Friday, November 20, 2020

Weekly Commentary: Scorched Earth

November 18 – Reuters (Rodrigo Campos): “Global debt is expected to soar to a record $277 trillion by the end of the year as governments and companies continue to spend in response to the COVID-19 pandemic, the Institute of International Finance said in a report… The IIF… said debt ballooned already by $15 trillion this year to $272 trillion through September. Governments - mostly from developed markets - accounted for nearly half of the increase. Developed markets’ overall debt jumped to 432% of GDP in the third quarter, from a ratio of about 380% at the end of 2019. Emerging market debt-to-GDP hit nearly 250% in the third quarter, with China reaching 335%, and for the year the ratio is expected to reach about 365% of global GDP.”

Covid’s precision-like timing was supernatural – nothing short of sinister. A once in a century international pandemic surfacing in the waning days of an unrivaled global financial Bubble. A historic experiment in central bank monetary management already floundering (i.e. Fed employing aggressive “insurance” QE stimulus with stocks at record highs and unemployment at 50-year lows). A Republican administration running Trillion-dollar deficits in the midst of an economic boom. Yet, somehow, reckless U.S. fiscal and monetary stimulus appeared miserly when compared to the runaway excess percolating from China’s epic Credit Bubble. Monetary, fiscal, markets, at home and abroad: Covid bestowed end-of-cycle excess a hardy additional lease on life.

From the FT: “Global debt rose at an unprecedented pace in the first nine months of the year as governments and companies embarked on a ‘debt tsunami’ in the face of the coronavirus crisis… From 2016 to the end of September, global debt rose by $52tn; that compares with an increase of $6tn between 2012 and 2016.”

According to the IIF, U.S. debt is on course to expand about 13% this year to $80 TN. As a percentage of GDP, U.S. debt jumped from 327% to 378%. U.S. government borrowings inflated a dismal 26 percentage points to 127% of GDP. Globally, developed (“Mature”) economy debt surged 49 percentage points to 432% of GDP. From the IIF: “… There is significant uncertainty about how the global economy can deleverage in the future without significant adverse implications for economic activity.”

Emerging market debt is expected to jump 26 percentage points this year to 250% of GDP, as indebtedness rises to $76 TN (Chinese borrowers accounting for $45 TN). China rapidly expanded already massive indebtedness, adding a staggering 30 percentage points to 335% of GDP (up from about 160% in ’08). China’s corporate sector added 15 percentage points to 165% of GDP. And there were more indications this week of mounting Credit stress (see China Bubble Watch below).

Malaysia and Turkey added almost 25 percentage points of debt-to-GDP this year, with Colombia, Russia, Korea and Chile jumping around 20 percentage points. Thailand, South African and India each gained almost 15 percentage points, with Hungary, Mexico and Brazil near 10 points. From Bloomberg: “About $7 trillion of emerging-market bonds and syndicated loans are slated to come due through the end of 2021… Emerging markets, especially those in Latin America, have faced more pressure on credit ratings this year as debt loads rose…”

IIF projections have global debt increasing $70 TN, or a third, over what will soon be five years of synchronized “Terminal Phase Excess.” The past year, in particular, has seen rapid acceleration of non-productive debt growth. On a global basis, governments accounted for over half of new debt. In the IIF’s one-year sector breakdown, Global Government Indebtedness surged from 69.1% to 77.6% of GDP – led by a $3.7 TN increase in U.S. governmental borrowings. This was the largest of the sector gains (compared to 73.7% to 79.6% growth in Non-Financial Corporates). Canada, Japan, the UK, Spain and Italy were also notable for their massive expansions of government indebtedness.

Examining the current extraordinary market backdrop, the “pain trade” has been higher. Despite extreme bullish sentiment, many have remained less than fully invested. FOMO (fear of missing out) has been excruciating. The poor bears have been decimated. Short positions remain easy – big fat bear in a barrel - “squeeze” targets, with little concern these days for those pesky bears shorting overextended stocks. Devoid of selling pressure, the sky’s the limit.

But, mainly, there is today a pool of speculative finance without precedent. Positive vaccine news stoked a manic rotation, catching most in a highly Crowded marketplace tech heavy and underexposed to financials, small caps, myriad lagging sectors, EM and the broader market more generally. Quant strategies run amuck.  Throw in all the manic derivatives trading – beloved call options in particular – and one can easily explain the origins of market “melt-up” trading dynamics. And such a speculative, dislocated and devious marketplace welcomes negative news flow. This only entices some new short positions along with put buyers - to then be summarily torched by a carefree market gleefully climbing the proverbial “wall of worry.”

In reality, there’s plenty to worry about. As welcome as positive vaccine news is right now, the conclusion of the pandemic will not, unfortunately, usher in a return to normalcy. The massive amount of debt noted above will overhang the system for years, as will deep scars throughout the real economy.

From the New York Times: “Maps tracking new coronavirus infections in the continental United States were bathed in a sea of red on Friday morning, with every state showing the virus spreading with worrying speed and health care workers bracing for more trying days ahead.”

U.S. daily infections surpassed 100,000 for the first time on November 4th. And just over two weeks later, we’re on the cusp of a 200,000 day (194,000 on Friday). Coronavirus taskforce coordinator Dr. Deborah Birx: “This is faster, it is broader and, what worries me, is it could be longer.” Hospitalizations nationally have surpassed 84,000, almost double the month ago level. Many states reported a doubling of hospitalizations over the past week. One in five hospitals now expects to face critical staff shortages within a week. Friday saw California report a record 13,005 new infections.

U.S. equities traded to record highs on February 20th, seemingly oblivious to the unfolding pandemic. And then, within 10 trading sessions, markets were overwhelmed with panic. The Fed responded with rapid-fire rounds of increasingly panicked stimulus measures. These days, markets have once again been content to disregard a deteriorating pandemic environment. When the crisis erupted in March, markets confronted unknowns with regard to the pandemic as well as the scope and efficacy of the crisis response.

Beyond the vaccines, markets’ current willingness to “look beyond the valley” rests firmly on confidence that fiscal and monetary policymaking will again rise to “whatever it takes.” A Friday evening Bloomberg headline: “Investors Look Past the Chaos and Throw $53 Billion at Stocks.” In “one of the biggest deluges of cash ever recorded,” U.S. equities ETFs have attracted $53 billion so far this month. What an odd backdrop for throwing caution to the wind and rushing into the market. Clearly, way too much “money” has been chasing highly speculative markets.

November 20 – Bloomberg (Christopher Anstey and Saleha Mohsin): “The top two U.S. economic policymakers clashed over whether to preserve emergency lending programs designed to shore up the economy -- a rare moment of discord as the nation confronts the risk of a renewed downturn spurred by the resurgent coronavirus. The disagreement erupted late Thursday when outgoing Treasury Secretary Steven Mnuchin released a letter to Federal Reserve Chair Jerome Powell demanding the return of money the government provides the central bank so it can lend to certain markets in times of stress. Minutes later, the Fed issued a statement urging that ‘the full suite’ of measures be maintained into 2021. ‘This is a significant and disturbing breach at a critical time for the economy,’ said Tony Fratto, who worked at the Treasury and the White House during the George W. Bush administration. ‘We need all the arms of government working together and instead we’re seeing a complete breakdown,’ he said, noting that Washington remains at an impasse on fiscal stimulus as well.”

As has become quite a habit, markets brushed off Mnuchin’s surprising termination of several of the Fed’s emergency programs. Remarkably, the entire contested election issue has been one big nonissue for an ebullient marketplace. With Biden ahead six million popular votes and holding a commanding electoral college lead, markets aren’t taking President Trump’s ranting, raving and suing seriously. The assumption is bluster peters out and a peaceful transfer of power emerges around January 20th.

Does that leave two months for “Scorched Earth” shenanigans? Does Mnuchin’s move against the Fed foreshadow a bevy of measures meant to hamstring the new Biden administration and rattle the markets?From day one, President Trump suffered a peculiar obsession with all things stock market. Record equities prices were exalted as a reflection of his leadership prowess and adroit policymaking. So far, not even an inkling of the market crash a Biden presidency was to incite. If there is indeed some “Scorched Earth” scheme at work, why would the stock market not have a bullseye on its back?

For the Week:

The S&P500 declined 0.8% (up 10.1% y-t-d), and the Dow fell 0.7% (up 2.5%). The Utilities dropped 3.9% (up 0.3%). The Banks gained 0.9% (down 22.1%), and the Broker/Dealers rose 1.9% (up 16.0%). The Transports advanced 1.2% (up 12.2%). The S&P 400 Midcaps rose 1.6% (up 4.1%), and the small cap Russell 2000 jumped 2.4% (up 7.0%). The Nasdaq100 slipped 0.3% (up 36.3%). The Semiconductors rose 1.9% (up 38.2%). The Biotechs dropped 2.9% (up 6.5%). With bullion down $18, the HUI gold index sank 5.7% (up 22.9%).

Three-month Treasury bill rates ended the week at 0.0625%. Two-year government yields declined two bps to 0.16% (down 141bps y-t-d). Five-year T-note yields fell four bps to 0.37% (down 132bps). Ten-year Treasury yields dropped seven bps to 0.825% (down 109bps). Long bond yields sank 13 bps to 1.52% (down 87bps). Benchmark Fannie Mae MBS yields declined two bps to 1.35% (down 136bps).

Greek 10-year yields dropped six bps to 0.69% (down 74bps y-t-d). Ten-year Portuguese yields fell six bps to 0.02% (down 42bps). Italian 10-year yields declined three bps to 0.63% (down 78bps). Spain's 10-year yields fell five bps to 0.07% (down 40bps). German bund yields declined four bps to negative 0.58% (down 40bps). French yields fell four bps to negative 0.35% (down 47bps). The French to German 10-year bond spread was little changed at 23 bps. U.K. 10-year gilt yields fell four bps to 0.30% (down 52bps). U.K.'s FTSE equities index increased 0.6% (down 15.8%).

Japan's Nikkei Equities Index added 0.6% (up 7.9% y-t-d). Japanese 10-year "JGB" yields slipped a basis point 0.01% (up 2bps y-t-d). France's CAC40 jumped 2.2% (down 8.1%). The German DAX equities index increased 0.5% (down 0.8%). Spain's IBEX 35 equities index jumped 2.5% (down 16.5%). Italy's FTSE MIB index surged 3.8% (down 7.7%). EM equities were higher. Brazil's Bovespa index gained 1.3% (down 8.3%), and Mexico's Bolsa jumped 2.7% (down 3.8%). South Korea's Kospi index rose 2.4% (up 16.2%). India's Sensex equities index gained 1.07% (up 6.4%). China's Shanghai Exchange advanced 2.0% (up 10.7%). Turkey's Borsa Istanbul National 100 index jumped 2.5% (up 15.7%). Russia's MICEX equities index increased 0.9% (up 0.2%).

Investment-grade bond funds saw inflows of $4.139 billion, and junk bond funds posted positive flows of $490 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates sank 12 bps to a record low 2.72% (down 94bps y-o-y). Fifteen-year rates declined six bps to 2.28% (down 87bps). Five-year hybrid ARM rates sank 26 bps to 2.85% (down 54bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates down 13 bps to 2.94% (down 107bps).

Federal Reserve Credit last week jumped $63.5bn to a record $7.190 TN. Over the past year, Fed Credit expanded $3.203 TN, or 80.3%. Fed Credit inflated $4.379 Trillion, or 156%, over the past 419 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt last week rose $15.2bn to $3.442 TN. "Custody holdings" were up $26.3bn, or 0.8%, y-o-y.

M2 (narrow) "money" supply surged $172bn last week to a record $19.067 TN, with an unprecedented 37-week gain of $3.560 TN. "Narrow money" surged $3.780 TN, or 24.7%, over the past year. For the week, Currency increased $2.7bn. Total Checkable Deposits surged $97.8bn, and Savings Deposits jumped $72.8bn. Small Time deposits declined $7.5bn. Retail Money Funds gained $6.6bn.

Total money market fund assets added $2.1bn to $4.329 TN. Total money funds surged $803bn y-o-y, or 22.8%.

Total Commercial Paper jumped $21.3bn to $983bn. CP was down $138bn, or 12.3% year-over-year.

Currency Watch:

For the week, the U.S. dollar index declined 0.4% to 92.392 (down 4.3% y-t-d). For the week on the upside, the Norwegian krone increased 1.7%, the Mexican peso 1.5%, the Brazilian real 1.4%, the New Zealand dollar 1.2%, the Swedish krona 0.8%, the Japanese yen 0.7%, the South African rand 0.7%, the British pound 0.7%, the Australian dollar 0.4%, the Singapore dollar 0.3%, the Canadian dollar 0.3%, the euro 0.2%, the Swiss franc 0.2%, and the South Korean won 0.1%. The Chinese renminbi increased 0.66% versus the dollar this week (up 6.10% y-t-d).

Commodities Watch:

November 18 – Bloomberg (Dan Murtaugh): “China’s desire to ensure ‘absolute safety’ on food security is squeezing the global supply chain for grains. The world’s biggest soy importer may buy a record 100 million tons from the U.S. next year and boost purchases from the nation 3% to 4% annually over the next decade, according to the U.S. Soybean Export Council. Meanwhile Beijing is calling on local governments to ensure stabledomestic output as the pandemic creates uncertainties in the global supply chain. Soybean futures in Dalian rose yesterday to the highest level in 12 years.”

The Bloomberg Commodities Index increased 0.6% (down 8.3% y-t-d). Spot Gold declined 1.0% to $1,871 (up 23.2%). Silver fell 1.1% to $24.491 (up 36.7%). WTI crude surged $2.29 to $42.42 (down 31%). Gasoline jumped 4.4% (down 31%), while Natural Gas sank 11.5% (up 21%). Copper surged 3.9% (up 18%). Wheat gained 1.0% (up 7%). Corn rose 2.1% (up 10%).

Election Watch:

November 17 – CNBC (Jacob Pramuk): “Congress appeared nowhere close to passing another coronavirus relief bill… as infections surge across the country and new public health restrictions threaten businesses and jobs. Lawmakers have not passed new aid in months during the health and economic crisis. As the virus again overwhelms hospitals and forces state and local officials to restrict economic activity, Republicans and Democrats have not budged from their positions on stimulus. Senate Minority Leader Chuck Schumer and House Speaker Nancy Pelosi have not spoken with Senate Majority Leader Mitch McConnell about another relief bill since the Nov. 3 election… They appear stuck in their pre-election stances, when Democrats pushed for a package that costs at least $2.2 trillion and Republicans sought a roughly $500 billion bill.”

November 17 – Reuters (Lisa Lambert and Richard Cowan): “U.S. Senate Majority Leader Mitch McConnell said… he is open to a $500 billion package aimed at alleviating economic pain from the coronavirus pandemic, but the Republican added he has not had any private discussions with Democrats who control the House of Representatives or President-elect Joe Biden, also a Democrat.”

November 19 – Reuters (Patricia Zengerle and Steve Holland): “Officials working on vaccine distribution planning under President Donald Trump have no intention of briefing anyone on President-elect Joe Biden’s transition team, Democratic senators said on Thursday, as Biden warned the failure to share information would cost lives.”

November 14 – Associated Press: “Demonstrations over President Donald Trump’s loss at the polls have resulted in charges against nearly two dozen people in Washington, including a person accused of setting off a commercial firework and four people accused in an assault that left the victim unconscious on the street. The arrests came during and after protesters and counterdemonstrators clashed Saturday in Northwest Washington. Several thousand people rallied during the day in support of Trump, whose motorcade briefly drove by the gathering protesters Saturday morning on the way to the president’s Northern Virginia golf club.”

Coronavirus Watch:

November 16 – Reuters (Michael Erman and Julie Steenhuysen): “Moderna Inc’s experimental vaccine is 94.5% effective in preventing COVID-19 based on interim data from a late-stage trial, the company said on Monday, becoming the second U.S. drugmaker to report results that far exceed expectations.”

November 18 – Associated Press (Linda A. Johnson and Frank Jordans): “Pfizer said… new test results show its coronavirus vaccine is 95% effective, is safe and also protects older people most at risk of dying — the last data needed to seek emergency use of limited shot supplies as the catastrophic outbreak worsens across the globe.”

November 18 – CNBC (Will Feuer): “The United States is in the midst of an ‘absolutely dangerous situation’ as the coronavirus outbreak continues to worsen, Adm. Brett Giroir, assistant secretary of health, said… Covid-19 hospitalizations and deaths are both up 25% week over week, ‘and that is not going in the right direction,’ said Giroir, who leads the government’s Covid testing effort. ‘Right now, we are in an absolutely dangerous situation that we have to take with the utmost seriousness,’ he said… ‘This is not crying wolf. This is the worst rate of rise in cases that we’ve seen in the pandemic in the United States and right now there’s no sign of flattening.’”

November 18 – Washington Post (Joel Achenbach): “More than 3 million people in the United States have active coronavirus infections and are potentially contagious, according to a new estimate from infectious-disease experts tracking the pandemic. That number is significantly larger than the official case count, which is based solely on those who have tested positive for the virus. The vast — and rapidly growing — pool of coronavirus-infected people poses a daunting challenge to governors and mayors in hard-hit communities who are trying to arrest the surge in cases. Traditional efforts such as testing, isolation of the sick and contact tracing can be overwhelmed when a virus spreads at an exponential rate, especially when large numbers of asymptomatic people may be walking around without even knowing they are infectious.”

November 18 – Associated Press (Paul J. Weber and Sarah Rankin): “Overwhelmed hospitals are converting chapels, cafeterias, waiting rooms, hallways, even a parking garage into patient treatment areas. Staff members are desperately calling around to other medical centers in search of open beds. Fatigue and frustration are setting in among front-line workers. Conditions inside the nation’s hospitals are deteriorating by the day as the coronavirus rages across the U.S. at an unrelenting pace and the confirmed death toll surpasses 250,000. ‘We are depressed, disheartened and tired to the bone,’ said Alison Johnson, director of critical care at Johnson City Medical Center in Tennessee…”

November 19 – Reuters (Maria Caspani, Gabriella Borter and Sharon Bernstein): “California’s governor… imposed a curfew on social gatherings and other non-essential activities in one of the most intrusive of the restrictions being ordered across the country to curb an alarming surge in novel coronavirus infections. The stay-at-home order will go into effect from 10 p.m. until 5 a.m. each day, starting Saturday night and ending on the morning of Dec. 21, covering 41 of California’s 58 counties and the vast majority of its population… The virus is spreading at a pace we haven’t seen since the start of this pandemic, and the next several days and weeks will be critical to stop the surge,’ Newsom… said…”

November 16 – Reuters (Maria Caspani and Sharon Bernstein): “Several U.S. governors, from the coastal states of New Jersey and California to the heartland of Iowa and Ohio, acted on Monday to restrict gatherings and boost face-coverings in confronting a coronavirus surge they warned is out of control.”

November 18 – CNBC (Noah Higgins-Dunn): “New York City’s schools will move to remote learning only as the city tries to tamp down a growing number of coronavirus cases, Mayor Bill de Blasio announced… The shuttering of the nation’s largest school system had been anticipated for days after de Blasio told parents on Friday to have a plan in place in case the city decided to close schools for in-person learning… ‘We’re in the middle of something really tough right now,’ de Blasio said… ‘We have put health and safety first, and we will put health and safety first.’”

November 16 – CNN (Melissa Alonso and Susannah Cullinane): “Thousands of people lined up for groceries at a food bank distribution event in Dallas, Texas, this weekend, with organizers saying the Covid-19 pandemic has increased need in the city. North Texas Food Bank (NTFB) distributed more than 600,000 pounds of food for about 25,000 people on Saturday… There were 7,280 turkeys distributed to families, Kurian told CNN.”

November 18 – Reuters (Rocky Swift and Hyonhee Shin): “Daily coronavirus cases in Tokyo and South Korea hit fresh highs on Wednesday, as pollution-cloaked New Delhi struggled with rising cases and Australia reported a highly contagious virus strain which forced a state-wide lockdown. South Korea tightened social distancing rules and Tokyo said officials would meet on Thursday to discuss if the city needs to raise its infection alert to the highest level.”

November 16 – Reuters (Giselda Vagnoni): “The new coronavirus was circulating in Italy in September 2019, a study by the National Cancer Institute (INT) of the Italian city of Milan shows, signaling that it might have spread beyond China earlier than thought.”

Market Instability Watch:

November 18 – Wall Street Journal (Joe Wallace and Julie Steinberg): “An abrupt reversal in many of this year’s most-persistent market trends has hurt a cluster of computer-driven funds. Caution gave way to euphoria in financial markets when Pfizer Inc. and BioNTech said their coronavirus vaccine was more than 90% effective on Nov. 9. Shares of companies that have suffered in the pandemic leapt, as did government-bond yields and energy prices… That was bad news for investors who aim to ride winning assets higher and losing markets lower, a popular quantitative strategy known as momentum investing. A gauge of performance by members of the S&P 500 classified as momentum stocks slumped almost 14% on Nov. 9, according to JPMorgan… That was the biggest one-day loss for the grouping since at least the mid-1980s.”

November 17 – Bloomberg (Ksenia Galouchko): “Fund managers overseeing $526 billion are the most bullish they’ve been this year following the U.S. election outcome and progress on a vaccine, prompting a call from Bank of America Corp. strategists that it’s time to start selling risk assets. The monthly survey, conducted Nov. 6 through Nov. 12 saw investor optimism about stocks skyrocket, with allocation jumping to the highest level since January 2018. Cash holdings plunged to the lowest level since April 2015, while economic growth expectations surged to a 20-year high. Investors snapped up more volatile assets, such as small-caps, value, banks and emerging-market stocks, while shifting away from bonds and staples.”

November 16 – CNBC (Bob Pisani): “Money is pouring into stocks through exchange-traded funds. You can thank the potential vaccines. Money is pouring in because U.S. investors who have been reluctant to put money into equities are now stampeding into stocks on the belief that that the ‘Covid winter’ of 2020 will be followed by the ‘Reopening spring’ of 2021, and many are choosing ETFs as that investment vehicle. The Exchange Traded Fund (ETF) industry in the U.S. surpassed $5 trillion in assets under management last week, a new record. Record highs for stocks was a big help, but over $400 billion in new money has poured into ETFs this year, only the second time it has passed $400 billion in a single year. By comparison, inflows stood at $246.6 billion at this same point last year, according to”

November 17 – Bloomberg (Yakob Peterseil): “The world’s largest volatility ETF is seeing a frenzy of activity as traders across Wall Street bet on enduring calm in the stock market. Even as the ProShares Ultra VIX Short-Term Futures exchange-traded fund (UVXY)… slumps 34% in the election aftermath, it’s on pace for the biggest monthly inflow since July. The unlikely state of affairs may be explained by surging options activity and a rising number of shares out on loan in the $1.2 billion product.”

November 18 – Reuters (Kate Duguid): “Investors searching for yield are driving a flood of new U.S. corporate debt to market this week, with investment-grade issuers from Saudi Aramco to Volkswagen selling $26.3 billion on Tuesday, the highest daily volume recorded since May. With interest rates near zero in many of the world’s largest economies, fixed-income investors have sought the higher payouts available in corporate debt markets. The premium investors demand to hold riskier corporate bonds over Treasuries narrowed this week to near pre-pandemic lows.”

November 16 – Bloomberg (Brian Chappatta): “The junk bond market’s magic number is 4.56. First, the average yield for the Bloomberg Barclays U.S. corporate high-yield index plunged the most in seven months to 4.56% on Nov. 9, easily breaking the previous all-time low of 4.83% set in June 2014. Then, data compiled by Refinitiv Lipper found that investors poured $4.56 billion into U.S. high-yield bond funds in the week ended Nov. 11, the seventh largest inflow ever and the largest since June.”

Global Bubble Watch:

November 18 – Reuters (Rodrigo Campos): “Global debt is expected to soar to a record $277 trillion by the end of the year as governments and companies continue to spend in response to the COVID-19 pandemic, the Institute of International Finance said in a report… The IIF, whose members include over 400 banks and financial institutions across the globe, said debt ballooned already by $15 trillion this year to $272 trillion through September. Governments - mostly from developed markets - accounted for nearly half of the increase. Developed markets’ overall debt jumped to 432% of GDP in the third quarter, from a ratio of about 380% at the end of 2019. Emerging market debt-to-GDP hit nearly 250% in the third quarter, with China reaching 335%, and for the year the ratio is expected to reach about 365% of global GDP.”

November 18 – Financial Times (Jonathan Wheatley): “Global debt rose at an unprecedented pace in the first nine months of the year as governments and companies embarked on a ‘debt tsunami’ in the face of the coronavirus crisis, according to new research. The pace of debt accumulation will leave the global economy struggling to reduce borrowing in the future without ‘significant adverse implications for economic activity’, the Institute of International Finance warned… The total level of global indebtedness has increased by $15tn this year, leaving it on track to exceed $277tn in 2020, said the IIF… It expects total debt to reach 365% of global gross domestic product by the end of the year, surging from 320% at the end of 2019.”

November 19 – Bloomberg (Eric Martin, Fergal O'Brien and Alberto Nardelli): “The guardians of the global economy are warning that the recovery from this year’s recession is at risk and could be derailed as the resurgence of Covid-19 forces fresh restrictions… Both the International Monetary Fund and the Group of 20 -- which comprises the world’s richest nations -- sounded the alert as leaders of the G-20 prepare for a virtual summit this weekend, hosted by Saudi Arabia. The IMF noted progress on a vaccine, but also said elevated asset prices point to a disconnect from the real economy and a potential threat to financial stability. ‘While global economic activity has picked up since June, there are signs that the recovery may be losing momentum, and the crisis is likely to leave deep, unequal scars’ officials… said in a report… ‘Uncertainty and risks are exceptionally high.”

November 17 – Financial Times (Robin Wigglesworth and Colby Smith): “Global policymakers are examining the role hedge funds played in the mayhem that enveloped the $20tn US Treasury market in March, warning that the Federal Reserve’s intervention could fuel more aggressive trading. A report from the Financial Stability Board prepared ahead of this weekend’s G20 leaders summit underscores how central banks and regulators remain deeply uneasy over the turmoil this spring in one of the world’s most important financial markets. The FSB… explored the role that ‘non-bank financial institutions’ played in the crisis, and highlighted several areas that needed further study — and possible policy action.”

November 18 – Bloomberg (Sydney Maki): “Emerging markets could find it challenging to keep up on payments as the global debt burden soars to record levels, according to the Institute of International Finance. Global debt leaped by almost $15 trillion in the first nine months and is set to reach $277 trillion, or 365% of global gross domestic product, by year end as governments and companies borrow in response to the pandemic… The dangers are particularly acute for developing markets. While their debt is only approaching 250% of GDP and interest rates are low, Covid-related revenue losses make borrowing riskier… Lebanon, Malaysia and Turkey have accounted for the biggest increases in non-financial industry debt this year.”

November 16 – Reuters (Karin Strohecker): “Debt levels of emerging market governments ballooned to record highs in 2020 and are expected to continue rising next year, JPMorgan said in a note…, as policymakers battle to restart economies battered by the coronavirus pandemic. General government debt across 55 developing nations jumped to an all-time high of 59.0% of gross domestic product in 2020, with levels ex-China rising to 57.7%, JPMorgan analysts found.”

November 16 – Financial Times (Silla Brush and Jesse Hamilton): “Global regulators are preparing to tighten restrictions on investment funds and shadow lenders, concluding they threatened the stability of the financial system at the height of this year’s pandemic-fueled market volatility. Key areas of vulnerability during the March mayhem included big investors’ dash for cash, significant redemptions in mutual funds and non-government money market funds, as well as leveraged hedge fund trades in Treasuries, the Financial Stability Board said… The panel of global regulators indicated it would issue proposals next year to make money market funds more resilient and then address risks posed by the broader non-bank financial sector in 2022.”

November 15 – Bloomberg (Finbarr Flynn): “Borrowers from Asia are ramping up dollar debt sales again and are on the cusp of exceeding the full-year record for issuance. Issuers from Asia ex-Japan have sold over $323 billion of notes in the U.S. currency so far this year, compared with $326 billion for all of 2019 -- the current all-time high… Chinese borrowers led the charge last week following an initial lull after the U.S. election.”

Trump Administration Watch:

November 17 – Financial Times (Najmeh Bozorgmehr, Victor Mallet, Katrina Manson and Michael Peel): “Iran has threatened a ‘crushing’ response to any US military strike on the country’s nuclear facilities, following reports that Donald Trump had asked advisers about options for taking action against its main atomic site. ‘We have said it before, and repeat it now, that any action against Iranian people will face a crushing response,’ Ali Rabiei, Iran’s government spokesman, told journalists… The New York Times reported… President Donald Trump asked his senior advisers on Thursday for military strike options that he could take in the coming weeks against Iran’s principal nuclear site.”

November 16 – Bloomberg (Mario Parker and Ros Krasny): “U.S. President Donald Trump plans several new hard-line moves against China in the remaining weeks of his term, according to a senior administration official, potentially tying the hands of President-elect Joe Biden. Actions under consideration include protecting U.S. technology from exploitation by China’s military, countering illegal fishing and more sanctions against Communist Party officials or institutions causing harm in Hong Kong or the far western region of Xinjiang, the official said, without providing specifics. ‘Unless Beijing reverses course and becomes a responsible player on the global stage, future U.S. presidents will find it politically suicidal to reverse President Trump’s historic actions,’ John Ullyot, a spokesman for the National Security Council, said…”

November 19 – Reuters (Jeanny Kao and Yimou Lee): “The cabinet-level head of the U.S. Environmental Protection Agency, Andrew Wheeler, will visit Taiwan, the island’s premier said on Friday, in what will be the third visit by a senior U.S. official since August, drawing anger from Beijing. China… reacted with fury when the U.S. Health Secretary Alex Azar came to Taipei in August, followed by U.S. Undersecretary of State Keith Krach in September, sending fighter jets near the island each time.”

November 18 – Bloomberg (Robert Schmidt and Ben Bain): “The U.S. Securities and Exchange Commission is pushing ahead with a plan that threatens to kick Chinese companies off U.S. stock exchanges, setting up a late clash between Washington and Beijing as the Trump administration winds down. By the end of this year, the SEC intends to propose a regulation that would lead to the delisting of companies for not complying with U.S. auditing rules, according to people familiar… Agency officials have been moving quickly on a rule since August, when the President’s Working Group on Financial Markets… urged the regulator to pass restrictions that could take effect as soon as 2022…”

November 20 – Wall Street Journal (Andrew Ackerman): “The federal regulator who oversees Fannie Mae and Freddie Mac is pushing to speed up the mortgage giants’ exit from 12 years of government control but has yet to reach an agreement he needs with Treasury Secretary Steven Mnuchin, according to people familiar… Mark Calabria, a libertarian economist who heads the Federal Housing Finance Agency, has made it a priority to return Fannie and Freddie to private hands, a goal shared by Mr. Mnuchin… Completing the complex process before President Trump’s term ends on Jan. 20 is a long shot, and President-elect Joe Biden is considered unlikely to continue the effort.”

November 16 – Reuters (Andrea Shalal): “The U.S. Chamber of Commerce said… it was concerned the United States was being left behind after 15 Asia-Pacific economies on Sunday formed the world’s largest free-trade bloc, cementing China’s dominant role in regional trade.”

Biden Administration Watch:

November 14 – Associated Press (Alexandra Jaffy): “Joe Biden faces a decision unlike any other incoming president: whether to back a short-term national lockdown to finally arrest a raging pandemic. For now, it’s a question the president-elect would prefer to avoid. In the week since he defeated President Donald Trump, Biden has devoted most of his public remarks to encouraging Americans to wear a mask and view the coronavirus as a threat that has no regard for political ideology. But the debate has been livelier among members of the coronavirus advisory board Biden announced this week. One member, Dr. Michael Osterholm, suggested a four- to six-week lockdown… He later walked back his remarks and was rebutted by two other members of the panel who said a widespread lockdown shouldn’t be under consideration.”

November 16 – New York Times (Ana Swanson): “In addition to a deadly pandemic and a weakened economy, President-elect Joseph R. Biden Jr. will inherit one more challenge when he takes office in January: a toxic relationship with the world’s second-largest economy. President Trump has placed tariffs on hundreds of billions of dollars of products from China, imposed sanctions on Chinese companies and restricted Chinese businesses from buying American technology — a multiyear onslaught aimed at forcing Beijing to change its trade practices and as punishment for its authoritarian ways. He shows no sign of letting up in his final days in office: On Thursday, Mr. Trump issued an executive order barring investments in Chinese firms with military ties.”

November 16 – Bloomberg (Peter Martin): “Former U.S. Secretary of State Henry Kissinger said the incoming Biden administration should move quickly to restore lines of communication with China that frayed during the Trump years or risk a crisis that could escalate into military conflict. ‘Unless there is some basis for some cooperative action, the world will slide into a catastrophe comparable to World War I,’ Kissinger said… He said military technologies available today would make such a crisis ‘even more difficult to control’ than those of earlier eras. ‘America and China are now drifting increasingly toward confrontation, and they’re conducting their diplomacy in a confrontational way,” the 97-year-old Kissinger said in an interview with Bloomberg News Editor-in-Chief John Micklethwait. ‘The danger is that some crisis will occur that will go beyond rhetoric into actual military conflict.’”

Federal Reserve Watch:

November 17 – Reuters (Howard Schneider): “Federal Reserve Chair Jerome Powell said… it was not time to shut down emergency programs aimed at battling the economic fallout from the coronavirus pandemic, with cases again surging and the economy left with ‘a long way to go’ to recover. ‘I don’t think it is time yet, or very soon,’ to shutter the suite of credit programs set up by the Fed last spring with the authorization of the Treasury Department and funding from Congress, Powell said in the clearest indication yet he feels the programs are likely needed beyond Dec. 31, when many are due to expire.”

November 17 – Reuters (Patricia Zengerle, Doina Chiacu, Rick Cowan, David Morgan, Andrea Shalal): “The path to the Federal Reserve for President Donald Trump’s controversial nominee Judy Shelton narrowed Tuesday after the Senate blocked a key procedural vote and a Republican senator who was one of her supporters said he came down with the coronavirus. Iowa’s Chuck Grassley, 87, said… he has tested positive, adding in a tweet that he feels good and plans to work from home.”

U.S. Bubble Watch:

November 16 – Bloomberg (Lisa Lee and Tom Contiliano): “They were once America’s corporate titans. Beloved household names. Case studies in success. But now, they’re increasingly looking like something else -- zombies. And their numbers are swelling. From Boeing Co., Carnival Corp. and Delta Air Lines Inc. to Exxon Mobil Corp. and Macy’s Inc., many of the nation’s most iconic companies aren’t earning enough to cover their interest expenses (a key criterion, as most market experts define it, for zombie status). Almost 200 corporations have joined the ranks of so-called zombie firms since the onset of the pandemic, according to a Bloomberg analysis of financial data from 3,000 of the country’s largest publicly-traded companies. In fact, zombies now account for nearly 20% of those firms. Even more stark, they’ve added almost $1 trillion of debt to their balance sheets in the span, bringing total obligations to $1.36 trillion. That’s more than double the roughly $500 billion zombie companies owed at the peak of the financial crisis. The consequences for America’s economic recovery are profound.”

November 18 – Bloomberg (Reade Pickert and Olivia Rockeman): “A whole range of pandemic aid programs are set to expire in the new year, leaving millions of Americans without the government support that’s helped keep them afloat -- and threatening to hold back a rebounding economy. The biggest blow will likely come from the end of two federal unemployment-insurance programs, with roughly 12 million people facing a late-December cutoff, according to a study… by The Century Foundation. Also, measures that froze student-loan payments, offered mortgage forbearance and halted evictions have a year-end deadline –- and so do Federal Reserve lending facilities for small businesses and local governments.”

November 17 – Bloomberg (Alex Tanzi and Shahien Nasiripour): “U.S. household debt rose slightly in the third quarter, reaching the highest level ever as record-low interest rates continue to fuel a surge in home loan borrowing among consumers with excellent credit. Total debt increased 0.6% to $14.35 trillion from $14.27 trillion in the second quarter, the Federal Reserve Bank of New York said in a report… The gain was led by a surge in new mortgage loans, mostly refinancings, which reached $1.05 trillion, the second highest in data going back to 2003 and rivaling the historic refinance boom 17 years ago.”

November 19 – Bloomberg (Henry Goldman, Michelle Kaske and Natalie Wong): “New York City’s public school shutdown and the prospect of a crippled mass transit agency brings a new sense of vulnerability to a city that had been making a comeback from its dark days as the world’s Covid-19 epicenter. And more bad news is imminent. New York Governor Andrew Cuomo said the city’s rising test rate could force indoor dining, gyms and some other nonessential businesses to close, and Mayor Bill de Blasio said he expects those actions to be taken ‘quite soon.’”

November 19 – CNBC (Jeff Cox): “The pace of workers filing for unemployment claims picked up last week and was a bit higher than Wall Street had been expecting. Jobless claims totaled 742,000 for the week…, ahead of the 710,000 estimate… That total also represented an acceleration from the previous week’s 709,000 and a continuation of the job market struggles… Continuing claims, which trail by a week, took another substantial drop, falling 429,000 to 6.37 million, a fresh pandemic-era low.”

November 17 – Reuters: “U.S. retail sales increased less than expected in October and could slow further, restrained by spiraling new Covid-19 infections and declining household income as millions of unemployed Americans lose government financial support. Retail sales rose 0.3% last month… Data for September was revised down to show sales surging 1.6% instead of shooting up 1.9%... Economists… had forecast retail sales would gain 0.5% in October. Excluding automobiles, gasoline, building materials and food services, retail sales nudged up 0.1% after a downwardly revised 0.9% increase in September.”

November 19 – Reuters (Lucia Mutikani): “U.S. home sales increased for a fifth straight month in October, but record-high house prices because of tight supply could slow momentum. The National Association of Realtors said… existing home sales increased 4.3% to a seasonally adjusted annual rate of 6.85 million units last month… Existing home sales, which account for the bulk of U.S. home sales, jumped 26.6% on a year-on-year basis in October.”

November 16 – Bloomberg (Vince Golle): “Manufacturing in New York expanded in November at the slowest pace in three months as orders and shipments cooled, indicating uneven growth for factories in the Empire State. The Federal Reserve Bank of New York’s general business conditions index decreased to 6.3 from a reading of 10.5 a month earlier…”

November 18 – Wall Street Journal (Andrew Ackerman): “Mortgage giants Fannie Mae and Freddie Mac will have to hold hundreds of billions of dollars of capital to absorb possible losses, their federal regulator decided… The decision by the Federal Housing Finance Agency is a key step in efforts to return the two companies to private ownership. They were taken over by the government during the 2008 financial crisis in a process known as conservatorship. ‘The final rule is another milestone necessary for responsibly ending the conservatorships,’ FHFA Director Mark Calabria said… ‘FHFA is confident that the final rule puts Fannie Mae and Freddie Mac on a path toward a sound capital footing.’ But the decision sets a high hurdle for the companies. Based on their combined size earlier this year, Fannie and Freddie would have to hold about $283 billion. At present, they hold roughly $35 billion and would need to make up the difference through a combination of retained earnings and possible future stock sales.”

November 19 – Bloomberg (Lauren Coleman-Lochner, Natalie Wong and Noah Buhayar): “Eight months into the pandemic, clothing stores, restaurants, gyms and other businesses find themselves in a $52 billion hole. That’s the total amount of retail rent that’s been missed since April, according to CoStar Group Inc. While some of the overhang has since been paid back, the remainder will be a drag on merchants as they try to rebuild and landlords demand their money. In some cases, the unpaid balances could drive them into bankruptcy. ‘You’re going to have big bubbles that are going to be hitting next year or even in the fourth quarter,’ said Andy Graiser, co-president of A&G Real Estate Partners… ‘I’m not sure if they are going to be able to make those payments in addition to their existing rent.’”

November 17 – Wall Street Journal (Shane Shifflett): “About 300 companies that received as much as half a billion dollars in pandemic-related government loans have filed for bankruptcy, according to a Wall Street Journal analysis... Many of the companies, which employ a total of about 23,400 workers, say the funds from the Paycheck Protection Program weren’t enough to keep them going as the coronavirus and lack of additional stimulus payments weighed on their businesses. The total number of companies that failed despite getting PPP loans is likely far higher.”

November 17 – Reuters (Ambar Warrick and Niket Nishant): “A blank-check firm backed by billionaire Alec Gores became the latest special purpose acquisition company (SPAC) to slash its offering size, adding to concerns over whether the blank-check frenzy is showing early signs of a slowdown. A SPAC is a shell company that uses proceeds from an initial public offering to acquire a private company, typically within two years.”

Fixed Income Watch:

November 18 – Bloomberg (Liz Capo McCormick and Vince Golle): “The share of U.S. debt being held by foreign investors just keeps on shrinking. China’s holdings fell in September to the least since February 2017, and by some measures the nation was the biggest seller of Treasuries. The largest non-U.S. holder -- Japan -- offloaded American government debt for the second straight month. Foreign ownership of the $20.4 trillion market has been on a decade-long retreat with domestic buyers -- from mutual funds to pension plans -- filling in the gap.”

China Watch:

November 16 – Bloomberg: “The past few weeks have shown that Chinese President Xi Jinping can move extremely fast when he hones in on long-term threats to the Communist Party. And right now they revolve around the convergence of technology, finance and Hong Kong. Since unveiling a goal last month to double the size of the economy by 2035, China has embarked on a sweeping crackdown of some of its most valuable companies. The shock suspension of Ant Group Co.’s $35 billion initial public offering was quickly followed by more anti-monopoly rules to rein in former tech darlings Tencent Holdings Ltd. and Alibaba Group Holding Ltd… At the same time, he’s moved to further snuff out any opposition in Hong Kong’s legislature, the most democratic institution under Chinese rule. And authorities are forcing bond investors to take more responsibility for risk in a debt market where defaults have been historically rare, helping to deflate a potential debt bubble while also avoiding an inadvertent funding crunch.”

November 19 – Bloomberg: “China’s central bank remains on course to taper its emergency support even as a string of defaults by government-linked companies sends tremors through the credit markets. Officials have been preparing investors about the possibility of withdrawing some of that stimulus as the economic recovery picks up pace. While a surge in market interest rates this week following the defaults appears to have complicated that plan, economists say it won’t push the People’s Bank of China off its policy course.”

November 16 – Wall Street Journal (Xie Yu): “A series of unwelcome surprises in China’s huge corporate-bond market has knocked investors’ confidence in the local governments that stand behind many issuers. In one high-profile example, Yongcheng Coal & Electricity Holding Group Co. shocked investors last Tuesday by failing to repay a maturing short-term bond worth 1 billion yuan, or the equivalent of $151 million. The state-owned coal mining company had just raised an equivalent amount by selling commercial paper, and carried a triple-A credit rating by China Chengxin International Credit Rating, a major rating agency in China… That came a few days after Huachen Automotive Group Holdings Co. failed to repay another 1-billion-yuan bond.”

November 17 – Wall Street Journal (Xie Yu): “Tsinghua Unigroup Co., a key player in China’s push for self-reliance in semiconductors, has defaulted on a bond, adding to a recent spate of trouble in the country’s corporate debt markets. China Chengxin Credit Rating Group said late Monday that Unigroup was in default on the privately placed domestic bond, worth 1.3 billion yuan, equivalent to $197 million.”

November 17 – Financial Times (Sun Yu and Tom Mitchell): “At least 20 Chinese companies have suspended planned bond sales worth Rmb15.5bn ($2.4bn) over the past week, as the high-profile defaults of three state-owned enterprises and questions about the solvency of a fourth unnerved investors in the world’s second-largest bond market. Investors dumped bond holdings last week after Yongcheng Coal & Electricity, a state-owned enterprise… It was the second high-profile SOE default in recent weeks… ‘Local SOEs account for over half of outstanding corporate bonds in China,’ said Sean Ding at Plenum, a Beijing-based consultancy. ‘A continued sell-off would lead to a complete halt of bond issuance.’”

November 18 – Bloomberg: “The credit default shock waves rippling through China are hurting demand for sovereign bonds, with market watchers seeing the slide lasting the rest of 2020. China’s 10-year government notes are set to drop for a seventh month in November, on track for the longest retreat since 2007. The decline has pushed the benchmark yield to 3.32%, set for the highest since May 2019. A technical indicator suggests the bonds are facing the worst selling pressure in a year. Behind the sour sentiment are worries that Beijing will tighten its monetary policy amid the economic recovery, even though lenders are challenged by a series of recent corporate bond defaults and a $900 billion funding shortage over the last two months of this year.”

November 18 – Reuters (Andrew Galbraith): “Chinese investigations into last week’s shock bond default by a state-owned coal miner widened on Wednesday with a regulator threatening to sanction Haitong Securities, one of the country’s biggest brokerages, for alleged manipulation. China’s interbank bond market regulator said… Haitong and its subsidiaries are suspected of providing assistance to Yongcheng Coal & Electricity Holding Group in the illegal issuance of bonds, and of manipulating the market… Yongcheng’s default came just weeks after it sold fresh debt and sparked a sell-off in China’s corporate debt market amid renewed questions about the health of state-owned companies…”

November 15 – Bloomberg: “China Evergrande Group has seen a steep drop in its main source of non-bank financing over the past three months, adding to challenges for the embattled developer that just narrowly escaped a full-blown cash crunch. After going on a debt binge in the trust market through 2019 and this year, that funding pipeline all but dried up in August… It has been a significant part of Evergrande’s financing, accounting for 41% of its total 799.8 billion yuan ($121bn) at the end of 2019.”

November 19 – Bloomberg: “A Chinese residential developer defaulted on a domestic bond, as credit stress in the world’s No. 2 economy shows no sign of abating. Fujian Fusheng Group Co., a mid-sized builder…, said it failed to repay investors who requested early redemptions worth 631 million yuan ($96 million)…The puttable note carries no grace period for early redemptions, according to the bond’s prospectus.”

November 19 – Bloomberg (Jing Yang): “A spate of Chinese company bond failures have sparked a sell-off in riskier debt. Yields on three-year AA rated yuan-denominated Chinese corporate bonds -- considered by some analysts as junk debt in the onshore market -- surged to their highest level since May 2019 on Wednesday. ‘A series of company defaults recently deepened investor concerns about the credit market, triggering some risk off sentiment,’ said Zhang Xu, chief fixed-income analyst at Everbright Securities Co.”

November 17 – Bloomberg: “A key measure of risk in China’s credit market hit the highest level in seven weeks, after a series of defaults by state-linked borrowers deepened a bond selloff in weaker firms from the sector. The onshore credit spread between yields on three-year AA rated corporate bonds and comparable government notes increased to 114 bps Monday, the widest level since September 29…”

November 18 – Bloomberg (Anjani Trivedi): “As Beijing reins in its largesse and credit stresses rise in China amid a wave of defaults, investors should wonder where the ructions will appear next. Going by the numbers, local government financing vehicles – with trillions of yuan outstanding – seem primed to come under pressure. Their debt is meant to help raise capital for infrastructure and other public projects. Issuance in the first seven months of the year totaled 2.5 trillion yuan ($381bn), up 32% over the same period in 2019.”

November 19 – Reuters (Samuel Shen and Andrew Galbraith): “A senior official from China’s Shanxi said state-owned enterprises (SOEs) from the province would be able to meet repayment obligations on bonds which mature in the near term, seeking to soothe investor nerves after several SOE defaults. The defaults, including one on a 1 billion yuan ($150 million) bond from state-owned Yongcheng Coal & Electricity Holding Group based in Henan province this month, have sent shockwaves through China’s $4.4 trillion market for non-financial corporate bonds. In particular, confidence in bonds issued by state firms from provinces with weaker finances or a similar investment profile like coal-rich Shanxi have been hard hit.”

November 15 – Bloomberg: “China’s economic rebound gathered pace in October, cementing the nation’s status as the only major economy tipped to grow this year… Industrial output rose 6.9% in October from a year earlier…, higher than the 6.7% median estimate… Retail sales growth accelerated to 4.3% from 3.3% in September, though missing expectations for a 5% increase.”

November 15 – Reuters (Lusha Zhang, Liangping Gao and Ryan Woo): “Chinese new home prices grew at a slower monthly pace in October…, as many developers moved to cut prices to promote sales amid tighter government scrutiny on borrowing. Average new home prices in 70 major cities rose 0.2% in October from a month earlier, the slowest monthly growth rate since March and down from September’s 0.4% growth… Compared with the same month a year earlier, home prices rose 4.3% in October, easing slightly from September’s 4.6% growth.”

November 16 – Financial Times (Ryan McMorrow and Primrose Riordan): “The climate is cooling rapidly for China’s tech giants. After years of warily allowing companies such as Alibaba and Tencent the freedom to grow without significant interference, Beijing has signalled it does not like how Big Tech is behaving. Last week, Chinese tech stocks lost hundreds of billions of dollars in value, with Alibaba falling 12% in Hong Kong, after the release of new antitrust guidelines for the sector. Analysts predicted that pain was on the way. The ‘extensive list of well-defined monopolistic practices… could be a strong signal of regulatory tightening,’ said Dan Baker at Morningstar.”

November 15 – Reuters (Andrew Galbraith and Steven Bian): “China should ensure financial innovation maintains fair competition and does not create oligopolies or construct barriers to entry, a Chinese regulatory official said… Xiao Yuanqi, chief risk officer at the China Banking and Insurance Regulatory Commission (CBRIC) told the Caixin Summit in Beijing that innovation should not undermine healthy competition or let innovation pioneers become hindrances to further innovation. Xiao defended the role of financial regulation in maintaining a fair market competition environment, reducing ‘too big to fail’ moral hazards and maintaining financial stability.”

November 13 – Reuters: “Baoshang Bank, which was taken over by Chinese authorities last year, plans to fully write off a subordinated capital bond after it was deemed a non-viable entity by regulators. The People’s Bank of China and China Banking and Insurance Regulatory Commission determined that a ‘non-viability trigger event’ had taken place at the lender… It plans to write off a 6.5 billion yuan ($980 million) tier-2 bond and won’t pay the remaining 585.6 million yuan of interest on the note.”

November 15 – Associated Press (Raf Casert): “New Kim is worth her weight in gold and then some — actually much, much more. A wealthy Chinese pigeon racing fan put down a record price of 1.6 million euros ($1.9 million) for the Belgian-bred bird… During a frantic last half hour Sunday at the end of a two-week auction at the Pipa pigeon center, two Chinese bidders operating under the pseudonyms Super Duper and Hitman drove up the price by 280,000 euros ($325,000), leaving the previous record that Belgian-bred Armando fetched last year well behind by 350,000 euros ($406,000).”

Central Bank Watch:

November 16 – Bloomberg (Rich Miller): “The world is awash with too much savings and central banks don’t have the tools on their own to combat the economic stagnation that’s a result. That was one of the conclusions of a high-powered panel at the Bloomberg New Economy Forum… that included former Federal Reserve Chair Janet Yellen and ex-U.S. Treasury Secretary Lawrence Summers. The session -- in which former central bankers Mervyn King and Raghuram Rajan also took part -- highlighted the limits of central bank powers in addressing such issues as climate change and income inequality. It also included pleas for a global strategy to help emerging-market and poorer countries cope with the fallout from the coronavirus pandemic. ‘There is a glut of savings and a shortage of investment,’ which is the core problem facing developed countries’ economies, said Yellen… ‘We have to have fiscal policy, structural policy other than just relying on central banks to achieve healthy growth.’”

November 19 – Bloomberg (Piotr Skolimowski): “European Central Bank President Christine Lagarde promised a forceful monetary stimulus package in December and urged governments to make pandemic relief available ‘without delay.’ Just hours before a summit of European Union leaders, Lagarde said adopting joint fiscal support should be a priority, warning that the 19-nation euro region is expected to be ‘severely affected’ by the rapid increase in infections and restrictions.”

EM Watch:

November 19 – Bloomberg (Cagan Koc): “Turkey’s central bank took a major step back toward mainstream policy making with the endorsement of longtime skeptic President Recep Tayyip Erdogan, raising interest rates by the most in over two years and spurring a rally in the currency. The Monetary Policy Committee led by Governor Naci Agbal on Thursday lifted the one-week repo rate to 15% from 10.25%...”

November 17 – Financial Times (Benjamin Parkin): “The Reserve Bank of India has rushed to reassure the country’s financial sector after taking over an ailing regional bank, its latest in a string of rescues of a lender close to collapse. ‘There is no need to panic,’ the RBI said… as it announced it would limit withdrawals and replace the board of directors at Lakshmi Vilas Bank. The intervention is the central bank’s latest attempt to prevent a broader crisis in India’s financial system, which even before the coronavirus pandemic was burdened with one of the world’s highest bad-loan ratios.”

Europe Watch:

November 15 – Reuters (Gabriela Baczynska and Elizabeth Piper): “European Union diplomats warned Britain… that time was fast running out for a Brexit deal, and that it may already be too late to ratify one, as negotiators in Brussels began a last-ditch attempt to avoid a tumultuous exit at the end of December.”

November 16 – Reuters (Francesco Canepa): “The German economy is likely stagnating or contracting as measures taken at home and abroad to contain the second wave of the coronavirus pandemic hit leisure activities as well as exports, the Bundesbank said… ‘Overall economic performance could stagnate or even decline after very vigorous growth in the summer,’ the Bundesbank said in its monthly report.”

November 15 – Reuters (Arno Schuetze): “Germans should brace for another 4-5 months of severe measures to halt the rise in coronavirus infections and should not expect the current rules to be eased quickly, Economy Minister Peter Altmaier told weekly Bild am Sonntag.”

Japan Watch:

November 15 – Reuters (Leika Kihara and Tetsushi Kajimoto): “Japan’s economy grew at the fastest pace on record in the third quarter, rebounding sharply from its biggest postwar slump… The world’s third-largest economy expanded an annualised 21.4% in July-September, beating a median market forecast for an 18.9% gain and marking the first increase in four quarters…”

Leveraged Speculation Watch:

November 14 – Financial Times (Laurence Fletcher and Robin Wigglesworth): “Several US and UK hedge funds were stung this week in an intense shake-up under the market’s surface triggered by a significant development in the fight against coronavirus. Monday’s news that a Covid-19 vaccine being developed by Pfizer and Germany’s BioNTech was more than 90% effective sent markets soaring. But it also prompted an abrupt switch out of sectors that have prospered during the pandemic, such as technology, and into beaten-down stocks such as real estate and airlines — and triggered an earthquake in some popular investment ‘factors’ such as value and momentum. ‘Everything about 2020 has been unprecedented, but the magnitude [of these moves] was exceptional,’ said Yin Luo, vice-chairman and head of quantitative strategy at Wolfe Research… Analysts often divide the equity market into groups according to characteristics known as ‘factors’… Many of these made record-shattering moves on Monday. The value factor, which is centred on lowly-priced, unfashionable stocks, enjoyed a 6.4% uplift, its strongest one-day gain since the 1980s, while the momentum factor — essentially stocks on a hot streak — tumbled 13.7%, its worst ever loss, according to JPMorgan.”

November 18 – Bloomberg (Katia Porzecanski and Hema Parmar): “Two of the hedge fund industry’s quantitative powerhouses are getting tripped up this year as wild markets throw off their investing models. Renaissance Technologies, which manages the world’s biggest quant hedge fund, and Two Sigma Advisers have seen losses across several of their funds in 2020, a sign of how unprecedented market volatility caused by the Covid-19 pandemic hurt even the most sophisticated traders… Renaissance saw a decline of about 20% through October in its long-biased fund… The $75 billion firm’s market-neutral fund dropped about 27% and its global-equities fund lost about 25%... Two Sigma saw its risk-premia strategy lose 11.5% this year through last month… The $58 billion firm’s absolute-return fund declined 2.7%, while its absolute-return macro fund slumped 23%.”

November 18 – Bloomberg (Justina Lee): “Like so many of his peers, Ian Heslop needs a turning point in markets to revive his misfiring quant strategies. Yet for the Jupiter Fund Management investor, last week’s massive risk-on rotation only added insult to injury. As global markets cheered vaccine developments that point to a post-pandemic world, his Global Equity Absolute Return Fund fell the most ever -- cutting assets under management to just $1.3 billion.”

Geopolitical Watch:

November 15 – Reuters (Colin Qian and Ryan Woo): “China’s commerce ministry said… the United States should stop its unreasonable suppression of Chinese firms, responding to Washington’s decision to ban U.S. investments in firms tied to the Chinese military.”

November 18 – Reuters (Jeffrey Heller and Hesham Abdul Khalek): “Israel launched air strikes against the Syrian army and Iran’s Quds Force in Syria on Wednesday after explosive devices were planted in the Israeli-held Golan Heights, the Israeli military said. The Syrian state news agency reported that three military personnel were killed and one was wounded in ‘Israeli aggression’ over Damascus. In a statement, the Israeli military said its planes hit storage facilities, military compounds and Syrian surface-to-air missile batteries.”