Friday, November 6, 2020

Weekly Commentary: Critical Juncture

We’ve grown accustomed to the “new normal”: Stock market ebullience even as the country suffers through a distressing confluence of hardships. The S&P500 surged 7.3% this week, the strongest weekly advance since April. Though the 2000 recount and supreme court decision were not without drama and enmity, when has our country struggled through such a distressing election season?

As Democrats headed into the election with commanding leads in most polls, a malleable bullish narrative shifted to a “Blue Wave” (and resulting massive stimulus) being great for stocks. With Joe Biden the apparent President-elect and Republicans poised to hold the Senate, the narrative has switched to "divided government is beautiful for the equities market".

The prospect of a divided Washington would seem to take some pressure off the vulnerable Treasury market – and, through lower Treasury yields, corporate Credit more generally. And I appreciate that divided government has in the past worked to the advantage of the bull market status quo. But are we to believe in today’s crisis backdrop an irreconcilably split and hostile Washington will somehow function to the benefit of the markets and our nation?

I have never been more concerned. Having watched “money” and Credit run increasingly amuck over recent decades, I have long harbored fears of an inescapable future of calamitous financial, economic, social, political and geopolitical instability. That future is now unfolding.

I posited that the U.S. election was the single largest event in terms of market hedging – much of it through derivatives. Moreover, this most hedged event was occurring in a most speculative market environment, having followed an unprecedented $3.0 TN expansion of Federal Reserve “money.” Odds were high this was not going to go smoothly. In the event of an outcome hostile to the markets, sinking securities prices had the potential to spur massive self-reinforcing derivatives-related selling. But if an adverse outcome didn’t materialize, the unwind of hedges could spur markets higher while stoking speculative excess.

The Nasdaq100 (NDX) surged 9.4% this week. More than a third of NDX stocks posted double-digit gains for the week. Facebook jumped 11.5%, Tesla 10.8%, Microsoft 10.5%, Apple 9.2%, and Google 8.7%. Qualcomm surged 17.6% and Nvidia jumped 16.2%. Options trading – institutional and retail – has been booming, with the big tech stocks as favorite targets. This key aspect of the raging speculative Bubble this week worked to propel huge price spikes.

Ten-year Treasury yields sank 13.5 bps in Wednesday (post-election) trading, a huge move that pushed yields down to 0.765%. Sure, the Republican hold on the Senate would reduce the likelihood of massive (possibly $3 TN plus) fiscal stimulus programs. Yet short covering and the unwind of hedges clearly played an instrumental role in the Treasury price spike. Treasury yields were back up to 0.82% by Friday, ending the week down a not earth-shattering 5.5 bps.

Perhaps the week’s most intriguing (consequential?) moves were in the currencies. The U.S. dollar index declined marginally Wednesday in the face of surging equities, Treasuries and corporate debt prices. But the dollar was slammed 1.1% Thursday and then added to losses on Friday – with the dollar index ending the week down a notable 1.9%. Wild currency volatility does not bode well for general financial market stability. Gold jumped $73 this week to $1,951, with Silver surging 8.5% to $25.66.

Post-election unwind of shorts and hedges coupled with the sinking dollar incited panic buying throughout the emerging markets. The iShares Emerging Markets (EEM) ETF (with a 120 million shares short position) surged 7.2% this week, trading to the high since April 2018. Major indices were up 11.0% in Poland, 6.9% in Russia, 7.2% in Turkey, 6.9% in Chile, 5.8% in India, 4.2% in Mexico, and 7.4% in Brazil.

In EM currencies, the Brazilian real jumped 6.8%, the Czech koruna 4.6%, the Polish zloty 4.3%, Hungarian forint 4.2%, South African rand 4.1%, Colombian peso 4.0%, Indonesian rupiah 2.9%, Mexican peso 2.8%, Russian ruble 2.7% and Chilean peso 2.7%. Ten-year dollar bond yields collapsed 60 bps in Ukraine, 33 bps in Turkey, 25 bps in Mexico and 22 bps in Indonesia. Local currency yields sank 43 bps in South Africa, 36 bps in Russia, 25 bps in Peru, and 22 bps in Hungary.

The Euro Stoxx 50 equities index jumped 8.3% this week. Germany’s DAX and France’s CAC40 equities indices both surged 8.0%, with major indices up 9.7% in Italy, 6.5% in Spain and 6.0% in the UK. Stocks were up 4.3% in Japan (Nikkei 29-year high), 6.7% in Hong Kong, 4.4% in Australia and 4.5% in Canada.

Was the U.S. election outcome really so overwhelmingly positive for securities of all stripes everywhere? I would argue it was yet another example of an overreaction from dysfunctional markets – an upside dislocation in highly synchronized markets dominated by derivatives and speculative trading. From my analytical perspective, it was further corroboration of the late-stage global Bubble thesis. Markets have grown incapable of adjusting to developments in an orderly and reasonable manner.

President Trump has called into question the integrity of the entire U.S. election. The nation now faces the ugly prospect of a contested election. The President had intimated that such an outcome was possible. I was hoping he would surprise us all by demonstrating restraint. I’m still hopeful that he can be convinced not to put the country through such an ordeal – especially at a Critical Juncture.

Covid is just a flu. No, Covid is historic with myriad far-reaching ramifications. It is leaving deep scars. The death count has surpassed 235,000. It has left millions without jobs. The virus has illuminated inequality in newfound ways – certainly including a booming stock market in the face of acute economic and social hardship. It has left society only more insecure, anxious and on edge. It altered the character of what was already a pivotal election.

The pandemic spurred a shift to mail-in ballots – which changed the nature and timing of the vote count. This has opened up the opportunity to delegitimize an election despite record participation. And losing faith in the election process – in the core of our democracy - is but one more of our nation’s sacred institutions today placed squarely in harm’s way.

It is deeply disappointing to witness an election where seemingly everyone comes out of the process only further disillusioned. The election was not perfect. How could it be, with record participation during a pandemic? There are issues to be investigated and adjudicated. But this is not the time to exploit peoples’ frustration and exasperation. Social strife is at the cusp of boiling over. It was shocking and disheartening to hear the President call the election a fraud. It’s appalling that popular talk show hosts incorporate disinformation and sophisticated propaganda methods to incite outrage. This is getting too close to openly inciting violence in the streets.

Has it really come to this? An election loss unleashing a scorched earth strategy. There’s too much at stake during this critical period for efforts to delegitimatize the election and the new administration.

I’ll still assume that the national interest prevails over individual and partisan ambitions. Politicians and the media surely recognize our nation has become a tinderbox. They have a moral responsibility to deescalate the situation. A smooth and peaceful transition of power has never been more crucial.

I have been waiting anxiously for the election to be completed so attention could be focused on the spiraling out of control pandemic. We’re in a crisis – and the “gridlock is great for stocks” narrative lacks credibility. What is in store for the final 11 weeks of the Trump presidency? Hopefully his administration will work closely with Biden’s transition team on a host of issues – with vice president Pence redoubling the Coronavirus task force’s focus on a national Covid strategy.

Friday’s new infections surpassed 125,000. Cases are surging in an increasing number of states. Hospitalizations are rising rapidly nationally, with an expanding number of communities facing healthcare crises. And, increasingly, state and local officials are under pressure to adopt measures to try to control the outbreak. Let’s put politics aside and focus on getting this pandemic under some semblance of control.

“In America, we hold strong views. We have strong disagreements – and that’s OK. Strong disagreements are inevitable in a democracy. Strong disagreements are healthy. They are a sign of a vigorous debate – of deeply held views. We have to remember, the purpose of our politics isn’t total unrelenting, unending warfare. No. The purpose of our politics – the work of the nation - isn’t to fan the flames of conflict but to solve problems; to guarantee justice; to give everybody a fair shot; to improve the lives of our people. We may be opponents, but we are not enemies. We’re Americans. No matter who you voted for, I’m certain of one thing: the vast majority of the 150 million Americans that voted – they want to get the vitriol out of our politics. We’re certainly not going to agree on a lot of the issues, but at least we can agree to be civil to one another. We have to put the anger and the demonization behind us. It’s time for us to come together as a nation and to heal. It’s not going to be easy. We have to try. My responsibility as President will be to represent the whole nation. And I want you to know, that I’ll work as hard for those that voted against me as those who voted for me. That’s the job. That’s the job. It’s called the duty of care – for all Americans. We have serious problems to deal with: Covid, the economy to racial justice and climate change. We don’t have any more time to waste on partisan warfare. And more than that, we have such an incredible opportunity to build the future we want for our kids and our grandkids. I’ve said many, many times: I’ve never been more optimistic about the future of this nation. There is no reason we can’t own the 21st century. We just need to remember who we are: This is the United States of America. There’s never been anything, anything we’ve been unable to do – unable to accomplish when we’ve done it together.” Joe Biden, November 6, 2020.

This is a Critical Juncture in our nation’s history. Let’s agree to disagree on many issues. Let’s be civil. We desperately need more listening and less villainization. Can we not be more tolerant? As a nation, we need to bring the temperature down. We should hold those inciting anger and violence accountable. We desperately need to begin the process of unifying our great nation as we confront more challenging times ahead. I very much appreciate Mr. Biden’s tone. Let’s give him a chance.

For the Week:

The S&P500 surged 7.3% (up 8.6% y-t-d), and the Dow rose 6.9% (down 0.8%). The Utilities gained 3.3% (up 2.0%). The Banks increased 2.1% (down 30.7%), and the Broker/Dealers gained 4.5% (up 6.8%). The Transports rose 4.6% (up 6.5%). The S&P 400 Midcaps surged 6.7% (down 1.7%), and the small cap Russell 2000 jumped 6.9% (down 1.5%). The Nasdaq100 advanced 9.4% (up 38.5%). The Semiconductors surged 12.6% (up 36.7%). The Biotechs jumped 5.1% (up 8.2%). With bullion surging $73, the HUI gold index jumped 10.0% (up 43.0%).

Three-month Treasury bill rates ended the week at 0.0825%. Two-year government yields were unchanged at 0.15% (down 142bps y-t-d). Five-year T-note yields declined two bps to 0.36% (down 133bps). Ten-year Treasury yields fell 5.5 bps to 0.82% (down 110bps). Long bond yields dropped six bps to 1.60% (down 79bps). Benchmark Fannie Mae MBS yields sank eight bps to 1.33% (down 138bps).

Greek 10-year yields sank 12 bps to 0.81% (down 62bps y-t-d). Ten-year Portuguese yields declined three bps to 0.08% (down 36bps). Italian 10-year yields sank 12 bps to 0.64% (down 77bps). Spain's 10-year yields were down four bps to 0.10% (down 37bps). German bund yields added a basis point to negative 0.62% (down 44bps). French yields slipped one basis point to negative 0.36% (down 47bps). The French to German 10-year bond spread narrowed two to 26 bps. U.K. 10-year gilt yields increased as basis point to 0.27% (down 55bps). U.K.'s FTSE equities index jumped 6.0% (down 21.6%).

Japan's Nikkei Equities Index gained 5.9% (up 2.8% y-t-d). Japanese 10-year "JGB" yields declined two bps to 0.02% (up 3bps y-t-d). France's CAC40 surged 8.0% (down 17.0%). The German DAX equities index jumped 8.0% (down 5.8%). Spain's IBEX 35 equities index rose 6.5% (down 28.1%). Italy's FTSE MIB index surged 9.7% (down 16.3%). EM equities spiked higher. Brazil's Bovespa index surged 7.4% (down 12.7%), and Mexico's Bolsa gained 4.2% (down 11.5%). South Korea's Kospi index advanced 6.6% (up 10.0%). India's Sensex equities index gained 5.8% (up 1.5%). China's Shanghai Exchange rallied 2.7% (up 8.6%). Turkey's Borsa Istanbul National 100 index jumped 7.2% (up 4.2%). Russia's MICEX equities index surged 7.6% (down 4.9%).

Investment-grade bond funds saw outflows of $1.580 billion, and junk bond funds posted negative flows of $2.211 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates declined three bps to a record low 2.78% (down 91bps y-o-y). Fifteen-year rates were unchanged at an all-time low 2.32% (down 81bps). Five-year hybrid ARM rates added a basis point to 2.89% (down 50bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down five bps to a record low 2.98% (down 114bps).

Federal Reserve Credit last week declined $14.7bn to $7.110 TN. Over the past year, Fed Credit expanded $3.111 TN, or 77.8%. Fed Credit inflated $4.299 Trillion, or 153%, over the past 417 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week jumped $20.6bn to $3.416 TN. "Custody holdings" were down $3.3bn, or 0.1%, y-o-y.

M2 (narrow) "money" supply expanded $23.3bn last week to a record $18.839 TN, with an unprecedented 35-week gain of $3.331 TN. "Narrow money" surged $3.599 TN, or 23.6%, over the past year. For the week, Currency increased $2.2bn. Total Checkable Deposits rose $32.7bn, while Savings Deposits declined $4.2bn. Small Time deposits fell $8.3bn. Retail Money Funds increased $0.9bn.

Total money market fund assets fell $13.2bn to $4.335 TN. Total money funds surged $780bn y-o-y, or 21.9%.

Total Commercial Paper dropped $22.5bn to $951bn. CP was down $169bn, or 15.1% year-over-year.

Currency Watch:

For the week, the U.S. dollar index sank 1.9% to 92.236 (down 4.4% y-t-d). For the week on the upside, the Brazilian real increased 6.8%, the Norwegian krone 4.1%, the South African rand 4.1%, the Australian dollar 3.3%, the Swedish krona 3.0%, the Mexican peso 2.8%, the New Zealand dollar 2.4%, the Canadian dollar 2.1%, the euro 2.0%, the Swiss franc 2.0%, the British pound 1.6%, the Singapore dollar 1.3%, the South Korean won 1.3%, and the Japanese yen 1.3%. The Chinese renminbi increased 1.2% versus the dollar this week (up 5.31% y-t-d).

Commodities Watch:

The Bloomberg Commodities Index increased 1.4% (down 10.0% y-t-d). Spot Gold jumped 3.9% to $1,951 (up 28.5%). Silver surged 8.5% to $25.662 (up 43.2%). WTI crude rallied $1.35 to $37.14 (down 39%). Gasoline recovered 5.1% (down 36%), while Natural Gas sank 13.9% (up 32%). Copper gained 3.5% (up 13%). Wheat increased 0.6% (up 8%). Corn rallied 2.1% (up 5%).

Election Watch:

November 6 – Associated Press (Steve Peoples): “Presidential elections can be revealing moments that convey the wishes of the American people to the next wave of elected officials. So far, the big reveal in the contest between President Donald Trump and former Vice President Joe Biden is the extent of the cavernous divide between Republican and Democratic America, one that defines the nation, no matter which candidate ultimately wins. Voters from both parties turned out in droves to pick the next president, but as they did so, they found little agreement about what that president should do. Democrats and Republicans prioritized different issues, lived in different communities and even voted on different kinds of ballots.”

November 4 – Reuters (David Morgan): “Republicans appeared poised to retain control of the U.S. Senate…, after Senator Susan Collins defied political odds to win re-election in Maine and other Republican incumbents led Democrats in a handful of undecided races. Democrats, who had been favored to win the Senate majority heading into Tuesday’s election, had a net gain of only one seat to show by Wednesday afternoon as their options for further increases dwindled… Republicans currently hold a 53-47 seat Senate majority.”

November 4 – Reuters (Michael Martina, Heather Timmons and Ernest Scheyder): “Weary from one of the most bruising U.S. presidential races in modern times, Republican and Democratic voters alike were in a state of high anxiety on Wednesday with the election outcome still unsettled a day after polls closed. President Donald Trump’s false declaration of victory in the early hours of Wednesday, as ballot counting continued in several pivotal states, roiled supporters of Democratic challenger Joe Biden. Biden supporters expressed heightened fears the Republican incumbent might not accept the election result if he were to lose. Many in Trump’s voter base, meanwhile, echoed his unsubstantiated allegations of widespread electoral tampering. ‘Election fraud is running rampant,’ said Trump voter Jimmie Boyd, 48, a North Carolina gun rights activist with ties to local militia groups. Boyd said he worries ‘left wingers’ could ‘destroy entire cities,’ while protesters on the right will be demonized as ‘racist, phobic freaks of nature.’”

November 1 – New York Times (Emily Badger): “There is much to fear this year, as campaign speeches and ads remind voters. The virus is surging, hospitals are filling again, and children are falling behind in school. Renters risk eviction, and businesses remain boarded up. Violent crime has risen and could reach your neighborhood, the president warns. And in this unsettling time, you could lose your health care, your job, your property values, or your local police department. But when asked what really worries them on the eve of this election, most voters don’t cite their own finances, job prospects or personal safety. According to a national survey conducted by The Upshot and Siena College, they aren’t so much fretting about themselves as they are anxious about the country. They fear the next generation in America will be worse off. Even some voters who say they are personally better off than four years ago say the country as a whole is worse off. And by wide margins, voters on the left and right say they’re concerned about the stability of American democracy.”

November 4 – Reuters (Shruti Date Singh): “Illinois voters defeated a measure that would have allowed the state to raise taxes on its wealthiest residents, striking down a pillar of Governor J.B. Pritzker’s plan for shoring up the state’s finances and preventing its debt from being cut to junk. The failure of the constitutional amendment that would have scrapped the flat income tax… sent the prices of Illinois’s bonds tumbling, with those due in 2034 down about 7%. The costly campaign ended in a win for Citadel founder Ken Griffin who spent nearly $54 million to fund the opposition, while Pritzker, the billionaire heir to the Hyatt hotel empire, gave $58 million in support.”

Coronavirus Watch:

November 5 – Bloomberg (Cristin Flanagan): “Surging U.S. Covid-19 cases have surpassed 100,000 per day and hospitalizations are also climbing. If the trend continues, hospitals could reach capacity and trigger lockdowns before Thanksgiving, according to a Height policy analyst. ‘At the current growth rate, we expect the total number of currently hospitalized patients to hit 60,000—a breaking point in past surges —by Nov. 15,’ Hunter Hammond wrote. At that point, ‘restrictions will gradually intensify.’ With the Midwestern states pretty hard hit, policymakers have been taking ‘a light-touch’ to restrictions and social distancing; if ‘proportional, stepwise measures are not taken, states may be forced to lockdown again or face health system capacity issues.’”

November 2 – Financial Times (Clive Cookson): “Coronavirus induces strong and long-lasting cellular immunity after infection, new research shows, suggesting people are unlikely to quickly catch the disease again and increasing the chances vaccines will be effective. ‘Our study is the first in the world to show robust cellular immunity remains at six months after infection in individuals who experienced either mild/moderate or asymptomatic Covid-19,’ said Professor Paul Moss of the University of Birmingham…. The findings… are an encouraging sign for the development of vaccines that aim to induce immunity without causing disease, the researchers said.”

November 4 – Associated Press (Alexandra Olsen): “Americans went to the polls Tuesday under the shadow of a resurging pandemic, with an alarming increase in cases nationwide and the number of people hospitalized with COVID-19 reaching record highs in a growing number of states. While daily infections were rising in all but three states, the surge was most pronounced in the Midwest and Southwest. Missouri, Oklahoma, Iowa, Indiana, Nebraska, North Dakota and New Mexico all reported record high hospitalizations this week. Nebraska’s largest hospitals started limiting elective surgeries and looked to bring in nurses from other states to cope with the surge. Hospital officials in Iowa and Missouri warned bed capacity could soon be overwhelmed.”

November 5 – Associated Press (Lindsey Tanner): “New confirmed cases of the coronavirus in the U.S. have climbed to an all-time high of more than 86,000 per day on average, in a glimpse of the worsening crisis that lies ahead for the winner of the presidential election. Cases and hospitalizations are setting records all around the country just as the holidays and winter approach, demonstrating the challenge that either President Donald Trump or former Vice President Joe Biden will face in the coming months. Daily new confirmed coronavirus cases in the U.S. have surged 45% over the past two weeks, to a record 7-day average of 86,352, according to data compiled by Johns Hopkins University. Deaths are also on the rise, up 15% to an average of 846 deaths every day.”

October 31 – Reuters (Andrew MacAskill and Guy Faulconbridge): “Prime Minister Boris Johnson ordered England back into a national lockdown after the United Kingdom passed the milestone of one million COVID-19 cases and a second wave of infections threatened to overwhelm the health service.”

November 5 – Reuters (Relee Maltezou): “Greece ordered a nationwide lockdown… for three weeks to help contain a resurgence of COVID-19 cases, its second this year after a sharp increase in infections this week. ‘I’ve chosen to take drastic measures sooner rather than later,’ Prime Minister Kyriakos Mitsotakis said. Although having previously said a nationwide lockdown was a last option, Mitsotakis said he was forced to act after a spike in cases in the past five days, saying that without a lockdown the pressure on the healthcare system would be ‘unbearable’.”

November 6 – Financial Times (Richard Milne and Clive Cookson): “Denmark will gas to death and then burn up to 17m mink in the next few days as scientists debate the threat of a coronavirus strain that could be passed from humans to the animals and back again. Covid-19 is thought to have originated in bats and then jumped to humans in China late last year… Now Danish authorities are sounding the alarm, because a mutated version of the virus which was passed from humans to mink seems to have been transmitted back to several people in northern Denmark and the new strain could be more resistant to potential vaccines.”

Market Instability Watch:

November 6 – Bloomberg (Cormac Mullen and John Ainger): “The world’s stockpile of negative-yielding debt has swelled to a record in the wake of the U.S. election, as investors lower expectations for a fiscal splurge and turn their focus back to monetary support. The market value of the Bloomberg Barclays Global Negative Yielding Debt Index rose to $17.05 trillion on Thursday…, eclipsing the $17.04 trillion it reached in August 2019. Almost $600 billion of bonds have seen their yields turn negative this week, meaning 26% of the world’s investment-grade debt is now sub-zero.”

November 2 – Bloomberg (Claire Ballentine): “In the final countdown before the U.S. presidential election, exchange-traded fund investors are pulling out of junk bonds. BlackRock Inc.’s $23 billion iShares iBoxx High Yield Corporate Bond ETF (HYG) had its worst week of outflows since the coronavirus-induced selloff in February, losing almost $3.7 billion… Meanwhile, the $6.5 billion Xtrackers USD High Yield Corporate Bond ETF (HYLB) posted its largest daily withdrawals on record.”

November 6 – Wall Street Journal (Heather Gillers): “The prospect of a divided government in Washington has been received rapturously in the stock market this week, but it hasn’t made municipal-bond investors happy. ‘It’s probably one of the more negative outcomes for the asset class,’ said Mikhail Foux, head of municipal strategy at Barclays PLC. Prices on bonds issued by states and local governments fell relative to Treasurys in the immediate aftermath of the election and then settled at pre-election levels, but didn’t receive the bump many analysts had expected would follow in the event of a sweep by Democrats. Yields on 10-year AAA, tax-exempt municipal bonds were 109.1% of 10-year Treasury rates Wednesday, up 2.4 percentage points from Tuesday…”

Global Bubble Watch:

November 2 – Financial Times (Hudson Lockett and Thomas Hale): “Asian companies and governments have tapped international bond markets at a record pace this year, with borrowers in the region rushing to take advantage of demand from yield-starved investors. Issuers in Asia, excluding Japan, have sold $354bn worth of dollar bonds in the year to date, up 13% from a year ago and a record high for the period, according to… Refinitiv. The figures are a sign that borrowers in Asia, where default rates remain low, are benefiting from a wave of loose monetary policy in Europe and the US to combat the economic havoc wrought by the pandemic.”

November 2 – Financial Times (Jonathan Wheatley): “Like the coronavirus crisis itself, the response of the world’s governments has been on a scale never seen before. The IMF estimates that fiscal spending and tax cuts worldwide add up to more than $11.7tn so far, on top of a monetary policy response in which trillions of dollars have been pumped into the global financial system by the US Federal Reserve and other central banks. Old policy prescriptions have been torn up. Once the guardian of austerity, the IMF has urged countries to spend as much as possible.”

Trump Administration Watch:

November 4 – Reuters (Richard Cowan and Susan Cornwell): “The push in the U.S. Congress for a major new coronavirus aid bill got a post-election boost… when Senate Majority Leader Mitch McConnell put his weight behind passage by the end of this year and opened the door to considering a key Democratic priority. While candidates elected to the Senate and U.S. House of Representatives will not be sworn in until Jan. 3, the Congress that has been in business since January 2019, will return to Washington next week for a ‘lame duck’ session that is expected to extend well into December. McConnell… said… passage of a new coronavirus aid bill was a top priority of that session. ‘I think that’s job one when we get back, hopefully with a more cooperative situation than we had’ before the elections, McConnell told reporters…”

U.S. Bubble Watch:

November 6 – Bloomberg (Katia Dmitrieva): “The U.S. labor market strengthened in October, defying expectations for more subdued gains amid an intensifying pandemic and lack of additional fiscal relief. Nonfarm payrolls increased by 638,000 after an upwardly revised 672,000 gain the prior month… That compared with the 580,000 median estimate…, and reflected a decline of 147,000 in temporary Census workers. The unemployment rate fell by 1 percentage point to 6.9%... though the number of long-term jobless Americans surged and now makes up a third of those out of work.”

November 2 – Reuters (Lucia Mutikani): “U.S. manufacturing activity accelerated more than expected in October, with new orders jumping to their highest level in nearly 17 years amid a shift in spending toward goods like motor vehicles and food as the COVID-19 pandemic drags on… The ISM said its index of national factory activity increased to a reading of 59.3 last month. That was the highest since November 2018 and followed a reading of 55.4 in September.”

November 4 – CNBC (Jeff Cox): “Private job creation showed a sharp deceleration in October as the U.S. economy struggled against a resurgent coronavirus pandemic, according to… ADP. Companies added 365,000 positions for the month, well below the 600,000 estimate from a Dow Jones economist survey. That was the lowest reported gain from ADP since July.”

November 3 – Bloomberg (Eliza Ronalds-Hannon and John Gittelsohn): “The two U.S. mall owners that filed for bankruptcy on Sunday could be just the beginning. As retailers ranging from J.C. Penney Co. to Brooks Brothers Group Inc. go bust, their landlords are struggling, too. But rescuing malls will be unusually complicated because the properties have byzantine webs of financing that have only grown more elaborate with time. Interest groups ranging from lenders to shareholders to tenants to holders of complex mortgage bonds are wrangling over how to fix the situations, and for many large property owners, bankruptcy will be the only option, restructuring professionals said.”

November 3 – Wall Street Journal (Peter Grant and Esther Fung): “Some of the most conservative real-estate funds are suffering from falling property values, putting their fund managers in a tough spot as investors look to cash out. These real-estate investment vehicles are known as ‘core’ funds because they buy higher quality properties and limit their debt… Now that the pandemic has caused values of hotels, retail properties and even many office buildings to tumble, investors are lining up to cash out of these funds. That has put fund managers in a bind: They either have to sell property into a stormy market to raise that cash, or tell investors they can’t get some or all of the money they want back. The San Diego Employees Retirement System tried to redeem about $85 million from the $9.5 billion AEW Core Property Trust in the first quarter, but its consultant said it has received only a fraction of its request.”

November 4 – Wall Street Journal (Patrick Thomas): “With fewer international students entering many of the top M.B.A. programs in the U.S. this fall, some of their overseas competitors are getting a boost. International M.B.A. programs, especially those in Europe and Canada, are seeing an increase in interest from prospective students who want to stay closer to home and from students in Asia and Latin America increasingly turned off to studying in the U.S.”

November 3 – Bloomberg (Nabila Ahmed, Myriam Balezou and Ben Scent): “Dealmakers are in a record-breaking rush to get transactions done before what could be one of the most contentious U.S. presidential elections ever. Companies have announced $143.1 billion of mergers and acquisitions globally in the past seven days, the highest for any week preceding a U.S. presidential vote since Bloomberg started collecting data. It’s more than double the tally for the lead-up to the 2016 election.”

November 2 – Bloomberg (Lu Wang): “Large speculators and other heavyweight investors have been eager to buy the dip during the stock market’s stormy October. One group that hasn’t: executives in charge of U.S. companies. Corporate insiders… have refrained from bargain hunting this time. Fewer than 380 corporate executives and officers snapped up shares of their own firms last month, the second-lowest showing in at least two years…”

Fixed Income Watch:

November 2 – Wall Street Journal (Caitlin Ostroff and Paul J. Davies): “Companies hit hard by the coronavirus pandemic flooded the market this year with the most convertible bonds since 2007. Investors who scooped up these securities have been rewarded with strong returns. Travel and hospitality companies… raised $147 billion through Oct. 30 globally from the sale of bonds that can be exchanged for stocks, using them as a cheap way to stay afloat through the pandemic. That compared with issuance of only $108 billion of such bonds by the same point in 2019. Almost a third of the roughly $450 billion convertible bonds outstanding were issued this year.”

November 2 – Bloomberg (Danielle Moran): “Wall Street’s muni-bond bankers are getting a breather. After a record surge of debt sales last month by states and cities rushing to borrow before the election potentially upends financial markets, the volume of new deals has slowed to a trickle. Only about $1 billion are scheduled to price this week, the least since the market froze up during the crash set off by the coronavirus in March. They don’t appear set to revive much anytime soon: Only $6.5 billion of muni-bond sales are so far scheduled for the next 30 days.”

November 3 – Bloomberg (Adam Tempkin): “Sales of collateralized loan obligations rebounded in October as managers raced to get ahead of the U.S. presidential election and yield-hungry investors bought into a sector that’s lagged a broad rally in credit markets. U.S. CLO volume reached $13.8 billion last month, a 20% increase over September and the most since $15.7 billion was issued in April 2019... Overall, 2020 sales stand at about $72 billion, down 30% compared to the same point last year.”

China Watch:

November 1 – Bloomberg: “China’s biggest state-owned banks are still plagued by a surge in bad loans even as an early containment of the pandemic and a recovery in the world’s second-largest economy helped them trim profit declines. Net income slid less than 5% at Industrial & Commercial Bank of China Ltd. and its three largest rivals in the three months through Sept. 30, compared with an average 25% slump in the prior quarter. Still, the four banks saw their combined non-performing loans climbed to a record 979 billion yuan ($146bn)… China’s $45 trillion banking industry suffered their worst profit slump in more than a decade in the first half after being put on the front-line in helping millions of struggling businesses hurt by the pandemic.”

October 30 – Financial Times (Tom Mitchell and Sun Yu): “For Chinese officials working on the country’s 14th five-year plan, the US looms large over the drafting process. One senior Chinese government official advising on the five-year plan’s manufacturing strategies said that regardless of whether Donald Trump is re-elected on November 3 or defeated by Joe Biden, ‘it is certain that industrial decoupling between the US and China will continue into next year’. ‘China is still lagging behind advanced economies in the mastery of key technologies and we are not going to catch up in the foreseeable future,’ the official added. ‘We need to keep savings rates at a reasonable level so we can keep investing in R&D.’”

November 1 – Bloomberg: “Chinese President Xi Jinping called for setting up independent and controllable supply chains to ensure industrial and national security, just as the U.S. moves to cut China off from key exports. ‘We must strive to have at least one alternative source for key products and supply channels, to create a necessary industrial backup system,’ Xi said in an April speech… published Saturday… Xi said the impact of the coronavirus epidemic exposed hidden risks in China’s industrial and supply chains, without elaborating, thus necessitating ‘independent, controllable, safe, and reliable’ chains.”

November 1 – CNBC (Yen Nee Lee): “China’s factory activity expanded for the sixth straight month in October as business confidence grew to its strongest in years… The Caixin/Markit Purchasing Managers’ Index for Chinese manufacturing came in at 53.6 for October, better than the 53.0 forecast by analysts in a Reuters poll. The latest reading was the highest since January 2011…”

October 30 – Reuters (Gabriel Crossley): “Activity in China’s services sector accelerated in October…, as demand across the economy continues to recover from a coronavirus-induced slump. The official non-manufacturing Purchasing Managers’ Index (PMI) rose to 56.2 from 55.9 in September…”

October 30 – Bloomberg (David Goodman and Lucy Meakin): “An official gauge of activity in China’s manufacturing industry fell slightly in October, while consumer spending helped to lift services output, suggesting the economic recovery remains on track. The manufacturing purchasing managers’ index in October eased to 51.4 from 51.5 in the previous month…”

November 4 – Financial Times: “Beijing said it suspended the $37bn listing of Ant Group, controlled by China’s richest man Jack Ma, to protect the country’s capital markets as investors reeled from the eleventh-hour decision. The order to stop Ant from launching a record-breaking IPO in Hong Kong and Shanghai… is likely to have come from the very top of the Chinese government, potentially from President Xi Jinping himself, according to two people familiar with the situation. Wang Wenbin, China’s foreign ministry spokesman, said… officials had halted the IPO to ‘better maintain the stability of the capital markets and to protect investors’ interests’.”

November 5 – Bloomberg (Jeanny Yu and Emily Cadman): “It’s the biggest busted trade in stock-market history. The collapse of Ant Group Co.’s initial public offering has triggered a dash to unwind billions of dollars in investor orders, side bets and margin loans. In Hong Kong, where nearly a fifth of the population, by one estimate, had signed up to buy Ant shares, shell-shocked retail investors are starting to count their losses… ‘I don’t know what to say. Speechless,’ said Chen Wu, a 35-year-old software developer, who borrowed money to buy Ant’s shares. ‘Yesterday, I was imagining a trip with my wife somewhere next year with the IPO proceeds. Now I’m calculating how much I will lose.’”

November 3 – Financial Times (Kathrin Hille): “For years, China’s race with the US for global tech supremacy has been a boon for its chip industry. Rapid advances in artificial intelligence, a growing domestic consumer technology market, supercomputer programmes and a rapid military build-up have all fuelled demand for semiconductors. This has intensified an urgency to make more of the chips domestically. Over the past decade, Beijing poured more than $100bn in subsidies into enterprises such as… Semiconductor Manufacturing International Corporation. As a result, SMIC and its peers built new fabrication capacity faster than chipmakers anywhere else in the world, and their revenues ballooned to Rmb756bn last year, up from Rmb144bn 10 years ago.”

Central Bank Watch:

November 5 – Bloomberg (David Goodman, Alex Morales and Lucy Meakin): “The U.K. government and central bank unleashed a fresh wave of stimulus into the struggling economy…, acting in conjunction and more aggressively than predicted as the coronavirus forces another lockdown. …The Bank of England boosted its bond-buying program by a larger-than-expected 150 billion pounds ($196bn), flooding the economy with funds to spur demand and lower government borrowing costs.”

November 2 – Bloomberg (David Goodman and Lucy Meakin): “The Bank of England looks certain to fire another burst of monetary stimulus this week as new coronavirus lockdowns leave the economy facing a third quarter of decline in 2020. Any doubt that Governor Andrew Bailey and his colleagues might delay boosting their bond-buying program… was effectively erased with Prime Minister Boris Johnson’s announcement of a month long closure of non-essential shops and hospitality venues… That’s changed the outlook for the last three months of the year… Output fell in the first half before starting to recover, though the BOE estimates it was still about 10% below its 2019 level at the end of the third quarter. In a survey last week, analysts predicted the BOE will increase quantitative easing by 100 billion pounds ($129bn) to 845 billion pounds.”

November 2 – Bloomberg (Michael Heath): “Australia’s central bank cut interest rates and announced purchases of longer-dated bonds to complement its yield curve control program for shorter-length maturities as it seeks to drive a rapid economic recovery. The Reserve Bank of Australia lowered its key interest rate, yield-curve target and bank lending facility rate to 0.10% from 0.25%... It said it plans to buy A$100 billion ($70.4bn) of government bonds with maturities of around 5-10 years over the next six months.”

EM Watch:

November 5 – Bloomberg (Justin Villamil, Lilian Karunungan and Marton Eder): “Emerging-market stocks and currencies climbed to their highest in more than two years as Democrat Joe Biden moved closer to victory in the U.S. presidential election. MSCI Inc.’s developing world stock index rose past a January peak and 21 of 24 currencies tracked by Bloomberg climbed as investors cheered the prospect of a Democratic president and a Republican-controlled Senate… The risk premium on EM debt narrowed 13 bps.”

Europe Watch:

November 4 – Financial Times (Martin Arnold): “Services companies in Italy and Spain suffered a fresh fall in activity last month as restrictions to contain the second wave of the coronavirus pandemic hit businesses, according to a widely watched business survey. The IHS Markit flash services purchasing managers’ index dropped in both countries, with companies reporting sharp declines in demand and activity as a result of the pandemic…”

Japan Watch:

November 6 – Bloomberg (Yoshiaki Nohara): “Japan’s households increased spending last quarter at the fastest pace in two decades, adding to evidence consumers helped fuel a recovery from the economy’s record collapse during the first wave of the pandemic. Spending increased 3.6% in the three months through September from the prior quarter…”

Leveraged Speculation Watch:

November 6 – Bloomberg (Katherine Burton): “Ray Dalio’s Bridgewater Associates spent weeks earlier this year tweaking its investment models to account for unprecedented government stimulus and the worsening pandemic. That hasn’t helped performance. The flagship Pure Alpha II fund has lost 18.6% through Thursday… That’s little changed from the decline it reported through the end of August.”

Geopolitical Watch:

November 3 – Bloomberg: “What started as a political spat between Beijing and Canberra has become a one-sided trade war that threatens serious disruption for an expanding number of Australian exporters. China won’t allow imports of a swathe of Australian commodities and foodstuffs from as early as this week… The curbs are a major escalation in Beijing’s pressure campaign following a two-year stand-off over issues from technology to the origins of coronavirus. China’s blacklist… includes coal, barley, copper, sugar, timber, wine and lobster. It doesn’t cover materials, like iron ore or natural gas, where import curbs could unduly damage China’s own economy.”

November 6 – Reuters (Devjyot Ghoshal): “India’s top military commander said… a tense border standoff with Chinese forces in the western Himalayas could spark a larger conflict, even as senior commanders from both sides met near the frontline for their eighth round of talks. Chief of Defence Staff Bipin Rawat said the situation was tense at the Line of Actual Control, the de facto border, in eastern Ladakh, where thousands of Indian and Chinese troops are locked in a months-long confrontation. ‘We will not accept any shifting of the Line of Actual Control,’ Rawat said…”