Friday, August 21, 2020

Weekly Commentary: Moral Hazard Quagmire

The Nasdaq100 (NDX) jumped another 3.5% this week, increasing 2020 gains to 32.3%. Amazon gained 4.3% during the week, boosting y-t-d gains to 77.8% - and market capitalization to $1.626 TN. Apple surged 8.2% this week, increasing 2020 gains to 69.4%. Apple’s market capitalization ended the week at a world-beating $2.127 TN. Microsoft rose 2.0% (up 35.1% y-t-d, mkt cap $1.612 TN). Google rose 4.8% (18.2%, $1.073 TN), and Facebook gained 2.2% (30.1%, $761bn). The NDX now trades with a price-to-earnings ratio of 37.4.

This era will be analyzed and debated for decades to come – if not much longer. Market Bubbles, over-indebtedness, inequality, financial instability and economic maladjustment - festering for years - can no longer be disregarded as cyclical phenomena. Ben Bernanke has declared understanding the forces behind the Great Depression is the “Holy Grail of economics”. It’s ironic. That the Fed never repeats its failure to aggressively expand the money supply in time of crisis is a key facet of the Bernanke doctrine – policy failing he asserts was a primary contributor to Depression-era financial and economic collapse. Yet this era’s unprecedented period of monetary stimulus is fundamental to current financial, economic, social and geopolitical instabilities.

August 18 – Bloomberg (Craig Torres): “The concentration of market power in a handful of companies lies behind several disturbing trends in the U.S. economy, like the deepening of inequality and financial instability, two Federal Reserve Board economists say in a new paper. Isabel Cairo and Jae Sim identify a decline in competition, with large firms controlling more of their markets, as a common cause in a series of important shifts over the last four decades. Those include a fall in labor share, or the chunk of output that goes to workers, even as corporate profits increased; and a surge in wealth and income inequality, as the net worth of the top 5% of households almost tripled between 1983 and 2016. This fueled financial risks and higher leverage, the economists say, as poorer households borrowed to make ends meet while richer ones shoveled their wealth into bonds… ‘The rise of market power of the firms may have been the driving force’ in all of these trends, Cairo and Sim write in the paper.”

My analytical framework’s “money” and Credit focus is at times lacking in capturing non-monetary macro factors. To blame the Fed and global central banks for all that ails the world (while a valid starting point) represents a too simplified view of complex dynamics. To be sure, technological innovation and advancement along with “globalization” continue to exert momentous influence – arguably at an accelerated pace. Indeed, analysis with technological and globalization trends at its focal point could offer a plausible explanation of many macro developments - to the exclusion of policymaking and finance. As the above Fed research asserts, it is increasingly tempting to deflect blame for inequality upon monopoly power.

Isabel Cairo and Jae Sim’s Fed research paper, “Market Power, Inequality, and Financial Instability,” is a technical research piece: “A few secular trends have emerged in the U.S. economy over the last four decades… First, real wage growth has stagnated behind productivity growth over the last four decades and, as a result, the labor income share has steadily declined… Second, the before-tax profit share of U.S. corporations has shown a dramatic increase in the last few decades… Third, income inequality has been exacerbated over the last four decades… Fourth, wealth inequality has also been exacerbated during the last four decades… Finally, the rising household sector leverage has been coupled with rising financial instability…” “We develop a real business cycle model and show that the rise of market power of the firms in both product and labor markets over the last four decades can generate all of these secular trends.”

“In this paper, we quantitatively investigate the role of rising firms’ market power in both product and labor markets in explaining the six secular trends. In so doing, we are inspired by Kalecki (1971), who… predicted that the market power of the firms would increase over time and consequently, labor share would fall in the long-run.”

Understandably, Amazon lost money in its initial years. Losses mounted steadily from 1995, jumping to $720 million by 1999, $1.4 billion in the year 2000 and $567 million in 2001. The company posted a 2003 profit of $35 million on revenues of $5.3bn. Net Income jumped to $589 million in 2004 (pre-tax $365 million), earnings not exceeded until 2008’s $645 million (on revenues of $19.2bn). Amazon reported Net Income last year of $13.18 billion on Revenues of $280.5bn.

What impact did loose monetary policies have on Amazon’s evolution to an online retail juggernaut, crushing traditional retailers and online competitors alike? Enjoying limitless access to virtually free finance, there were no constraints on investment spending (or acquisitions). And as competitors increasingly struggled to retain profitability and affordable finance, there was nothing holding back Amazon’s rein of dominance.

Tesla’s stock price closed the week at $2,050, up almost 400% y-t-d, with a market capitalization of $390 billion, exceeding the combined capitalization of five global auto heavyweights (Ford $26.7bn, GM $41.0bn, Toyota $218bn, Honda $45.3bn, and Daimler $51.8bn). Tesla reported losses of $725 million in 2016, $1.8bn in 2017, $742 million in 2018 and $629 million in 2019. After reporting cumulative profits of about $450 million over the past four quarters, Tesla’s stock currently trades with a price/earnings ratio of 895.

How would Tesla appear these days if not for ongoing aggressive Federal Reserve stimulus and the resulting loosest financial conditions imaginable? Would it have survived? I’m all for zero emissions vehicles – as well as a proponent for Schumpeter’s “creative destruction.” But zero rates, QE, mispriced finance and market Bubbles have created financial and economic distortions with momentous consequences. Years of ultra-cheap finance, booming securities markets, and a most elongated business cycle have created powerful industry behemoths. Pandemic crisis measures now cement monopoly power.

To be sure, whether it is Amazon, Tesla, Netflix, Apple, Microsoft, Google, Facebook or scores of other market darlings, a hot stock price is essential to achieving market dominance. For one, it provides a currency for acquisitions, purchases that often include fledgling competitors. And as these companies grow increasingly dominant in both the markets and real economy, surging stock prices ensure these heavyweights attract and retain the best and brightest talent (further cementing competitive advantage).

There is today no more powerful factor in exacerbating inequality than the stock market. A position (with stock grants) at one of the hundreds of market darlings is today a ticket to extraordinary riches. While tens of millions have lost their jobs and financial security over recent months, those fortunate to be riding the bull market wave have enjoyed spectacular wealth gains.

August 20 - Bloomberg (Liz Capo McCormick): “The unprecedented speed and scale of the Federal Reserve’s buying of Treasuries and mortgage debt to aid a severely impaired bond market has accomplished that without raising the specter of moral hazard, Federal Reserve Bank of New York researchers wrote… Pandemic-sparked volatility in March caused liquidity in the world’s biggest bond market to plunge to its worst since the 2008 financial crisis. The Fed responded with purchases of Treasuries and mortgage securities that peaked at more than $100 billion a day combined. It’s still soaking up about $80 billion of Treasuries and at least $40 billion of mortgage securities a month, and some bond veterans warn that the central bank’s involvement in the market could potentially be encouraging risky behavior, such as excessive borrowing. But a post… in the New York Fed’s Liberty Street blog argued against that. ‘The magnitude of the Desk’s purchase program in 2020 ‘to support the smooth functioning’ of the Treasury and agency MBS markets marked those purchases as highly unusual,’ wrote Kenneth Garbade, a senior vice president in the New York Fed’s Research and Statistics Group, and Frank Keane, a senior policy advisor. But they also say that the tool has been used before and ‘the infrequency of Federal Reserve intervention suggests that relying on the Fed on those rare occasions when markets are in extremis has not materially exacerbated moral hazard.”

The Fed’s stunning pandemic response has greatly exacerbated at least two pernicious dynamics – Inequality and Moral Hazard. Only Fed economists could argue the Federal Reserve’s crisis response measures haven’t stoked risk-taking throughout the markets (and in the real economy). Indeed, any doubt that the Fed would invoke “whatever it takes” to support the securities markets has been allayed.

It is strangely flawed analysis deserving of a response. “The magnitude of the Desk’s purchase program in 2020 ‘to support the smooth functioning’ of the Treasury and agency MBS markets marked those purchases as highly unusual. From an operational perspective the speed and size of the program were unprecedented, yet as a policy response, as the three episodes discussed here show, it was not unique.”

The Fed economists point to three episodes as evidence recent Fed crisis measures were not unique: 1) Fed purchases of $800 million of Treasuries during September 1939, at the start of WWII. 2) Several hundred million Treasury purchases in response to disorderly markets in July 1958. 3) The buying of several billion Treasury securities in May 1970, in response to disorderly markets after President Nixon announced a military escalation with large-scale operations in Cambodia – along with anti-war protests and the Kent State tragedy. The analysis concludes with a bold assertion: “…The infrequency of Federal Reserve intervention suggests that relying on the Fed on those rare occasions when markets are in extremis has not materially exacerbated moral hazard.”

Arguably, the three highlighted historical interventions have little or no bearing whatsoever on today’s Moral Hazard Quagmire.

I would point to more than three decades of serial – and escalating - market interventions and bailouts – including Greenspan’s 1987 post-crash liquidity assurances; early ‘90’s aggressive rate cuts and yield curve manipulation; 1994 GSE quasi-central bank liquidity operations; the 1995 Mexican bailout; Greenspan’s pro-markets “asymmetric” policy responses; the ’98 LTCM bailout to safeguard global derivatives markets; Bernanke’s 2002 “helicopter money” and “government printing press” speeches; the Fed’s post-tech Bubble accommodation of rapid mortgage Credit growth as the primary system reflation mechanism – and the subsequent blatant disregard for mortgage finance and housing excesses; the post-Bubble $1 TN QE program, bailouts and various extraordinary crisis measures in 2008/09; the Bernanke Fed’s coercion of savers into the debt and equities markets; Draghi’s “whatever it takes” 2012 crisis response; Bernanke’s 2013 assurance that the Fed would “push back” against any market tightening of financial conditions (i.e. market corrections); the Bernanke and Yellen Feds’ decade-long aversion to policy normalization; the Powell Fed’s abrupt market instability-induced December 2018 abandonment of policy “normalization”; the September 2019 “insurance” rate cut and QE in the face of record stock prices and generally overheated securities markets.

“Moneyness of Credit” was an analytical focus of mine during the mortgage finance Bubble period. It was a historic Moral Hazard episode, with the government-sponsored enterprises, the Treasury and Federal Reserve all contributing to the perception that federal backing insured mortgage finance would remain safe and liquid (money-like) – irrespective of the risk profile of the underlying mortgages. The view that Washington would never allow a housing (or mortgage finance) bust was fundamental to egregious risk-taking and excess (in both the Real Economy and Financial Spheres).

I coined “Moneyness of Risk Assets” in 2009 upon recognizing that Bernanke was targeting rising equities and corporate Credit markets as the primary mechanism for post-Bubble system reflation. Epic Moral Hazard was unleashed. Markets accurately assumed the Fed had taken a giant leap with respect to market intervention and support – with the greater the degree of Bubble excess the more confident the marketplace became that the Fed wouldn’t risk pulling back.

In the realm of Moral Hazard, last autumn’s “insurance” monetary stimulus was a catastrophic policy blunder. Stress was building in leveraged speculation and within global derivatives markets – air was beginning to leak from the global financial Bubble. The Fed’s aggressive measures quashed the incipient market correction and stoked only greater speculative excess. This ensured the acute market fragility that contributed to March’s near-financial meltdown.

And the financial crisis spurred an unprecedented $3 TN expansion of Fed market liquidity. M2 money supply surged an unparalleled $2.9 TN in only six months, in an ongoing episode of historic Monetary Disorder. And when it comes to Moral Hazard, one cannot overstate the significance of the Fed’s giant leap to purchasing corporate bonds and even ETFs that hold junk bonds. With rates back to zero and the Fed now directly backstopping corporate Credit, “money” has flooded into perceived safe and liquid bond ETFs (in the face of the steepest economic downturn in decades). A debt issuance bonanza ensued.

Once more for posterity: “…The infrequency of Federal Reserve intervention suggests that relying on the Fed on those rare occasions when markets are in extremis has not materially exacerbated moral hazard.”

Rather than infrequent, Fed intervention has become incessant. Market “extremis” has turned commonplace. And any assertion that Fed policies have not materially exacerbated Moral Hazard completely lacks credibility. In fact, it’s foolish.

Friday afternoon from Bloomberg (Lu Wang): “Bears Are Going Extinct in Stock Market’s $13 Trillion Rebound.” “Skeptics are a dying breed in American Equities.” “Going by the short positions of hedge funds, resistance to rising prices is the lowest in 16 years… At the start of August, the median S&P 500 stock had outstanding short interest equating to just 1.8% of market capitalization, the lowest level since at least 2004…” “At 26 times forecast earnings, the S&P 500 was trading at the highest multiple since the dot-com era.” “Consider the internet frenzy 20 years ago. Back then, large speculators, mostly hedge funds, were net short on S&P 500 futures in all but five weeks in 1998 and 1999. Those mostly losing bets were completely squeezed out in 2000. That’s when the crash came.”

For the Week:

The S&P500 added 0.7% (up 5.1% y-t-d), while the Dow closed little unchanged (down 2.1%). The Utilities fell 1.4% (down 7.2%). The Banks sank 6.0% (down 34.5%), and the Broker/Dealers dropped 2.0% (down 0.4%). The Transports slipped 0.2% (up 0.4%). The S&P 400 Midcaps fell 2.0% (down 7.4%), and the small cap Russell 2000 declined 1.6% (down 7.0%). The Nasdaq100 jumped 3.5% (up 32.3%). The Semiconductors were little changed (up 18.9%). The Biotechs dropped 2.9% (up 6.4%). Though bullion slipped $5, the HUI gold index rallied 2.0% (up 39.2%).

Three-month Treasury bill rates ended the week at 0.0875%. Two-year government yields were little changed at 0.14% (down 143bps y-t-d). Five-year T-note yields declined three bps to 0.27% (down 143bps). Ten-year Treasury yields dropped eight bps to 0.63% (down 129bps). Long bond yields fell 12 bps to 1.32% (down 107bps). Benchmark Fannie Mae MBS yields declined three bps to 1.32% (down 137bps).

Greek 10-year yields declined four bps to 1.09% (down 34bps y-t-d). Ten-year Portuguese yields fell four bps to 0.33% (down 11bps). Italian 10-year yields declined four bps to 0.94% (down 47bps). Spain's 10-year yields dropped six bps to 0.30% (down 17bps). German bund yields sank nine bps to negative 0.51% (down 32bps). French yields fell seven bps to negative 0.20% (down 32bps). The French to German 10-year bond spread widened two to 31 bps. U.K. 10-year gilt yields declined four bps to 0.21% (down 62bps). U.K.'s FTSE equities index fell 1.4% (down 20.4%).

Japan's Nikkei Equities Index declined 1.6% (down 3.1% y-t-d). Japanese 10-year "JGB" yields declined two bps to 0.03% (up 5bps y-t-d). France's CAC40 fell 1.3% (down 18.1%). The German DAX equities index lost 1.1% (down 3.7%). Spain's IBEX 35 equities index dropped 2.4% (down 26.9%). Italy's FTSE MIB index fell 1.7% (down 16.2%). EM equities were mixed. Brazil's Bovespa index increased 0.2% (down 12.2%), while Mexico's Bolsa dropped 2.2% (down 12.5%). South Korea's Kospi index sank 4.3% (up 4.9%). India's Sensex equities index rallied 1.5% (down 6.8%). China's Shanghai Exchange added 0.6% (up 10.8%). Turkey's Borsa Istanbul National 100 index gained 2.4% (down 3.0%). Russia's MICEX equities index fell 2.2% (down 1.7%).

Investment-grade bond funds saw inflows of $5.130 billion, while junk bond funds posted outflows of $301 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates rose three bps to 2.99% (down 56bps y-o-y). Fifteen-year rates jumped eight bps to 2.54% (down 49bps). Five-year hybrid ARM rates added a basis point to 2.91% (down 41bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down 12 bps to 3.05% (down 100bps).

Federal Reserve Credit last week gained $54.2bn to $6.965 TN, with a 50-week gain of $3.243 TN. Over the past year, Fed Credit expanded $3.238 TN, or 86.9%. Fed Credit inflated $4.154 Trillion, or 148%, over the past 406 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week gained $9.6bn to $3.417 TN. "Custody holdings" were down $53.9bn, or 1.6%, y-o-y.

M2 (narrow) "money" supply surged $144bn last week to a record $18.402 TN, with an unprecedented 24-week gain of $2.895 TN. "Narrow money" surged $3.480 TN, or 23.3%, over the past year. For the week, Currency increased $6.7bn. Total Checkable Deposits dropped $82.1bn, while Savings Deposits surged $233bn. Small Time Deposits declined $6.6bn. Retail Money Funds fell $6.9bn.

Total money market fund assets declined $10.6bn to $4.544 TN. Total money funds surged $1.166 TN y-o-y, or 34.5%.

Total Commercial Paper slipped $2.8bn to $1.007 TN. CP was down $123bn, or 10.9% year-over-year.

Currency Watch:

August 16 – Financial Times (Dimitri Simes): “Russia and China are partnering to reduce their dependence on the dollar — a development some experts say could lead to a ‘financial alliance’ between them. In the first quarter of 2020, the dollar’s share of trade between Russia and China fell below 50% for the first time on record… The greenback was used for only 46% of settlements between the two countries. At the same time, the euro made up an all-time high of 30%, while their national currencies accounted for 24%, also a new high.”

August 19 – Axios (Dion Rabouin): “Experts are again sounding the alarm that the dollar could lose its role as the world’s reserve currency. This is a frequent and historically unconsummated concern — but things may actually be different this time. What's happening: New data from the Bank of Russia show the country now receives more euros than dollars for its exports to China, with the share of goods purchased in euros rising from 0.3% at the start of 2014 (and just 1.3% in the second quarter of 2018) to nearly 51% at the end of Q1 this year. The share of euros Russia receives for exports to the European Union increased to 43% from 38% at the end of last year…”

For the week, the U.S. dollar index was little changed at 93.201 (down 3.4% y-t-d). For the week on the upside, the South African rand increased 1.4%, the Japanese yen 0.8%, and the Canadian dollar 0.7%. For the week on the downside, the Brazilian real declined 3.5%, the Norwegian krone 1.4%, the Swedish krona 1.2%, the euro 0.4%, the Swiss franc 0.3%, the South Korean won 0.1%, the Australian dollar 0.1% and the Singapore dollar 0.1% The Chinese renminbi increased 0.45% versus the dollar this week (up 0.63% y-t-d).

Commodities Watch:

The Bloomberg Commodities Index gained 0.9% (down 11.7% y-t-d). Spot Gold slipped 0.2% to $1,940 (up 27.8%). Silver rallied 2.4% to $26.877 (up 50.0%). WTI crude added 33 cents to $42.34 (down 31%). Gasoline rose 3.2% (down 24%), and Natural Gas jumped 3.9% (up 12%). Copper advanced 1.8% (up 5%). Wheat surged 5.0% (down 4%). Corn increased 0.7% (down 12%).

Coronavirus Watch:

August 19 – Wall Street Journal (Matthew Dalton, Ruth Bender and Margherita Stancati): “Coronavirus infections are surging again across much of Europe and governments are racing to prevent a full-fledged second wave of the pandemic —without resorting to the kind of broad lockdowns that devastated their economies in the spring. The seven-day moving average of reported new daily cases has more than doubled since the end of July in the five largest European countries, nearing 11,000. That is the biggest sustained rise on the continent since it beat back the virus’s initial spike in March and April. Outbreaks are multiplying around vacation hot spots, shopping centers, parties and some workplaces. Authorities are also reporting that many cases have no known origin…”

Market Instability Watch:

August 18 – Reuters (Gertrude Chavez-Dreyfuss): “The S&P 500 closed at a record high on Tuesday, rebounding from huge losses triggered by the coronavirus pandemic and crowning one of the most dramatic recoveries in the index’s history. Trillions of dollars in fiscal and monetary stimulus have made Wall Street flush with cash, pushing yield-seeking investors into equities. Amazon and other high growth technology-related stocks have been viewed as the most reliable to ride out the crisis. The S&P record confirms, according to a widely accepted definition, that Wall Street’s most closely followed index entered a bull market after hitting its pandemic low on March 23. It has surged about 55% since then. That makes the bear market that started in late February the S&P 500’s shortest in its history.”

August 18 – Bloomberg (Lu Wang): “From professional investors to market handicappers, it’s becoming next to impossible to stay bearish in the face of the rally in equities. Fund managers who went to cash when the pandemic broke out have been forced back in to stocks, pushing measures of positioning toward historical highs. Wall Street forecasters, some of whom threw up their hands in surrender four months ago, are pushing up targets each day. Even Goldman Sachs…, which once warned that bad loans and falling dividends could drive a second leg of the bear market, now sees another 6% of upside in the S&P 500. While testament to the career pressure missing a $12 trillion rally creates, the unanimity has become one of the biggest risk factors in markets right now, with positions getting crowded as everyone is forced to buy. A custom gauge of sentiment compiled by Citigroup Inc. showed ‘euphoria’ just hit the highest level since the dot-com era.”

August 17 – Bloomberg (Skyler Rossi): “U.S. corporate investment-grade issuance reached a record $1.346 trillion Monday, surpassing 2017’s full-year total in less than eight months amid seemingly endless investor appetite following the Federal Reserve’s unprecedented steps to bolster liquidity. The Fed’s March pledge to use its near limitless balance sheet to buy corporate bonds has lifted nearly every corner of the market, allowing struggling cruise lines, plane makers and hotels to tap much needed financing while providing top-rated companies…. access to some of the cheapest funding ever seen.”

August 18 – Financial Times (Joe Rennison): “Investors’ ravenous appetite for higher-yielding assets is boosting some of the riskiest classes of bonds… The additional yield above US government debt on corporate bonds with a triple C rating or lower, placing them near the bottom of the ladder, has fallen more than 1 percentage point to 12.38 percentage points over the past month… The debt has done much better than the wider high-yield bond market, often referred to as ‘junk’, where the average spread has dropped 0.45 percentage points to 5.34 percentage points. It is a sign that yield-hungry investors are beginning to venture down to the very riskiest companies that have underperformed since the market trough in March, and still offer the potential of juicy returns.”

August 16 – Wall Street Journal (Gunjan Banerji and Gregory Zuckerman): “The presidential election is three months away, but some traders are preparing for the possibility that prolonged political uncertainty will stoke stock-market mayhem. The investors are going beyond the normal hedging ahead of a potential change in power in Washington. Instead they are betting on volatility and a possible market tumble later in the year. Among the concerns expressed by some: speculation that President Trump could try to delay the election or disrupt mail-in voting, as well as the chance that a result remains unclear for weeks after polls close. The election worries amplify existing concerns about the weak economy, a possible second wave of coronavirus infections in the fall and the highflying market.”

August 18 – Bloomberg (Jill Ward and Anil Varma): “The U.S. dollar is driving a wedge between volatility expectations for global currencies and U.S. stocks. The greenback’s plunge last month jolted currencies so profoundly that a gauge of expected swings in the market is no longer moving in tandem with a similar measure for U.S. equities. So much so that the 40-day correlation between the JPMorgan Global FX Volatility Index and the VIX Index of U.S. stock swings fell below zero this month to the lowest since 2009. ‘It’s a reminder that dollar moves could be an outsized driver of risk, sentiment and narrative over the next few months, if they continue with the recent volatility experiences,’ said… John Roe, head of multi asset funds at Legal & General Investment Management.”

August 21 – Bloomberg (Paula Seligson): “After tapping the bond market at a record-shattering pace in recent months, Corporate America is more indebted today than ever before. And while much of that fresh cash -- more than $1.6 trillion in total -- helped scores of companies stay afloat during the pandemic lockdown, it now threatens to curb an economic recovery that was already showing signs of sputtering. Many companies will have to divert even more cash to repaying these obligations at the same time that their profits sink, leaving them with less to spend on expanding payrolls or upgrading facilities in months ahead. The over-leveraging of America’s corporate sector is not a brand-new development… It’s been building for more than a decade, ever since the last crisis… prompted the Federal Reserve to pump unprecedented amounts of cash into the economy, a policy tool that it has taken to new heights during the pandemic as it has supported corporate credit markets.”

August 17 – Bloomberg (Sonali Basak): “Robinhood Financial raised new funding at a valuation of about $11.2 billion, as Dan Sundheim’s D1 Capital Partners poured $200 million into the online trading company. The seven-year-old firm was most recently valued at $8.6 billion during its July funding round, before it posted record trading figures for June. It revealed daily average revenue trades of 4.31 million for the month, greater than any of its publicly traded rivals… Robinhood’s surge during the Covid-19 pandemic has garnered both fascination and criticism from Wall Street…”

August 19 – Bloomberg (Marianna Aragao): “S&P Global Ratings expects the European trailing-12-month speculative-grade corporate default rate to rise to 8.5% by June 2021 from 3.35% in the same month this year, the firm said in an Aug. 18 report. The baseline forecast implies 62 defaults from speculative-grade companies. In a pessimistic scenario, the default rate would reach 11.5%, 3.5% in an optimistic scenario…”

Global Bubble Watch:

August 21 – Wall Street Journal (Paul Hannon): “Europe’s economic recovery slowed in August while Japan saw another drop in activity, an indication that the return to pre-pandemic levels of global output is likely to be slow and uneven for as long as fresh outbreaks of the novel coronavirus continue to threaten. Economies around the world saw record contractions in the three months through June as governments imposed lockdowns… With many of those restrictions having been lifted as the second quarter drew to a close, economists expect a big rebound in activity during the three months through September. However, surveys of purchasing managers at businesses in Europe and Japan released Friday suggest that the rebound may be smaller than hoped for…”

August 18 – CNBC (Elliot Smith): “Foreign firms looking to move their manufacturing processes outside of China in the wake of coronavirus could face $1 trillion in costs over five years, according to new Bank of America research… Even before the pandemic, BofA’s survey of global analysts found that companies were shifting away from globalization and towards a more localized approach when it came to their supply chains. This was due to a host of factors that threatened the network that supplies modern factories, including trade disputes, national security concerns, climate change and the rise of automation.”

Trump Administration Watch:

August 18 – Bloomberg: “President Donald Trump said he called off last weekend’s trade talks with China, raising questions about the future of a deal that is now the most stable point in an increasingly tense relationship. ‘I canceled talks with China’; Trump said… ‘I don’t want to talk to China right now.’ The phase-one trade deal, which came into force in February, had called for discussions on implementation of the agreement every six months. Chinese Vice Premier Liu He was supposed to hold a video conference call with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, but it was postponed indefinitely.”

August 17 – Wall Street Journal (Dan Strumpf and Katy Stech Ferek): “The U.S. Commerce Department issued new rules curbing Huawei Technologies Co.’s access to foreign-made chips, expanding the Trump administration’s restrictions on the Chinese telecom company’s link to crucial components. The new rules prohibit non-U.S. companies from selling any chips made using U.S. technology to Huawei without a special license. The rule covers even widely available, off-the-shelf chips made by overseas firms, placing potentially severe new limits on Huawei’s ability to source parts.”

August 19 – Bloomberg (Kevin Cirilli and Shelly Banjo): “The U.S. State Department is asking colleges and universities to divest from Chinese holdings in their endowments, warning schools… to get ahead of potentially more onerous measures on holding the shares. ‘Boards of U.S. university endowments would be prudent to divest from People’s Republic of China firms’ stocks in the likely outcome that enhanced listing standards lead to a wholesale de-listing of PRC firms from U.S. exchanges by the end of next year,’ Keith Krach, undersecretary for economic growth, energy and the environment, wrote in the letter addressed to the board of directors of American universities and colleges… ‘Holding these stocks also runs the high risks associated with PRC companies having to restate financials,’ he said.”

August 20 – Bloomberg (Saleha Mohsin, Justin Sink, and Mario Parker): “President Donald Trump threatened… that if he’s re-elected, he’ll impose tariffs on U.S. companies that refuse to move jobs back to the country from overseas. ‘We will give tax credits to companies to bring jobs back to America, and if they don’t do it, we will put tariffs on those companies, and they will have to pay us a lot of money,’ Trump said during a campaign event in Pennsylvania.”

Federal Reserve Watch:

August 20 – Financial Times (Martin Arnold and Eva Szalay): “Four of the world’s leading central banks have further scaled back the US dollar liquidity they offer via emergency swap lines with the Federal Reserve, in the latest illustration of the global financial system’s recovery from the market panic caused by coronavirus earlier this year. The European Central Bank, the Bank of England, the Bank of Japan and the Swiss National Bank said… they would offer short-term dollar funding via the Fed’s swap lines only once a week, instead of three times, because of ‘continuing improvements in US dollar funding conditions and the low demand’ at recent auctions.’”

August 20 – Reuters (Balazs Koranyi): “The U.S. Federal Reserve will cut the number of seven-day swap operations with major central banks to one tender per week from three from Sept. 1 as funding conditions have improved, the European Central Bank said… The Fed will, however, maintain its schedule for 84-day tenders with the Bank of England, the Bank of Japan, the ECB and the Swiss National Bank at one per week, the ECB said. The Fed increased the frequency of its dollar liquidity operations at the height of the coronavirus crisis…”

August 19 – CNBC (Jeff Cox): “Federal Open Market Committee members expressed concern at their latest meeting over the future of the economy, saying that the coronavirus likely would continue to stunt growth and potentially pose dangers to the financial system. At the July 28-29 session, the Federal Reserve’s policymaking arm voted to keep short-term interest rates anchored near zero, citing an economy that was falling short of its pre-pandemic levels. Officials at the meeting ‘agreed that the ongoing public health crisis would weigh heavily on economic activity, employment, and inflation in the near term and was posing considerable risks to the economic outlook over the medium term,’ the meeting summary said.”

August 19 – Bloomberg (Christopher Condon, Matthew Boesler, and Craig Torres): “U.S. central bankers backed off from an earlier readiness to clarify their guidance on the future path of interest rates when they met in July, according to a record of the gathering… ‘With regard to the outlook for monetary policy beyond this meeting, a number of participants noted that providing greater clarity regarding the likely path of the target range for the federal funds rate would be appropriate at some point,’ minutes of the Federal Open Market Committee’s July 28-29 meeting showed.”

August 19 – Reuters (Howard Schneider): “A stock market hitting record highs in a pandemic might seem out of touch, but St. Louis Federal Reserve President James Bullard says Wall Street has got it right and he expects the United States to do better than many forecasters anticipate as businesses and households learn to manage coronavirus risks. Though the situation seems chaotic, with federal, state and local officials laying out competing ideas about what activities are safe and under what conditions, Bullard said that shows adaptation in process, and will allow the country to fine-tune behavior and economic activity to what a ‘persistent’ health threat allows. ‘I think Wall Street has called this about right so far,’ he said… ‘There is a lot of ability to mitigate and proceed and most of the data has surprised to the upside...So I think we are going to do somewhat better… I expect more businesses to be able to operate and more of the economy to be able to run...successfully in the second half of 2020.’”

August 20 – Bloomberg (Christopher Condon): “A group of former Federal Reserve officials and staffers, including former Vice Chairman Alan Blinder, published an open letter… calling on the U.S. Senate to reject President Donald Trump’s nomination of Judy Shelton to the central bank’s Board of Governors. ‘Ms. Shelton’s views are so extreme and ill-considered as to be an unnecessary distraction from the tasks at hand,’ the letter said.”

U.S. Bubble Watch:

August 18 – New York Times (Matt Phillips): “Widespread economic devastation, severe unemployment and a grim prognosis for recovery have not stopped the stock market’s exuberance. And on Tuesday, that undying optimism propelled the market to a new high, pushing it past a milestone reached only six months ago, when the coronavirus was just beginning its harrowing journey across the United States. ‘This market is nuts,’ said Howard Silverblatt, senior index analyst for S&P Dow Jones Indices. To those outside Wall Street, the market’s rise may appear inexplicable given the human and economic toll of the virus, and a stalemate in Washington that has paralyzed efforts to provide more relief… Still, investors have cast the nearly relentless drumbeat of bad news aside to focus on any signs that the worst might be over. They have also been emboldened by the Federal Reserve’s steadfast support of the markets and unwavering embrace of low interest rates.”

August 17 – Bloomberg (Prashant Gopal): “Federal Housing Administration mortgages… now have the highest delinquency rate in at least four decades. The share of late FHA loans rose to almost 16% in the second quarter, up from about 9.7% in the previous three months and the highest level in records dating back to 1979… The delinquency rate for conventional loans, by comparison, was 6.7%. Millions of Americans stopped paying their mortgages after losing jobs in the coronavirus crisis. Those on the lower end of the income scale are most likely to have FHA loans, which allow borrowers with shaky credit to buy homes with small down payments. For now, most of them are protected from foreclosure by the federal forbearance program… As of Aug. 9, about 3.6 million homeowners were in forbearance, representing 7.2% of loans…”

August 20 – CNBC (Fred Imbert): “The number of people filing for unemployment benefits last week was greater than expected, raising concern about the state of the economy as lawmakers struggle to move forward on a new pandemic stimulus package. …Initial jobless claims for the week ended Aug. 15 came in at 1.106 million. Economists polled by Dow Jones expected a total of 923,000. Initial claims for the previous week were also revised higher by 8,000 to 971,000. Last week marked the first time in 21 weeks that initial claims came in below 1 million.”

August 18 – Bloomberg (Reade Pickert): “U.S. home construction starts increased in July by more than forecast and applications to build surged by the most in three decades, indicating builders are responding to robust housing demand fueled by record-low interest rates. Residential starts jumped by 22.6%, the most since October 2016, to a 1.5 million annualized rate from a month earlier… Applications to build, a proxy for future construction, increased 18.8%, the most since January 1990.”

August 17 – Reuters (Dan Burns and Jonnelle Marte): “U.S. home builder confidence rose for a third straight month in August to match its highest level ever as record-low interest rates spur buyer traffic, …the latest indication the housing market is a rare bright spot in the economic crisis triggered by the coronavirus pandemic.”

August 19 – New York Times (Jennifer Valentino-DeVries, Ella Koeze and Sapna Maheshwari): “Strict lockdowns ended weeks ago, but many people across the country are still avoiding malls, restaurants and other businesses. The shift in behavior points to a reshaping of American commerce, fueling questions about the strength and speed of the economic recovery as the coronavirus continues to spread. Through the end of last week, daily visits to businesses were down 20% from last year, according to a New York Times analysis of foot traffic data from the smartphones of more than 15 million people. After an initial plunge in the spring, consumer habits have been slow to recover…”

August 20 – Bloomberg (Jennifer Surane): “U.S. credit-card lenders are beginning to pull back on the business even as consumers keep up with their bills during the coronavirus pandemic. Total credit on new accounts slumped 8.3% in the second quarter from a year earlier, to $78 billion, the first decline in more than two years, according to… TransUnion. The average credit line issued for new accounts fell 9% to $5,257, with declines across all tiers of borrower riskiness…”

August 19 – Financial Times (Richard Henderson and Eric Platt): “Stock buybacks by US companies nearly halved in the second quarter to the lowest level in eight years as businesses grappled with a sharp rise in uncertainty and a swift decline in profits. Provisional figures show the total spent on buybacks by companies in the S&P 500 was about $89.7bn, according to S&P Dow Jones Indices, down 46% from the same quarter last year.”

August 17 – Bloomberg (Eric Roston): “The current heatwave broiling Californians like no event in decades is also elevating the risk for another potential disaster in the weeks ahead: wildfires. While heat and dry conditions have contributed to the Lake and Ranch fires burning now in Los Angeles County, fear of larger blazes looms in the weeks ahead. As a result of climate change, California sees more than twice as many fall days with ‘fire weather’ as it did a generation ago. The current heatwave raises the odds of ‘wildfires later in 2020, that’s for sure,’ says Daniel Swain, a climate scientist at UCLA and the National Center for Atmospheric Research.”

Fixed Income Watch:

August 17 – Bloomberg (Amanda Albright): “Businesses that flooded the municipal-bond market with debt sold through government agencies are helping drag the industry into its biggest wave of financial distress in nearly a decade… This year, more than 50 municipal-bond issues worth $5 billion have defaulted, the most since 2011, according to Municipal Market Analytics… Nearly two dozen more have drawn on reserve funds since the start of the year to cover debt payments when revenue fell short, a potential sign of more stress to come, according to data compiled by Bloomberg.”

August 18 – Bloomberg (Donal Griffin and Yalman Onaran): “The pile of the murkiest trades at global banks, long the bane of regulators, got much bigger during Covid-19. Lenders including Barclays Plc, Citigroup Inc., BNP Paribas SA and Societe Generale SA reported a surge of more than 20% in their most opaque assets during the chaotic first half of 2020… The banks are now sitting on hard-to-value trades that they say are worth about $250 billion, including categories that gained notoriety during the financial crisis, such as complex debt securities. There’s no single, clear-cut explanation for the jump in these so-called Level 3 assets. For some, the surge was a natural consequence of pandemic turmoil: safer assets became difficult to price as markets froze, and risk managers had to shunt them into a different category, according to analysts and people familiar with the situation. Others are likely to have added to their riskiest bets after seeing the potential for a windfall in the chaos, said Jerome Legras, managing partner at Axiom Alternative Investments.”

China Watch:

August 20 – Reuters (Yawen Chen and Ryan Woo): “China will take ‘all necessary measures” to protect its firms’ legitimate interests, the Commerce Ministry said…, in response to the U.S. move this week to further tighten restrictions on Huawei Technologies Co… ‘The U.S. side should immediately correct its wrong behaviours,’ the ministry said…”

August 20 – Reuters (Yawen Chen and Ryan Woo): “China and the United States have agreed to hold trade talks ‘in the coming days’ to evaluate the progress of their Phase 1 trade deal six months after it took effect in February, the Chinese commerce ministry said…”

August 16 – Reuters (Winni Zhou and Andrew Galbraith): “China’s central bank… rolled over maturing medium-term loans while keeping borrowing costs unchanged for the fourth straight month. The People’s Bank of China (PBOC) said… it was keeping the rate on 700 billion yuan ($100.74bn) worth of one-year medium-term lending facility (MLF) loans to financial institutions steady at 2.95% from previous operations… The fresh fund injection well exceeds two batches of MLF loans that are set to expire in August, with a total volume of 550 billion yuan.”

August 17 – Financial Times (Sun Yu and Yuan Yang): “Amanda Wang’s family businesses — a call centre and two restaurants in Beijing — are grappling with a plunge in revenue following the coronavirus outbreak. She imposed a company-wide 30% pay cut on about 120 workers in July even after receiving tax cuts and employment subsidies from the government designed to help companies survive the pandemic. ‘My biggest challenge is a lack of business and policy support [from the government] isn’t helpful [on this],’ says Ms Wang, referring to her decision to cut workers’ salaries. ‘I have to make savings where I can.’ Yet Ms Wang had no qualms about renewing her annual Rmb150,000 ($21,000) membership at a downtown beauty salon in the Chinese capital. ‘I am not going to cut corners on my basic needs,’ says the 41-year-old, who in July sold one of her six apartments in Beijing for a profit of Rmb3m. ‘There are ways to make up for the income loss.’ …The contrast between the two Beijing residents highlights China’s unbalanced two-speed economic recovery. While the nation’s wealthier citizens have so far emerged largely unscathed financially from the pandemic, many on low incomes are struggling.”

August 20 – Reuters (Ma Rong and Tony Munroe): “China’s outstanding loans to small businesses stood at 13.7 trillion yuan ($1.98 trillion) by the end of July, up 27.5% from a year earlier, the central bank said… Interest rates on those loans averaged 5.27% in July, 0.91 percentage points lower than a year ago, the People’s Bank of China said…”

August 18 – Bloomberg: “Chinese households are putting more of their savings into property but still holding back on discretionary spending, as a slow and fragile economic recovery keeps confidence in check. That is the insight from the latest data ranging from property spending to dining out, gambling to travel, as part of a regular, comprehensive look at the health of the Chinese consumer… Retail sales shrank 1.1% in July from a year ago, according to data released last week. In the first seven months of this year, total sales were down almost 10% from 2019.”

August 18 – Reuters (Andrew Galbraith): “Rating agency S&P Global warned… China’s economic recovery from the novel coronavirus pandemic could be at risk as a combination of rising interest rates and slowing inflation pushes real rates higher. An unbalanced recovery, weak private demand and excessive market optimism have combined to drive real rates up, increasing debt-servicing burdens even as financial conditions tighten, S&P economists Shaun Roache and Vishrut Rana said in a report.”

August 17 – Financial Times (Kathrin Hille): “China’s share of global exports has been hit by its trade dispute with the US which — together with the pandemic, corporate governance demands and the rise of artificial intelligence — is pushing multinational companies to reduce their dependency on the Asian powerhouse. Last year Chinese exports of 1,200 products accounted for 22% of the world’s exports, 3 percentage points down on the previous year, according to a new study by Baker McKenzie… and Silk Road Associates… For consumer goods the country’s global market share fell by 4 percentage points to 42%. The findings come as Washington targets China with wide-ranging measures aimed at weaning itself off China-based supply chains and hobbling Beijing’s ambitions to become a global tech power.”

August 15 – Reuters (Ryan Woo and Yingzhi Yang): “China must guard against any rebound in off-balance sheet lending in the so-called shadow banking sector, and must dispose of non-performing assets as soon as possible, the head of the country’s banking and insurance regulator said… In recent years, China has clamped down on shadow banking, concerned about the hidden risks in the high volume of complex and potentially risky loans in the sector. But as a weakening economy puts pressure on businesses and individuals, authorities fear shadow lending and illegal loans might surge.”

August 18 – Wall Street Journal (Chun Han Wong): “A senior ally of Chinese leader Xi Jinping called for a Mao-style purge of China’s domestic-security apparatus last month, saying it was time to ‘turn the blade inwards and scrape the poison off the bone.’ The cleansing commenced swiftly. Within the first week after the call to action, Communist Party enforcers had launched investigations into at least 21 police and judicial officials, according to a media tally cited by the party’s top law-enforcement commission. Dozens more have since been taken down, including the police chief of Shanghai, the most senior target thus far, and cadres who have won awards for good performance. The rash of investigations marks the first time that Mr. Xi has unleashed a sweeping and systematic clean-up of the country’s powerful domestic-security apparatus. His push to forge police, prosecutors and judges who are ‘absolutely loyal, absolutely pure and absolutely reliable’—as officials running the campaign have demanded—points to thorny concerns that Mr. Xi faces at home even as he seeks to slow a downward spiral in relations with the U.S.”

August 19 – Reuters (Samuel Shen and Andrew Galbraith): “China reported the largest number of new stock investors in five years in July, as millions of individuals rushed into a buoyant share market, boosting trading turnover and brokerage earnings. The number of new investors in mainland Chinese shares totaled 2.4 million in July, the most since June 2015, the peak of China’s massive stock bubble that later burst…”

EM Watch:

August 18 – Wall Street Journal (Caitlin Ostroff): “The dollar is having a bad year, but some emerging markets’ currencies have it worse, with no reprieve in sight. The Brazilian real, the South African rand and the Turkish lira have lost about 20% of their value against the dollar this year, putting the former two on course for their biggest annual declines since 2015. The Russian ruble and the Mexican peso have dropped roughly 15%. The rout has occurred despite the dollar’s slide against major world currencies to its weakest level in over two years.”

August 18 – Bloomberg (Kartik Goyal): “Global funds used to clamor for more access to India’s debt markets. The high-yielding bonds are now the least popular in Asia as the nation struggles to contain the coronavirus pandemic. Overseas funds have sold $14.6 billion of Indian corporate and government bonds this year… Indonesia has also seen outflows, but almost half that of India, while South Korea and Malaysia have attracted inflows.”

Europe Watch:

August 18 – Financial Times (Martin Arnold): “Europe will only fully recover from the economic impact of coronavirus if governments use their vastly increased debts to invest in young people, innovation and research, Mario Draghi has said in his first speech since leaving the European Central Bank last year. Mr Draghi… said debt levels would be high for a long time, but they would only be sustainable if ‘good debt’ was ‘used for productive purposes’ instead of ‘bad debt’ being used for unproductive purposes. ‘Low interest rates are not in themselves a guarantee of sustainability; the perception of the quality of the debt incurred is just as important… The more that perception deteriorates, the more uncertain our framework of references will become, which would jeopardise employment, investment and consumption.’”

August 18 – Reuters (Inti Landauro and Jose Rodriguez): “Spanish public debt rose to a new record of 1.29 trillion euros ($1.53 trillion) in June, mainly lifted by spending linked to the impact of the coronavirus pandemic… The total debt rose by 32 billion euros from the preceding month, pushing the debt-to-GDP ratio to 110%... The government revised the 2020 budget deficit forecast to 10.34% of GDP in May and said it expected the debt ratio to rise to 115.5% of GDP at the end of 2020.”

August 17 – Financial Times (Victor Mallet and Martin Arnold): “Desiccated pastures in France’s Loire valley, campsites near Marseille destroyed by a forest fire, hosepipe bans in western Germany and fish farms in Saxony running short of fresh water: parts of continental Europe have been struck by drought for the third year in a row. While summer thunderstorms have provided sporadic relief for parched fields in the past week, farmers, scientists and politicians say global warming is triggering multiyear droughts — 2018 and 2019 were also dry — and changing the climate of continental Europe in ways that will affect agriculture and the rest of the economy. This year’s July was the driest in France since 1959…, while the average temperature between January and July was the highest since its records began.”

Japan Watch:

August 16 – Reuters (Leika Kihara and Tetsushi Kajimoto): “Japan was hit by its biggest economic slump on record in the second quarter as the coronavirus pandemic emptied shopping malls and crushed demand for cars and other exports… The third straight quarter of declines knocked the size of real gross domestic product (GDP) to decade-low levels, wiping out the benefits brought by Prime Minister Shinzo Abe’s ‘Abenomics’ stimulus policies deployed in late 2012… The world’s third-largest economy shrank an annualised 27.8% in April-June…”

August 18 – Reuters (Leika Kihara and Tetsushi Kajimoto): “Japan’s exports extended their double-digit slump into a fifth month in July as the coronavirus pandemic took a heavy toll on auto shipments to the United States… Total exports fell 19.2% in July from a year earlier, roughly in line with market expectations for a 21.0% decrease… It was, however, smaller than a 26.2% drop in June… Shipments to the United States plunged 19.5% in the year to July as demand for engines and automobile remained weak…”

Leveraged Speculation Watch:

August 17 – Bloomberg (Masaki Kondo and David Ramli): “Hedge funds turned bearish on the dollar for the first time since May 2018, an indication that a summer slump in the world’s reserve currency will be prolonged. Net futures and options positions held by leveraged funds against eight other currencies dropped to minus 7,881 contracts last week… The swing was driven by growing bullish bets on the euro.”

Geopolitical Watch:

August 17 – Financial Times (Gideon Rachman): “When a familiar and comfortable situation changes dramatically, the human instinct is to believe that things will soon get back to normal. The idea that life may have changed permanently is too unsettling to deal with. We are seeing this mentality with Covid-19. We are also witnessing it as business responds to the downward spiral in US-Chinese relations. After 40 years of ever deeper economic integration between the US and China, it is hard to imagine a real severance of ties. Many executives believe that politicians in Washington and Beijing will patch up their differences when they realise the true implications of ‘decoupling’ the world’s two largest economies. The hope is that a trade deal will stabilise things, even if it has to wait until after the US presidential election. But that is too complacent. The reality is that decoupling has much further to go. It is already spreading beyond technology and into finance. In time, it will affect every large industry, from manufacturing to consumer goods.”

August 20 – Reuters (Ben Blanchard): “China should not underestimate Taiwan’s resolve to defend itself, and China’s military threats will only cause Taiwan’s people to be even more resolute, the island’s defence ministry said… responding to repeated Chinese threats. China has stepped up its military activity around the democratic island Beijing claims as sovereign Chinese territory, sending fighter jets and warships on exercises close to Taiwan, including last week when the U.S. health secretary was in Taipei.”

August 14 – Bloomberg (Alfred Liu): “The U.S. Navy sent an aircraft carrier strike group to the South China Sea Friday to conduct maritime air defense operations amid rising tensions between Washington and Beijing. The group led by the USS Ronald Reagan conducted flight operations with fixed and rotary wing aircraft, and high-end maritime stability operations and exercises… ‘Integration with our joint partners is essential to ensuring joint force responsiveness and lethality, and maintaining a free and open Indo-Pacific,’ Joshua Fagan, an air operations officer aboard the USS Ronald Reagan, said…”

August 19 – Reuters (Yew Lun Tian): “China’s military said… the latest U.S. navy sailing near Chinese-claimed Taiwan was ‘extremely dangerous’ and stirring up such trouble was in neither country’s interests. The U.S. guided-missile destroyer USS Mustin sailed through the narrow and sensitive Taiwan Strait on Tuesday, the U.S. navy said, in what have become relatively routine trips in recent months, though they always anger China.”

Friday Evening Links

[Reuters] S&P 500, Nasdaq end at records after upbeat business surveys

[Reuters] Oil falls 1% on sluggish coronavirus recovery, supply concerns

[Reuters] Dollar beats euro for first week since mid-June after bullish data

[AP] Low rates and heavy buyer demand send US home sales surging

[CNBC] Coronavirus live updates: U.S. hotspots spread to Midwest; former FDA chief warns of a ‘third act’ of the virus

[Bloomberg] Bears Are Going Extinct in Stock Market’s $13 Trillion Rebound

[FT] Pandemic triggers wave of billion-dollar US bankruptcies

[FT] US-China: is Huawei ‘too big to fail’?