Friday, July 3, 2020

Weekly Commentary: Two Down, Two to Go

“U.S. Stocks Finish Best Quarter in More Than 20 Years” – yet another extraordinary period worthy of documenting in some detail. The S&P500 returned 20.5%, led by energy companies Halliburton (up 89.5%) and Marathon Oil (86.2%). The Dow Jones Transports returned 19.2%, with Avis Budget gaining 64.7% and Ryder rising 41.9%. Lagging, the NYSE Financial Index returned 13.1%. Goldman Sachs rallied 27.1% during the quarter.

The broader market outperformed. S&P400 Midcap and small cap Russell 2000 indices returned 24.1% and 25.4%. There were 155 companies in the Russell 2000 that gained 100% or more during the quarter. The equal-weighted Value Line Arithmetic Index of 1,700 stocks gained 30.1% during Q2, the strongest return since Q2 2009’s 32.2%.

The Nasdaq Composite returned 31.0%. The Nasdaq100 (NDX) returned 30.3%, led by a who’s who of popular short positions. Tesla gained 106%, Mercadolibre 102%, Paypal 86.4%, EBay 74.5%, Zoom 73.5%, and Lululemon 64.6%. Apple returned 43.8%, 41.5%, and Microsoft 29.4%.

The Nasdaq Industrials returned 32.4%, while the Nasdaq Telecom Index returned 24.2%. The Philadelphia Semiconductor Index (SOX) returned 32.8%, with two-thirds of index members gaining at least 32%. The Nasdaq Biotechnology Index returned 26.9%, with almost a tenth of member stocks doubling during the quarter.

Indicative of the pain meted out on the short side throughout the quarter, the Goldman Sachs Most Short Index rose 56.2%. Many popular short positions posted spectacular quarterly gains. Wayfair returned 269.8%, Big Lots 195.4%, Eldorado Resorts 178.2%, Etsy 176.4%, Bed Bath & Beyond 151.8%, Murphy Oil 125.1%, Jack in the Box 111.4%, Aaron’s 99.3%, Polaris 92.2% and Brunswick 81.0%.

The Philadelphia Oil Service Sector Index rose 35.5%, with nine of 15 index members gaining more than 57% for the quarter. Retailers (XRT) jumped 44.3%, with gainers including GAP (79.3%), CarMax (66.4%), Carvana (118.2%), Dick’s (94.1%), Best Buy (53.1%), Expedia (46.1%) and Kohls (42.4%). The homebuilders (XHB) surged 47.7%, with Toll Brothers up 69.3%, DR Horton 63.1%, Lennar 61.3% and Pulte Group 52.5%.

“Risk on” was certainly not limited to U.S. equities. Credit default swap (CDS) prices collapsed, reversing much of Q1’s spike. Investment-grade CDS sank 37 bps for the quarter to 76 bps – and is now less than half of the high (159bps) from March 23rd. High-yield CDS sank 141 bps to 516 bps (down from March 23rd high 886bps). The iShares Investment-Grade Corporate Bond ETF (LQD) surged 9.72% for the quarter, with a first-half gain of 6.46%. The iShares High-Yield ETF (HYG) rallied 7.36%, reducing its y-t-d loss to 5.10%. Leveraged loans returned 10.1% during Q2.

Even more spectacular CDS price declines were experienced overseas. The European (high-yield corporate) “crossover” CDS sank 189 bps during the quarter to 382 bps, dropping significantly from March 23rd trading highs (572). European subordinated bank CDS fell 88 to 167 bps during the quarter, ending June at less than half March highs (367).

European equities posted big quarters. Germany’s DAX rallied 23.9%, with major indices up 15.0% in Italy, 13.5% in France and 8.0% in Spain. The UK’s FT100 index recovered 9.6%.

The gain in European periphery bond markets is more notable – especially considering skyrocketing fiscal deficits. Italian yields sank 26 bps during Q2 to 1.26% - about half the 2.42% March high. Greek yields fell 43 bps to 1.20%, down from the 3.67% March 18th high. Portuguese yields sank 39 bps to 0.47% (March high 1.45%), and Spanish yields fell 21 bps to 0.46% (March high 1.22%).

Perhaps most noteworthy, the emerging markets rallied sharply in the face of a rapidly expanding global pandemic. EM CDS sank 157 bps to 195 bps, down from the 478 bps March high and back to February levels. Stocks recovered 30.2% in Brazil, 30.8% in Turkey, 20.4% in Taiwan, 20.2% in South Korea, 18.7% in India, 10.6% in Russia, and 9.6% in Mexico.

The Shanghai Composite gained 9.8%, with the CSI 500 returning 14.2%. China’s growth-oriented ChiNext Index surged 30.9%, with first-half gains of 36.2%.

EM local currency bonds rallied strongly. For the quarter, yields dropped 172 bps in South Africa to 9.24%, 167 bps in Brazil to 6.95%, 127 bps in Romania to 3.88%, 124 bps in Mexico to 5.82%, 121 bps in Chile to 2.40%, 85 bps in Russia to 5.90%, 67 bps in Indonesia to 7.18% and 56 bps Hungary to 2.15%.

Dollar-denominated yields sank 278 bps in Ukraine (to 7.37%), 165 bps in Turkey (to 6.74%), 115 bps in Qatar (to 2.24%) and 85 bps in Mexico (to 3.39%). Brazil’s dollar-denominated yields jumped 78 bps during the quarter to 4.93%.

For the most part, EM currencies rallied during Q2. The Indonesian rupiah recovered 14.3%, Russian ruble 10.2%, Colombian peso 7.9%, Thai baht 6.1%, Czech koruna 4.5%, Polish zloty 4.4%, Chilean peso 4.1%, Hungarian forint 3.6%, Mexican peso 3.0%, and South African rand 2.8%. On the downside, the Argentine peso declined 8.6%, the Brazilian real 4.8%, and the Turkish lira 3.5%. China’s renminbi increased 0.26% versus the dollar during the quarter.

The dollar index declined 1.7% during the period. The Australian dollar rallied 12.6%, New Zealand dollar 8.4%, Norwegian krone 8.1%, Swedish krona 6.3%, Canadian dollar 3.6%, Euro 1.5%, and Swiss franc 1.5%. The Japanese yen declined 0.4% versus the dollar during the quarter.

Australia’s ASX 200 equities index gained 16.5%, and Japan’s Nikkei 225 Index rallied 18.0%. Recovering only 6.0%, Japanese bank stocks lagged. In general, bank stocks notably underperformed during the quarter. Hong Kong's China Financials index slipped 0.3%. Europe’s STOXX600 Bank Index rallied 7.8%, led by an 18.7% recovery in Italian banks. U.S. Banks (BKX) returned 15.1%, significantly lagging most sectors.

The S&P500 just competed its strongest quarterly return since Q4 ‘98’s 21.3%. There are some parallels. Having returned a blistering 23.0% y-t-d, the S&P500 traded at a then all-time high 1,191 on July 20, 1998. U.S. markets were completely disregarding mounting Russian fragility.

Devastating “Asian Tiger” Bubble collapses the previous year had required major IMF bailouts. Despite U.S. market and economic booms, fed funds were at 5.5% in the summer of ’98 (the same level as the end of ‘95). Treasuries had sniffed out trouble on the horizon. After trading to almost 7.0% in Q2 ’96, 10-year Treasury yields were down to 5.4% by July ’98 (and 5% in August). Sinking yields and booming leveraged speculation bolstered the liquidity backdrop, with equities turning progressively speculative.

EM contagion hit Russia’s currency and bonds in September '98. Aggressive hedging heading into the crisis ensured spectacular market dislocation. A disorderly de-risking/deleveraging episode hit the leveraged speculating community, most notably Long-Term Capital Management. The collapse of LTCM’s egregious leverage and massive derivatives positions almost brought down the global financial system.

The Fed cut rates and took the unusual step of orchestrating a bailout for LTCM (and its counterparties). The Greenspan, Rubin and Summers “committee to save the world” worked its magic - and the world would never be the same. Instead of a much-needed reckoning for the aggressive leveraged speculating community and derivatives complex, it was off to the races. Stocks rallied big during Q4 – and didn’t turn back. Nasdaq nearly doubled during 1999’s fiasco – demonstrating the precariousness of employing monetary stimulus and bailouts with markets in the throes of a major speculative Bubble.

Even in the face of the most conspicuous speculative excess, Greenspan remained wedded to “baby steps.” Fed funds didn’t get back to 5.0% until mid-‘99. The Bubble had turned increasingly vulnerable late in the year. The economy was downshifting, while fundamentals were deteriorating in the bubbling technology sector. But that didn’t stop one final short squeeze and derivatives-related “melt-up” to push Nasdaq to even crazier extremes in Q1 2000 (record highs not surpassed for 15 years).

I’m not sure Ben Bernanke makes it to the Fed in 2002 if not for all the excess, bailouts and only greater late-nineties Bubble craziness. "The powers that be" believed THE Bubble had popped – and the Fed resorted to mortgage Credit as the mechanism to reflate the markets and economy. No Bernanke and no mortgage finance Bubble – and I doubt the Fed experiments with QE. If not for Fed QE, does the world succumb to “whatever it takes” QE on a global basis? Without QE, the world today would be a lot less unstable and troubled place.

June 29 – Financial Times (John Plender): “One innocent explanation for the extraordinary bounce back in global equity markets in the second quarter is that investors have concluded that the worst of the pandemic is over and that recovery is within reach. A less innocent — but all too plausible — alternative reading is that investors now believe central banks will exercise complete control over asset prices for the foreseeable future. In other words, the categorical imperative of policymakers doing ‘whatever it takes’ to counter the current crisis could ensure a lasting decoupling of equity prices from ailing economies. Lending support to this latter view is the growing conviction in markets that the US Federal Reserve may now move to a policy of yield curve control. That would mean following the Bank of Japan in capping borrowing costs by targeting a longer term interest rate and buying enough bonds to stop yields rising above that level.”

The second quarter was momentous for reasons beyond huge securities markets gains. Speculators and investors do “now believe central banks will exercise complete control over asset prices for the foreseeable future.” There is no longer any shred of doubt: Highly synchronized global market Bubbles are the ultimate “Too Big to Fail.” Moral Hazard has reached its pinnacle. And, after unleashing several Trillion at home and Trillions more overseas, central bankers will find it impossible to ween highly speculative and inflated markets off aggressive monetary stimulus.

There were 43,644 new U.S. COVID cases on June 30th, almost double the 22,562 reported the last day of Q1. Daily cases are averaging more than 54,000 during the first three days of July. There were a then record 71,000 new cases globally in the midst of a pandemic surge on the final day of Q1. Daily new global cases now run above 200,000.

How can markets remain ebullient? Because a worsening pandemic ensures additional fiscal and monetary stimulus. This is not about economic fundamentals or markets pricing a solid “V” recovery. It’s greed and FOMO (fear of missing out) – Monetary Disorder and a resulting runaway speculative Bubble. This game has been playing out for a while now. It’s an increasingly dangerous game – one that seems to be building toward some type of conclusion.

It’s worth noting the safe havens were not in the least spooked by Q2’s “risk on.” Ten-year Treasury yields actually declined a basis point to 0.66%. Bund yields rose less than two bps to negative 0.46%, while Japanese yields rose less than one basis point to 0.02%. As the ultimate safe haven, gold surged $204, or 13%, to $1,781 – the high since the 2012 European debt crisis. In a year for the history books, Two Extraordinary Quarters Down and Two to Go.

For the Week:

The S&P500 surged 4.0% (down 3.1% y-t-d), and the Dow rose 3.2% (down 9.5%). The Utilities jumped 4.7% (down 9.3%). The Banks increased 0.8% (down 36.0%), and the Broker/Dealers rallied 3.3% (down 7.2%). The Transports surged 4.9% (down 15.3%). The S&P 400 Midcaps rose 3.5% (down 13.8%), and the small cap Russell 2000 jumped 3.8% (down 14.2%). The Nasdaq100 advanced 5.0% (up 18.4%). The Semiconductors rose 3.7% (up 7.8%). The Biotechs increased 1.9% (up 14.9%). While bullion was little changed, the HUI gold index rallied 4.1% (up 20.5%).

Three-month Treasury bill rates ended the week at 0.135%. Two-year government yields slipped a basis point to 0.15% (down 142bps y-t-d). Five-year T-note yields dipped one basis point to 0.30% (down 139bps). Ten-year Treasury yields rose three bps to 0.67% (down 125bps). Long bond yields jumped six bps to 1.43% (down 96bps). Benchmark Fannie Mae MBS yields declined two bps to 1.56% (down 115bps).

Greek 10-year yields dropped 11 bps to 1.15% (down 28bps y-t-d). Ten-year Portuguese yields declined three bps to 0.43% (down 1bp). Italian 10-year yields fell four bps to 1.26% (down 16bps). Spain's 10-year yields dipped one basis point to 0.45% (down 2bps). German bund yields rose five bps to negative 0.43% (down 25bps). French yields increased two bps to negative 0.11% (down 23bps). The French to German 10-year bond spread narrowed three to 32 bps. U.K. 10-year gilt yields increased two bps to 0.19% (down 63bps). U.K.'s FTSE equities index was little changed (down 18.4%).

Japan's Nikkei Equities Index declined 0.9% (down 5.7% y-t-d). Japanese 10-year "JGB" yields rose two bps to 0.03% (up 4bps y-t-d). France's CAC40 rose 2.0% (down 16.2%). The German DAX equities index surged 3.6% (down 5.4%). Spain's IBEX 35 equities index jumped 3.1% (down 22.5%). Italy's FTSE MIB index rose 3.1% (down 16.1%). EM equities traded higher. Brazil's Bovespa index rallied 3.1% (down 16.2%), and Mexico's Bolsa gained 1.4% (down 12.9%). South Korea's Kospi index increased 0.8% (down 2.1%). India's Sensex equities index advanced 2.4% (down 12.7%). China's Shanghai Exchange surged 5.8% (up 3.4%). Turkey's Borsa Istanbul National 100 index increased 0.9% (up 1.2%). Russia's MICEX equities index gained 1.4% (down 8.0%).

Investment-grade bond funds saw inflows of $7.065 billion, while junk bond funds posted outflows of $5.551 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates declined six bps to 3.07% (down 68bps y-o-y). Fifteen-year rates slipped three bps to 2.56% (down 62bps). Five-year hybrid ARM rates fell eight bps to 3.00% (down 45bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down seven bps to 3.32% (down 78bps).

Federal Reserve Credit last week contracted $33.9bn to $6.976 TN, with a 43-week gain of $3.254 TN. Over the past year, Fed Credit expanded $3.194 TN, or 85%. Fed Credit inflated $4.165 Trillion, or 148%, over the past 399 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $15.8 billion last week to $3.414 TN. "Custody holdings" were down $34.9bn, or 1.0%, y-o-y.

M2 (narrow) "money" supply surged $100bn last week to a record $18.429 TN, with an unprecedented 17-week gain of $2.921 TN. "Narrow money" surged $3.642 TN, or 24.6%, over the past year. For the week, Currency increased $7.1bn. Total Checkable Deposits jumped $97.0bn, while Savings Deposits were little changed. Small Time Deposits fell $7.1bn. Retail Money Funds added $3.7bn.

Total money market fund assets declined $27.7bn to $4.655 TN. Total money funds surged $1.417 TN y-o-y, or 43.8%.

Total Commercial Paper declined $10.7bn to $1.017 TN. CP was down $147bn, or 12.6% year-over-year.

Currency Watch:

July 1 – Financial Times (Henny Sander): “Hong Kong has become a focal point in tensions between the US and China, which means that the linked exchange-rate system in place for the past few decades — tying the local dollar to the US dollar — is also in the spotlight. Speculators including Kyle Bass have talked of a collapse in Hong Kong’s currency under pressure from heavy outflows. But if Eddie Yue is worried about a breakdown, he does not show it. The head of the Hong Kong Monetary Authority, the city’s de facto central bank, told the Financial Times recently that the task of defending the Hong Kong dollar has become easier in a world of rock-bottom interest rates. ‘If there was a strong outflow, raising interest rates is our most important mechanism,’ Mr Yue told the FT. ‘It would only take a mild . . . adjustment for inflows to come back.’”

For the week, the U.S. dollar index declined 0.3% to 97.172 (up 0.7% y-t-d). For the week on the upside, the Brazilian real increased 3.2%, the Mexican peso 3.0%, the Norwegian krone 2.4%, the New Zealand dollar 1.7%, the South African rand 1.5%, the British pound 1.2%, the Australian dollar 1.1%, the Canadian dollar 1.0%, the euro 0.3%, the Swedish krona 0.2%, the Swiss franc 0.2%, and the South Korean won 0.2%. For the week on the downside, the Japanese yen declined 0.3% and the Singapore dollar 0.1%. The Chinese renminbi increased 0.17% versus the dollar this week (down 1.46% y-t-d).

Commodities Watch:

The Bloomberg Commodities Index rallied 3.8% (down 26.4% y-t-d). Spot Gold was little changed at $1,772 (up 16.7%). Silver increased 0.8% to $18.310 (up 2.2%). WTI crude jumped $1.83 to $40.32 (down 30%). Gasoline surged 7.9% (down 26%), and Natural Gas jumped 13.3% (down 20%). Copper gained 1.6% (down 3%). Wheat rallied 3.4% (down 12%). Corn jumped 7.6% (down 11%).

Coronavirus Watch:

July 1 – CNBC (William Feuer and Noah Higgins-Dunn): “The U.S. is ‘not in total control’ of the coronavirus pandemic and daily new cases could surpass 100,000 new infections per day if the outbreak continues at its current pace, White House health advisor Dr. Anthony Fauci said… The country is now reporting nearly 40,000 new coronavirus cases every day — almost double from about 22,800 in mid-May… ‘I can’t make an accurate prediction but it’s going to be very disturbing,” Fauci told senators… ‘We are now having 40-plus-thousand new cases a day. I would not be surprised if we go up to 100,000 a day if this does not turn around, and so I am very concerned.’”

June 29 – CNBC (William Feurer): “The coronavirus is spreading too rapidly and too broadly for the U.S. to bring it under control, Dr. Anne Schuchat, principal deputy director of the Centers for Disease Control and Prevention, said… ‘We’re not in the situation of New Zealand or Singapore or Korea where a new case is rapidly identified and all the contacts are traced and people are isolated who are sick and people who are exposed are quarantined and they can keep things under control… We have way too much virus across the country for that right now, so it’s very discouraging.’”

June 26 – Reuters (Julie Steenhuysen): “Scientists are only starting to grasp the vast array of health problems caused by the novel coronavirus, some of which may have lingering effects on patients and health systems for years to come, according to doctors and infectious disease experts… ‘We thought this was only a respiratory virus. Turns out, it goes after the pancreas. It goes after the heart. It goes after the liver, the brain, the kidney and other organs. We didn’t appreciate that in the beginning,’ said Dr. Eric Topol, a cardiologist and director of the Scripps Research Translational Institute…”

June 29 – Reuters (Dan Whitcomb and Maria Caspani): “California and Texas both marked record spikes in new COVID-19 infections on Monday, a Reuters tally showed, as Los Angeles reported an ‘alarming’ one-day surge in America’s second-largest city that put it over 100,000 cases… ‘The alarming increases in cases, positivity rates and hospitalizations signals that we, as a community, need to take immediate action to slow the spread of COVID-19,’ Barbara Ferrer, director of public health for Los Angeles County, said…”June 29 – Associated Press (Tamara Lush and Emily Schmall): “Arizona’s Republican governor shut down bars, movie theaters, gyms and water parks Monday and leaders in several states ordered residents to wear masks in public in a dramatic course reversal amid an alarming resurgence of coronavirus cases nationwide.”

July 1 – Wall Street Journal (Ian Lovett): “For most of the spring, California was a coronavirus success story. Now, just weeks after it began to reopen, new cases of Covid-19 are exploding across America’s most populous state, and public officials are quickly retrenching. On Wednesday, Gov. Gavin Newsom announced a slew of new restrictions… California reopened too quickly. Nearly 6,000 people tested positive for the new coronavirus in California Tuesday, and more than 7,000 on Monday, the highest total during the pandemic and a 45% increase over the previous week. Hospitalizations are up more than 50% from two weeks ago. The percentage of tests coming back positive was 6% on Tuesday, up more than a full percentage point from two weeks earlier.”

July 2 – Associated Press (Adam Beam and Kathleen Ronayne): “California took a big step back in reopening its economy on Wednesday as Gov. Gavin Newsom shut down bars, wineries, museums, movie theaters and inside restaurant dining across most of the state for three weeks amid troubling increases in coronavirus cases and hospitalizations. The order affects Los Angeles and 18 other counties where nearly three-quarters of the state’s roughly 40 million people live. The impacted counties are those seeing the most serious uptick in infections, and include almost all of Southern California, though not San Diego, which is faring better.”

Market Instability Watch:

June 28 – Bloomberg (Liz Capo McCormick): “The world’s biggest bond market is holding firm in its conviction that the revival of the American economy from the devastation of the pandemic will be slow and fragmented. Benchmark 10-year Treasury yields at 0.64% are barely changed from the end of March. Investors have pounced on any sell-off as a buying opportunity, keeping yields in check after they slid 125 bps in the first quarter. The result is that Treasuries are up about 9% in 2020, on pace for the best first-half performance in the Bloomberg Barclays U.S. Treasury index since 1995. The grim outlook among debt investors has mostly contrasted with the view in stocks.”

July 1 – Bloomberg (Jeannine Amodeo): “U.S. leveraged loans had their best quarterly returns since 2009. The S&P/LSTA Leveraged Loan Total Return Index turned positive and returned about 10.13% in 2Q versus a decline of 13.1% in 1Q. Returns are still down 4.61% in 2020… For 2Q launch volume fell to $53b versus $230b in 1Q… Loans lagged high-yield bonds, which saw volume of $139b in the last quarter…”

July 1 – Bloomberg (Reed Stevenson): “Tesla Inc. displaced Toyota Motor Corp. as the world’s most valuable automaker, underscoring investor enthusiasm for a company trying to transform an industry that’s relied on internal combustion engines for more than 130 years. Shares of Tesla, which have more than doubled since the start of the year, climbed as much as 3.5% in intraday trading Wednesday, giving it a market capitalization of $207.2 billion, surpassing Toyota’s $201.9 billion.”

Global Bubble Watch:

June 29 – Bloomberg (Fareed Sahloul): “The value of mergers and acquisitions fell 50% in the first half from the year-earlier period to the lowest level since the depths of the euro-zone debt crisis, as the coronavirus pandemic brought global dealmaking to an abrupt halt. Every region was hit by the economic impact of Covid-19, which gripped markets in March and sparked countrywide lockdowns. This situation has made face-to-face meetings, a lifeblood of M&A, all but impossible. Little more than $1 trillion of deals have been announced this year, making for the slowest first half since 2012…”

June 30 – Financial Times (Ortenca Aliaj, James Fontanella-Khan, and Kaye Wiggins): “Coronavirus brought an end to one of the longest waves in mergers and acquisitions history as global dealmaking dropped to its lowest levels in more than a decade during the second quarter of 2020. Companies have struck just $485bn worth of deals since the beginning of April, down more than 50% from the same period last year when close to $1tn deals were agreed, according to… Refinitiv. The fall in activity was particularly sharp in the US, where overall acquisitions collapsed almost 90 per cent from a year ago, to $75bn.”

June 28 – Reuters (Philip Blenkinsop): “At the start of the year, U.S.-China tensions were easing after their Phase I trade deal, while Washington, Brussels and Tokyo agreed on new global trading rules to curb subsidies. A relative calm had set in. Then the new coronavirus struck. Countries across the world imposed 222 exports curbs on medical supplies and medicines and in some cases food, according to Global Trade Alert… For medical products, it was more than 20 times the usual level.”

June 30 – Wall Street Journal (Rochelle Toplensky): “Asset write-downs keep coming from the world’s largest oil-and-gas companies… Royal Dutch Shell said… that it would make impairments of up to $22 billion in its second-quarter results to reflect lower oil and gas prices and refining margins. Its London-listed peer BP estimated an up to $17.5 billion hit earlier this month for the same reason. At the start of 2020, the industry had long-term expectations of $75 to $90 a barrel of crude. Even before the pandemic, that looked too optimistic, and Chevron announced an $10 billion-$11 billion write-down last December.”

Trump Administration Watch:

July 1 – CNBC (Kevin Breuninger): “President Donald Trump said… he supports another round of direct payments to Americans – and claimed he wants to give out more money than Democrats have already proposed. ‘I do, I support it, but it has to be done properly,’ Trump said when asked during a Fox Business Network interview at the White House whether he was in favor of sending another round of stimulus checks to blunt the impact of the coronavirus pandemic. ‘I support actually larger numbers than the Democrats,’ Trump added. The president did not, however, seem keen on continuing enhanced unemployment benefits.”

June 29 – Reuters (Chris Sanders, Lisa Lambert, Mike Stone, David Lawder and David Brunnstrom): “The United States began eliminating Hong Kong’s special status under U.S. law on Monday, halting defense exports and restricting the territory’s access to high technology products as China prepares new Hong Kong security legislation. The Commerce Department said it was suspending ‘preferential treatment to Hong Kong over China, including the availability of export license exceptions,’ adding that further actions to eliminate Hong Kong’s privileged status were being evaluated. ‘We urge Beijing to immediately reverse course and fulfill the promises it has made to the people of Hong Kong and the world,’ it said.”

July 1 – Bloomberg (Nick Wadhams and Jenny Leonard): “The U.S. is preparing to roll out long-delayed sanctions to punish senior Chinese officials over human-rights abuses against Muslims in Xinjiang, two people familiar with the matter said, and Secretary of State Michael Pompeo vowed any measures would be ‘harsh.’ The sanctions, part of a toughening of the Trump administration’s stance toward Beijing, are likely to target Communist Party officials responsible for the internment and persecution of minorities in Xinjiang…”

June 29 – Bloomberg (Jennifer A. Dlouhy and Todd Shields): “The U.S. and China are moving beyond bellicose trade threats to exchanging regulatory punches that threaten a wide range of industries including technology, energy and air travel. The two countries have blacklisted each other’s companies, barred flights and expelled journalists. The unfolding skirmish is starting to make companies nervous the trading landscape could shift out from under them. ‘There are many industries where U.S. companies have made long-term bets on China’s future because the market is so promising and so big,’ said Myron Brilliant, the U.S. Chamber of Commerce’s head of international affairs. Now, they’re ‘recognizing the risk.’”

June 29 – Reuters (Tim Ahmann, Eric Beech and Tom Brown): “The U.S. economy still appears headed for a ‘V-shaped recovery’ despite some setbacks in efforts to reopen state economies that had been shuttered for the coronavirus, a top White House adviser said… ‘At the moment, the story looks very good. We’re set for a V-shaped recovery,’ National Economic Council Director Larry Kudlow told CNBC. ‘Might it change? Yes, it might and we’ll be looking very, very carefully at this.’”

Federal Reserve Watch:

July 1 – Bloomberg (Christopher Condon): “Federal Reserve officials showed no readiness at their June meeting to commit to yield-curve control, but did reveal an eagerness to provide more guidance in coming months on the future path of interest rates and asset purchases. ‘Many participants remarked that, as long as the committee’s forward guidance remained credible on its own, it was not clear that there would be a need for the committee to reinforce its forward guidance with the adoption of a YCT policy,’ minutes… of the June 9-10 Federal Open Market Committee meeting showed.”

July 1 – Reuters (Lindsay Dunsmuir, Ann Saphir, Howard Schneider and Jonnelle Marte): “Federal Reserve policymakers are looking at reviving a Great Recession-era promise to keep interest rates low until certain conditions are met, in a bid to deliver a more rapid recovery from the recession triggered by the coronavirus pandemic. The policymakers ‘generally indicated support’ for tying rate-setting policy to specific economic outcomes, minutes from the U.S. central bank’s June 9-10 policy meeting showed… ‘A number’ favored a promise to leave rates low until inflation meets or even modestly exceeds the Fed’s 2% goal.”

July 1 – Reuters (Ann Saphir): “San Francisco Federal Reserve Bank President Mary Daly… painted a grim picture of the U.S. economic outlook, saying that even under her best-case scenario unemployment will still top 10% at year’s end and won’t return to pre-crisis levels for four or five years. ‘If we can get the public health issues under control either through a really robust mitigation strategy or a vaccine, then we can reengage in economic activity really quickly,’ Daly told Washington Post Live… ‘Then it could take just four years or five years; but if we end up with a pervasive long-lasting hit to the economy, then it could take longer.’”

July 1 – Financial Times (James Politi): “A senior Federal Reserve official has warned that a wave of business failures owing to the pandemic could still trigger a financial crisis, as he justified the central bank’s continuing efforts to prop up capital markets. ‘We’re still in the middle of the crisis here,’ James Bullard, president of the Federal Reserve Bank of St Louis, said… ‘Even though we got past the initial wave of the March-April timeframe the disease is still quite capable of surprising us,’ he said. ‘Without more granular risk management on the part of the health policy, we could get a wave of substantial bankruptcies and [that] could feed into a financial crisis.’”

June 29 – Reuters (Jonnelle Marte and Lindsay Dunsmuir): “The U.S. Federal Reserve… kicked off a long-awaited program to buy newly minted corporate bonds directly from companies, launching the last of the several programs created to stabilize financial markets rocked by the coronavirus. Through the $500 billion Primary Market Corporate Credit Facility the Fed will support companies well rated before the crisis that need capital to keep their businesses afloat during the crisis.”

June 28 – Reuters (Howard Schneider): “The U.S. Federal Reserve added $428 million in bonds of individual companies through mid-June, making investments in familiar household names like Walmart and AT&T as well as a utility subsidiary of billionaire Warren Buffett’s Berkshire Hathaway holding company. The bond purchases are the first direct moves by the Fed to buy the bonds of individual companies under new programs set up to nurse the economy through the coronavirus pandemic. The Fed also added $5.3 billion corporate bond exchange traded funds.”

June 30 – Wall Street Journal (Laura Noonan, Colby Smith and James Politi): “US bank executives say they have seen minimal interest in a $600bn programme designed to help midsized companies through the Covid-19 pandemic, raising questions about whether the federal response to the crisis is helping key parts of the American economy. Senior executives at some of the biggest US lenders told the Financial Times they had more people working on the Main Street Lending Program than they had borrowers interested in taking money from it. The banks have typically seen fewer than 200 serious expressions of interest each since the programme — which is 95% funded by the Federal Reserve — was launched a fortnight ago.”

U.S. Bubble Watch:

June 29 – CNBC (Yun Li): “Nearly half of the population is still out of a job showing just how far the U.S. labor market has to heal in the wake of the coronavirus. The employment-population ratio — the number of employed people as a percentage of the U.S. adult population — plunged to 52.8% in May, meaning 47.2% of Americans are jobless, according to Bureau of Labor Statistics. As the coronavirus-induced shutdowns tore through the labor market, the share of population employed dropped sharply from a recent high of 61.2% in January, farther away from a post-war record of 64.7% in 2000. This ratio is a broader look at the employment picture. It takes into account adults not in the labor force and captures those who were discouraged about the prospects of finding a job…”

June 29 – Reuters (Anna Irrera): “Judith Ramirez is bracing for July. That’s when the hotel housekeeper and her electrician husband - who have both been out of work for three months - expect their combined unemployment benefits to drop by more than half, and their deferred $1,500 monthly mortgage payment on their Honolulu home to come due. It’s a cash cliff millions of Americans face this summer as the emergency benefits — which lifted U.S. consumer incomes by a record 10.8% in April — expire. The loss of that safety net looms in the weeks ahead, well before a sustained recovery is likely to take hold…”

June 29 – Wall Street Journal (AnnaMaria Andriotis): “Banks have pulled back sharply on lending to U.S. consumers during the coronavirus crisis. One reason: They can’t tell who is creditworthy anymore. Millions of Americans are out of work and behind on their debts. But, in many cases, the missed payments aren’t reflected in their credit scores, nor are they uniformly recorded on borrowers’ credit reports. The confusion stems from a provision in the government’s coronavirus stimulus package. The law says lenders that allow borrowers to defer their debt payments can’t report these payments as late to credit-reporting companies. From March 1 through the end of May, Americans deferred debt payments on more than 100 million accounts… The credit blind spot has further clouded the outlook for lenders.”

June 27 – CNBC (Hugh Son): “Banks have pulled back from a popular credit card promotion on concerns that borrowers struggling during the coronavirus crisis may leave them with defaulting loans. Balance transfer offers, which typically entice borrowers to move their debt to a new lender in exchange for a temporary 0% interest rate, have been sharply reduced at banks including JPMorgan Chase, Citigroup, Bank of America, Barclays and Capital One… American Express took the most drastic step, dropping the product altogether…”

June 30 – Bloomberg (Romy Varghese): “California’s ‘wall of debt’ is returning. Former Governor Jerry Brown coined that term in May 2011 as he pushed for an extension of tax increases to chip away at the mounting burden from payment deferrals, internal borrowing and bonds sold to keep the state afloat in a previous fiscal crisis. It took until this year for the last block of the wall to disappear. In the face of a $54.3 billion two-year deficit driven by the coronavirus pandemic, the $133.9 billion budget for the fiscal year beginning Wednesday will start to build that wall up again. It defers $12.9 billion in payments to schools and community colleges and borrows $9.3 billion from other funds to avoid steep cuts in the hope that Washington will send additional aid by October.”

June 30 – Bloomberg (Emmy Lucas): “It’s crunch time for U.S. states as they face their worst fiscal crisis in decades brought on by the Covid-19 pandemic that’s decimated tax collections. Eleven states have yet to enact a budget for the fiscal year that begins Wednesday. And for those that have, they’ve been forced to slash spending, lay off workers and count on billions of dollars in potential federal aid that remains bogged down in Washington… The financial crisis amid the pandemic is forcing states and cities to make tough choices even as they seek help from Washington. Moody’s Analytics has projected that state and local governments will need at least $500 billion in additional federal aid over the next two years to avoid major economic damage.”

June 29 – Bloomberg (David Wethe): “The shale bust has reached a grim milestone by claiming the pioneer of America’s drilling renaissance. But Chesapeake Energy Corp., which filed for bankruptcy protection on Sunday, is just the latest in a long list of casualties. More than 200 North American oil and gas producers, owing over $130 billion in debt, have filed for bankruptcy since the beginning of 2015… This month alone, seven oil and gas companies have gone under, tying December 2015… The shale boom spearheaded by the likes of Chesapeake a decade ago was fueled by debt. Profitability and shareholder returns have been consistently disappointing… The rate of default on high-yield energy debt stood at 11%, Fitch Ratings said…, the highest level since April 2017.”

July 1 – Reuters (Arunima Kumar and Shariq Khan): “Months into one of the worst oil price crashes in history, lenders have tightened the screws on shale producers by wiping away 20% of the credit that has helped fuel the industry’s boom. Twice every year, oil and gas producers negotiate how much credit they should get from banks based on the value of their reserves in the ground. Those loans, called RBLs, are the industry’s key financing tool. So far in the spring season of redeterminations, the total borrowing base for three dozen publicly listed North American oil companies has been slashed by $7.5 billion…”

July 2 – CNBC (Jeff Cox): “Nonfarm payrolls soared by 4.8 million in June and the unemployment rate fell to 11.1% as the U.S. continued its reopening from the coronavirus pandemic… Economists surveyed by Dow Jones had been expecting a 2.9 million increase and a jobless rate of 12.4%. The report was released a day earlier than usual due to the July Fourth holiday. The jobs growth marked a big leap from the 2.7 million in May, which was revised up by 190,000. The June total is easily the largest single-month gain in U.S. history.”

July 2 – CNBC (Fred Imbert): “The number of Americans filing for unemployment benefits for the first time rose more than expected last week as a resurgent coronavirus added pressure to the U.S. economy. …Initial jobless claims rose by 1.427 million. Economists polled by Dow Jones had expected a rise of 1.38 million for the week ending June 27.”

June 30 – CNBC (Fred Imbert): “Consumer confidence rose more than expected in June as the U.S. loosened stay-at-home and quarantine restrictions, raising hope for an economic recovery… The Conference Board’s consumer confidence index rose to 98.1 for the month. Economists polled by Dow Jones expected consumer confidence to rise to 91 from a May reading of 85.9.”

June 29 – Reuters (Lucia Mutikani): “Contracts to buy U.S. previously owned homes rebounded by the most on record in May, suggesting the housing market was starting to turn around after being hammered by the COVID-19 pandemic along with the rest of the economy. The National Association of Realtors said… its Pending Home Sales Index, based on contracts signed last month, surged 44.3% last month, the largest increase since the series started in 2001…”

July 2 – CNBC (Robert Frank): “Manhattan apartment sales in the second quarter saw their biggest decline in three decades — and the worst quarter on record — as the real estate lockdown and urban flight after the Covid-19 crisis put a freeze on the market. The total number of sales in the second quarter fell by 54%, the largest percentage decline in 30 years, according to… Miller Samuel and Douglas Elliman. The median sales price fell 18% to $1 million, the biggest decline in a decade. There were only 1,147 sales in the quarter — the lowest number on record…”

July 1 – Wall Street Journal (Katherine Clarke): “Standing on a grassy knoll in a tightfitting V-neck T-shirt and gold-rimmed aviators, views of the Los Angeles basin and a cluster of sunbathing women sprawled out behind him, developer Nile Niami looked every bit the king of the city’s megamansion scene. ‘Seven years ago, I had an idea to create the biggest, most expensive house in the urban world,’ he boasted in a video... ‘And I did it.’ Almost. The house—a mammoth, roughly 100,000-square-foot Bel-Air spec mansion listing for $500 million—is still unfinished. Originally slated for completion three years ago, the home, called ‘The One,’ has been beset by years of financing and construction delays.”

Fixed-Income Bubble Watch:

July 1 – Bloomberg (Bill Austin): “JPMorgan led the way in underwriting corporate bonds in the first half of the year as the value of deals jumped 56% to almost $2 trillion. Issuers sold $1.99 trillion of bonds through June compared with $1.28 trillion a year ago…”

July 2 – Wall Street Journal (Heathers Gillers): “The recent surge in Covid-19 cases has brought more bad news for a municipal bond market already reeling from the impact of coast-to-coast shutdowns and record unemployment. On Wednesday, the U.S. Virgin Islands Water and Power Authority narrowly avoided default. The utility got a badly needed reprieve when Chicago-based Nuveen LLC agreed to accept a $34 million payment due Wednesday on Aug. 31 instead. Analysts question whether the territory has enough money on hand to make the payment. The territory isn’t alone in facing pressure. Ten municipal borrowers defaulted for the first time in May and another 10 in June, the highest for those months since 2012…”

July 1 – Reuters (Aaron Weinman): “Issuance across the US syndicated loan market plummeted in the second quarter as the asset class navigated a slow recovery from the novel coronavirus that left borrowers scrambling for cash to keep their businesses alive while economies around the world gradually reopen. Companies from beleaguered sectors, including United Airlines and cruise ship operator Carnival Cruise Line, collectively raised billions of US dollars in new, costly loans to bolster liquidity… Investors, concerned about defaults and downgrades, flocked to quality, preferring deals for companies with higher credit ratings and strong collateral packages.”

June 29 – Wall Street Journal (Matt Wirz): “One of the hardest-hit corners of the global debt markets is showing signs of revival after being virtually shut down by the coronavirus. Sales of new collateralized-loan obligations, or CLOs, have rebounded sharply over the past six weeks as debt investors resume their reach for higher-yielding, riskier debt. Global sales of the funds, which borrow money to buy up bundles of ‘leveraged loans’ made to companies with junk credit ratings, hit $4.9 billion in the first three weeks of June, the fastest pace since early March, according to… LevFin Insights/Fitch Solutions.”

China Watch:

July 2 – Bloomberg: “China… warned of strong countermeasures if the U.S., Australia and the U.K. continued taking actions in response to Beijing’s tough national security law in Hong Kong, saying foreign pressure would ‘never succeed.’ Chinese Foreign Ministry spokesman Zhao Lijian said China ‘deplores and firmly opposes’ the U.S. House of Representatives’ unanimous passing of a bill… that would level sanctions on banks that do business with Chinese officials involved in clamping down on Hong Kong’s pro-democracy protesters. Hundreds more were arrested Wednesday during demonstrations against the law, which came into effect on Tuesday.”

July 1 – Bloomberg: “China’s central bank is slowing down the pace of monetary easing amid signs of economic recovery, handing disappointment to investors who have worried about tightening liquidity and rising bond yields. Since early May, the People’s Bank of China has tolerated a steady increase in money market rates and the highest 10-year sovereign bond yield in five months. And although a fresh liquidity injection was signaled by the government two weeks ago, Governor Yi Gang is taking an unusually long time to deliver. Instead, Yi has told markets to start thinking about an ‘exit’ from the looser financial policies seen earlier this year…”

July 1 – Bloomberg: “China will allow local governments to use money from special local bond sales to help smaller banks replenish their capital, according to a central government statement, citing a state council meeting chaired by Premier Li Keqiang. Local government can use part of the special local government bonds to buy convertible bonds issued by smaller banks… This is part of efforts to help banks lend to small and medium-sized companies…”

June 29 – Reuters (Yawen Chen and Ryan Woo): “China’s factory activity expanded at a stronger pace in June after the government lifted lockdowns and stepped up investment, but persistent weakness in export orders suggests the coronavirus crisis will remain a drag on the economy for some time. The official manufacturing Purchasing Manager’s Index (PMI) came in at 50.9 in June, compared with May’s 50.6… But export orders continued to contract, albeit at a slower pace, with a sub-index standing at 42.6 compared to 35.3 in May…”

June 30 – Bloomberg (Iain Marlow and Peter Martin): “Minutes after reports broke that China passed a sweeping national security law for Hong Kong, Carrie Lam stood in front of a backdrop of the city’s iconic skyline for a weekly press briefing. With legions of reporters clamoring to hear details of the law that could reshape the financial hub’s future, it quickly became clear that Hong Kong’s leader had none. Lam, who previously acknowledged that she hadn’t seen the legislation, couldn’t even confirm that China had approved it before quickly ending the press conference and walking away from the podium.”

Central Bank Watch:

July 3 – Bloomberg (Jana Randow and Piotr Skolimowski): “European Central Bank President Christine Lagarde’s signature crisis-fighting tool is becoming the focus of disagreement among policy makers in what could amount to her first major test of discipline. Governing Council members face a potential rift over how much their emergency bond-purchase program should stay weighted toward weaker countries such as Italy, according to multiple conversations with central-bank officials. While the debate remains hypothetical for now, it could crystallize as the economy emerges from the coronavirus pandemic. The danger is that such friction undermines a program unveiled at the height of the crisis to reassure investors of the ECB’s resolve in defending the integrity of the euro.”

June 28 – Reuters (Joseph Nasr): “The decision on whether Germany should pull out of the European Central Bank’s bond-buying programme lies with the Bundesbank, a judge in Germany’s highest court said… Germany’s Constitutional Court ruled in May that the ECB overstepped its mandate with over 2 trillion euros of government bond purchases, ordering the Bundesbank to quit the scheme unless the ECB can prove proportionality within three months.”

Europe Watch:

June 30 – Associated Press (Geir Moulson): “Germany, the European Union’s biggest economic power, is taking over the rotating presidency of the 27-nation bloc amid massive challenges and huge expectations as the continent grapples with the fallout from the coronavirus pandemic. Berlin’s six months in the EU hot seat will likely be Chancellor Angela Merkel’s last big turn on the international stage. Germany’s time at the EU helm…, is bookended by landmark moments for the bloc. At the beginning, the bloc will seek agreement on a huge package to pull its stricken economy out of the coronavirus crisis, and on its future budget. At the end, former member Britain’s definitive departure from the EU’s single market is expected -- with or without an agreement.”

EM Watch:

June 28 – Bloomberg (Rahul Satija): “Credit scores of several Indian shadow lenders were downgraded by S&P Global Ratings due to liquidity risks amid an economic downturn brought on by the pandemic, triggering a drop in some of their bonds… ‘Liquidity stress could be high for wholesale lenders with large exposure to property developers, companies without a strong parent, or companies with perceived weak governance,’ S&P analysts said… ‘Credit risks remain very high for finance companies in India.’”

July 2 – Bloomberg (Volodymyr Verbyany, Lyubov Pronina and Daryna Krasnolutska): “Ukraine canceled a $1.75 billion Eurobond sale after the head of its central bank unexpectedly stepped down citing sustained political pressure against him and his colleagues. The shock departure… came just as the debt was being priced, with the hryvnia and existing Eurobonds plunging when they opened for trading on Thursday.”

Brazil Watch:

June 30 – Reuters (Jamie McGeever): “Brazil’s national debt and public-sector deficit surged to record highs in May…, reflecting the squeeze on finances from a second full month of social isolation and quarantine to curb the novel coronavirus pandemic. The deterioration in the public accounts supports Treasury Secretary Mansueto Almeida’s comments… that debt will likely exceed 95% of gross domestic product this year and the primary budget deficit is on course to top 11% of GDP. Economy Minister Paulo Guedes went further…, warning that the debt and primary deficit could rise above 100% and 15% of GDP…”

July 1 – Reuters (Sabrina Valle and Gram Slattery): “Some 10,000 employees of Brazil’s Petrobras, or 22% of its workforce, have accepted voluntary buyouts, Chief Executive Roberto Castello Branco said…, as the state-run oil company intensifies its quest to slim down and refocus on core businesses.”

Japan Watch:

June 29 – Reuters (Tetsushi Kajimoto): “Japan’s industrial output fell for a fourth straight month in May to the lowest level since the global financial crisis and the jobless rate hit a three-year high, underscoring the broad economic pain caused by the coronavirus. The world’s third-largest economy is bracing for its worst postwar recession… Ministry of Economy, Trade and Industry (METI) data… showed that factory output fell 8.4% month-on-month in May…”

June 30 – Reuters (Leika Kihara and Tetsushi Kajimoto): “Japanese manufacturers’ confidence sank in the second quarter to levels not seen since the 2009 global financial crisis… The Bank of Japan’s ‘tankan’ survey also showed big non-manufacturers’ mood tanked to a decade low, as lockdown measures put in place through May forced businesses to shut and consumers to stay at home. The dismal readings reinforce expectations Japan is headed for deep recession due to the fallout from the pandemic.”

June 28 – Reuters (Daniel Leussink and Yoshifumi Takemoto): “Retail sales in Japan tumbled at a double-digit pace for the second straight month in May as the coronavirus pandemic and lockdown measures delivered a heavy blow to consumer confidence and economic recovery prospects… Retail sales fell 12.3% in May from a year earlier…”

Leveraged Speculation Watch:

June 29 – Bloomberg (Lilian Karunungan): “The coronavirus outbreak wiped out a decade’s worth of returns for emerging-market carry trades, and more losses may be just around the corner. A decline in yields due to central bank stimulus has diminished the attractiveness of many emerging currencies, reducing their allure as carry targets, according to TD Securities Inc. Developing-nation currencies remain vulnerable to further losses due to uneven inflows and elevated volatility, Bank of America Corp. says. ‘The environment for carry will likely become more difficult in the months ahead if, as is likely, the dollar rallies amid a decline in real yields among many EM currencies,’ said Mitul Kotecha, senior emerging markets strategist at TD Securities in Singapore. ‘A more selective approach to EM FX would likely work better in the second half, with relative value trades preferable.’”

June 28 – Bloomberg (Cormac Mullen): “Fast-money hedge funds are rushing to cover their bearish U.S. stock bets even as the equity rally threatens to break down. Speculative investors bought a net 206,227 S&P 500 Index E-mini contracts in the week to June 23, the most since 2007… Net short positions in the contracts were at their highest in almost a decade as the U.S. equity rebound pushed the benchmark back toward record territory… Short interest as a percentage of shares outstanding in the $266 billion SPDR S&P 500 ETF Trust had fallen to 4.9% Friday from 6.7% at the end of May…”

June 30 – Bloomberg (Daniela Sirtori-Cortina): “Hedge fund liquidations in the first quarter jumped to the highest level in more than four years as the coronavirus pandemic triggered sharp losses across global markets. About 304 funds shuttered in the first three months of the year, the most since the fourth quarter of 2015, according to a Hedge Fund Research Inc. report… That represents an increase of more than 50% from the 198 liquidations in the last quarter of 2019. Meanwhile, about 84 hedge funds opened in the three-month period, the lowest quarterly estimate since the financial crisis…”

July 1 – Bloomberg (Hema Parmar): “Just over a decade after John Paulson shot to fame and fortune, he’s become the latest big-name money manager to quit the hedge-fund business, saying this week he’s converting his firm into a family office. Paulson never managed to sustain the success and notoriety he found by betting against the housing market in the run up to the last financial crisis. Now, in the midst of an another period of economic turmoil, he’s returning outside investors’ money to focus on his own fortune, which the Bloomberg Billionaires Index puts at $4.4 billion. He joins a list of industry legends who have recently called it quits amid a generational shift.”

Geopolitical Watch:

July 2 – Reuters (Ben Blanchard): “Taiwan’s armed forces carried out live fire drills on its west coast… practising ‘enemy annihilation on the shore’, ahead of its main annual exercises later this month and as China steps up military activities near the island it claims. Taiwan has complained in recent months of repeated Chinese air force patrols near it, in some cases crossing into Taiwan-controlled airspace. In April, a Chinese naval flotilla led by the country’s first aircraft carrier passed near Taiwan.”

July 3 – Bloomberg (Nguyen Xuan Quynh): “The U.S. has raised concerns over China’s decision to conduct military exercises in the contested waters around the Paracel Islands in the South China Sea, while Vietnam has lodged a complaint with Beijing over the drills. The exercises were counterproductive to efforts ease tensions and maintain stability, the U.S. Defense Department said in a statement…, warning it would ‘further destabilize the situation in the South China Sea.’”

June 27 – Reuters (Diane Bartz): “U.S. F-22 stealth fighter aircraft scrambled on Saturday to intercept four Russian reconnaissance planes off Alaska, said NORAD, the U.S and Canadian defense organization. The interception of the Russian Tu-142s marks the 10th time this year that Russian military aircraft have been intercepted off Alaska…”

Friday Afternoon Links

[Reuters] European stocks slide as surge in virus cases hits rebound hopes