably Hertz, which filed for Chapter 11 bankruptcy and was dumped by activist investor Carl Icahn only to be picked up by many users on Robinhood and other stock-trading platforms. The interest in Hertz has been so hot that the company asked and was granted the right to sell $1 billion in new shares of stock that are essentially worthless. ‘What you're getting right now is this great disconnect between fundamentals and finance,’ said Mohamed El-Erian, chief economic adviser at Allianz… ‘Take Hertz. A company in a bankruptcy procedure that saw its share price go they're talking about issuing stocks, warning investors they may be worthless.’”

June 19 – Wall Street Journal (Anna Hirtenstein): “Irish glassmaker Ardagh Group was looking to raise $600 million from selling bonds last month. Instead, it got $1 billion. Two days later, it decided to tap the market for another $400 million. This time, it collected $715 million. Droves of foreign companies like Ardagh are raising U.S. dollars to capitalize on low borrowing costs and roaring investor demand for corporate debt. The sale of dollar bonds by overseas firms in April and May reached the highest level in seven years, according to Dealogic… This has created a frenzy of supply in the U.S. credit market. Companies have issued over $1 trillion of bonds in 2020, with March, April and May being the three busiest months ever for U.S. debt capital markets, according to Bank of America.”

Global Bubble Watch:

June 16 – CNBC (Silvia Amaro): “The global economy is on track for a more significant contraction than the International Monetary Fund estimated in April, the institution’s chief economist said… When European countries were in their first weeks of lockdown, the IMF said the global economy would suffer the worst financial crisis since the Great Depression of the 1930s. At the time, it forecast a contraction by 3% in 2020. Now, despite some economies beginning to reopen, the fund has warned that the decline could be even worse. ‘For the first time since the Great Depression, both advanced and emerging market economies will be in recession in 2020. The forthcoming June World Economic Outlook Update is likely to show negative growth rates even worse than previously estimated,’ Gita Gopinath, the IMF’s chief economist, said…”

June 14 – Financial Times (Robert Armstrong): “Unprecedented government interventions to offset the economic impact of Covid-19 have driven the level of global debt close to the peaks seen in the second world war, according to Goldman Sachs. Economists say this raises big questions about how the burden of servicing the debt mountain will be shared; how the related surge in bond issuance will affect markets; and what the long-term impact on growth will be. Some of those knock-on effects have already been seen. In April, credit rating agency Fitch docked Italy on concerns over the sustainability of its debts, tipped to rise this year to more than 150% of gross domestic product.”

June 19 – Financial Times (Joe Rennison): “Foreign investors have flocked back into US corporate bonds after a brief exodus, helping push the yield on higher-quality debt to a new record low. Purchases of US corporate debt by foreign investors almost doubled in April to $11.6bn… The figures mark a dramatic reversal of a retreat that totalled more than $20bn in February, when fears over the spread of coronavirus began to circulate through markets… That demand comes alongside unprecedented monetary easing efforts from the US Federal Reserve, helping push an index of investment-grade bond yields to a new all-time low of 2.23% on Thursday… Before the severity of the viral outbreak dawned on markets, the previous low had been 2.26% in February. Yields peaked at 4.7% in March.”

June 16 – Reuters (Anshuman Daga): “Business sentiment of Asian companies sank to an 11-year low in the second quarter, a Thomson Reuters/INSEAD survey found, with some two-thirds of the firms polled flagging a worsening COVID-19 pandemic as the biggest risk over the next six months.”

Trump Administration Watch:

June 17 – Reuters (Makini Brice and Eric Beech): “President Donald Trump said… the United States would not close businesses again as several states reported rising numbers of new coronavirus infections. ‘We won’t be closing the country again. We won’t have to do that,’ Trump said in an interview with Fox News Channel.”

June 15 – Reuters (Jeff Mason and David Shepardson): “The Trump administration is preparing an up to $1 trillion infrastructure package focused on transportation projects as part of its push to spur the world’s largest economy back to life, a source familiar with the situation said… The White House, which has made similar proposals in recent years, is aiming to unveil its latest effort in July…”

June 18 – Bloomberg (Josh Wingrove): “President Donald Trump said the U.S. could pursue a ‘complete decoupling from China’ in response to unspecified conditions, his most forceful statement yet on the souring ties with Beijing. In a tweet Thursday, Trump refuted comments a day earlier by U.S. Trade Representative Robert Lighthizer, who said a full decoupling of the world’s two biggest economies was not ‘a reasonable policy option.’”

June 18 – Reuters (Eric Beech, Andrea Shalal, David Brunnstrom and Arshad Mohammed): “President Donald Trump… renewed his threat to cut ties with China, a day after his top diplomats held talks with Beijing and his trade representative said he did not consider decoupling the U.S. and Chinese economies a viable option. The top U.S. diplomat for East Asia described U.S.-China relations as ‘tense’ after their first high-level face-to-face diplomatic talks in months, although he said Beijing did recommit to the first part of a trade deal reached this year and that coming weeks would show if there had been progress.”

Federal Reserve Watch:

June 17 – Financial Times (James Politi): “Jay Powell… has warned Congress against withdrawing fiscal support for the US economy, saying it could imperil recovery from the shock of the coronavirus crisis. ‘I would just note that there are something like 25m people who have been dislodged from their jobs either in full or in part due to the pandemic,’ Mr Powell told the House financial services committee… ‘It would be a concern if Congress were to pull back from the support that it’s providing too quickly.’ Mr Powell’s comments came after he told the US Senate… that ‘significant uncertainty’ remained around the shape and timing of rebound from the sudden recession afflicting the world’s largest economy.”

June 16 – Financial Times (Joe Rennison, Colby Smith and Eric Platt): “Jay Powell says the launch of the Federal Reserve’s corporate bond-buying programme shows it is serious on following through on promises made to financial markets, but the chairman of the US central bank swore it did not want to be an ‘elephant’ trampling signals from the $10tn market. The Fed kicked off a long-awaited programme to buy corporate bonds on Tuesday, more than two months after it was unveiled… ‘We feel we need to follow through and do what we said we’d do… I don’t see us as wanting to run through the bond market like an elephant or snuff out price signals.’”

June 15 – Reuters (Jonnelle Marte, Ann Saphir and Lindsay Dunsmuir): “The Federal Reserve on Monday launched its Main Street Lending Program, the most complex program undertaken yet by the U.S. central bank to help keep the backbone of the economy from buckling under the strains of the coronavirus pandemic. The program, targeted at companies that were in good shape before the pandemic but may now need financing to retain workers and fund operations, will offer up to $600 billion in loans through participating financial institutions to U.S. businesses with up to 15,000 employees or with revenues up to $5 billion.”

June 16 – Bloomberg (Rich Miller): “Federal Reserve Chairman Jerome Powell played down the significance of the central bank’s decision to begin buying individual corporate bonds in the secondary market, one day after news of the move helped ignite a rally in bond and stock prices. Appearing before the Senate Banking Committee… Powell said it will not be boosting purchases through its Secondary Market Corporate Credit Facility -- an emergency lending program that, to date, has bought only exchange-traded funds. ‘We’re not actually increasing the dollar volume of things we’re buying,’ he said… ‘We’re just shifting away from ETFs to this other form of index.’ …The Fed said it will follow a diversified market index of U.S. corporate bonds created expressly for the facility in deciding which individual issues to purchase.”

June 16 – Bloomberg (Molly Smith): “The Federal Reserve revitalized a credit rally that had appeared to be on shaky footing, encouraging a new slate of risky borrowers to tap the market. Energy exploration and production company Comstock Resources Inc. is selling $500 million of CCC rated bonds to repay its revolver, while auto parts manufacturer Dana Inc. borrowed for similar reasons. A subsidiary of Navios Maritime Holdings Inc. is sounding out investors for a $500 million secured bond that may yield around 10%... And PG&E Corp. is wrapping up a nearly $9 billion bond sale to help fund its exit from bankruptcy. Risk appetite was buoyant after the Fed said yesterday it would start buying individual corporate bonds, removing a certification process that was considered a major hurdle in its ability to do so. That opens up the Fed to an estimated $1.7 trillion worth of eligible corporate debt, versus a $256 billion universe of exchange-traded funds that the central bank has only dabbled in so far…”

June 17 – Reuters (Lindsay Dunsmuir and Ann Saphir): “The U.S. economy is beginning to recover from the worst of the coronavirus crisis, but with some 25 million Americans displaced from work and the pandemic ongoing, it will need more help, Federal Reserve Chair Jerome Powell told lawmakers… ‘We at the Fed need to keep our foot on the gas until we are really sure we are through this, and that’s our intention, and I think you may find that there’s more for you to do as well,’ Powell said…”

June 17 – Reuters (Jonnelle Marte): “The U.S. economy could be slammed with a record decline in the second quarter and then face a long road to recovery, with the pace dependent largely on the success of efforts to limit the spread of the coronavirus, the president of the Cleveland Federal Reserve Bank, Loretta Mester, said… Private-sector forecasts call for the gross domestic product in the second quarter to decline by an annual rate of 25% to 40%, which would likely be a record decline, Mester said…”

June 16 – Reuters (Ann Saphir): “The U.S. Federal Reserve, which has cut interest rates to zero, is buying bonds to keep financial conditions easy and has opened up a raft of lending programs to backstop large parts of the economy, has plenty of capacity to do more, Dallas Federal Reserve Bank President Robert Kaplan said… ‘We have the ability to do additional asset purchases. We’ve got plenty of dry powder,’ Kaplan said…”

U.S. Bubble Watch:

June 18 – Associated Press (Christopher Rugaber): “Three months after the viral outbreak shut down businesses across the country, U.S. employers are still shedding jobs at a heavy rate, a trend that points to a slow and prolonged recovery from the recession. The number of laid-off workers seeking unemployment benefits barely fell last week to 1.5 million… That was down from a peak of nearly 7 million in March, and it marked an 11th straight weekly drop. But the number is still more than twice the record high that existed before the pandemic. And the total number of people receiving jobless aid remains a lofty 20.5 million.”

June 18 – Wall Street Journal (AnnaMaria Andriotis): “Americans have skipped payments on more than 100 million student loans, auto loans and other forms of debt since the coronavirus hit the U.S… The number of accounts that enrolled in deferment, forbearance or some other type of relief since March 1 and remain in such a state rose to 106 million at the end of May, triple the number at the end of April, according to… TransUnion. The largest increase occurred for student loans, with 79 million accounts in deferment or other relief status, up from 18 million a month earlier. Auto loans in some type of deferment doubled to 7.3 million accounts. Personal loans in deferment doubled to 1.3 million accounts. The surge in missed payments suggests that the flood of layoffs related to the coronavirus has left many Americans without the means to keep up with their debts.”

June 16 – Associated Press (Tamara Lush): “It’s been a rough year for the American psyche. Folks in the U.S. are more unhappy today than they’ve been in nearly 50 years. This bold — yet unsurprising — conclusion comes from the COVID Response Tracking Study, conducted by NORC at the University of Chicago. It finds that just 14% of American adults say they’re very happy, down from 31% who said the same in 2018. That year, 23% said they’d often or sometimes felt isolated in recent weeks. Now, 50% say that.”

June 18 – Wall Street Journal (Will Parker): “Rents in San Francisco, the most expensive apartment market in the U.S., are tumbling as the city’s vaunted tech sector sheds jobs and more tenants leave the city. The apartment vacancy rate in San Francisco rose to 6.2% in May… That’s up from 3.9% only three months ago, after stay-at-home orders went into effect and more people in the city decided not to renew their leases. San Francisco’s median rent in May for a one-bedroom apartment was also down 9.2% compared with a year ago at $3,360 a month, according to… Zumper.”

June 17 – Bloomberg (Oshrat Carmiel): “Turns out, New Yorkers want to see an apartment in person before spending millions on one. The state’s pandemic lockdown… brought purchase agreements in Manhattan and Brooklyn to a near standstill in May, according to… Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Contracts to buy Manhattan co-ops fell 80% from a year earlier, while condo deals plunged 83%. In Brooklyn, signed co-op agreements tumbled 76%. Condos there fared better, with a 44% decline.”

June 17 – CNBC (Diana Olick): “Buyers are rushing back into the housing market, enticed by record low mortgage rates and a pandemic-induced need to nest like never before. Mortgage applications to purchase a home rose 4% last week from the previous week and were a remarkable 21% higher than one year ago… That was the ninth consecutive week of gains and the highest volume in more than 11 years. ‘The housing market continues to experience the release of unrealized pent-up demand from earlier this spring, as well as a gradual improvement in consumer confidence,’ said MBA economist Joel Kan.”

June 16 – CNBC (Diana Olick): “A faster-than-expected turnaround in homebuyer demand, following a sharp drop-off at the start of the coronavirus pandemic, has the nation’s homebuilders bullish on their business again. Builder sentiment jumped a striking 21 points in June to 58, the largest monthly increase ever in the National Association of Home Builders/Wells Fargo Housing Market Index.”

June 17 – MarketWatch (Jeffry Bartash): “Construction of new houses rose 4.3% in May as a reopening U.S. economy and ultra-low mortgage rates drew more buyers and encouraged builders to start to speed up work. Housing starts climbed to an annual rate of 974,000 last month from a five-year low of 934,000 in April… It was the first increase since January. Economists polled by MarketWatch has forecast starts to rise to a 1.13 million rate.”

June 16 – Associated Press (Josh Boak and Anne D’Innocenzio): “American shoppers ramped up their spending on store purchases by a record 17.7% from April to May, delivering a dose of energy for retailers that have been reeling… Consumers’ retail purchases have retraced some of the record-setting month-to-month plunges of March (8.3%) and April (14.7%) as businesses have increasingly reopened. Still, the pandemic’s damage to retailers remains severe, with purchases still down 6.1% from a year ago.”

June 18 – New York Times (Mary Williams Walsh): “Already, companies large and small are succumbing to the effects of the coronavirus. They include household names like Hertz and J. Crew… And the wave of bankruptcies is going to get bigger. Edward I. Altman, the creator of the Z score, a widely used method of predicting business failures, estimated that this year will easily set a record for so-called mega bankruptcies… And he expects the number of merely large bankruptcies — at least $100 million — to challenge the record set the year after the 2008 economic crisis. Even a meaningful rebound in economic activity over the coming months won’t stop it, said Mr. Altman… ‘The really hurting companies are too far gone to be saved,’ he said.”

June 16 – Reuters (Pete Schroeder): “U.S. bank profits fell by 69.6% to $18.5 billion in the first quarter of 2020 from the year prior as banks felt the economic impact of the novel coronavirus pandemic… The Federal Deposit Insurance Corporation reported that ‘deteriorating economic activity’ caused lenders to write off delinquent debt and set aside billions of dollars to guard against future losses. Over half of all banks reported a profit decline, and 7.3% of lenders were unprofitable.”

June 16 – Financial Times (Billy Nauman and Colby Smith): “Bond investors are keeping a keen eye on widening public pension deficits in the US, where the coronavirus pandemic has piled pressure on states and cities already struggling to stay afloat. New Jersey, which has one of the biggest gaps between its pension assets and what it is projected to pay retirees, at $62bn, announced in May that it would defer a $950m top-up payment by one month as it tries to fill a hole in its budget opened up by Covid-19. Meanwhile, Illinois is in danger of falling further behind on efforts to close its own $140bn pension funding deficit, according to… Fitch. The state was the first to tap into a special Federal Reserve facility designed to alleviate effects of the economic shutdown.”

June 18 – CNBC (Diana Olick): “If millennials once piled into the cities, fueling downtown renewal and growth, apparently they are now piling out. The stay-at-home orders brought on by coronavirus have more potential homebuyers looking for properties in the suburbs. Millennials are now the largest cohort of buyers. As the real estate market began to recover in May, home searches in suburban zip codes jumped 13%, according to… That doubled the pace of growth in urban areas.”

June 15 – Wall Street Journal (Christopher M. Matthews and Andrew Scurria): “Banks are slashing credit lines to shale drillers, as an oil-price crash and wells that have failed to produce as much as predicted force a painful reassessment of companies’ assets. The cuts vary from company to company, but Moody’s… and JP Morgan… forecast a total reduction of as much as 30% to the asset-backed loans… At current prices, that will be enough to tip some weaker players into bankruptcy as capital for the beleaguered industry dries up, say bankers, lawyers and energy executives. ‘It’s an unavoidable reckoning,’ said Todd Dittmann, head of energy at alternative investment manager Angelo Gordon & Co… ‘A decade of bubbling public and private debt and equity capital delayed this day, but no more.’”

Fixed-Income Bubble Watch:

June 18 – Bloomberg (Chikako Mogi): “The world champions of negative-rate investing are piling into long-term dollar swaps, an indication they see nothing to tempt them in the Japanese market for a very long time. Yen-dollar basis for 30-year contracts plunged to its most negative this year in late May, and has stayed near those levels even after the Federal Reserve flooded markets with liquidity. That’s indicative of how Japanese investors are paying a higher premium to swap their currency for dollars for the long-term… ‘The presence of the Japanese as the main carry trade driver seems to be growing as they must turn to overseas investments,’ said Eiichiro Miura, general manager of the fixed-income department at Nissay Asset Management Corp.”

June 17 – Wall Street Journal (Cezary Podkul and Paul J. Davies): “Insurance companies helped fuel the boom in a corner of the debt market that sliced and diced risky corporate loans. Those bets are now starting to hurt, crimping a key source of financing for Wall Street’s deal-making machine. Collateralized loan obligations, or CLOs, are investment pools that gather together debt from hundreds of companies. They transform these risky, but diverse sets of loans into highly rated, safe investments, with yields higher than government and corporate bonds. After a decadelong chase for yields, U.S. insurance firms ended up with about $158 billion of CLO debt on their books… That is almost one-quarter of the entire U.S. market for CLOs.”

China Watch:

June 17 – Reuters (Lusha Zhang, Colin Qian and Kevin Yao): “China will step up monetary easing and keep liquidity ‘reasonably ample’, the state cabinet said in a meeting chaired by premier Li Keqiang…, as it looks to support the economy and help small and medium-sized firms. The cabinet indicated that the government will keep liquidity ample by cutting the required reserved ratio (RRR) - the amount of cash banks are required to hold - and re-lending, while guiding market interest rates lower…”

June 17 – Bloomberg: “China is leaning on its massive banks like never before to help bolster an economy facing its worst slump in four decades. The government will push the financial industry to sacrifice 1.5 trillion yuan ($211bn) in profit this year by offering lower lending rates, cutting fees, deferring loan repayments, and granting more unsecured loans to small businesses, the State Council said… after a meeting led by Premier Li Keqiang… The rare moves underscore concerns about how quickly China can recover from the coronavirus outbreak. While Chinese banks were already expecting weaker performances this year, the direct requirements on limiting their profits still come as a surprise…”

June 18 – Bloomberg: “China plans to accelerate purchases of American farm goods to comply with the phase one trade deal with the U.S. following talks in Hawaii this week. The world’s top soybean importer intends to increase buying everything from soybeans to corn and ethanol after purchases fell behind due to the coronavirus, said two people familiar with the matter, who asked not to be named because the information is private. A separate person said China’s government has asked state-owned buyers to make efforts to meet the phase one pact.”

June 15 – Reuters (Colin Qian, Lusha Zhang and Se Young Lee): “China’s foreign trade faces increasing uncertainties, and complex and severe risks and challenges in 2020, the commerce ministry said… The risk of world economic recession is rising and domestic firms, especially small and medium-sized companies are facing mounting employment pressure, the ministry said in a report on its website, adding that China’s foreign trade will continue to be under pressure in the short to medium term.”

June 18 – Bloomberg: “Chinese investors and savers just experienced something that’s never happened before: losses on some of their 25 trillion yuan ($3.5 trillion) state bank issued high-yield wealth management products. Those came as the worst Chinese bond rout in a decade colluded with a push by regulators to transform the nation’s wealth market. They are doing away with products that offer guaranteed returns to tamp down on a key source of leverage and risk at the nation’s lenders. As traders cut bets on the potential for more stimulus from the central bank, government bond yields soared this month, driving the net asset value on more than 280 low-risk, bond-linked WMPs, or about 3% of the market, below the initial 1 yuan value, according to…”

June 14 – Reuters (Huizhong Wu, Gabriel Crossley and Kevin Yao): “China’s industrial output rose for a second straight month in May but the gain was smaller than expected, suggesting the economy is still struggling to get back on track after the coronavirus crisis. Retail sales and investment continued to contract, pointing to an uneven and possibly more drawn-out rebound in other sectors… Industrial output growth quickened to 4.4% in May from a year earlier, the highest reading since December… But a collapse in export orders amid global lockdowns has left factories more reliant on domestic demand, which is recovering at a more sluggish pace.”

June 14 – Reuters (Lusha Zhang and Huizhong Wu): “Real estate investment and sales in China both quickened in May, pointing to continuing momentum as the property sector gradually recovers from the impact of the coronavirus outbreak… Real estate investment in May rose 8.1% from a year earlier, up from 7% growth the previous month… For the first five months of the year, property investment fell 0.3% on year…”

June 18 – Reuters (Gabriel Crossley): “About 20% of projects under China’s ambitious Belt and Road Initiative (BRI) to link Asia, Europe and beyond have been ‘seriously affected’ by the coronavirus pandemic, an official from China’s Ministry of Foreign Affairs said… About 40% of projects have seen little adverse impact, and another 30-40% have been somewhat affected, said Wang Xiaolong, director-general of the ministry’s International Economic Affairs Department...”

June 15 – Bloomberg: “A fresh outbreak of coronavirus cases in Beijing is being blamed on imported salmon, prompting a nationwide boycott of the fish. Salmon has been taken off the shelves in major supermarkets like Walmart Inc. and deleted from grocery delivery platforms across China, while top experts are warning people not to consume the omega-3 rich fish. Provinces and cities from Yunnan to Shanghai are testing the seafood at local wet markets for the virus.”

June 16 – Bloomberg (Manuel Baigorri): “Chinese companies are ditching their U.S. listings at the fastest pace since 2015 as they grapple with rising tensions between Beijing and Washington. The latest is China’s biggest online classified firm Inc., which on Monday agreed to a buyout deal led by private equity firms Warburg Pincus and General Atlantic. An investor group backed by Chinese tech tycoon Pony Ma’s Tencent Holdings Ltd. said last week it will take Bitauto Holdings Ltd. Private…”

Central Bank Watch:

June 18 – Bloomberg (Piotr Skolimowski, James Hirai and Michael Hunter): “The European Central Bank reached another trillion-euro milestone in its fight to bolster economies that are seeing years of growth wiped out in months by the coronavirus pandemic. An offer for its ultra-cheap, three-year loans was taken up by 742 banks for a total of 1.31 trillion euros ($1.5 trillion) on Thursday… The loans are intended to ensure banks keep providing credit to companies and households to bolster the economic recovery from the pandemic. They carry an interest rate below zero that means the ECB is paying lenders to lend.”

June 17 – Financial Times (Martin Arnold and Guy Chazan): “The head of Germany’s central bank has sought to defuse a clash between the country’s highest court and the European Central Bank by suggesting three ways the impasse over eurozone sovereign bond purchases could be resolved. Jens Weidmann, president of the Bundesbank and a member of the ECB governing council, told German MPs… he was optimistic a solution would be found to address an explosive ruling by his country’s constitutional court against the bond-buying programme. Mr Weidmann is an unlikely peacemaker in the dispute, because he has repeatedly voted against, and publicly criticised, a policy that has amassed more than €2.2tn of eurozone public debt on the central bank’s balance sheet — prompting accusations that it is bailing out profligate governments.”

June 16 – Financial Times (Robin Harding): “The Bank of Japan has boosted its coronavirus lending programme to more than $1tn but kept monetary policy on hold as governor Haruhiko Kuroda signaled… that it would be years before there would be any rise in interest rates. Mr Kuroda made clear that the Japanese central bank was preparing for a long struggle against coronavirus as he warned that the global economy was in an ‘extremely severe situation’ with the risk of a second wave of Covid-19 infections.”

June 16 – Bloomberg (Marcus Ashworth): “The U.S. Federal Reserve has started buying corporate bonds in the secondary market, but it isn’t the first of its peers to do so. The European Central Bank has been buying investment-grade corporate debt for more than four years, amassing the equivalent in euros of a $250 billion portfolio. Coincidentally, that’s how much the three-month Fed program will be able to purchase. The chief lessons from the ECB are that it’s easier to start doing this than to stop and that the immediate benefits of these monetary tools wear off over time.”

Europe Watch:

June 15 – Bloomberg (Marcus Ashworth and Elisa Martinuzzi): “The European Union has been relaxing its rule book for banks — painstakingly built up in the decade or so since the financial crisis — as it tries to manage the impact of coronavirus. Unfortunately, the move might create big problems if economic activity fails to recover. That’s because the regulations are being eased just as the European Central Bank is about to inject a huge amount of liquidity into the euro-zone monetary system. This will lead almost certainly to commercial lenders acquiring more sovereign debt through what are known as ‘carry trades’ — where they borrow cheaply from the ECB and seek to make a safe profit by buying investment-grade bonds that yield more than their borrowing cost.”

June 14 – Reuters (Sudip Kar-Gupta, Michel Rose and Matthias Blamont): “President Emmanuel Macron said… he was accelerating France’s exit from its coronavirus lockdown and that the crisis had laid bare the country’s need for greater economic independence… He said the coronavirus pandemic had exposed the ‘flaws and fragility’ of France’s, and more broadly Europe’s, over-reliance on global supply chains, from the car industry to smart phones and pharmaceuticals. ‘The only answer is to build a new, stronger economic model, to work and produce more, so as not to rely on others,’ Macron said.”

June 17 – Wall Street Journal (Valentina Pop): “The European Union plans to tighten its defenses against subsidized foreign companies, marking a sharp increase in the bloc’s effort to assert ‘strategic autonomy’ from China and the U.S. while defending its economic interests. The European Commission, the EU’s executive body and top antitrust enforcer, …outlined options to redress what it described as market distortions stemming from state-subsidized foreign firms. The proposals aim to prevent foreign companies that have received significant grants, loans, tax credits or other forms of state aid from acquiring European companies or competing with them for certain contracts inside the EU.”

June 18 – Wall Street Journal (Guy Chazan): “Angela Merkel has urged fellow EU member states to reach agreement on the bloc’s future budget and the post-coronavirus recovery fund before the summer break, saying there was an urgent need to show ‘solidarity’ with those countries worst affected by Covid-19. ‘The pandemic shows us how vulnerable Europe is,’ the German chancellor told MPs…. ‘Therefore I want to stress to you that cohesion and solidarity in Europe were never as important as they are today.’ Ms Merkel made the appeal in a speech to the Bundestag setting out Germany’s priorities for the rotating presidency of the EU, which it will take over at the start of July.”

June 16 – Reuters (Andreas Rinke): “German Chancellor Angela Merkel does not expect European Union leaders to reach an agreement on the bloc’s future finances at a summit on Friday, participants at a meeting of her conservative parliamentary bloc said… Rather, Merkel expects decisions on the so-called Recovery Fund and the bloc’s multi-year financial framework through to 2027 to be agreed in July, the participants said.”

June 15 – Reuters (Michael Nienaber and Holger Hansen): “German Finance Minister Olaf Scholz will ask parliament to increase new borrowing by a further 62.5 billion euros ($70.5 billion) to a record 218.5 billion this year… The plan, to be presented in Scholz’s second supplementary budget in three months, underlines Germany’s shift from Europe’s austerity champion to one of the biggest spenders in the euro zone’s efforts to rebound from the pandemic. Germany’s debt-to-GDP ratio will jump to around 77% in 2020 from just below 60% in 2019, and the overall public sector budget deficit will be 7.25% of GDP this year…”

EM Watch:

June 14 – Financial Times (Jonathan Wheatley): “Emerging economies have raised more than $83bn through the international bond market since the beginning of April, just weeks after a push by the G20 to offer many poorer nations debt relief. Data collated by the Institute of International Finance… show that developing economies are financing their coronavirus-driven deficits by accessing the global financial markets, rather than by attempting to restructure their existing borrowings. This marks a turnround from the panic that gripped markets in March, when debt issuance froze and foreign investors withdrew a record $83bn from stock and bond markets in the 30 largest emerging economies, according to the IIF — outflows that dwarfed those experienced in the financial crisis of 2008-09.”

June 15 – Reuters (Aftab Ahmed): “India’s merchandise exports shrank by more than a third in May from a year ago, dragged down by a fall in global demand and shipments due to the outbreak of coronavirus…”

Brazil Watch:

June 16 – Reuters (Pedro Fonseca): “Brazil reported a record 34,918 new coronavirus cases on Tuesday, the same day that one of the senior officials leading the country’s widely criticized response to the crisis said the outbreak was under control. Brazil, the world’s No. 2 coronavirus hotspot after the United States, is fast approaching 1 million cases, although experts say the true number is likely higher due to patchy testing.”

June 17 – Reuters (Jamie McGeever): “Brazil’s central bank cut its benchmark interest rate by 75 bps to a record low of 2.25%..., as expected, and said there was some room left for further monetary stimulus to support an economy ravaged by the coronavirus pandemic. With inflation running significantly below target this year and set to undershoot again next year, policymakers indicated the potential for further ‘residual’ easing in coming months.”

June 14 – Reuters (Rodrigo Viga Gaier): “Brazilian Treasury Secretary Mansueto Almeida confirmed in an interview with financial blog Brazil Journal published on Sunday that he plans to resign from the government in July or August.”

Japan Watch:

June 16 – Reuters (Tetsushi Kajimoto and Naomi Tajitsu): “Japan’s exports fell in May at the fastest pace since the global financial crisis as U.S.-bound car shipments plunged… Weak global appetite for cars and slowing business spending could drag on Japan’s export-led economy, as China-bound trade remains weak… Official data… showed Japan’s exports fell 28.3% in the year to May, the largest slump since September 2009. The result was worse than a 26.1% decrease expected…”

June 18 – Reuters (Kaori Kaneko and Leika Kihara): “Japan’s core consumer prices fell for a second straight month in May, reinforcing deflation expectations and raising the challenge for policymakers battling to revive an economy reeling… The nationwide core consumer price index (CPI), which includes oil but excludes volatile fresh food prices, fell 0.2% in May from a year earlier…”

Leveraged Speculation Watch:

June 15 – Bloomberg (Miles Weiss and Katherine Burton): “Bridgewater Associates, the hedge fund giant founded by Ray Dalio, suffered a 15% drop in assets under management during March and April in the wake of heavy losses at its flagship trading strategy. Assets fell to $138 billion at the end of April from $163 billion at the end of February… Almost all of the decline reflects performance-related losses rather than client withdrawals, said a person…”

June 12 – Bloomberg (Hema Parmar): “Renaissance Technologies, the quantitative hedge fund firm founded by Jim Simons, lost almost 21% this year through the first week of June in its market-neutral vehicle… The fund lost almost 9% in the first week of June, said the person…”

June 14 – Financial Times (John Plender and Peter Smith): “Calpers is to move deeper into private equity and private debt by adopting a bold leverage strategy that the $395bn Californian public sector pension fund believes will help it achieve its ambitious 7% rate of return. In a presentation to the Calpers board, Ben Meng, chief investment officer, said the giant fund would take on additional leverage via borrowings and financial instruments such as equity futures. Leverage could be as high as 20% of the value of the fund, or nearly $80bn… The aim is to juice up returns to help the scheme, the largest public pension in the US, achieve its growth target. The move comes after a 2019 investment strategy review that found Calpers needed greater focus on the excess returns potentially available from illiquid assets compared with public equity and debt.”

Geopolitical Watch:

June 18 – Financial Times (Amy Kazmin, Tom Mitchell and Katrina Manson): “India’s Prime Minister Narendra Modi has assiduously courted China’s President Xi Jinping, setting aside a long-simmering boundary dispute to pursue deeper economic ties. Chinese companies — including Alibaba, Tencent and Huawei — have gained a strong foothold in India’s growing market. But following a vicious brawl in the Himalayan mountains that killed at least 20 Indian soldiers…, a senior Indian government official said New Delhi will steadily pare back its economic ties with China. India will look instead to strengthen other strategic relationships — notably with the US…”

June 19 – CNBC (Keris Lahiff): “Tensions flared between India and China this week after conflict escalated along the Sino-India border. At least 20 Indian soldiers were killed in a clash between Chinese troops, raising fears of more conflict to come. The skirmish could propel change to the Indian economy and geopolitics in the region, according to Akhil Bery, Eurasia Group’s Southeast Asia analyst. ‘This is really unprecedented, what we’re seeing right now. Typically, around this time of year we do see these kind of skirmishes but what makes this skirmish much different, is the fact that there are deaths involved,’ Bery told CNBC…”

June 16 – CNN (Joshua Berlinger, Jake Kwon and Yoonjung Seo): “North Korea has blown up a joint liaison office used for talks between itself and South Korea, the latest sign that ties between the two longtime adversaries are rapidly deteriorating. North Korean state media reported that the four-story building, which is located in the town of Kaesong just north of the demilitarized zone that divides the two Koreas, was ‘completely destroyed by a ‘terrific explosion’ at 2:50 p.m. local time.’”

June 18 – CNBC (Huileng Tan): “Kim Yo Jong appears to be stepping out on her own recently — without her elder brother, North Korean leader Kim Jong Un by her side — which analysts said may indicate that she could be moving into a bigger role within the country’s leadership structure… ‘We’re seeing a lot of big statements coming out of Kim Yo Jong,’ said John Park, director of the Korea Project at the Harvard Kennedy School. This indicates that her role is not just ceremonial and that she has been ‘chronically underestimated,’ he added.”

June 17 – Reuters (Ben Blanchard): “Taiwan jets on… again had to warn off Chinese air force aircraft that approached the island, Taiwan’s military said, the fourth such encounter in nine days as China steps up its activity near the Chinese-claimed island.”

Friday Afternoon Links

[Reuters] Wall Street falls sharply after report Apple to shut some stores again

[Reuters] Apple to shut some U.S. stores again due to rising COVID-19 cases

[CNBC] Coronavirus live updates: Dr. Fauci is frustrated Americans aren’t taking virus seriously; global cases top 8.5 million

[CNBC] U.S. coronavirus cases surge by more than 27,700 in a day as 7-day average jumps 15% from week ago

[AP] California jobless rate 16.3% in May, down a bit from April

[FT] Central banks scale back use of Fed’s emergency dollar swap lines

[FT] Treat China’s border clash with India as a clarion call