[Bloomberg] U.S. Stocks Fall Most in Month as Gold, Bonds Rise: Markets Wrap
[Bloomberg] Greek Markets Tumble as EU Holds Up Payment Amid IMF Doubts
[CNBC] German inflation and French election push up borrowing costs across Europe
[Bloomberg] U.S. Consumer Spending Rose in December by Most in Three Months
[Bloomberg] German Inflation at Highest Since 2013 Puts ECB in Spotlight
[Bloomberg] Euro-Area Economic Confidence Hits Highest Level Since 2011
[Bloomberg] Trump Era May Mean Fireworks on Fed Days Despite Better Guidance
[NYT] Howls Over Import Tax Complicate Plans to Overhaul Code
[Washington Post] Trump’s First 100 Days: Trump’s move on immigration leads to chaos at airports
[WSJ] Germany’s Rising Inflation May Boost Calls to Halt ECB Stimulus
[FT] Asia borrowing binge hits record high in January
[Reuters] Ukraine says more soldiers killed in deadliest clashes in weeks
Sunday, January 29, 2017
Saturday, January 28, 2017
Sunday's News Links
[Reuters] U.S. tech leaders sound alarm over Trump immigration order
[USAT] Immigration ban fallout: What you need to know
[FT] Trump defiant as Merkel leads European criticism of travel ban
[NYT] The Questions That Could Reshape a Worried Europe in 2017
[UK Independent] China military official says war with US under Donald Trump 'becoming practical reality'
[USAT] Immigration ban fallout: What you need to know
[FT] Trump defiant as Merkel leads European criticism of travel ban
[NYT] The Questions That Could Reshape a Worried Europe in 2017
[UK Independent] China military official says war with US under Donald Trump 'becoming practical reality'
Saturday's News Links
[CNBC] How Trump's immigration move could derail the market rally
[Bloomberg] IMF Warns Eurogroup Loan Measures Not Enough for Greek Debt
[WSJ] Citigroup, European Banks Stick With Mexico as Trade War Looms
[AFP] Trump talks to world leaders amid alarm over Muslim immigrant policy
[Spiegel] Trump's Attack on Germany and the Global Economy
[Bloomberg] IMF Warns Eurogroup Loan Measures Not Enough for Greek Debt
[WSJ] Citigroup, European Banks Stick With Mexico as Trade War Looms
[AFP] Trump talks to world leaders amid alarm over Muslim immigrant policy
[Spiegel] Trump's Attack on Germany and the Global Economy
Friday, January 27, 2017
Weekly Commentary: A Dubious Monetary Backdrop
Now that was one eventful week. President Trump wasted not a minute in making good on a series of campaign promises. A bevy of executive orders moved to rein in Obamacare, withdraw from Trans-Pacific Partnership (TPP) trade negotiations, tighten immigration, cut regulation and advance the Keystone Pipeline. No earth-shattering surprises there. Perhaps more startling, Team Trump had yet to even unpack before broaching radical notions such as abandoning America's strong dollar policy, imposing a 20% border tax on imports from Mexico and opening direct confrontation with the media. Friday evening from the WSJ: “Trump’s First Week: Governing Without a Script.”
At least for this week, I’ll leave it to others to pontificate on the economic merits of Trump policymaking. Dow 20,000 is testament to the market’s ongoing fixation with tax reduction and reform, de-regulation and imminent fiscal stimulus. There were enough disquieting developments this week to dent confidence, though break-out bullish exuberance proved resilient. Unwavering faith in the course of central banking surely underpins the markets, confidence that I expect to be challenged in 2017.
My focus – one that the world now largely neglects – is on unsound global finance. It’s such an extraordinary backdrop – in all things monetary, in politics, geopolitics and the markets. Yet it is anything but a new experience for speculative markets to disregard latent financial fragilities. And we’ve witnessed in past episodes the capricious nature of market psychology. There’s something to glean from each one.
I think back to the summer of 1998. Markets were surging to record highs, led by monster advances in bank and financial stocks. The mantra was “the West will never allow Russia to collapse” – certainly not after the devastating Asian Tiger debacle. The simultaneous autumn implosions of Russia and LTCM not only punctured the financial Bubble, they almost brought down the global financial system.
Bolstered by “The Committee to Save the World” and all the Fed’s Y2K histrionics, powerful Bubble reflation saw Nasdaq almost double in 1999. Fear somehow just vanished as greed took full control. The U.S. was the indisputable leader of the free-world; there was an unassailable New Paradigm of technology-induced prosperity; America was the vanguard of technological revolution; and the dollar was unconditional king. With the clairvoyant Maestro leading U.S. and global central bankers, the New Millennium was destined to be the golden age of prosperity. Naysayers were tarred and feathered, yet that didn’t change the harsh reality that finance was fundamentally unsound.
These days, markets have grown convinced that Beijing will avert Chinese financial and economic crisis. The Bank of Japan will secure bond prices in Tokyo – no matter how much government debt is issued. The ECB will hold together Italy, Portugal, Spain and euro integration more generally. The Fed will not tolerate any meaningful tightening of financial conditions, ensuring the sustainability of bull markets in U.S. financial assets. The U.S. and king dollar provide a stable foundation for global finance that, along with ongoing Chinese growth, will hold EM debt crisis at bay. And, more generally, the Fed and international central bankers will continue backstopping global markets, guaranteeing ample liquidity and buoyant securities prices. Bear markets – let alone crisis – are simply intolerable.
Examining the backdrop, I think mostly deeply of 2007. For the most part, things looked pretty good at the time – at least superficially. The U.S. and global economy were generally viewed as robust, certainly strong enough to withstand some issues at the fringe of mortgage finance (subprime). Very few at the time recognized the profound financial and economic fragilities that had developed over the mortgage finance Bubble period. In general, policymakers and market participants were oblivious to how distortions in the pricing and issuance of mortgage finance had become such a critical systemic issue. Virtually everyone missed the key analysis: Perceived solid economic fundamentals were no match for deeply unstable financial and market underpinnings. It was a major Bubble, and it would burst.
I believe fragilities today are much more systemic on a global basis than back in 2007. Where’s the Bubble? Virtually everywhere. Indeed, the world would be altogether different if not for the past year’s $2.0 TN or so of global central bank liquidity injections – and expectations for only somewhat less this year. It’s noteworthy that few market strategist even mention QE these days – as if it no longer matters. With the Fed having suspended QE in 2014, there’s a general perception in the U.S. that markets will transition easily away from QE. Yet global liquidity is “fungible.” How much U.S. bound liquidity has arrived – directly or indirectly – via ECB, BOJ and BOE QE operations? Surely flows have been enormous – hundreds of billions or, likely, more.
Fixated so on Trump, markets have lost focus on the crucial issue of global QE prospects. Expect this to be a short-term phenomenon. The ECB and BOJ are in the middle of colossal policy mistakes. Both grabbed the QE hot potato from Federal Reserve – and now they’re stuck. Both have been buying massive quantities of government debt at highly inflated Bubble prices. Both doubled-down in 2016. Both should be addressing exit strategies but are afraid.
Mario Draghi has been using the electronic printing press as a desperate measure to hold the euro together. The BOJ succumbed to a fool’s errand of pegging government bond yields near zero. European yields have begun rising briskly on the prospect of reduced central bank purchases. The Bank of Japan faces a choice of either massive ongoing purchases necessary to hold yields down – with negative ramifications for the yen – or admitting to a policy blunder and dealing with a spike in yields.
I view the global monetary backdrop as highly problematic. Let’s focus first on Europe. This week saw Italian yields jump 22 bps to 2.23%, the high since July 2015. Portuguese yields surged 32 bps to 4.14%, trading above 4.0% for the first time since March 2014. Greek yields rose 15 bps to 7.11%. Even French yields rose 13 bps this week to 1.03%, the high since July 2015. It’s worth noting that the spread between French and German 10-year yields widened nine bps this week (to 57bps) to the widest level since April 2014.
January 25 – Wall Street Journal (Tom Fairless): “A top European Central Bank official signaled… that the ECB should soon start to wind down its €2.3 trillion bond-purchase program, a much anticipated move that is expected to trigger volatility in financial markets. ‘I am...optimistic that we can soon turn to the question of an exit’ from easy-money policies, said Sabine Lautenschläger, who sits on the ECB’s six-member executive board… The ECB ‘must get ready for better times,’ Ms. Lautenschläger said.”
January 26 – Financial Times (Claire Jones): “Mario Draghi will be disappointed. It has taken just a week after the European Central Bank’s latest policy vote for the governing council’s two most hawkish members to cast doubt on his plans to buy €780bn-worth of bonds under the landmark quantitative easing programme this year. Jens Weidmann, the Bundesbank president, has echoed the remarks his fellow German Sabine Lautenschläger, a member of the ECB’s executive board, made Tuesday and indicated the debate on trimming QE should begin soon. ‘The economic outlook at the beginning of the year is quite positive and the inflation rate is gradually approaching the ECB’s definition of price stability. If this price development is sustainable, the requirements for the withdrawal from the loose monetary policy are met,’ Mr Weidmann said…”
German central bankers appear increasingly anxious - and less willing to maintain a low profile. Germany’s CPI jumped to a (non-deflationary) 1.7% y-o-y rise in December, the strongest pace since July 2013. December Import Prices were up 3.5% y-o-y, the strongest since early 2012. There are important German elections this fall. The ECB is scheduled to reduce monthly purchases from 80 billion euros to 60 billion in April. Expect the more hawkish contingent at the ECB to begin pushing for a 2017 end to QE operations.
While the issue garners little attention these days, it appears increasingly likely that euro zone central banks will sustain large losses on their bond portfolios. Perhaps it doesn’t matter. Or perhaps it will embolden the “hawks” – and even, at some point, unnerve the markets. It’s important uncharted territory for policymakers and the markets. After early-2016 policy moves, markets turned fully persuaded that central banks were willing and able to unleash unlimited resources to support market liquidity and securities prices. This assumption is now deeply embedded in securities prices – across asset classes and around the globe.
Much has changed in a year. Brexit, Trump, crude and commodities prices, equities markets, bond yields and inflationary dynamics more generally – to name only a few. A strong case can be made that desperate central bank measures pushed the global bond Bubble to speculative “blow off” extremes – just as inflationary forces garnered some momentum. While yields have for the most part reversed sharply, a possible major market (burst Bubble) adjustment has been held at bay by ongoing massive QE.
On the political front, President Trump’s America First – anti-globalization, anti-establishment – agenda also complicates what had become a rather predictable central banking environment (“whatever it takes” in the name of robust global securities markets). Sure, Federal Reserve officials can continue to lecture as if their purpose in life is wholly dictated by the “dual mandate.” Yet Yellen – following in the footsteps of predecessors Bernanke and Greenspan – is an activist promoter of globalization and global securities markets. It’s interesting to hear even some of the most dovish Obama Fed appointees take on an almost hawkish tone when it comes to potential Trump fiscal stimulus. Might the Fed choose to adopt a less activist stance down the road when markets respond negatively to aspects of the Trump agenda?
Throughout the financial crisis until now, global central bankers have been a united and unifying force. Can this dynamic be maintained in a backdrop of rising animosity within societies/political ideologies and between governments and nations? In the event of a U.S. initiated trade war, should we expect, for example, such close cooperation between the Fed, the Bank of Mexico and the People’s Bank of China?
And what are the ramifications for the Trump Administration ditching the so-called “strong dollar policy”? Might we see Tweets attacking ECB and BOJ QE on grounds they’re part of a currency devaluation strategy? Trump has been critical of the Fed. He’s surely no proponent of the euro experiment and the ECB’s approach to “whatever it takes” monetary management. There’s great global uncertainty with regards to future trade relations, inflation, fiscal deficits and monetary policy. Past market performance may not be all that relevant to a quite divergent future.
January 24 – New York Times (Alan Rappeport): “After seven years of fitful declines, the federal budget deficit is projected to swell again, adding nearly $10 trillion to the federal debt over the next 10 years, according to projections from the nonpartisan Congressional Budget Office… Statutory caps imposed in 2011 on domestic and military spending have helped temper the deficit. But those controls are likely to be swamped by health care and Social Security spending that will rise with an aging population.”
Going back to the nineties, aggressive GSE market intervention played a profound roll in backstopping and reflating markets after repeated de-risking/de-leveraging episodes. The (late-2004) revelation of accounting scandals constrained their ability to aggressively provide marketplace liquidity. Yet the loss of this key backstop mechanism didn’t slow markets that had by then developed powerful inflationary momentum. The view was that Washington – the Treasury, Fed and GSEs – would never tolerate a housing bust. And this view was integral to an historic financial and economic Bubble – and deeply embedded in securities markets (equities and fixed-income, at home and abroad).
The scope of today’s global Bubble goes so far beyond 2007. The prevailing view holds that global central banks will indefinitely do “whatever it takes” to ensure abundant marketplace liquidity, while backstopping global markets in the event of tumult. And it is precisely this perception that has sustained a prolonged Credit and asset inflation and resulting epic financial Bubble.
January 27 – Wall Street Journal (Kane Wu and Julie Steinberg): “The pace of big Chinese takeovers abroad is slowing as buyers contend with rules tightening the flow of money out of the country and increased government scrutiny at home and overseas. Bankers say many of the record-breaking $225 billion in overseas acquisitions Chinese companies announced last year are stalled by financial or regulatory hurdles—including the country’s biggest-ever deal, China National Chemical Corp.’s $43 billion bid for Syngenta AG, a Swiss seed and pesticide maker… More Chinese acquirers are backing out of deals.”
At least for this week, I’ll leave it to others to pontificate on the economic merits of Trump policymaking. Dow 20,000 is testament to the market’s ongoing fixation with tax reduction and reform, de-regulation and imminent fiscal stimulus. There were enough disquieting developments this week to dent confidence, though break-out bullish exuberance proved resilient. Unwavering faith in the course of central banking surely underpins the markets, confidence that I expect to be challenged in 2017.
My focus – one that the world now largely neglects – is on unsound global finance. It’s such an extraordinary backdrop – in all things monetary, in politics, geopolitics and the markets. Yet it is anything but a new experience for speculative markets to disregard latent financial fragilities. And we’ve witnessed in past episodes the capricious nature of market psychology. There’s something to glean from each one.
I think back to the summer of 1998. Markets were surging to record highs, led by monster advances in bank and financial stocks. The mantra was “the West will never allow Russia to collapse” – certainly not after the devastating Asian Tiger debacle. The simultaneous autumn implosions of Russia and LTCM not only punctured the financial Bubble, they almost brought down the global financial system.
Bolstered by “The Committee to Save the World” and all the Fed’s Y2K histrionics, powerful Bubble reflation saw Nasdaq almost double in 1999. Fear somehow just vanished as greed took full control. The U.S. was the indisputable leader of the free-world; there was an unassailable New Paradigm of technology-induced prosperity; America was the vanguard of technological revolution; and the dollar was unconditional king. With the clairvoyant Maestro leading U.S. and global central bankers, the New Millennium was destined to be the golden age of prosperity. Naysayers were tarred and feathered, yet that didn’t change the harsh reality that finance was fundamentally unsound.
These days, markets have grown convinced that Beijing will avert Chinese financial and economic crisis. The Bank of Japan will secure bond prices in Tokyo – no matter how much government debt is issued. The ECB will hold together Italy, Portugal, Spain and euro integration more generally. The Fed will not tolerate any meaningful tightening of financial conditions, ensuring the sustainability of bull markets in U.S. financial assets. The U.S. and king dollar provide a stable foundation for global finance that, along with ongoing Chinese growth, will hold EM debt crisis at bay. And, more generally, the Fed and international central bankers will continue backstopping global markets, guaranteeing ample liquidity and buoyant securities prices. Bear markets – let alone crisis – are simply intolerable.
Examining the backdrop, I think mostly deeply of 2007. For the most part, things looked pretty good at the time – at least superficially. The U.S. and global economy were generally viewed as robust, certainly strong enough to withstand some issues at the fringe of mortgage finance (subprime). Very few at the time recognized the profound financial and economic fragilities that had developed over the mortgage finance Bubble period. In general, policymakers and market participants were oblivious to how distortions in the pricing and issuance of mortgage finance had become such a critical systemic issue. Virtually everyone missed the key analysis: Perceived solid economic fundamentals were no match for deeply unstable financial and market underpinnings. It was a major Bubble, and it would burst.
I believe fragilities today are much more systemic on a global basis than back in 2007. Where’s the Bubble? Virtually everywhere. Indeed, the world would be altogether different if not for the past year’s $2.0 TN or so of global central bank liquidity injections – and expectations for only somewhat less this year. It’s noteworthy that few market strategist even mention QE these days – as if it no longer matters. With the Fed having suspended QE in 2014, there’s a general perception in the U.S. that markets will transition easily away from QE. Yet global liquidity is “fungible.” How much U.S. bound liquidity has arrived – directly or indirectly – via ECB, BOJ and BOE QE operations? Surely flows have been enormous – hundreds of billions or, likely, more.
Fixated so on Trump, markets have lost focus on the crucial issue of global QE prospects. Expect this to be a short-term phenomenon. The ECB and BOJ are in the middle of colossal policy mistakes. Both grabbed the QE hot potato from Federal Reserve – and now they’re stuck. Both have been buying massive quantities of government debt at highly inflated Bubble prices. Both doubled-down in 2016. Both should be addressing exit strategies but are afraid.
Mario Draghi has been using the electronic printing press as a desperate measure to hold the euro together. The BOJ succumbed to a fool’s errand of pegging government bond yields near zero. European yields have begun rising briskly on the prospect of reduced central bank purchases. The Bank of Japan faces a choice of either massive ongoing purchases necessary to hold yields down – with negative ramifications for the yen – or admitting to a policy blunder and dealing with a spike in yields.
I view the global monetary backdrop as highly problematic. Let’s focus first on Europe. This week saw Italian yields jump 22 bps to 2.23%, the high since July 2015. Portuguese yields surged 32 bps to 4.14%, trading above 4.0% for the first time since March 2014. Greek yields rose 15 bps to 7.11%. Even French yields rose 13 bps this week to 1.03%, the high since July 2015. It’s worth noting that the spread between French and German 10-year yields widened nine bps this week (to 57bps) to the widest level since April 2014.
January 25 – Wall Street Journal (Tom Fairless): “A top European Central Bank official signaled… that the ECB should soon start to wind down its €2.3 trillion bond-purchase program, a much anticipated move that is expected to trigger volatility in financial markets. ‘I am...optimistic that we can soon turn to the question of an exit’ from easy-money policies, said Sabine Lautenschläger, who sits on the ECB’s six-member executive board… The ECB ‘must get ready for better times,’ Ms. Lautenschläger said.”
January 26 – Financial Times (Claire Jones): “Mario Draghi will be disappointed. It has taken just a week after the European Central Bank’s latest policy vote for the governing council’s two most hawkish members to cast doubt on his plans to buy €780bn-worth of bonds under the landmark quantitative easing programme this year. Jens Weidmann, the Bundesbank president, has echoed the remarks his fellow German Sabine Lautenschläger, a member of the ECB’s executive board, made Tuesday and indicated the debate on trimming QE should begin soon. ‘The economic outlook at the beginning of the year is quite positive and the inflation rate is gradually approaching the ECB’s definition of price stability. If this price development is sustainable, the requirements for the withdrawal from the loose monetary policy are met,’ Mr Weidmann said…”
German central bankers appear increasingly anxious - and less willing to maintain a low profile. Germany’s CPI jumped to a (non-deflationary) 1.7% y-o-y rise in December, the strongest pace since July 2013. December Import Prices were up 3.5% y-o-y, the strongest since early 2012. There are important German elections this fall. The ECB is scheduled to reduce monthly purchases from 80 billion euros to 60 billion in April. Expect the more hawkish contingent at the ECB to begin pushing for a 2017 end to QE operations.
While the issue garners little attention these days, it appears increasingly likely that euro zone central banks will sustain large losses on their bond portfolios. Perhaps it doesn’t matter. Or perhaps it will embolden the “hawks” – and even, at some point, unnerve the markets. It’s important uncharted territory for policymakers and the markets. After early-2016 policy moves, markets turned fully persuaded that central banks were willing and able to unleash unlimited resources to support market liquidity and securities prices. This assumption is now deeply embedded in securities prices – across asset classes and around the globe.
Much has changed in a year. Brexit, Trump, crude and commodities prices, equities markets, bond yields and inflationary dynamics more generally – to name only a few. A strong case can be made that desperate central bank measures pushed the global bond Bubble to speculative “blow off” extremes – just as inflationary forces garnered some momentum. While yields have for the most part reversed sharply, a possible major market (burst Bubble) adjustment has been held at bay by ongoing massive QE.
On the political front, President Trump’s America First – anti-globalization, anti-establishment – agenda also complicates what had become a rather predictable central banking environment (“whatever it takes” in the name of robust global securities markets). Sure, Federal Reserve officials can continue to lecture as if their purpose in life is wholly dictated by the “dual mandate.” Yet Yellen – following in the footsteps of predecessors Bernanke and Greenspan – is an activist promoter of globalization and global securities markets. It’s interesting to hear even some of the most dovish Obama Fed appointees take on an almost hawkish tone when it comes to potential Trump fiscal stimulus. Might the Fed choose to adopt a less activist stance down the road when markets respond negatively to aspects of the Trump agenda?
Throughout the financial crisis until now, global central bankers have been a united and unifying force. Can this dynamic be maintained in a backdrop of rising animosity within societies/political ideologies and between governments and nations? In the event of a U.S. initiated trade war, should we expect, for example, such close cooperation between the Fed, the Bank of Mexico and the People’s Bank of China?
And what are the ramifications for the Trump Administration ditching the so-called “strong dollar policy”? Might we see Tweets attacking ECB and BOJ QE on grounds they’re part of a currency devaluation strategy? Trump has been critical of the Fed. He’s surely no proponent of the euro experiment and the ECB’s approach to “whatever it takes” monetary management. There’s great global uncertainty with regards to future trade relations, inflation, fiscal deficits and monetary policy. Past market performance may not be all that relevant to a quite divergent future.
January 24 – New York Times (Alan Rappeport): “After seven years of fitful declines, the federal budget deficit is projected to swell again, adding nearly $10 trillion to the federal debt over the next 10 years, according to projections from the nonpartisan Congressional Budget Office… Statutory caps imposed in 2011 on domestic and military spending have helped temper the deficit. But those controls are likely to be swamped by health care and Social Security spending that will rise with an aging population.”
Going back to the nineties, aggressive GSE market intervention played a profound roll in backstopping and reflating markets after repeated de-risking/de-leveraging episodes. The (late-2004) revelation of accounting scandals constrained their ability to aggressively provide marketplace liquidity. Yet the loss of this key backstop mechanism didn’t slow markets that had by then developed powerful inflationary momentum. The view was that Washington – the Treasury, Fed and GSEs – would never tolerate a housing bust. And this view was integral to an historic financial and economic Bubble – and deeply embedded in securities markets (equities and fixed-income, at home and abroad).
The scope of today’s global Bubble goes so far beyond 2007. The prevailing view holds that global central banks will indefinitely do “whatever it takes” to ensure abundant marketplace liquidity, while backstopping global markets in the event of tumult. And it is precisely this perception that has sustained a prolonged Credit and asset inflation and resulting epic financial Bubble.
January 27 – Wall Street Journal (Kane Wu and Julie Steinberg): “The pace of big Chinese takeovers abroad is slowing as buyers contend with rules tightening the flow of money out of the country and increased government scrutiny at home and overseas. Bankers say many of the record-breaking $225 billion in overseas acquisitions Chinese companies announced last year are stalled by financial or regulatory hurdles—including the country’s biggest-ever deal, China National Chemical Corp.’s $43 billion bid for Syngenta AG, a Swiss seed and pesticide maker… More Chinese acquirers are backing out of deals.”
January 26 – Bloomberg: “China’s escalating crackdown on capital outflows is sending shudders through property markets around the world. In London, Chinese citizens who clamored to purchase flats at the city’s tallest apartment tower three months ago are now struggling to transfer their down payments. In Silicon Valley, Keller Williams Realty says inquiries from China have slumped since the start of the year. And in Sydney, developers are facing “big problems” as Chinese buyers pull back, according to consultancy firm Basis Point. ‘Everything changed’ as it became more difficult to send money offshore, said Coco Tan, a broker at Keller Williams in Cupertino, California.”
While the markets still have a number of weeks prior to any global QE reduction, the effects of less liquidity emanating from China are already being felt. There were this week indications of further tightening of capital controls. Officials also appeared to ratchet up efforts to restrain Credit growth (See “China Bubble Watch” below).
January 26 – Bloomberg: “China’s central bank has ordered the nation’s lenders to strictly control new loans in the first quarter of the year, people familiar with the matter said, in another move to curb excess leverage in the financial system. The new guidance from the People’s Bank of China puts a particular emphasis on mortgage lending, …as authorities grapple to contain runaway property prices. And while the PBOC regularly seeks to guide banks’ credit decisions, this time it may also make errant lenders pay more for deposit insurance, one of the people said… ‘This is a continuation of the tightening trend we’ve seen since the second half of last year and extends from shadow banking to on-balance sheet loans,’ said Wei Hou, a Hong Kong-based analyst at Sanford C. Bernstein…”
January 27 – Wall Street Journal (James T. Areddy): “A Chinese phone maker’s failure to repay around $166 million in bonds has rippled through the world’s largest internet investment marketplace, hitting investors who hadn’t even bought the securities. The default, by phone maker Cosun Group, is one of the most high-profile failures to hit China’s sprawling network of Internet-based financial firms. It is an embarrassment to Alibaba Group Holding Ltd. because its affiliate Ant Financial Services Group owns the investment marketplace where the bonds were sold, and illustrates a rising risk in China, where hundreds of millions of people seeking higher returns on their savings have used their mobile phones to buy risky, unregulated investments.”
In a world of unsound finance, China remains a major weak link. And while the United States’ relationship with our southern neighbor received most of the attention during the first week of the Trump Administration, I’ll be surprised if China escapes Trump Tweets for long. Prospects for growth in GDP and U.S. corporate profits seem enticing to most these days. I would counter that global financial and economic stability cannot be taken for granted if the U.S. and China come to loggerheads. Latent fragilities will spring to life.
Even if calm prevails, markets have grown way too complacent regarding the global monetary backdrop. So many unknowns. So many things that could go wrong. Whenever it unfolds, the next de-risking/de-leveraging episode should be quite captivating.
For the Week:
The S&P500 gained 1.0% (up 2.5% y-t-d), and the Dow advanced 1.3% (up 1.7%). The Utilities slipped 0.4% (down 0.7%). The Banks jumped 2.6% (up 1.2%), and the Broker/Dealers surged 3.1% (up 5.6%). The Transports gained 2.2% (up 4.4%). The S&P 400 Midcaps rose 1.3% (up 2.2%), and the small cap Russell 2000 gained 1.4% (up 1.0%). The Nasdaq100 jumped 2.1% (up 6.3%), and the Morgan Stanley High Tech index rose 2.8% (up 7.4%). The Semiconductors surged 3.5% (up 6.2%). The Biotechs increased 0.3% (up 3.6%). Although bullion was down $20, the HUI gold index was little changed (up 11.3%).
Three-month Treasury bill rates ended the week at 51 bps. Two-year government yields gained three bps to 1.22% (up 3bps y-t-d). Five-year T-note yields added a basis point to 1.95% (up 2bps). Ten-year Treasury yields increased a basis point to 2.48% (up 4bps). Long bond yields gained one basis point to 3.06% (down one basis point).
Greek 10-year yields jumped 15 bps to 7.11% (up 9bps y-t-d). Ten-year Portuguese yields surged 32 bps to 4.14% (up 40bps). Italian 10-year yields rose 22 bps to 2.23% (up 42bps). Spain's 10-year yields rose 10 bps to 1.59% (up 21bps). German bund yields increased four bps to 0.46% (up 26bps). French yields gained 13 bps to 1.03% (up 35bps). The French to German 10-year bond spread widened nine to 57 bps. U.K. 10-year gilt yields rose four bps to 1.47% (up 24bps). U.K.'s FTSE equities index slipped 0.2% (up 0.6%).
Japan's Nikkei 225 equities index jumped 1.7% (up 1.8% y-t-d). Japanese 10-year "JGB" yields gained three bps to 0.08% (up 4bps). The German DAX equities index rose 1.6% (up 2.9%). Spain's IBEX 35 equities index gained 1.3% (up 1.6%). Italy's FTSE MIB index declined 0.8% (up 0.5%). EM equities were higher. Brazil's Bovespa index rose 2.3% (up 9.6%). Mexico's Bolsa jumped 2.4% (up 3.9%). South Korea's Kospi gained 0.9% (up 2.8%). India’s Sensex equities index surged 3.1% (up 4.7%). China’s Shanghai Exchange advanced 1.2% (up 1.8%). Turkey's Borsa Istanbul National 100 index increased 0.9% (up 7.3%). Russia's MICEX equities index surged 4.9% (up 1.5%).
Junk bond mutual funds saw outflows of $887 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates jumped 10 bps to 4.19% (up 40bps y-o-y). Fifteen-year rates gained six bps to 3.40% (up 33bps). The five-year hybrid ARM rate slipped a basis point to 3.20% (up 30bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up seven bps to 4.31% (up 48bps).
Federal Reserve Credit last week increased $5.9bn to $4.419 TN. Over the past year, Fed Credit contracted $32.1bn (down 0.7%). Fed Credit inflated $1.608 TN, or 57%, over the past 220 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt increased $0.8bn last week to $3.171 TN. "Custody holdings" were down $96bn y-o-y, or 3.0%.
M2 (narrow) "money" supply last week expanded $19.8bn to $13.279 TN. "Narrow money" expanded $870bn, or 7.0%, over the past year. For the week, Currency increased $2.1bn. Total Checkable Deposits jumped $19.3bn, while Savings Deposits dipped $1.9bn. Small Time Deposits were little changed. Retail Money Funds added $1.0bn.
Total money market fund assets rose $19.7bn to $2.686 TN. Money Funds declined $71.3bn y-o-y (2.6%).
Total Commercial Paper declined $4.0bn to $963bn. CP declined $98bn y-o-y, or 9.3%.
Currency Watch:
The U.S. dollar index slipped 0.4% to 100.74 (down 1.6% y-t-d). For the week on the upside, the Mexican peso increased 3.4%, the British pound 1.5%, the Canadian dollar 1.3%, the New Zealand dollar 1.2%, the Brazilian real 1.1%, the South African rand 0.9%, the Norwegian krone 0.8%, the South Korean won 0.8%, the Swedish krona 0.4% and the Swiss franc 0.2%. For the week on the downside, the Japanese yen declined 0.4%, the Singapore dollar 0.4% and the Australian dollar 0.1%. The Chinese yuan declined 0.4% versus the dollar (up 0.9% y-t-d).
Commodities Watch:
The Goldman Sachs Commodities Index slipped 0.5% (down 0.3% y-t-d). Spot Gold gave back 1.6% to $1,191 (up 3.4%). Silver added 0.6% to $17.136 (up %). Crude slipped five cents to $53.17 (down 1.2%). Gasoline dropped 2.5% (down 8.6%), while Natural Gas surged 4.8% (down 10.2%). Copper jumped 2.5% (up 7.3%). Wheat declined 1.8% (up 3.1%). Corn fell 2.0% (up 3.0%).
Trump Administration Watch:
January 26 – Reuters (Steve Holland and Miguel Gutierrez): “U.S. President Donald Trump could pay for a wall on the southern border with a new 20% tax on goods from Mexico…, deepening a crisis after plans for a summit with the Mexican president fell apart. Trump wants the measure to be part of a broader tax overhaul package that the U.S. Congress is contemplating, White House spokesman Sean Spicer told reporters… It was not immediately clear how the tax would work. Parts of the proposal that Spicer described resemble an existing idea, known as a border adjustment tax, being considered by the Republican-led U.S. House of Representatives. Spicer said: ‘We have a new tax at $50 billion at 20% of imports -which is, by the way, a practice that 160 other countries do right now.’”
January 24 – Bloomberg (Saleha Mohsin): “U.S. Treasury Secretary nominee Steven Mnuchin said an ‘excessively strong dollar’ could have a negative short-term effect on the economy. ‘The strength of the dollar has historically been tied to the strength of the U.S. economy and the faith that investors have in doing business in America,’ Mnuchin said in a written response to a senator’s question about the implications of a hypothetical 25% dollar rise. ‘From time to time, an excessively strong dollar may have negative short-term implications on the economy.’ The dollar slumped to the weakest in more than six weeks after the remarks…”
January 23 – Wall Street Journal (Carol E. Lee and Damian Paletta): “President Donald Trump started his first full workday at the White House focused on the U.S. economy, trade and jobs, the top themes of his campaign. Amid a round of meetings with business leaders, labor union representatives and members of Congress, Mr. Trump signed a memorandum withdrawing the U.S. from the Trans-Pacific Partnership… He also pledged to cut taxes and regulations that he said were blunting job growth and promised to impose a ‘very major’ border tax on companies that move some operations overseas, which would require legislation.”
January 24 – Reuters (Ben Blanchard and David Brunnstrom): “China said… it had ‘irrefutable’ sovereignty over disputed islands in the South China Sea after the White House vowed to defend ‘international territories’ in the strategic waterway. White House spokesman Sean Spicer in his comments on Monday signaled a sharp departure from years of cautious U.S. handling of China's assertive pursuit of territorial claims in Asia. ‘The U.S. is going to make sure that we protect our interests there,’ Spicer said when asked if Trump agreed with comments by his secretary of state nominee, Rex Tillerson. On Jan. 11, Tillerson said China should not be allowed access to islands it has built in the contested South China Sea. ‘It's a question of if those islands are in fact in international waters and not part of China proper, then yeah, we're going to make sure that we defend international territories from being taken over by one country,’ Spicer said.”
January 24 – New York Times (Jane Perlez and Chris Buckley): “For China, President Trump’s scrapping of the American-brokered Pacific trade agreement is a chance to extend Beijing’s economic and political influence. And it is an opportunity to deepen ties with its neighbors in Asia. But with a cooling economy at home and a looming leadership shake-up, the last thing President Xi Jinping wants is a trade war, though officials are girding for that possibility. Rather, China’s leaders crave stability and predictability. Early signs indicate they may not get their wish. The Chinese fear that if Mr. Trump was willing to toss aside years of delicate negotiations with allies and decades of American trade policy, he could also go his own way on issues he has staked out with Beijing, including Taiwan and the South China Sea.”
January 23 – Bloomberg: “Donald Trump’s administration may be on course for a fraught relationship with China amid disputes over trade policy, according to Citigroup Inc., which warned the new U.S. government could introduce more protectionist measures against manufactured goods from Asia’s top economy. ‘There are growing signs that the Trump administration is heading for antagonistic relations with China,’ the bank said in a report… While the bank stuck with its view that a trade war could be avoided, it did anticipate ‘increasing trade frictions’ between the two.”
January 23 – Reuters (Lisa Lambert and David Lawder): “Dialing back the Volcker Rule that limits banks' ability to engage in speculative investments is a top priority for President Donald Trump's nominee for U.S. Treasury secretary, Steve Mnuchin, according to a document seen by Reuters… In written responses to questions posed by members of the U.S. Senate Finance Committee, Mnuchin said he would use his role as head of the interagency Financial Stability Oversight Council to give the Volcker Rule a stricter definition of proprietary trading. In ‘prop trading’ a financial firm uses its own money to invest in privately held companies, hedge funds and similar vehicles. The Volcker rule was designed to limit the type of risk-taking activities that helped land banks in trouble during the financial crisis. ‘As Chair of FSOC I would plan to address the issue of the definition of the Volcker Rule to make sure that banks can provide the necessary liquidity for customer markets and address the issues in the Fed report,’ Mnuchin wrote…”
January 26 – Financial Times (Barney Jopson): “Dozens of US exporters including GE and Boeing are squaring off against Walmart and other retailers as a radical Republican plan to tax imports divides the giants of corporate America. The rift in the business community threatens President Donald Trump’s pledge to overhaul the tax code for the first time in 30 years by undermining a blueprint that House Republicans are drafting for the White House. The Financial Times has learnt that GE, Boeing, Dow Chemical and dozens of other manufacturers are in advanced talks over forming a coalition to lobby in favour of the import tax, just as Walmart and other big importers… rally against it… The ‘border adjustment’ tax regime, which would penalise imports and exempt exports, is central to the plans of House Republicans initiating tax legislation. But visceral divisions over the idea do not bode well for its prospects.”
January 24 – New York Times (Andrew Ross Sorkin): “For years, chief executive officers lived in fear they would become a target of the activist investor Carl Icahn. Now, they live in dread of a different and somewhat more unexpected kind of activist: President Donald J. Trump. As corporate executives around the globe try to understand the implications of the Trump administration on their businesses, they seem to be having an almost bipolar reaction: a euphoric sense that regulations and taxes could soon be lowered — which would likely increase their profits and paychecks — yet a simultaneous anxiety that they could become a target of one of the president’s Twitter tirades, which could undo their businesses or possibly their careers.”
While the markets still have a number of weeks prior to any global QE reduction, the effects of less liquidity emanating from China are already being felt. There were this week indications of further tightening of capital controls. Officials also appeared to ratchet up efforts to restrain Credit growth (See “China Bubble Watch” below).
January 26 – Bloomberg: “China’s central bank has ordered the nation’s lenders to strictly control new loans in the first quarter of the year, people familiar with the matter said, in another move to curb excess leverage in the financial system. The new guidance from the People’s Bank of China puts a particular emphasis on mortgage lending, …as authorities grapple to contain runaway property prices. And while the PBOC regularly seeks to guide banks’ credit decisions, this time it may also make errant lenders pay more for deposit insurance, one of the people said… ‘This is a continuation of the tightening trend we’ve seen since the second half of last year and extends from shadow banking to on-balance sheet loans,’ said Wei Hou, a Hong Kong-based analyst at Sanford C. Bernstein…”
January 27 – Wall Street Journal (James T. Areddy): “A Chinese phone maker’s failure to repay around $166 million in bonds has rippled through the world’s largest internet investment marketplace, hitting investors who hadn’t even bought the securities. The default, by phone maker Cosun Group, is one of the most high-profile failures to hit China’s sprawling network of Internet-based financial firms. It is an embarrassment to Alibaba Group Holding Ltd. because its affiliate Ant Financial Services Group owns the investment marketplace where the bonds were sold, and illustrates a rising risk in China, where hundreds of millions of people seeking higher returns on their savings have used their mobile phones to buy risky, unregulated investments.”
In a world of unsound finance, China remains a major weak link. And while the United States’ relationship with our southern neighbor received most of the attention during the first week of the Trump Administration, I’ll be surprised if China escapes Trump Tweets for long. Prospects for growth in GDP and U.S. corporate profits seem enticing to most these days. I would counter that global financial and economic stability cannot be taken for granted if the U.S. and China come to loggerheads. Latent fragilities will spring to life.
Even if calm prevails, markets have grown way too complacent regarding the global monetary backdrop. So many unknowns. So many things that could go wrong. Whenever it unfolds, the next de-risking/de-leveraging episode should be quite captivating.
For the Week:
The S&P500 gained 1.0% (up 2.5% y-t-d), and the Dow advanced 1.3% (up 1.7%). The Utilities slipped 0.4% (down 0.7%). The Banks jumped 2.6% (up 1.2%), and the Broker/Dealers surged 3.1% (up 5.6%). The Transports gained 2.2% (up 4.4%). The S&P 400 Midcaps rose 1.3% (up 2.2%), and the small cap Russell 2000 gained 1.4% (up 1.0%). The Nasdaq100 jumped 2.1% (up 6.3%), and the Morgan Stanley High Tech index rose 2.8% (up 7.4%). The Semiconductors surged 3.5% (up 6.2%). The Biotechs increased 0.3% (up 3.6%). Although bullion was down $20, the HUI gold index was little changed (up 11.3%).
Three-month Treasury bill rates ended the week at 51 bps. Two-year government yields gained three bps to 1.22% (up 3bps y-t-d). Five-year T-note yields added a basis point to 1.95% (up 2bps). Ten-year Treasury yields increased a basis point to 2.48% (up 4bps). Long bond yields gained one basis point to 3.06% (down one basis point).
Greek 10-year yields jumped 15 bps to 7.11% (up 9bps y-t-d). Ten-year Portuguese yields surged 32 bps to 4.14% (up 40bps). Italian 10-year yields rose 22 bps to 2.23% (up 42bps). Spain's 10-year yields rose 10 bps to 1.59% (up 21bps). German bund yields increased four bps to 0.46% (up 26bps). French yields gained 13 bps to 1.03% (up 35bps). The French to German 10-year bond spread widened nine to 57 bps. U.K. 10-year gilt yields rose four bps to 1.47% (up 24bps). U.K.'s FTSE equities index slipped 0.2% (up 0.6%).
Japan's Nikkei 225 equities index jumped 1.7% (up 1.8% y-t-d). Japanese 10-year "JGB" yields gained three bps to 0.08% (up 4bps). The German DAX equities index rose 1.6% (up 2.9%). Spain's IBEX 35 equities index gained 1.3% (up 1.6%). Italy's FTSE MIB index declined 0.8% (up 0.5%). EM equities were higher. Brazil's Bovespa index rose 2.3% (up 9.6%). Mexico's Bolsa jumped 2.4% (up 3.9%). South Korea's Kospi gained 0.9% (up 2.8%). India’s Sensex equities index surged 3.1% (up 4.7%). China’s Shanghai Exchange advanced 1.2% (up 1.8%). Turkey's Borsa Istanbul National 100 index increased 0.9% (up 7.3%). Russia's MICEX equities index surged 4.9% (up 1.5%).
Junk bond mutual funds saw outflows of $887 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates jumped 10 bps to 4.19% (up 40bps y-o-y). Fifteen-year rates gained six bps to 3.40% (up 33bps). The five-year hybrid ARM rate slipped a basis point to 3.20% (up 30bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up seven bps to 4.31% (up 48bps).
Federal Reserve Credit last week increased $5.9bn to $4.419 TN. Over the past year, Fed Credit contracted $32.1bn (down 0.7%). Fed Credit inflated $1.608 TN, or 57%, over the past 220 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt increased $0.8bn last week to $3.171 TN. "Custody holdings" were down $96bn y-o-y, or 3.0%.
M2 (narrow) "money" supply last week expanded $19.8bn to $13.279 TN. "Narrow money" expanded $870bn, or 7.0%, over the past year. For the week, Currency increased $2.1bn. Total Checkable Deposits jumped $19.3bn, while Savings Deposits dipped $1.9bn. Small Time Deposits were little changed. Retail Money Funds added $1.0bn.
Total money market fund assets rose $19.7bn to $2.686 TN. Money Funds declined $71.3bn y-o-y (2.6%).
Total Commercial Paper declined $4.0bn to $963bn. CP declined $98bn y-o-y, or 9.3%.
Currency Watch:
The U.S. dollar index slipped 0.4% to 100.74 (down 1.6% y-t-d). For the week on the upside, the Mexican peso increased 3.4%, the British pound 1.5%, the Canadian dollar 1.3%, the New Zealand dollar 1.2%, the Brazilian real 1.1%, the South African rand 0.9%, the Norwegian krone 0.8%, the South Korean won 0.8%, the Swedish krona 0.4% and the Swiss franc 0.2%. For the week on the downside, the Japanese yen declined 0.4%, the Singapore dollar 0.4% and the Australian dollar 0.1%. The Chinese yuan declined 0.4% versus the dollar (up 0.9% y-t-d).
Commodities Watch:
The Goldman Sachs Commodities Index slipped 0.5% (down 0.3% y-t-d). Spot Gold gave back 1.6% to $1,191 (up 3.4%). Silver added 0.6% to $17.136 (up %). Crude slipped five cents to $53.17 (down 1.2%). Gasoline dropped 2.5% (down 8.6%), while Natural Gas surged 4.8% (down 10.2%). Copper jumped 2.5% (up 7.3%). Wheat declined 1.8% (up 3.1%). Corn fell 2.0% (up 3.0%).
Trump Administration Watch:
January 26 – Reuters (Steve Holland and Miguel Gutierrez): “U.S. President Donald Trump could pay for a wall on the southern border with a new 20% tax on goods from Mexico…, deepening a crisis after plans for a summit with the Mexican president fell apart. Trump wants the measure to be part of a broader tax overhaul package that the U.S. Congress is contemplating, White House spokesman Sean Spicer told reporters… It was not immediately clear how the tax would work. Parts of the proposal that Spicer described resemble an existing idea, known as a border adjustment tax, being considered by the Republican-led U.S. House of Representatives. Spicer said: ‘We have a new tax at $50 billion at 20% of imports -which is, by the way, a practice that 160 other countries do right now.’”
January 24 – Bloomberg (Saleha Mohsin): “U.S. Treasury Secretary nominee Steven Mnuchin said an ‘excessively strong dollar’ could have a negative short-term effect on the economy. ‘The strength of the dollar has historically been tied to the strength of the U.S. economy and the faith that investors have in doing business in America,’ Mnuchin said in a written response to a senator’s question about the implications of a hypothetical 25% dollar rise. ‘From time to time, an excessively strong dollar may have negative short-term implications on the economy.’ The dollar slumped to the weakest in more than six weeks after the remarks…”
January 23 – Wall Street Journal (Carol E. Lee and Damian Paletta): “President Donald Trump started his first full workday at the White House focused on the U.S. economy, trade and jobs, the top themes of his campaign. Amid a round of meetings with business leaders, labor union representatives and members of Congress, Mr. Trump signed a memorandum withdrawing the U.S. from the Trans-Pacific Partnership… He also pledged to cut taxes and regulations that he said were blunting job growth and promised to impose a ‘very major’ border tax on companies that move some operations overseas, which would require legislation.”
January 24 – Reuters (Ben Blanchard and David Brunnstrom): “China said… it had ‘irrefutable’ sovereignty over disputed islands in the South China Sea after the White House vowed to defend ‘international territories’ in the strategic waterway. White House spokesman Sean Spicer in his comments on Monday signaled a sharp departure from years of cautious U.S. handling of China's assertive pursuit of territorial claims in Asia. ‘The U.S. is going to make sure that we protect our interests there,’ Spicer said when asked if Trump agreed with comments by his secretary of state nominee, Rex Tillerson. On Jan. 11, Tillerson said China should not be allowed access to islands it has built in the contested South China Sea. ‘It's a question of if those islands are in fact in international waters and not part of China proper, then yeah, we're going to make sure that we defend international territories from being taken over by one country,’ Spicer said.”
January 24 – New York Times (Jane Perlez and Chris Buckley): “For China, President Trump’s scrapping of the American-brokered Pacific trade agreement is a chance to extend Beijing’s economic and political influence. And it is an opportunity to deepen ties with its neighbors in Asia. But with a cooling economy at home and a looming leadership shake-up, the last thing President Xi Jinping wants is a trade war, though officials are girding for that possibility. Rather, China’s leaders crave stability and predictability. Early signs indicate they may not get their wish. The Chinese fear that if Mr. Trump was willing to toss aside years of delicate negotiations with allies and decades of American trade policy, he could also go his own way on issues he has staked out with Beijing, including Taiwan and the South China Sea.”
January 23 – Bloomberg: “Donald Trump’s administration may be on course for a fraught relationship with China amid disputes over trade policy, according to Citigroup Inc., which warned the new U.S. government could introduce more protectionist measures against manufactured goods from Asia’s top economy. ‘There are growing signs that the Trump administration is heading for antagonistic relations with China,’ the bank said in a report… While the bank stuck with its view that a trade war could be avoided, it did anticipate ‘increasing trade frictions’ between the two.”
January 23 – Reuters (Lisa Lambert and David Lawder): “Dialing back the Volcker Rule that limits banks' ability to engage in speculative investments is a top priority for President Donald Trump's nominee for U.S. Treasury secretary, Steve Mnuchin, according to a document seen by Reuters… In written responses to questions posed by members of the U.S. Senate Finance Committee, Mnuchin said he would use his role as head of the interagency Financial Stability Oversight Council to give the Volcker Rule a stricter definition of proprietary trading. In ‘prop trading’ a financial firm uses its own money to invest in privately held companies, hedge funds and similar vehicles. The Volcker rule was designed to limit the type of risk-taking activities that helped land banks in trouble during the financial crisis. ‘As Chair of FSOC I would plan to address the issue of the definition of the Volcker Rule to make sure that banks can provide the necessary liquidity for customer markets and address the issues in the Fed report,’ Mnuchin wrote…”
January 26 – Financial Times (Barney Jopson): “Dozens of US exporters including GE and Boeing are squaring off against Walmart and other retailers as a radical Republican plan to tax imports divides the giants of corporate America. The rift in the business community threatens President Donald Trump’s pledge to overhaul the tax code for the first time in 30 years by undermining a blueprint that House Republicans are drafting for the White House. The Financial Times has learnt that GE, Boeing, Dow Chemical and dozens of other manufacturers are in advanced talks over forming a coalition to lobby in favour of the import tax, just as Walmart and other big importers… rally against it… The ‘border adjustment’ tax regime, which would penalise imports and exempt exports, is central to the plans of House Republicans initiating tax legislation. But visceral divisions over the idea do not bode well for its prospects.”
January 24 – New York Times (Andrew Ross Sorkin): “For years, chief executive officers lived in fear they would become a target of the activist investor Carl Icahn. Now, they live in dread of a different and somewhat more unexpected kind of activist: President Donald J. Trump. As corporate executives around the globe try to understand the implications of the Trump administration on their businesses, they seem to be having an almost bipolar reaction: a euphoric sense that regulations and taxes could soon be lowered — which would likely increase their profits and paychecks — yet a simultaneous anxiety that they could become a target of one of the president’s Twitter tirades, which could undo their businesses or possibly their careers.”
January 26 – New York Times (Michael M. Grynbaum): “Stephen K. Bannon, President Trump’s chief White House strategist, laced into the American press…, arguing that news organizations had been ‘humiliated’ by an election outcome few anticipated, and repeatedly describing the media as ‘the opposition party’ of the current administration. ‘The media should be embarrassed and humiliated and keep its mouth shut and just listen for a while,’ Mr. Bannon said… ‘I want you to quote this,’ Mr. Bannon added. ‘The media here is the opposition party. They don’t understand this country. They still do not understand why Donald Trump is the president of the United States.’ The scathing assessment — delivered by one of Mr. Trump’s most trusted and influential advisers, in the first days of his presidency — comes at a moment of high tension between the news media and the administration…”
China Bubble Watch:
January 23 – Wall Street Journal (Shen Hong): “China has injected a torrent of money into its financial system in recent days, using a mix of short-term tools aimed at pre-empting a seasonal cash crunch without signaling a shift toward an easier monetary policy. China’s central bank pumped 1.13 trillion yuan (roughly $165bn) into domestic money markets last week via its routine operations, a record for one week… The heavy cash injection came ahead of China’s Lunar New Year break, which this year begins Saturday, a time when Chinese consumers traditionally go on shopping sprees and hand out red packets filled with fresh yuan notes to friends and relatives.”
January 26 – Bloomberg: “China’s foreign exchange regulator has announced measures aimed at luring money back to the country or keeping it there in the latest effort to stem capital outflows and bolster a weakening currency. The State Administration of Foreign Exchange asked companies with outbound investment plans to clarify the source of their funding for purchases and give additional details on their spending plans. That increased scrutiny comes as a record global shopping spree last year by Chinese firms abroad contributed to an exodus of capital. SAFE said… it will also require companies to provide materials including tax documents, financial statements and board resolutions to banks if they plan to remit more than $50,000 in profits from direct investments in China back to their countries.”
January 23 – Financial Times (Don Weinland): “China’s battle against capital flight is threatening the country’s trade flows, with recent restrictions on the use of basic tools for cross-border finance beginning to hamper the businesses driving the country’s $1.7tn in annual imports. While regulators seeking to keep Chinese money onshore remain focused on outbound foreign direct investment that they believe is being used to funnel money abroad, payments for goods and services have also felt the squeeze. Transactions are being delayed and contracts forced into renegotiation, while trade credit insurers are cutting exposure to the country.”
January 25 – Bloomberg (Kana Nishizawa): “China’s frequent tweaks to monetary policy are puzzling market watchers. In recent weeks, the People’s Bank of China has been using lending tools to both tighten and loosen liquidity as authorities seek to curb leverage while preventing a cash squeeze before the country’s biggest annual holiday… ‘I’m very confused,’ Tim Orchard, Fidelity International’s chief investment officer for Asia Pacific excluding Japan, said… ‘They’re trying to send signals the whole time and trying to micromanage the economy. That looks like a bit of a muddle sometimes when you’re looking at it from the outside.’ The PBOC startled analysts on Tuesday by increasing interest rates on medium-term loans that it uses to manage liquidity… The move came days after the central bank said it provided a one-month ‘temporary liquidity facility’ to large banks, without detailed explanation, and injected a record net 1.13 trillion yuan ($164bn) in open-market operations during the course of the week.”
January 26 – Reuters (Samuel Shen and John Ruwitch): “China's campaign to cut high debt levels in its economy is aiming this year to shrink the $3 trillion shadow banking sector, which could drain a critical source of income for the country's banks and of funding for its fragile bond market. Shadow banking… has boomed in China, the world's second-largest economy, as a way of circumventing government's tight controls on lending. It has been a key driver of the breakneck growth in debt in the economy, which UBS says rose to 277% of GDP from 254% in 2016, and is now a target as Beijing tries to reduce that figure before it destabilizes the economy. But with banks' shadow banking business accounting for about a fifth of total outstanding loans, analysts fear that the unintended consequences… ‘We see a policy-induced drastic deleveraging in shadow banking as a policy miscalculation that could trigger unexpected tail risks for the banking sector,’ said Liao Qiang, credit analyst at S&P Global Ratings. Investors' concerns stem from new rules this month that put lenders' wealth management products (WMPs)… under the scrutiny of the People's Bank of China (PBOC) for the first time and into its calculations on prudence, capital adequacy and loan growth guidelines. …WMPs jumped 42% year-on-year to 26 trillion yuan ($3.8 TN) at the end of June, doubling in just two years.”
January 26 – Bloomberg: “China’s embattled bond investors should expect little respite in the Lunar New Year. Since an 11-quarter debt rally came to an abrupt end last month, losses have deepened and analysts are turning more bearish. The benchmark 10-year sovereign yield is heading for its biggest monthly increase since October 2010, rising to levels last seen during the height of the turmoil in December. And there is no sign of a let-up in policy makers’ efforts to weed out excessive leverage in the financial system.”
January 25 – Bloomberg: “Forged seals, fake letters, and counterfeit documents. They’re all part of China’s recent spate of fraud coming to light in the country’s $3 trillion corporate debt market amid a rout that has analysts predicting a record number of defaults in 2017. As it becomes harder for Chinese companies to issue new notes to repay maturing debt, expect more scandals to come -- and to worsen the bond market’s already-precipitous downturn. ‘We expect to see more of this type of behavior given the increasingly problematic environment for refinancing in the domestic bond market,’ said Charles Macgregor, head of emerging markets at Lucror Analytics… ‘Unfortunately, these frauds may be difficult to detect, as documentation and seals may appear authentic given collusion between various parties.’ A survey by Ernst & Young last year found that 56% of Chinese executives polled said that unethical behavior, including misstating financial performance, could be justified to help a company survive a downturn…”
January 24 – Bloomberg (Justina Lee): “China should tighten monetary policy as signs of overheating emerge amid quickening inflation, according to the top-ranked forecaster for the nation’s economy. With policy makers torn between reining in price gains and stabilizing growth, corporate lending has become too cheap, said Song Yu, chief China economist at Beijing Gao Hua Securities Co. The real interest rate for companies… has turned negative for the first time since 2011 as the People’s Bank of China kept its benchmark lending rate at a record low and the economy snapped out of a deflationary funk. ‘Economic growth is trending down gradually while inflation is trending up,’ said Song, whose firm is Goldman Sachs Group Inc.’s joint-venture partner in the mainland. ‘This makes it hard for policy makers to be decisive in moving in one direction or the other.’”
January 24 – Bloomberg (Narae Kim): “Much focus is on how China's capital outflows will impact the world's biggest pile of foreign-exchange reserves, but another issue in need of attention here is the rally in crude, argues Goldman Sachs… In a country where oil prices play ‘a disproportionate role’ in the balance of payments — and China's crude output is forecast to fall as much as 75 this year — the commodity's bullish outlook poses a serious threat to reserves that have already shrunk more than 20% in the past two years. ‘The outlook for the balance of payments has deteriorated from a year ago, because oil prices are now on an upward trajectory, which could push the current-account surplus to around $200 billion this year, down from $331 billion as recently as 2015,’ Goldman analysts Robin Brooks and Michael Cahill wrote…”
January 24 – Bloomberg (Jeanny Yu): “A gauge of China’s small-cap shares slid, extending a monthly retreat, as a liquidity crunch pressured the most speculative part of the nation’s equities. The ChiNext index fell 1.4%..., taking its January loss to 5.1%. The measure of mostly technology shares has underperformed the large-cap CSI 300 Index this year as funding costs rose and speculation mounted the regulator will accelerate the pace of initial public offerings, already at a 19-year high -- thereby diverting liquidity from existing shares.”
January 23 – Bloomberg (Jeanny Yu): “Chinese stocks haven’t been so subdued since 1992 as government efforts to maintain stability as well as tightening liquidity deter traders. A gauge of 90-day volatility on the Shanghai Composite Index fell to a 24-year low at the end of December and has barely budged since, while turnover on the nation’s equity exchanges slumped to the lowest in two years last week.”
January 23 – Bloomberg: “China sentenced former hedge fund manager Xu Xiang to five-and-a-half years imprisonment for market manipulation, in one of the most high-profile cases following the 2015 market rout… Xu, known as ‘hedge fund brother No. 1’ for his winning record in the stock market, was charged with colluding to manipulate share prices in an operation from 2010 to 2015…”
Brexit Watch:
January 25 – Bloomberg (Tim Ross and Alex Morales): “U.K. Prime Minister Theresa May is battling a rebellion from her own lawmakers which threatens to complicate her talks over leaving the European Union. Emboldened by the Supreme Court’s decision on Tuesday to hand Parliament more power over the Brexit process, at least six Conservative legislators are uniting with the main opposition Labour party to demand May publishes an official government document detailing her negotiating goals.”
January 25 – Reuters (Kylie MacLellan and William James): “Britain said it would publish legislation on Thursday seeking parliament's approval to begin formal divorce talks with the European Union as Prime Minister Theresa May agreed to lawmakers' demands to publish her Brexit plan. The Supreme Court ruled on Tuesday that May must give parliament a vote before she can invoke Article 50 of the EU's Lisbon Treaty, with Brexit minister David Davis promising a ‘straightforward’ bill within days. May said last week Britain would quit the EU's single market when it leaves the union, charting a course for a clean break with the world's largest trading bloc.”
Europe Watch:
January 26 – Bloomberg (Stefania Spezzati): “The Italian political outlook remains too cloudy for investors. The yield spread on Italian 10-year debt over German bunds has risen faster than elsewhere in the peripheral euro area to 170 bps, the highest since Dec. 5, the day after the rejection of former Premier Matteo Renzi’s reforms in a referendum. Italy’s Constitutional Court yesterday struck down parts of the country’s existing election law for the lower house, including a provision for a run-off vote, saying it should be held in just one round.”
January 23 – Bloomberg (Kristine Aquino and Paul Dobson): “The ‘Frexit’ barometer is flickering into life. With National Front leader Marine Le Pen ahead in a poll on the first round of France’s presidential election, the country’s government bonds are starting to lose their cachet as some of the safest in the euro area. The yield on 10-year French securities is the highest relative to Spanish debt since April 2010 and the spread between French and German yields is near the widest level in more than two years. A victory for Le Pen on April 23 would set up a run-off vote in May, raising the prospect that an open critic of the euro could become the next president of the region’s second-biggest economy.”
January 25 – Bloomberg (Marcus Bensasson): “Greek Prime Minister Alexis Tsipras dug in against creditor demands for more pension cuts and tax increases before a meeting of euro-area finance ministers to unblock the country’s bailout review. ‘There is no way we are going to legislate even one euro more than what was agreed in the bailout,’ Tsipras said... ‘The demand to legislate more measures, and contingent ones, no less, is alien not just to the Greek Constitution but to democratic norms.’”
Fixed-Income Bubble Watch:
January 26 – Financial Times (Eric Platt and Joe Rennison): “The combination of rebounding commodity prices and hopes for faster US economic growth under Donald Trump is helping some of the riskiest corporate borrowers secure cheaper financing and underlines investors’ growing stomach for risk. An expanding list of companies with a triple-C rating — deep within speculative territory — have been able to lock in borrowing costs below 7%, as yields have fallen over the past 10 months. Investors’ appetite for the lowest rated segments of the corporate debt market touched a fresh peak on Wednesday, when a triple-C rated company came close to selling bonds with a yield of just 6%. Last February, triple-C paper traded with a yield of 18.57%... That figure has nearly halved to 9.36% today.”
January 24 – Financial Times (Joe Rennison): “Foreign investor participation in US government bond auctions remains subdued, according to fresh data…, despite renewed appetite for 3-year and 10-year debt. Foreign investors bought the smallest percentage of the recent 30-year Treasury bond auction since February 2016… Analysts point to the reduction in Treasury holdings from big foreign holders such as China and Japan putting pressure on others to back away from the Treasury market, despite it’s relatively more attractive yields compared to other government securities across the globe.”
U.S. Bubble Watch:
January 24 – Reuters (Lucia Mutikani): “U.S. home resales fell more than expected in December as the supply of houses on the market dropped to levels last seen in 1999… Last month, the number of homes on the market fell 10.8% from November to 1.65 million units, the lowest level since December 1999.”
January 24 – Bloomberg (Sho Chandra and Patricia Laya): “Sales of previously owned U.S. homes declined more than forecast in December… Still, sales for the full year were the strongest since 2006. Contract closings fell 2.8% to a 5.49 million annual rate last month (forecast was 5.52 million) after a revised 5.65 million in November. Median sales price rose 4% from year earlier to $232,200. For all of 2016, existing home sales increased to 5.45 million, the highest since 2006, from 5.25 million a year earlier.”
January 24 – Bloomberg (Tanvir Sandhu): “S&P 500 options are showing little anxiety over Donald Trump’s policies over the next few weeks, even as rates options capture concerns, according to Bloomberg strategist Tanvir Sandhu. The smoothness of S&P 500 Index’s volatility term structure indicates complacency in factoring in policy shifts by the government, reminiscent of a similar formation three weeks before the U.S. election on Nov. 8 when opinion polls overwhelmingly predicted a Hillary Clinton win.”
January 25 – Bloomberg (Jamie Butters, David Welch, and Keith Naughton): “President Donald Trump is asking U.S. automakers to invest in domestic manufacturing at a bad time. Car sales have gained for seven-straight years after the U.S. auto bailouts and the financial crisis, a streak that’s close to running out of gas. That’s a recipe for trouble facing companies wary of undoing the painful but necessary steps they took to shut dozens of factories across the country, before and during a more than $70 billion government bailout. New assembly plants cost General Motors Co., Ford Motor Co. or Fiat Chrysler Automobiles NV about $1 billion -- the sort of investment companies look to avoid making as a market peaks.”
January 24 – Wall Street Journal (Liz Hoffman and Tom McGinty): “Executives at some of the biggest Wall Street banks have sold nearly $100 million worth of stock since the presidential election, more than in that same period in any year over the past decade… The share sales occurred as financial stocks soared since Nov. 9 on expectations of lighter regulation, lower taxes and pro-growth economic policies. The KBW Nasdaq Bank index is up nearly 20% since Donald Trump’s victory, about triple the gains notched by the broader market. In addition to the share sales, bank executives have sold another $350 million worth of stock to cover the cost of exercising options, filings show. That is twice the amount sold for that purpose at big banks in the year leading up to the election.”
January 23 – Bloomberg (Gabrielle Coppola): “All those years of rising U.S. auto sales are starting to work against carmakers. A glut of used vehicles has started to depress prices. That trend will intensify as Americans will return 3.36 million leased cars and trucks this year, another jump after a 33% surge in 2016, according to J.D. Power. The fallout has already begun, with Ford Motor Co. shaving $300 million from its financial-services arm’s profit forecast for this year. ‘Ford is the canary in the coal mine,’ said Maryann Keller, a former Wall Street analyst who’s now an auto industry consultant…”
January 25 – Bloomberg (Patrick Clark): “A tactic that helped define the height of homebuying madness in the U.S. in the years before the market collapsed is rearing its head again. Home flippers, who buy homes as a speculative bet on short-term price appreciation, accounted for 6.1% of U.S. home sales in 2016, according to Trulia… That’s the highest share since 2006, when flips accounted for 7.3% of sales.”
Federal Reserve Watch:
January 23 – Reuters (Ann Saphir): “Jeffrey Lacker, the hawkish president of the Federal Reserve Bank of Richmond, said… he is worried inflation could surge unless the U.S. central bank raises interest rates faster than his fellow policymakers anticipate. ‘Right now I think we are at risk of getting behind the curve, so lately I've been an advocate of pushing rates up a little more aggressively than my colleagues,’ Lacker said… Most of the Fed's policymakers see the central bank raising rates three times this year.”
Central Bank Watch:
January 23 – Wall Street Journal (Christopher Whittall, Jon Sindreu and Brian Blackstone): “By keeping interest rates low and in some cases negative, central banks have prompted some of the most conservative investors to join the hunt for higher returns: Other central banks. Central banks from Switzerland to South Africa are investing a bigger share of their growing foreign-exchange reserves in equities, corporate bonds and other riskier assets. Branching out from the traditional central-bank practice of investing primarily in ultrasafe government bonds such as U.S. Treasurys means taking on more risk. But at a time when global growth, interest rates and potential returns on many assets are low, many central bankers are becoming increasingly focused on maximizing investment returns.”
Japan Watch:
January 24 – Bloomberg (Toru Fujioka and Masahiro Hidaka): “Bank of Japan officials would rather be late than early in raising their 10-year bond yield target from zero percent, even if consumer price gains reach 1% later this year, according to people familiar with the central bank’s discussions. Officials see considerable risks in moving too quickly and are mindful of policy exits in 2000 and 2006… These exits were criticized for coming too soon and prolonging deflation. BOJ officials would want to first confirm that the underlying inflation trend is improving and view it as important to look beyond the impact of higher oil prices and a weaker yen, which have the potential to change quickly.”
China Bubble Watch:
January 23 – Wall Street Journal (Shen Hong): “China has injected a torrent of money into its financial system in recent days, using a mix of short-term tools aimed at pre-empting a seasonal cash crunch without signaling a shift toward an easier monetary policy. China’s central bank pumped 1.13 trillion yuan (roughly $165bn) into domestic money markets last week via its routine operations, a record for one week… The heavy cash injection came ahead of China’s Lunar New Year break, which this year begins Saturday, a time when Chinese consumers traditionally go on shopping sprees and hand out red packets filled with fresh yuan notes to friends and relatives.”
January 26 – Bloomberg: “China’s foreign exchange regulator has announced measures aimed at luring money back to the country or keeping it there in the latest effort to stem capital outflows and bolster a weakening currency. The State Administration of Foreign Exchange asked companies with outbound investment plans to clarify the source of their funding for purchases and give additional details on their spending plans. That increased scrutiny comes as a record global shopping spree last year by Chinese firms abroad contributed to an exodus of capital. SAFE said… it will also require companies to provide materials including tax documents, financial statements and board resolutions to banks if they plan to remit more than $50,000 in profits from direct investments in China back to their countries.”
January 23 – Financial Times (Don Weinland): “China’s battle against capital flight is threatening the country’s trade flows, with recent restrictions on the use of basic tools for cross-border finance beginning to hamper the businesses driving the country’s $1.7tn in annual imports. While regulators seeking to keep Chinese money onshore remain focused on outbound foreign direct investment that they believe is being used to funnel money abroad, payments for goods and services have also felt the squeeze. Transactions are being delayed and contracts forced into renegotiation, while trade credit insurers are cutting exposure to the country.”
January 25 – Bloomberg (Kana Nishizawa): “China’s frequent tweaks to monetary policy are puzzling market watchers. In recent weeks, the People’s Bank of China has been using lending tools to both tighten and loosen liquidity as authorities seek to curb leverage while preventing a cash squeeze before the country’s biggest annual holiday… ‘I’m very confused,’ Tim Orchard, Fidelity International’s chief investment officer for Asia Pacific excluding Japan, said… ‘They’re trying to send signals the whole time and trying to micromanage the economy. That looks like a bit of a muddle sometimes when you’re looking at it from the outside.’ The PBOC startled analysts on Tuesday by increasing interest rates on medium-term loans that it uses to manage liquidity… The move came days after the central bank said it provided a one-month ‘temporary liquidity facility’ to large banks, without detailed explanation, and injected a record net 1.13 trillion yuan ($164bn) in open-market operations during the course of the week.”
January 26 – Reuters (Samuel Shen and John Ruwitch): “China's campaign to cut high debt levels in its economy is aiming this year to shrink the $3 trillion shadow banking sector, which could drain a critical source of income for the country's banks and of funding for its fragile bond market. Shadow banking… has boomed in China, the world's second-largest economy, as a way of circumventing government's tight controls on lending. It has been a key driver of the breakneck growth in debt in the economy, which UBS says rose to 277% of GDP from 254% in 2016, and is now a target as Beijing tries to reduce that figure before it destabilizes the economy. But with banks' shadow banking business accounting for about a fifth of total outstanding loans, analysts fear that the unintended consequences… ‘We see a policy-induced drastic deleveraging in shadow banking as a policy miscalculation that could trigger unexpected tail risks for the banking sector,’ said Liao Qiang, credit analyst at S&P Global Ratings. Investors' concerns stem from new rules this month that put lenders' wealth management products (WMPs)… under the scrutiny of the People's Bank of China (PBOC) for the first time and into its calculations on prudence, capital adequacy and loan growth guidelines. …WMPs jumped 42% year-on-year to 26 trillion yuan ($3.8 TN) at the end of June, doubling in just two years.”
January 26 – Bloomberg: “China’s embattled bond investors should expect little respite in the Lunar New Year. Since an 11-quarter debt rally came to an abrupt end last month, losses have deepened and analysts are turning more bearish. The benchmark 10-year sovereign yield is heading for its biggest monthly increase since October 2010, rising to levels last seen during the height of the turmoil in December. And there is no sign of a let-up in policy makers’ efforts to weed out excessive leverage in the financial system.”
January 25 – Bloomberg: “Forged seals, fake letters, and counterfeit documents. They’re all part of China’s recent spate of fraud coming to light in the country’s $3 trillion corporate debt market amid a rout that has analysts predicting a record number of defaults in 2017. As it becomes harder for Chinese companies to issue new notes to repay maturing debt, expect more scandals to come -- and to worsen the bond market’s already-precipitous downturn. ‘We expect to see more of this type of behavior given the increasingly problematic environment for refinancing in the domestic bond market,’ said Charles Macgregor, head of emerging markets at Lucror Analytics… ‘Unfortunately, these frauds may be difficult to detect, as documentation and seals may appear authentic given collusion between various parties.’ A survey by Ernst & Young last year found that 56% of Chinese executives polled said that unethical behavior, including misstating financial performance, could be justified to help a company survive a downturn…”
January 24 – Bloomberg (Justina Lee): “China should tighten monetary policy as signs of overheating emerge amid quickening inflation, according to the top-ranked forecaster for the nation’s economy. With policy makers torn between reining in price gains and stabilizing growth, corporate lending has become too cheap, said Song Yu, chief China economist at Beijing Gao Hua Securities Co. The real interest rate for companies… has turned negative for the first time since 2011 as the People’s Bank of China kept its benchmark lending rate at a record low and the economy snapped out of a deflationary funk. ‘Economic growth is trending down gradually while inflation is trending up,’ said Song, whose firm is Goldman Sachs Group Inc.’s joint-venture partner in the mainland. ‘This makes it hard for policy makers to be decisive in moving in one direction or the other.’”
January 24 – Bloomberg (Narae Kim): “Much focus is on how China's capital outflows will impact the world's biggest pile of foreign-exchange reserves, but another issue in need of attention here is the rally in crude, argues Goldman Sachs… In a country where oil prices play ‘a disproportionate role’ in the balance of payments — and China's crude output is forecast to fall as much as 75 this year — the commodity's bullish outlook poses a serious threat to reserves that have already shrunk more than 20% in the past two years. ‘The outlook for the balance of payments has deteriorated from a year ago, because oil prices are now on an upward trajectory, which could push the current-account surplus to around $200 billion this year, down from $331 billion as recently as 2015,’ Goldman analysts Robin Brooks and Michael Cahill wrote…”
January 24 – Bloomberg (Jeanny Yu): “A gauge of China’s small-cap shares slid, extending a monthly retreat, as a liquidity crunch pressured the most speculative part of the nation’s equities. The ChiNext index fell 1.4%..., taking its January loss to 5.1%. The measure of mostly technology shares has underperformed the large-cap CSI 300 Index this year as funding costs rose and speculation mounted the regulator will accelerate the pace of initial public offerings, already at a 19-year high -- thereby diverting liquidity from existing shares.”
January 23 – Bloomberg (Jeanny Yu): “Chinese stocks haven’t been so subdued since 1992 as government efforts to maintain stability as well as tightening liquidity deter traders. A gauge of 90-day volatility on the Shanghai Composite Index fell to a 24-year low at the end of December and has barely budged since, while turnover on the nation’s equity exchanges slumped to the lowest in two years last week.”
January 23 – Bloomberg: “China sentenced former hedge fund manager Xu Xiang to five-and-a-half years imprisonment for market manipulation, in one of the most high-profile cases following the 2015 market rout… Xu, known as ‘hedge fund brother No. 1’ for his winning record in the stock market, was charged with colluding to manipulate share prices in an operation from 2010 to 2015…”
Brexit Watch:
January 25 – Bloomberg (Tim Ross and Alex Morales): “U.K. Prime Minister Theresa May is battling a rebellion from her own lawmakers which threatens to complicate her talks over leaving the European Union. Emboldened by the Supreme Court’s decision on Tuesday to hand Parliament more power over the Brexit process, at least six Conservative legislators are uniting with the main opposition Labour party to demand May publishes an official government document detailing her negotiating goals.”
January 25 – Reuters (Kylie MacLellan and William James): “Britain said it would publish legislation on Thursday seeking parliament's approval to begin formal divorce talks with the European Union as Prime Minister Theresa May agreed to lawmakers' demands to publish her Brexit plan. The Supreme Court ruled on Tuesday that May must give parliament a vote before she can invoke Article 50 of the EU's Lisbon Treaty, with Brexit minister David Davis promising a ‘straightforward’ bill within days. May said last week Britain would quit the EU's single market when it leaves the union, charting a course for a clean break with the world's largest trading bloc.”
Europe Watch:
January 26 – Bloomberg (Stefania Spezzati): “The Italian political outlook remains too cloudy for investors. The yield spread on Italian 10-year debt over German bunds has risen faster than elsewhere in the peripheral euro area to 170 bps, the highest since Dec. 5, the day after the rejection of former Premier Matteo Renzi’s reforms in a referendum. Italy’s Constitutional Court yesterday struck down parts of the country’s existing election law for the lower house, including a provision for a run-off vote, saying it should be held in just one round.”
January 23 – Bloomberg (Kristine Aquino and Paul Dobson): “The ‘Frexit’ barometer is flickering into life. With National Front leader Marine Le Pen ahead in a poll on the first round of France’s presidential election, the country’s government bonds are starting to lose their cachet as some of the safest in the euro area. The yield on 10-year French securities is the highest relative to Spanish debt since April 2010 and the spread between French and German yields is near the widest level in more than two years. A victory for Le Pen on April 23 would set up a run-off vote in May, raising the prospect that an open critic of the euro could become the next president of the region’s second-biggest economy.”
January 25 – Bloomberg (Marcus Bensasson): “Greek Prime Minister Alexis Tsipras dug in against creditor demands for more pension cuts and tax increases before a meeting of euro-area finance ministers to unblock the country’s bailout review. ‘There is no way we are going to legislate even one euro more than what was agreed in the bailout,’ Tsipras said... ‘The demand to legislate more measures, and contingent ones, no less, is alien not just to the Greek Constitution but to democratic norms.’”
Fixed-Income Bubble Watch:
January 26 – Financial Times (Eric Platt and Joe Rennison): “The combination of rebounding commodity prices and hopes for faster US economic growth under Donald Trump is helping some of the riskiest corporate borrowers secure cheaper financing and underlines investors’ growing stomach for risk. An expanding list of companies with a triple-C rating — deep within speculative territory — have been able to lock in borrowing costs below 7%, as yields have fallen over the past 10 months. Investors’ appetite for the lowest rated segments of the corporate debt market touched a fresh peak on Wednesday, when a triple-C rated company came close to selling bonds with a yield of just 6%. Last February, triple-C paper traded with a yield of 18.57%... That figure has nearly halved to 9.36% today.”
January 24 – Financial Times (Joe Rennison): “Foreign investor participation in US government bond auctions remains subdued, according to fresh data…, despite renewed appetite for 3-year and 10-year debt. Foreign investors bought the smallest percentage of the recent 30-year Treasury bond auction since February 2016… Analysts point to the reduction in Treasury holdings from big foreign holders such as China and Japan putting pressure on others to back away from the Treasury market, despite it’s relatively more attractive yields compared to other government securities across the globe.”
U.S. Bubble Watch:
January 24 – Reuters (Lucia Mutikani): “U.S. home resales fell more than expected in December as the supply of houses on the market dropped to levels last seen in 1999… Last month, the number of homes on the market fell 10.8% from November to 1.65 million units, the lowest level since December 1999.”
January 24 – Bloomberg (Sho Chandra and Patricia Laya): “Sales of previously owned U.S. homes declined more than forecast in December… Still, sales for the full year were the strongest since 2006. Contract closings fell 2.8% to a 5.49 million annual rate last month (forecast was 5.52 million) after a revised 5.65 million in November. Median sales price rose 4% from year earlier to $232,200. For all of 2016, existing home sales increased to 5.45 million, the highest since 2006, from 5.25 million a year earlier.”
January 24 – Bloomberg (Tanvir Sandhu): “S&P 500 options are showing little anxiety over Donald Trump’s policies over the next few weeks, even as rates options capture concerns, according to Bloomberg strategist Tanvir Sandhu. The smoothness of S&P 500 Index’s volatility term structure indicates complacency in factoring in policy shifts by the government, reminiscent of a similar formation three weeks before the U.S. election on Nov. 8 when opinion polls overwhelmingly predicted a Hillary Clinton win.”
January 25 – Bloomberg (Jamie Butters, David Welch, and Keith Naughton): “President Donald Trump is asking U.S. automakers to invest in domestic manufacturing at a bad time. Car sales have gained for seven-straight years after the U.S. auto bailouts and the financial crisis, a streak that’s close to running out of gas. That’s a recipe for trouble facing companies wary of undoing the painful but necessary steps they took to shut dozens of factories across the country, before and during a more than $70 billion government bailout. New assembly plants cost General Motors Co., Ford Motor Co. or Fiat Chrysler Automobiles NV about $1 billion -- the sort of investment companies look to avoid making as a market peaks.”
January 24 – Wall Street Journal (Liz Hoffman and Tom McGinty): “Executives at some of the biggest Wall Street banks have sold nearly $100 million worth of stock since the presidential election, more than in that same period in any year over the past decade… The share sales occurred as financial stocks soared since Nov. 9 on expectations of lighter regulation, lower taxes and pro-growth economic policies. The KBW Nasdaq Bank index is up nearly 20% since Donald Trump’s victory, about triple the gains notched by the broader market. In addition to the share sales, bank executives have sold another $350 million worth of stock to cover the cost of exercising options, filings show. That is twice the amount sold for that purpose at big banks in the year leading up to the election.”
January 23 – Bloomberg (Gabrielle Coppola): “All those years of rising U.S. auto sales are starting to work against carmakers. A glut of used vehicles has started to depress prices. That trend will intensify as Americans will return 3.36 million leased cars and trucks this year, another jump after a 33% surge in 2016, according to J.D. Power. The fallout has already begun, with Ford Motor Co. shaving $300 million from its financial-services arm’s profit forecast for this year. ‘Ford is the canary in the coal mine,’ said Maryann Keller, a former Wall Street analyst who’s now an auto industry consultant…”
January 25 – Bloomberg (Patrick Clark): “A tactic that helped define the height of homebuying madness in the U.S. in the years before the market collapsed is rearing its head again. Home flippers, who buy homes as a speculative bet on short-term price appreciation, accounted for 6.1% of U.S. home sales in 2016, according to Trulia… That’s the highest share since 2006, when flips accounted for 7.3% of sales.”
Federal Reserve Watch:
January 23 – Reuters (Ann Saphir): “Jeffrey Lacker, the hawkish president of the Federal Reserve Bank of Richmond, said… he is worried inflation could surge unless the U.S. central bank raises interest rates faster than his fellow policymakers anticipate. ‘Right now I think we are at risk of getting behind the curve, so lately I've been an advocate of pushing rates up a little more aggressively than my colleagues,’ Lacker said… Most of the Fed's policymakers see the central bank raising rates three times this year.”
Central Bank Watch:
January 23 – Wall Street Journal (Christopher Whittall, Jon Sindreu and Brian Blackstone): “By keeping interest rates low and in some cases negative, central banks have prompted some of the most conservative investors to join the hunt for higher returns: Other central banks. Central banks from Switzerland to South Africa are investing a bigger share of their growing foreign-exchange reserves in equities, corporate bonds and other riskier assets. Branching out from the traditional central-bank practice of investing primarily in ultrasafe government bonds such as U.S. Treasurys means taking on more risk. But at a time when global growth, interest rates and potential returns on many assets are low, many central bankers are becoming increasingly focused on maximizing investment returns.”
Japan Watch:
January 24 – Bloomberg (Toru Fujioka and Masahiro Hidaka): “Bank of Japan officials would rather be late than early in raising their 10-year bond yield target from zero percent, even if consumer price gains reach 1% later this year, according to people familiar with the central bank’s discussions. Officials see considerable risks in moving too quickly and are mindful of policy exits in 2000 and 2006… These exits were criticized for coming too soon and prolonging deflation. BOJ officials would want to first confirm that the underlying inflation trend is improving and view it as important to look beyond the impact of higher oil prices and a weaker yen, which have the potential to change quickly.”
January 23 – Reuters (Stanley White): “Japanese manufacturing activity expanded in January at the fastest pace in almost three years as export orders surged, suggesting that overseas demand is not as weak as some economists and business leaders had feared. The Markit/Nikkei Japan Flash Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 52.8 in January from a final 52.4 in the previous month.”
EM Watch:
January 24 – New York Times (Elisabeth Malkin): “Not long ago, any suggestion that Mexico might walk away from the North American Free Trade Agreement would have been met with utter disbelief. That was before Donald J. Trump was elected president of the United States. Free trade is a mantra of Mexico’s political elite, the core of the country’s development strategy. But now that Mr. Trump has said he wants to renegotiate Nafta, a growing number of Mexican officials and businesspeople are asking what price is worth paying to stay in it. Many of them are concluding that Mexico could have more to lose from years of haggling and economic uncertainty than from simply opting out. ‘There could be no other option,’ Mexico’s economy minister, Ildefonso Guajardo, said… ‘If we go for something that is less than what we have, well, then there is no sense in staying.’”
January 24 – Financial Times (Jude Webber): “Battle lines have been drawn as Mexico and the US kick off what promise to be tough negotiations on the future of the two-decades old North American Free Trade Agreement, which both sides have threatened to kill off if they do not get their way. Pressure from US president Donald Trump has already cowed US corporate investors operating in Mexico. President Enrique Peña Nieto has vowed to stand up to pressure from the White House, but with Nafta as the backbone of Mexico’s export-oriented economy, he has most to lose from the talks. ‘If there are no clear benefits, there’s no point staying,’ Ildefonso Guajardo, Mexico’s economy secretary, told a television interviewer. A worse deal for Mexico made no sense, he said.”
January 24 – Financial Times (Katie Martin): “‘Yes, it looks like a mess,’ said Turkey’s deputy prime minister Mehmet Simsek last week of his country’s image in the eyes of investors and foreign politicians in an early contender for Understatement Of The Year. The latest interest rate decision from the country’s central bank will do little to turn that around. The central bank opted to leave its benchmark interest rate on hold on Tuesday, stunning economists who had predicted a rise of anywhere between a quarter and a full percentage point, and sending the lira plunging, albeit briefly. The central bank did not stand still entirely, raising the overnight lending rate by 0.75 percentage points and pledging more tightening in future if ‘inflation expectations, pricing behaviour and other factors affecting inflation’ warrant it.”
Leveraged Speculator Watch:
January 23 – CNBC (Tae Kim): “Hedge fund assets hit a record high at the end of last year as solid market returns from the Donald Trump rally overcame large investor redemptions. ‘Total hedge fund industry capital rose for the third consecutive quarter, surpassing the $3 trillion milestone for the first time,’ Hedge Fund Research said... ‘The growth of hedge fund assets occurred against a challenging backdrop of continued investor withdrawals.’ Investors pulled $18.7 billion of capital from hedge funds during the fourth quarter, according to HFR data. For 2016, the firm said $70.1 billion was withdrawn; the worst showing since $131 billion was redeemed in 2009. However, fourth-quarter hedge fund assets increased by $46.8 billion to $3.02 trillion due to performance, HFR added. The industry returned 5.5% in 2016, its best return since 2013…”
January 23 – Bloomberg (Brian Chappatta and Liz McCormick): “There’s a big showdown looming in the U.S. Treasury market. The ‘fast money,’ made up of hedge funds and other speculators, upped its bearish bets like never before this month, based on futures data for five-year notes. At the same time, ‘real-money’ accounts, composed of institutional buyers like mutual funds and insurers, did the opposite and built up their bullish positions in much the same way… But for JPMorgan Chase & Co.’s Jay Barry, the speculators are sowing their own demise. While Treasuries have suffered five straight months of losses, fast-money investors tend to be reliable contrarian indicators whenever they crowd together. More than 75% of the time, the market moves the other way over the following month, his figures show.”
Geopolitical Watch:
January 23 – CNBC (Evelyn Cheng): “China's government newspaper used the weekend after U.S. President Donald Trump's inauguration to promote China as an alternative to the ‘crisis’ of Western democracy and capitalism. ‘Western-style democracy has played a progressive role in history, but right now it has heavy drawbacks,’ Han Zhen, Communist Party secretary of the Beijing Foreign Studies University, wrote in a Chinese editorial in the People's Daily. The article and two similar pieces filled up a full page in the government paper on Sunday, and blamed Western democracy and capitalism for global troubles such as the financial crisis and populist movements in the U.S. and Europe. In this context, the editorials said, China could show the benefits of ‘socialism with Chinese characteristics.’”
January 23 – Washington Post (Ylan Q. Mui): “President Trump’s cancellation Monday of an agreement for a sweeping trade deal with Asia began recasting America’s role in the global economy, leaving an opening for other countries to flex their muscles. Trump’s executive order formally ending the United States’ participation in the Trans-Pacific Partnership was a largely symbolic move intended to signal that his tough talk on trade during the campaign will carry over to his new administration. The action came as China and other emerging economies are seeking to increase their leverage in global affairs, seizing on America’s turn inward. Mexico’s President Enrique Peña Nieto declared Monday that his country hopes to bolster trade with other nations and limit its reliance on the United States. Chinese state media derided Western democracy as having ‘reached its limits’…”
EM Watch:
January 24 – New York Times (Elisabeth Malkin): “Not long ago, any suggestion that Mexico might walk away from the North American Free Trade Agreement would have been met with utter disbelief. That was before Donald J. Trump was elected president of the United States. Free trade is a mantra of Mexico’s political elite, the core of the country’s development strategy. But now that Mr. Trump has said he wants to renegotiate Nafta, a growing number of Mexican officials and businesspeople are asking what price is worth paying to stay in it. Many of them are concluding that Mexico could have more to lose from years of haggling and economic uncertainty than from simply opting out. ‘There could be no other option,’ Mexico’s economy minister, Ildefonso Guajardo, said… ‘If we go for something that is less than what we have, well, then there is no sense in staying.’”
January 24 – Financial Times (Jude Webber): “Battle lines have been drawn as Mexico and the US kick off what promise to be tough negotiations on the future of the two-decades old North American Free Trade Agreement, which both sides have threatened to kill off if they do not get their way. Pressure from US president Donald Trump has already cowed US corporate investors operating in Mexico. President Enrique Peña Nieto has vowed to stand up to pressure from the White House, but with Nafta as the backbone of Mexico’s export-oriented economy, he has most to lose from the talks. ‘If there are no clear benefits, there’s no point staying,’ Ildefonso Guajardo, Mexico’s economy secretary, told a television interviewer. A worse deal for Mexico made no sense, he said.”
January 24 – Financial Times (Katie Martin): “‘Yes, it looks like a mess,’ said Turkey’s deputy prime minister Mehmet Simsek last week of his country’s image in the eyes of investors and foreign politicians in an early contender for Understatement Of The Year. The latest interest rate decision from the country’s central bank will do little to turn that around. The central bank opted to leave its benchmark interest rate on hold on Tuesday, stunning economists who had predicted a rise of anywhere between a quarter and a full percentage point, and sending the lira plunging, albeit briefly. The central bank did not stand still entirely, raising the overnight lending rate by 0.75 percentage points and pledging more tightening in future if ‘inflation expectations, pricing behaviour and other factors affecting inflation’ warrant it.”
Leveraged Speculator Watch:
January 23 – CNBC (Tae Kim): “Hedge fund assets hit a record high at the end of last year as solid market returns from the Donald Trump rally overcame large investor redemptions. ‘Total hedge fund industry capital rose for the third consecutive quarter, surpassing the $3 trillion milestone for the first time,’ Hedge Fund Research said... ‘The growth of hedge fund assets occurred against a challenging backdrop of continued investor withdrawals.’ Investors pulled $18.7 billion of capital from hedge funds during the fourth quarter, according to HFR data. For 2016, the firm said $70.1 billion was withdrawn; the worst showing since $131 billion was redeemed in 2009. However, fourth-quarter hedge fund assets increased by $46.8 billion to $3.02 trillion due to performance, HFR added. The industry returned 5.5% in 2016, its best return since 2013…”
January 23 – Bloomberg (Brian Chappatta and Liz McCormick): “There’s a big showdown looming in the U.S. Treasury market. The ‘fast money,’ made up of hedge funds and other speculators, upped its bearish bets like never before this month, based on futures data for five-year notes. At the same time, ‘real-money’ accounts, composed of institutional buyers like mutual funds and insurers, did the opposite and built up their bullish positions in much the same way… But for JPMorgan Chase & Co.’s Jay Barry, the speculators are sowing their own demise. While Treasuries have suffered five straight months of losses, fast-money investors tend to be reliable contrarian indicators whenever they crowd together. More than 75% of the time, the market moves the other way over the following month, his figures show.”
Geopolitical Watch:
January 23 – CNBC (Evelyn Cheng): “China's government newspaper used the weekend after U.S. President Donald Trump's inauguration to promote China as an alternative to the ‘crisis’ of Western democracy and capitalism. ‘Western-style democracy has played a progressive role in history, but right now it has heavy drawbacks,’ Han Zhen, Communist Party secretary of the Beijing Foreign Studies University, wrote in a Chinese editorial in the People's Daily. The article and two similar pieces filled up a full page in the government paper on Sunday, and blamed Western democracy and capitalism for global troubles such as the financial crisis and populist movements in the U.S. and Europe. In this context, the editorials said, China could show the benefits of ‘socialism with Chinese characteristics.’”
January 23 – Washington Post (Ylan Q. Mui): “President Trump’s cancellation Monday of an agreement for a sweeping trade deal with Asia began recasting America’s role in the global economy, leaving an opening for other countries to flex their muscles. Trump’s executive order formally ending the United States’ participation in the Trans-Pacific Partnership was a largely symbolic move intended to signal that his tough talk on trade during the campaign will carry over to his new administration. The action came as China and other emerging economies are seeking to increase their leverage in global affairs, seizing on America’s turn inward. Mexico’s President Enrique Peña Nieto declared Monday that his country hopes to bolster trade with other nations and limit its reliance on the United States. Chinese state media derided Western democracy as having ‘reached its limits’…”
Friday Evening Links
[Bloomberg] U.S. Stocks Slip, Treasuries Climb as Oil Drops: Markets Wrap
[Bloomberg] U.S. Economic Momentum Faces Wild Card in Trump Trade Policy
[Bloomberg] China’s Bond Market Has a Forgery Problem
[Reuters] In double whammy for Turkey, Fitch cuts to junk after S&P slashes outlook
[Reuters] Trump's unpredictability already troubles U.S. friends
[WSJ] Trump’s First Week: Governing Without a Script
[WSJ] Big Chinese Deals Stall on Capital-Outflows Clampdown
[FT] Mexican stand-off looms between Fed and White House
[FT] Value of negative-yielding debt drops below $10tn
[Bloomberg] U.S. Economic Momentum Faces Wild Card in Trump Trade Policy
[Bloomberg] China’s Bond Market Has a Forgery Problem
[Reuters] In double whammy for Turkey, Fitch cuts to junk after S&P slashes outlook
[Reuters] Trump's unpredictability already troubles U.S. friends
[WSJ] Trump’s First Week: Governing Without a Script
[WSJ] Big Chinese Deals Stall on Capital-Outflows Clampdown
[FT] Mexican stand-off looms between Fed and White House
[FT] Value of negative-yielding debt drops below $10tn
Thursday, January 26, 2017
Friday's News Links
[Bloomberg] U.S. Stocks Fluctuate on GDP as Dollar, Gold Fall: Markets Wrap
[Bloomberg] Greek Bonds Drop as Euro-Area Meeting Deadlock Continues: Chart
[Bloomberg] U.S. Economic Growth Cools on Biggest Trade Drag Since 2010
[Bloomberg] As Bond Bear Market Beckons, Veterans Tell Tales of the Unknown
[Bloomberg] Republicans Are Making Little Progress on Their Obamacare Repeal Strategy
[Bloomberg] Why China's 'Creative' Way to Fight Capital Outflows Won't Be Sustainable
[Bloomberg] Draghi Reticence on ECB Tapering Can’t Stop Inflation Chatter
[Politico] Trump's first wall to overcome: Congress
[NYT] How to Interpret the Trump Administration’s Latest Signals on Mexico
[WSJ] U.S.-Mexico Rift Deepens Over Trade Threat, Canceled Meeting
[WSJ] A Default in China Spreads Anxiety Among Investors
[WSJ] Greece and Creditors Fail to Make Progress on Bailout Deal
[FT] China spells out curbs on capital outflows
[FT] People are worried about Chinese property bond market liquidity
[Time] Mexicans Launch Boycotts of U.S. Companies in Fury at Donald Trump
[The Hill] 5 things to watch in Trump's meeting with British prime minister
[Washington Post] Trump: Strong military matters more than balanced federal budget
[CNBC] ‘Looks as if the world is preparing for war,' says former Soviet president Gorbachev
[Bloomberg] Greek Bonds Drop as Euro-Area Meeting Deadlock Continues: Chart
[Bloomberg] U.S. Economic Growth Cools on Biggest Trade Drag Since 2010
[Bloomberg] As Bond Bear Market Beckons, Veterans Tell Tales of the Unknown
[Bloomberg] Republicans Are Making Little Progress on Their Obamacare Repeal Strategy
[Bloomberg] Why China's 'Creative' Way to Fight Capital Outflows Won't Be Sustainable
[Bloomberg] Draghi Reticence on ECB Tapering Can’t Stop Inflation Chatter
[Politico] Trump's first wall to overcome: Congress
[NYT] How to Interpret the Trump Administration’s Latest Signals on Mexico
[WSJ] U.S.-Mexico Rift Deepens Over Trade Threat, Canceled Meeting
[WSJ] A Default in China Spreads Anxiety Among Investors
[WSJ] Greece and Creditors Fail to Make Progress on Bailout Deal
[FT] China spells out curbs on capital outflows
[FT] People are worried about Chinese property bond market liquidity
[Time] Mexicans Launch Boycotts of U.S. Companies in Fury at Donald Trump
[The Hill] 5 things to watch in Trump's meeting with British prime minister
[Washington Post] Trump: Strong military matters more than balanced federal budget
[CNBC] ‘Looks as if the world is preparing for war,' says former Soviet president Gorbachev
Thursday Evening Links
[Bloomberg] U.S. Stocks Mixed, Peso Falls as Wall Tension Rises: Market Wrap
[Reuters] Trump seeks 20 percent tax on Mexico goods to pay for wall, crisis deepens
[Bloomberg] Trump Floats 20 Percent Border Tax as Feud with Mexico Deepens
[Reuters] Mexico president cancels U.S. visit after Trump wall comments
[Reuters] ECB could withdraw stimulus if inflation rise sustained - Germany's Weidmann
[Bloomberg] World’s Biggest Real Estate Buyers Are Suddenly Short on Cash
[Bloomberg] Trump Threatens to Undo Nafta’s Auto Alley
[Bloomberg] Wall Street Can’t Quit the Mexican Peso
[Bloomberg] Mnuchin Faces Senate Questions on China View, Volcker Rule, Debt
[Bloomberg] U.S. Wage Disparity Took Another Turn for the Worse Last Year
[Bloomberg] Guess Which Way the Doomsday Clock Just Ticked
[NYT] Trump Strategist Steve Bannon Says Media Should ‘Keep Its Mouth Shut’
[WSJ] Canceled Meeting Deepens U.S.-Mexico Rift
[FT] Jens Weidmann fuels debate on ending ECB monetary stimulus
[WSJ] Europe’s Economy Takes Over From Trump in Driving Local Bond Yields
[Reuters] Trump seeks 20 percent tax on Mexico goods to pay for wall, crisis deepens
[Bloomberg] Trump Floats 20 Percent Border Tax as Feud with Mexico Deepens
[Reuters] Mexico president cancels U.S. visit after Trump wall comments
[Reuters] ECB could withdraw stimulus if inflation rise sustained - Germany's Weidmann
[Bloomberg] World’s Biggest Real Estate Buyers Are Suddenly Short on Cash
[Bloomberg] Trump Threatens to Undo Nafta’s Auto Alley
[Bloomberg] Wall Street Can’t Quit the Mexican Peso
[Bloomberg] Mnuchin Faces Senate Questions on China View, Volcker Rule, Debt
[Bloomberg] U.S. Wage Disparity Took Another Turn for the Worse Last Year
[Bloomberg] Guess Which Way the Doomsday Clock Just Ticked
[NYT] Trump Strategist Steve Bannon Says Media Should ‘Keep Its Mouth Shut’
[WSJ] Canceled Meeting Deepens U.S.-Mexico Rift
[FT] Jens Weidmann fuels debate on ending ECB monetary stimulus
[WSJ] Europe’s Economy Takes Over From Trump in Driving Local Bond Yields
Wednesday, January 25, 2017
Thursday's News Links
[Bloomberg] Global Stocks Rally Gathers Pace as Bonds Slide: Markets Wrap
[Bloomberg] Asian Stocks Extend Rally After Dow Tops 20,000: Markets Wrap
[Daily Mail] Euro zone yields hit one-year highs on expectations of U.S. growth policies
[Bloomberg] Sales of New U.S. Homes at 10-Month Low as Mortgage Rates Jump
[Bloomberg] VIX Near Record Low Ignores Risks Revealed in Swaptions: Chart
[Bloomberg] China Said to Order Banks to Curb New Loans in First Quarter
[Bloomberg] China’s FX Regulator Announces Latest Steps to Keep Cash at Home
[Reuters] China's shadow banking crusade risks bond market crash
[Bloomberg] Offshore Yuan Heads for Record Monthly Gain While Stocks Advance
[Bloomberg] Investors Shun Italian Bonds as Political Outlook Remains Cloudy
[Reuters] Investors pull most cash from U.S. stock funds since election: ICI
[Bloomberg] Mexico's President Rejects Wall; Is 'Considering' Scrapping US Trip: AP
[Bloomberg] Top Forecaster Says Fed to Hike Rates Every Quarter in 2018
[Reuters] China eyes stabilizing role in call with Germany's Merkel
[CNBC] Donald Trump’s First Six Days in Office: Here’s What He’s Done
[FT] Corporate America split over radical import tax plan
[FT] Risky corporate borrowers make hay as yields slide
[Bloomberg] Asian Stocks Extend Rally After Dow Tops 20,000: Markets Wrap
[Daily Mail] Euro zone yields hit one-year highs on expectations of U.S. growth policies
[Bloomberg] Sales of New U.S. Homes at 10-Month Low as Mortgage Rates Jump
[Bloomberg] VIX Near Record Low Ignores Risks Revealed in Swaptions: Chart
[Bloomberg] China Said to Order Banks to Curb New Loans in First Quarter
[Bloomberg] China’s FX Regulator Announces Latest Steps to Keep Cash at Home
[Reuters] China's shadow banking crusade risks bond market crash
[Bloomberg] Offshore Yuan Heads for Record Monthly Gain While Stocks Advance
[Bloomberg] Investors Shun Italian Bonds as Political Outlook Remains Cloudy
[Reuters] Investors pull most cash from U.S. stock funds since election: ICI
[Bloomberg] Mexico's President Rejects Wall; Is 'Considering' Scrapping US Trip: AP
[Bloomberg] Top Forecaster Says Fed to Hike Rates Every Quarter in 2018
[Reuters] China eyes stabilizing role in call with Germany's Merkel
[CNBC] Donald Trump’s First Six Days in Office: Here’s What He’s Done
[FT] Corporate America split over radical import tax plan
[FT] Risky corporate borrowers make hay as yields slide
Wednesday Evening Links
[Reuters] Wall Street rises, Dow closes above 20,000 milestone
[Bloomberg] On the Eve of Lunar New Year, China’s Bond Investors Are Hurting
[Bloomberg] Expect More Forgeries, Fakes in China Debt Market Amid Bond Rout
[NYT] Will Trump Go After Nafta With Tweezers or a Hammer?
[Washington Post] When Theresa meets Donald: A geopolitical odd couple with big impli
[Bloomberg] On the Eve of Lunar New Year, China’s Bond Investors Are Hurting
[Bloomberg] Expect More Forgeries, Fakes in China Debt Market Amid Bond Rout
[NYT] Will Trump Go After Nafta With Tweezers or a Hammer?
[Washington Post] When Theresa meets Donald: A geopolitical odd couple with big impli
Tuesday, January 24, 2017
Wednesday's News Links
[Bloomberg] Dow Tops 20,000 as Earnings Feed Rally, Bonds Fall: Markets Wrap
[Reuters] Reignited Trump trades boost stocks, Dow 20,000 in sight
[Bloomberg] Asia Stocks Extend Global Rally on Growth Optimism: Markets Wrap
[Reuters] UK PM May says she will publish 'White Paper' setting out Brexit plan
[Bloomberg] U.K.’s May Faces Brexit Revolt as Lawmakers Challenge Her Power
[Reuters] Surprise China MLF rate rise weighs on bonds; yuan and money rates fall
[Bloomberg] China Policy Signals Perplex Market as Fidelity Says ‘Confused’
[Bloomberg] Trump Is Squeezing Detroit at the Worst Possible Time
[CNBC] The five trades that most people have gotten wrong
[Bloomberg] Americans Are Flipping Houses Like It’s 2006
[Bloomberg] Greece’s Tsipras Insists on ‘Not One Euro More’ of Austerity
[Washington Post] German opposition picks former E.U. lawmaker to challenger Angela Merkel
[FT] Foreign participation in US debt auctions subdued
[NYT] Facing Trump, Mexicans Think the Unthinkable: Leaving Nafta
[WSJ] ECB’s Lautenschläger ‘Optimistic’ Exit of Bond-Purchase Program Is Near
[WSJ] Trump Readies Plan to Build Border Wall
[FT] ECB hawk reignites debate on ending monetary stimulus
[Reuters] Reignited Trump trades boost stocks, Dow 20,000 in sight
[Bloomberg] Asia Stocks Extend Global Rally on Growth Optimism: Markets Wrap
[Reuters] UK PM May says she will publish 'White Paper' setting out Brexit plan
[Bloomberg] U.K.’s May Faces Brexit Revolt as Lawmakers Challenge Her Power
[Reuters] Surprise China MLF rate rise weighs on bonds; yuan and money rates fall
[Bloomberg] China Policy Signals Perplex Market as Fidelity Says ‘Confused’
[Bloomberg] Trump Is Squeezing Detroit at the Worst Possible Time
[CNBC] The five trades that most people have gotten wrong
[Bloomberg] Americans Are Flipping Houses Like It’s 2006
[Bloomberg] Greece’s Tsipras Insists on ‘Not One Euro More’ of Austerity
[Washington Post] German opposition picks former E.U. lawmaker to challenger Angela Merkel
[FT] Foreign participation in US debt auctions subdued
[NYT] Facing Trump, Mexicans Think the Unthinkable: Leaving Nafta
[WSJ] ECB’s Lautenschläger ‘Optimistic’ Exit of Bond-Purchase Program Is Near
[WSJ] Trump Readies Plan to Build Border Wall
[FT] ECB hawk reignites debate on ending monetary stimulus
Tuesday Evening Links
[Bloomberg] Asian Stocks Extend Global Rally as Yen Weakens: Markets Wrap
[Bloomberg] U.S. Stocks Climb on Earnings as Commodities Rally: Markets Wrap
[Bloomberg] Trump Advances Keystone and Dakota Pipelines, Fulfilling Pledge
[Bloomberg] Existing U.S. Home Sales Fell in Dec.; 2016 Best in Decade
[Reuters] U.S. home sales drop as supply tumbles to 17-year low
[Reuters] ECB should soon start discussing exit from stimulus: Lautenschlaeger
[Bloomberg] China Small-Cap Stocks Extend January Slump on Liquidity Squeeze
[Bloomberg] Pricier Oil Means China's Foreign Reserves Will Shrink Even Faster, Goldman Says
[Reuters] China says will protect South China Sea sovereignty
[NYT] Trump Injects High Risk Into Relations With China
[NYT] Federal Debt Projected to Grow by Nearly $10 Trillion Over Next Decade
[NYT] For C.E.O.s, a New Concern: The Activist in Chief
[FT] Mexico braces for confrontation with Trump team
[FT] Turkey’s interest rate moves leave country in a mess
[Bloomberg] U.S. Stocks Climb on Earnings as Commodities Rally: Markets Wrap
[Bloomberg] Trump Advances Keystone and Dakota Pipelines, Fulfilling Pledge
[Bloomberg] Existing U.S. Home Sales Fell in Dec.; 2016 Best in Decade
[Reuters] U.S. home sales drop as supply tumbles to 17-year low
[Reuters] ECB should soon start discussing exit from stimulus: Lautenschlaeger
[Bloomberg] China Small-Cap Stocks Extend January Slump on Liquidity Squeeze
[Bloomberg] Pricier Oil Means China's Foreign Reserves Will Shrink Even Faster, Goldman Says
[Reuters] China says will protect South China Sea sovereignty
[NYT] Trump Injects High Risk Into Relations With China
[NYT] Federal Debt Projected to Grow by Nearly $10 Trillion Over Next Decade
[NYT] For C.E.O.s, a New Concern: The Activist in Chief
[FT] Mexico braces for confrontation with Trump team
[FT] Turkey’s interest rate moves leave country in a mess
Monday, January 23, 2017
Tuesday's News Links
[Bloomberg] U.S. Stocks Fluctuate on Earnings, Treasuries Drop: Markets Wrap
[Reuters] Japan January flash manufacturing PMI shows fastest expansion in almost three years
[Bloomberg] May Faces Hurdles to Starting Brexit Talks After Court Rules
[Bloomberg] Inside the Mind of Mnuchin: Too-Strong Dollar May Hurt Economy
[Bloomberg] How Trump Would Rework Nafta—and What Mexico, Canada Want in Return
[Bloomberg] China Raises Medium-Term Lending Rates in Tightening Signal
[Bloomberg] Top Goldman Forecaster Urges China to Tighten Monetary Policy
[Bloomberg] BOJ Is Wary of Yield Target Hike Even If CPI Hits 1%
[Bloomberg] S&P 500 Options Showing Little Fear Over Trump Policy...For Now
[WSJ] Bankers Cash In on Postelection Stock Rally
[Reuters] Trump White House vows to stop China taking South China Sea islands
[Washington Post] Withdrawal from Trans-Pacific Partnership shifts U.S. role in world economy
[FT] US pledges to ‘protect our interests’ in South China Sea
[FT] Capital flight battle threatens China trade flows
[WSJ] China Floods Financial System With Cash Ahead of Lunar New Year
[Reuters] China urges U.S. to act and speak cautiously on South China Sea
[Washington Post] Is Trump ready for war in the South China Sea, or is his team just not being clear?
[Reuters] Japan January flash manufacturing PMI shows fastest expansion in almost three years
[Bloomberg] May Faces Hurdles to Starting Brexit Talks After Court Rules
[Bloomberg] Inside the Mind of Mnuchin: Too-Strong Dollar May Hurt Economy
[Bloomberg] How Trump Would Rework Nafta—and What Mexico, Canada Want in Return
[Bloomberg] China Raises Medium-Term Lending Rates in Tightening Signal
[Bloomberg] Top Goldman Forecaster Urges China to Tighten Monetary Policy
[Bloomberg] BOJ Is Wary of Yield Target Hike Even If CPI Hits 1%
[Bloomberg] S&P 500 Options Showing Little Fear Over Trump Policy...For Now
[WSJ] Bankers Cash In on Postelection Stock Rally
[Reuters] Trump White House vows to stop China taking South China Sea islands
[Washington Post] Withdrawal from Trans-Pacific Partnership shifts U.S. role in world economy
[FT] US pledges to ‘protect our interests’ in South China Sea
[FT] Capital flight battle threatens China trade flows
[WSJ] China Floods Financial System With Cash Ahead of Lunar New Year
[Reuters] China urges U.S. to act and speak cautiously on South China Sea
[Washington Post] Is Trump ready for war in the South China Sea, or is his team just not being clear?
Monday Evening Links
[Reuters] Dollar, stocks slide on Trump's protectionist stance
[Reuters] Dollar tumbles to seven-week low on Trump uncertainty
[Reuters] Trump signs order withdrawing U.S. from Trans-Pacific trade deal
[Reuters] Trump Treasury nominee wants to loosen limits under Volcker rule -document
[Reuters] Trump tells manufacturers he will cut regulations, taxes
[Bloomberg] Wall Street Questions If Trump Can Turn His Promises Into Policy
[Bloomberg] Treasuries Extend Post-Inaugural Gains as Yield Curve Steepens
[Reuters] Fed's Lacker favors faster rate hike path to curb inflation
[Bloomberg] Hedge Funds Risk Treasuries Wipeout After Bearish Bets Soar
[Bloomberg] Le Pen Risk Flashes in Tightest Yield Spread to Spain Since 2010
[Bloomberg] A Rising Tide of Used Cars Threatens Ford’s Profits
[CNBC] Hedge fund assets top $3 trillion for the first time after boost from the Trump post-election rally
[WSJ] President Trump Focuses on Trade With Promise of ‘Very Major’ Border Tax
[CNBC] China: We can lead world beyond 'crisis' of Western democracy and capitalism
[Reuters] U.S. says will prevent China taking over territory in international waters
[Reuters] Dollar tumbles to seven-week low on Trump uncertainty
[Reuters] Trump signs order withdrawing U.S. from Trans-Pacific trade deal
[Reuters] Trump Treasury nominee wants to loosen limits under Volcker rule -document
[Reuters] Trump tells manufacturers he will cut regulations, taxes
[Bloomberg] Wall Street Questions If Trump Can Turn His Promises Into Policy
[Bloomberg] Treasuries Extend Post-Inaugural Gains as Yield Curve Steepens
[Reuters] Fed's Lacker favors faster rate hike path to curb inflation
[Bloomberg] Hedge Funds Risk Treasuries Wipeout After Bearish Bets Soar
[Bloomberg] Le Pen Risk Flashes in Tightest Yield Spread to Spain Since 2010
[Bloomberg] A Rising Tide of Used Cars Threatens Ford’s Profits
[CNBC] Hedge fund assets top $3 trillion for the first time after boost from the Trump post-election rally
[WSJ] President Trump Focuses on Trade With Promise of ‘Very Major’ Border Tax
[CNBC] China: We can lead world beyond 'crisis' of Western democracy and capitalism
[Reuters] U.S. says will prevent China taking over territory in international waters
Sunday, January 22, 2017
Monday's News Links
[Bloomberg] Stocks Fluctuate With Bonds as Trump Targets Trade: Markets Wrap
[Bloomberg] Dollar Drops as Trump’s ‘America First’ Speech Unnerves Traders
[Bloomberg] Trump Set for ‘Antagonistic’ China Relations, Citigroup Says
[Bloomberg] China Gives ‘Hedge Fund Brother No.1’ 5 1/2 Years in Prison
[Bloomberg] China Stock Trading Most Muted Since 1992 as State Tightens Grip
[Reuters] First days of Trump era signal America's deepening political divide
[NYT] Rocky First Weekend for Trump Troubles Even His Top Aides
[WSJ] President Trump Focuses on Trade With Promise of ‘Very Major’ Border Tax
[WSJ] Donald Trump Embarks on His First Week With a Heavy Slate
[WSJ] Central Banks Embrace Risk in Era of Low Rates
[WSJ] Some Republicans Wary of Repealing ACA Without Replacement Plan
[Bloomberg] Dollar Drops as Trump’s ‘America First’ Speech Unnerves Traders
[Bloomberg] Trump Set for ‘Antagonistic’ China Relations, Citigroup Says
[Bloomberg] China Gives ‘Hedge Fund Brother No.1’ 5 1/2 Years in Prison
[Bloomberg] China Stock Trading Most Muted Since 1992 as State Tightens Grip
[Reuters] First days of Trump era signal America's deepening political divide
[NYT] Rocky First Weekend for Trump Troubles Even His Top Aides
[WSJ] President Trump Focuses on Trade With Promise of ‘Very Major’ Border Tax
[WSJ] Donald Trump Embarks on His First Week With a Heavy Slate
[WSJ] Central Banks Embrace Risk in Era of Low Rates
[WSJ] Some Republicans Wary of Repealing ACA Without Replacement Plan
Sunday Evening Links
[Bloomberg] Yen Gains With Gold as Stocks Decline Across Asia: Markets Wrap
[Reuters] Trump says to start renegotiations on Nafta with Canada, Mexico
[Bloomberg] These Companies Are at Risk in a U.S.-China Trade War
[Reuters] UK seeks interventionist approach to drive post-Brexit industrial revival
[Reuters] Trump may not enforce individual health insurance mandate: aide
[Bloomberg] Trudeau Braces for Trump Nafta Gambit With Oil-Patch Huddle
[Bloomberg] Good Times Seen Coming to End for China’s Real Estate Bonds
[The Hill] Trump team doubles down on media criticism
[NYT] Trump’s Vow to Repeal Health Law Revives Talk of High-Risk Pools
[FT] China clamps down on banks moving currency overseas
[Reuters] Trump says to start renegotiations on Nafta with Canada, Mexico
[Bloomberg] These Companies Are at Risk in a U.S.-China Trade War
[Reuters] UK seeks interventionist approach to drive post-Brexit industrial revival
[Reuters] Trump may not enforce individual health insurance mandate: aide
[Bloomberg] Trudeau Braces for Trump Nafta Gambit With Oil-Patch Huddle
[Bloomberg] Good Times Seen Coming to End for China’s Real Estate Bonds
[The Hill] Trump team doubles down on media criticism
[NYT] Trump’s Vow to Repeal Health Law Revives Talk of High-Risk Pools
[FT] China clamps down on banks moving currency overseas
Saturday, January 21, 2017
Sunday's News Links
[Bloomberg] Kuwait Stocks Extend World-Beating Rally Amid Mixed Gulf Markets
[Bloomberg] U.K. Lawmakers Mull Steps to Halt Hard Brexit, Observer Reports
[Bloomberg] PBOC Conducts 60 Billion Yuan of China Open-Market Operations
[Reuters] White House says media delegitimizing Trump, says won't 'take it'
[MarketWatch] Investing legend Jim Rogers says dump stocks if Trump launches trade war
[Reuters] China party paper says no 'provocation' can stop its military drills
[NYT] Leaders Abroad, Joyful or Wary, Face Uncertainty of Trump Era
[Bloomberg] U.K. Lawmakers Mull Steps to Halt Hard Brexit, Observer Reports
[Bloomberg] PBOC Conducts 60 Billion Yuan of China Open-Market Operations
[Reuters] White House says media delegitimizing Trump, says won't 'take it'
[MarketWatch] Investing legend Jim Rogers says dump stocks if Trump launches trade war
[Reuters] China party paper says no 'provocation' can stop its military drills
[NYT] Leaders Abroad, Joyful or Wary, Face Uncertainty of Trump Era
Saturday's News Links
[Reuters] Wall Street Week Ahead: Optimism among S&P 500 CEOs as Trump takes power
[Reuters] Merkel vows compromise with U.S. on trade, military spending
[Bloomberg] Merkel Scours Trump Archive for Clues on How to Read Him
[Reuters] French far-right leader Le Pen calls on Europeans to 'wake up'
[Bloomberg] EU Populists See Trump Victory as Beginning of End for Old Order
[Reuters] Asian media decry isolationist Trump, fear economic, diplomatic turmoil
[The Hill] Five takeaways from Trump's inauguration
[UK Independent] Chinese media warns of 'dramatic changes' and 'fires being lit' as President takes office
[Spiegel] Donald Trump and the New World Order
[NYT, Irwin] Presidents Have Less Power Over the Economy Than You Might Think
[WSJ] President Trump Issues Directives on Regulatory Freeze, Affordable Care Act
[Washington Post] Europe’s nationalist leaders kick off year of election hopes
[Reuters] Merkel vows compromise with U.S. on trade, military spending
[Bloomberg] Merkel Scours Trump Archive for Clues on How to Read Him
[Reuters] French far-right leader Le Pen calls on Europeans to 'wake up'
[Bloomberg] EU Populists See Trump Victory as Beginning of End for Old Order
[Reuters] Asian media decry isolationist Trump, fear economic, diplomatic turmoil
[The Hill] Five takeaways from Trump's inauguration
[UK Independent] Chinese media warns of 'dramatic changes' and 'fires being lit' as President takes office
[Spiegel] Donald Trump and the New World Order
[NYT, Irwin] Presidents Have Less Power Over the Economy Than You Might Think
[WSJ] President Trump Issues Directives on Regulatory Freeze, Affordable Care Act
[Washington Post] Europe’s nationalist leaders kick off year of election hopes
Friday, January 20, 2017
Weekly Commentary: Just the Facts
My sincere apologies. I'll be back with a complete CBB next week. doug
For the Week:
The S&P500 was little changed (up 1.5% y-t-d), while the Dow slipped 0.3% (up 0.3%). The Utilities increased 0.2% (down 0.3%). The Banks dropped 2.8% (down 1.4%), and the Broker/Dealers fell 1.5% (up 2.4%). The Transports added 0.5% (up 2.2%). The S&P 400 Midcaps declined 0.7% (up 0.9%), and the small cap Russell 2000 fell 1.5% (down 0.4%). The Nasdaq100 (up 4.1%) and Morgan Stanley High Tech indices were little changed (up 4.4%). The Semiconductors added 0.6% (up 2.6%). The Biotechs fell 2.3% (up 3.3%). With bullion up $13, the HUI gold index gained 1.7% (up 11.1%).
Three-month Treasury bill rates ended the week at 50 bps. Two-year government yields were unchanged at 1.19% (unchanged y-t-d). Five-year T-note yields rose four bps to 1.94% (up one basis point). Ten-year Treasury yields gained seven bps to 2.47% (up 3bps). Long bond yields rose six bps to 3.05% (down 2bps).
Greek 10-year yields rose seven bps to 6.96% (down 6bps y-t-d). Ten-year Portuguese yields declined nine bps to 3.82% (up 7bps). Italian 10-year yields jumped 11 bps to 2.01% (up 20bps). Spain's 10-year yields increased six bps to 1.49% (up 11bps). German bund yields rose eight bps to 0.42% (up 22bps). French yields jumped nine bps to 0.90% (up 22bps). The French to German 10-year bond spread widened one to 48 bps. U.K. 10-year gilt yields gained seven bps to 1.43% (up 20bps). U.K.'s FTSE equities index fell 1.9% (up 0.8%).
Japan's Nikkei 225 equities index slipped 0.8% (up 0.1% y-t-d). Japanese 10-year "JGB" yields were unchanged at 0.05% (up one basis point). The German DAX equities index was unchanged (up 1.3%). Spain's IBEX 35 equities index dropped 1.4% (up 0.3%). Italy's FTSE MIB index slipped 0.2% (up 1.3%). EM equities were mixed. Brazil's Bovespa index gained 1.4% (up 7.1%). Mexico's Bolsa added 0.3% (up 1.5%). South Korea's Kospi declined 0.5% (up 1.9%). India’s Sensex equities index fell 0.7% (up 1.5%). China’s Shanghai Exchange increased 0.3% (up 0.6%). Turkey's Borsa Istanbul National 100 index jumped 1.9% (up 6.3%). Russia's MICEX equities index fell 1.6% (down 3.3%).
Junk bond mutual funds saw inflows of $887 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates slipped three bps to 4.09% (up 28bps y-o-y). Fifteen-year rates were unchanged at 3.37% (up 27bps). The five-year hybrid ARM rate declined two bps to 3.21% (up 30 bps).
Federal Reserve Credit last week dipped $0.4bn to $4.413 TN. Over the past year, Fed Credit contracted $42.9bn (down 1.0%). Fed Credit inflated $1.602 TN, or 57%, over the past 219 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $11.9bn last week to $3.170 TN. "Custody holdings" were down $96.2bn y-o-y, or 2.9%.
M2 (narrow) "money" supply last week jumped $39.1bn to a record $13.307 TN. "Narrow money" expanded $906bn, or 7.3%, over the past year. For the week, Currency increased $4.1bn. Total Checkable Deposits surged $51.5bn, while Savings Deposits declined $16.8bn. Small Time Deposits were little changed. Retail Money Funds were about unchanged.
Total money market fund assets sank $24.8bn to $2.666 TN. Money Funds declined $77bn y-o-y (2.8%).
Total Commercial Paper expanded $7.9bn to $967bn. CP declined $85bn y-o-y, or 8.1%.
Currency Watch:
January 17 – CNBC (Patti Domm): “President-elect Donald Trump's shock comment that the dollar is too strong suggests the U.S. is about to declare as dead a two-decade policy of publicly favoring a strong currency. ‘There's no question that the Trump administration would not want a strong dollar. A strong dollar does nothing good for whatever Trump is basically trying to do,’ said David Woo, Bank of America Merrill Lynch's head of global rates and foreign exchange research. ‘Yes, the U.S. fundamental story is bullish for the U.S. dollar, but the problem here is they actually don't want a strong dollar. I think it's going to go up. However, it's going to be a much more volatile climb.’ Trump's remarks also took a shot at one of the most crowded trades on the planet — long wagers on the dollar.”
January 19 – Bloomberg (Michelle Jamrisko and Saleha Mohsin): “Treasury Secretary nominee Steven Mnuchin said a strong dollar is important over the long term, noting that it’s currently ‘very, very strong,’ and that avoiding U.S. default on the debt would be a top priority if he’s confirmed. Mnuchin also defended his personal record as a founder of OneWest Bank amid the housing crisis, and pushed for tax reform as a key way to lift economic growth as promised by President-elect Donald Trump.”
January 17 – Bloomberg (Samuel Potter and Natasha Doff): “Politics dominated global markets as the dollar weakened after the president-elect called the U.S. currency ‘too strong’ and the pound rallied on British Prime Minister Theresa May’s plans to leave the European Union. Bonds advanced with gold. The greenback fell against most peers after Donald Trump told the Wall Street Journal its value is too high in part because China holds down its own currency. Sterling posted its biggest rally against the dollar since the global financial crisis and the Bloomberg Commodity Index rose to the highest since July.”
The U.S. dollar index slipped 0.4% to 100.74 (down 1.6% y-t-d). For the week on the upside, the British pound increased 1.6%, the Brazilian real 1.4%, the Norwegian krone 1.1%, the Australian dollar 0.7%, the Swiss franc 0.7%, the euro 0.6%, the New Zealand dollar 0.6%, the South Korean won 0.5%, the Swedish krona 0.4% and the Singapore dollar 0.1%. For the week on the downside, the Canadian dollar declined 1.6%, the South African rand 0.6% and the Mexican peso 0.5%. The Chinese yuan increased 0.4% versus the dollar (up 1.0% y-t-d).
Commodities Watch:
January 20 – Bloomberg (Susanne Barton): “Gold bulls wagering the bullion rally has more room to run may have history on their side with the arrival of a new U.S. president. A look at recent presidential transitions supports optimism among traders over the metal’s prospects. Gold has averaged gains of almost 15% in years marking the inauguration of a new president since the 1970s, advancing in five of those seven years. In contrast, the S&P 500 index of equities declined in four of those years for an average loss over the period of 0.9%.”
The Goldman Sachs Commodities Index was little changed (up 0.2% y-t-d). Spot Gold gained 1.1% to $1,211 (up 5.1%). Silver rose 1.2% to $17.03 (up 6.6%). Crude gained 85 cents to $53.22 (down 1.1%). Gasoline dropped 2.8% (down 6.3%), and Natural Gas sank 6.3% (down 14.3%). Copper dropped 2.4% (up 4.7%). Wheat added 0.5% (up 5.0%). Corn jumped 3.1% (up 5.0%).
Trump Administration Watch:
January 20 – Wall Street Journal (Gerald F. Seib): “Donald J. Trump took the oath of office as president at noon Friday, having at last been embraced by the bipartisan Washington establishment gathered around him on the steps of the Capitol. Two minutes later, he went on the attack against that same establishment. In an inaugural address unlike any in recent memory, he indicted the political system he now leads. He also signaled that he will be an entirely new kind of president—and the closest thing to a political independent in the White House since Dwight Eisenhower. ‘For too long, a small group in our nation’s capital has reaped the rewards of government while the people have borne the cost,’ he declared. Lest anyone wonder about his view of the politicians gathered around, he declared: ‘The establishment protected itself, but not the citizens of our country.’ That, he said, will change immediately. The harsh words seemed directed nearly as much at his own Republican Party…”
January 20 – Bloomberg (Margaret Talev): “Donald Trump began his presidency with a combative, populist address aimed squarely at his aggrieved supporters, making little effort to reach beyond his political base or reassure foreign leaders. His inaugural speech on Friday painted an ominous portrait of the nation at the cusp of his administration: a place of violent ‘American carnage’ where ‘rusted-out factories’ are ‘scattered like tombstones’ and the middle class’s wealth is ‘ripped from their homes.’ His predecessor, Barack Obama, sat steps away. Trump promised an unapologetic nationalism that would protect U.S. jobs and a foreign policy that would eradicate Islamic terrorism and put the country’s interests ahead of all others.”
January 14 – Reuters (David Brunnstrom and Matt Spetalnick): “The incoming U.S. administration’s tough talk against China has set the stage for showdowns on everything from security to trade and cyberspace, but contradictory signals are sowing uncertainty over how far President-elect Donald Trump is prepared to go in confronting Beijing. Highlighting the contested South China Sea as a potential flashpoint, Trump’s Secretary of State nominee Rex Tillerson threw out an explosive challenge to Beijing on Wednesday by calling for it be denied access to artificial islands it is building in the strategic waterway. A Trump transition adviser told Reuters that Tillerson, Trump’s pick to be America's top diplomat, did not mean to suggest the new administration would impose a naval blockade, which would risk armed confrontation with China, something the new administration was not seeking. But another official authorized to speak on behalf of the transition team pushed back on that view, saying Tillerson ‘did not misspeak’ when he said China should be barred from its man-made islands.”
January 18 – Financial Times (Shawn Donnan): “The billionaire businessman set to oversee trade policy for Donald Trump has hit back at Chinese leader Xi Jinping and his bid to become the leading advocate for globalisation, calling China the ‘most protectionist’ major economy in the world. The criticism by Wilbur Ross, made at his confirmation hearing to become Mr Trump’s commerce secretary, is the latest in an escalating torrent from the president-elect and his closest economic advisers against Beijing which has already sparked concerns of a US-China trade war. ‘They talk much more about free trade than they actually practise,’ Mr Ross told the Senate commerce committee… ‘China is the most protectionist country of very large countries.’”
January 18 – Bloomberg (Andrew Mayeda): “Billionaire Wilbur Ross, nominated by Donald Trump to serve as Commerce secretary, called China the most protectionist of the world’s major economies and vowed to level the playing field with the Chinese on trade, especially in reducing overcapacity in its steel industry. ‘China is the most protectionist country of very large countries,’ Ross said in testimony… ‘They have both very high tariff barriers and very high non-tariff trade barriers. So they talk much more about free trade than they actually practice.’ Ross, 79, also said the Trump administration will quickly move to redefine relations with Mexico and Canada under the North American Free Trade Agreement.”
January 20 – Reuters (David Brunnstrom): “The new U.S. administration of President Donald Trump said on Friday its trade strategy to protect American jobs would start with withdrawal from the 12-nation Trans-Pacific Partnership (TPP) trade pact. A White House statement issued soon after Trump's inauguration said the United States would also ‘crack down on those nations that violate trade agreements and harm American workers in the process.’ The statement said Trump was committed to renegotiating another trade deal, the North American Free Trade Agreement (NAFTA), which was signed in 1994 by the United States, Canada and Mexico. ‘For too long, Americans have been forced to accept trade deals that put the interests of insiders and the Washington elite over the hard-working men and women of this country,’ it said.”
January 17 – Financial Times (Sam Fleming and Shawn Donnan): “Donald Trump has threatened to overturn two decades of US economic policy by questioning the strong value of the dollar, raising fears that his presidency could set off a new round of currency wars between the world’s major economies. On Monday the president-elect appeared to break from the longstanding ‘strong dollar’ policy of successive administrations, declaring that the currency was too high and that this was preventing US companies from competing with Chinese counterparts. ‘It’s killing us,’ he said in an interview with the Wall Street Journal. Speaking in Switzerland after Mr Trump’s comments, Anthony Scaramucci, a leading figure in the transition team, said the administration would need to take heed of the problems of a buoyant currency.”
January 19 – Wall Street Journal (Aaron Back): “Steven Mnuchin backed away in his confirmation hearing Thursday from some of the more extreme policies suggested by president-elect Donald Trump. But the nominee for Treasury secretary also was vague on major areas of economic and financial policy. He said Mr. Trump doesn't in fact favor a blanket border tax on all imports, instead saying there should be some kind of penalty for companies that move jobs abroad, but Mr. Mnuchin didn’t elaborate. Mr. Mnuchin said he supports in principle the so-called Volcker rule, which bars banks with federally insured deposits from engaging in proprietary trading. But he also approvingly cited a recent Federal Reserve study that found the rule has damaged liquidity in corporate bond markets. He didn’t explain how he would mitigate this impact while keeping the rule in place.”
January 19 – Bloomberg (Saleha Mohsin, Michelle Jamrisko, and Austin Weinstein): “U.S. Treasury Secretary nominee Steven Mnuchin said during his Senate confirmation hearing he’s willing to label China as a currency manipulator if warranted, after President-elect Donald Trump backed away from his pledge to do so immediately. Mnuchin said ‘I would’ when asked by Senator Robert Casey… whether he would recommend naming the Asian country a manipulator if it deserved that label. Trump had already softened his stance on China’s currency policy, saying in an interview this month with the Wall Street Journal that he wouldn’t name the country a manipulator on his first day in office, as previously promised.”
January 19 – Bloomberg (Jesse Hamilton): “Steven Mnuchin indicated he might not give Wall Street everything it wants as Treasury Secretary, saying at his confirmation hearing Thursday that he supports the controversial Volcker Rule and that there might be merit in bringing back some version of the Glass-Steagall Act. Donald Trump’s nominee for Treasury said the Volcker Rule limits on banks’ speculative investments make sense because ‘the concept of proprietary trading does not belong’ in lenders that have a government backstop through deposit insurance. Mnuchin said he opposes reinstating Glass-Steagall, a law Congress repealed almost two decades ago that required a strict firewall between commercial and investment banking. But he conceded that a ‘21st century Glass-Steagall’ is something that policy makers should consider.”
January 16 – Financial Times (Henry Mance, Shawn Donnan and James Shotter): “Donald Trump has taken his strongest swipe yet at the EU, labelling it ‘a vehicle for Germany’ and predicting that other countries will follow Britain in leaving the bloc. The president-elect also warned that his trust for Angela Merkel ‘may not last long at all’, ranking the German chancellor alongside Vladimir Putin as a potentially problematic ally.”
January 17 – Reuters (Edward Taylor and Andreas Rinke): “U.S President-elect Donald Trump warned German car companies he would impose a border tax of 35% on vehicles imported to the U.S. market, a plan that drew sharp rebukes from Berlin and hit the automakers' shares. In an interview with German newspaper Bild, …Trump criticized German carmakers such as BMW, Daimler and Volkswagen for failing to produce more cars on U.S. soil. ‘If you want to build cars in the world, then I wish you all the best. You can build cars for the United States, but for every car that comes to the USA, you will pay 35% tax,’ Trump said… ‘I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the USA, without a 35% tax, then you can forget that,’ Trump said.”
January 15 – Reuters (William James): “U.S. President-elect Donald Trump said that Brexit would turn out to be a great thing and other countries would follow Britain out of the European Union but promised to strike a swift bilateral trade deal with the United Kingdom. Speaking in an interview with The Times of London newspaper…, Trump described himself as a big fan of Britain and endorsed last year's vote to leave the European Union. ‘I think Brexit is going to end up being a great thing,’ Trump said. ‘I’ll tell you, the fact that your pound sterling has gone down? Great. Because business is unbelievable in a lot of parts in the UK.’”
January 20 – Wall Street Journal (AnnaMaria Andriotis): “Less than an hour after Donald Trump became U.S. president, the new administration said it was suspending a recent move to lower charges for borrowers on a risky mortgage backed by the government. The step is the first sign of what is likely to be a changing landscape for housing finance under the new administration. Republicans have long been wary of the government’s role as the major backer of mortgages being originated in the U.S. since the housing bust, arguing too much risk has shifted from the private markets to taxpayers.”
China Bubble Watch:
January 20 – Reuters (Kevin Yao and Elias Glenn): “China's economy grew a faster-than-expected 6.8% in the fourth quarter, boosted by higher government spending and record bank lending, giving it a tailwind heading into what is expected to be a turbulent year. But Beijing's decision to prioritize its official growth target could exact a high price, as policymakers grapple with financial risks created by an explosive growth in debt. China's debt to GDP ratio rose to 277% at the end of 2016 from 254% the previous year, with an increasing share of new credit being used to pay debt servicing costs, UBS analysts said…”
January 17 – Wall Street Journal (Shen Hong): “The turmoil at a Chinese midsized brokerage firm that exacerbated China’s recent bond-market rout also highlighted a little-regulated practice that companies have used to borrow hundreds of billions of dollars and move risky assets temporarily off their books. Called ‘dai chi’ in Chinese—literally, holding something on someone’s behalf—the trading practice resembles a short-term loan backed by bonds, and it has boomed as China’s bond market rallied during the past three years… Typically, sellers pledge to buy the bonds back after terms ranging from a few days to a few months, paying interest on the value of the securities as well as an added fee, the people said. The trade lets the buyer lock in a higher price, while the seller hopes that by the time it buys the bonds back, market prices will have appreciated even further. The risk is that ‘dai chi’ agreements tend to be informal and often don’t leave a paper trail. Several of the executives familiar with the practice said they have conducted the transactions over instant messaging services like China’s QQ, labeling them with the code ‘DC.’ These transactions also, by one estimate, may easily top $1 trillion in value. The practice is just one of the many unexpected risks that have sprouted up in China’s long credit boom.”
January 19 – Bloomberg: “A default storm is brewing for China’s lower-rated corporate bonds with a record amount maturing just as borrowing costs surge. Regulators are curbing leverage, pushing up the cost of capital and adding to challenges for weaker borrowers, according to China Citic Bank… On Jan. 16 alone, two companies missed payments. About 29 notes defaulted last year, up from seven in 2015. ‘Bond issuers are facing huge redemption pressure,’ said Meng Xiangjuan, an analyst at Shenwan Hongyuan Group… ‘Investors should watch out for risks.’ About 211 billion yuan ($31bn) of company notes rated AA or lower, often considered junk in the onshore market, will mature in 2017, up from 155 billion yuan last year... Bond issuance in December by Chinese firms plunged to 205 billion yuan less than the amount of notes they had to repay that month, the lowest on record…”
January 18 – Bloomberg: “China’s benchmark money-market rate jumped the most in two years, with record central bank cash injections being overwhelmed by demand before the Lunar New Year holidays. The People’s Bank of China put in a net 410 billion yuan ($60bn) through open-market operations on Wednesday, the biggest daily addition since Bloomberg began compiling the data in 2004. That brings the total injections so far this week to 845 billion yuan. The interbank seven-day repurchase rate jumped 35 bps, the most since December 2014, to 2.76%...”
January 18 – CNBC (Evelyn Cheng): “If trade frictions increase between the U.S. and China that could have significant fallout for China as it struggles with debt, and weigh on the global economy. President-elect Donald Trump has threatened to take a tougher stance — including imposing tariffs and labeling China a currency manipulator. Meanwhile, with China's Communist Party congress set to meet this fall, the country's ‘leadership cannot afford to be perceived as weak,’ said David Cui, head of China equity strategy at Bank of America Merrill Lynch. ‘That's why the market has grossly underestimated trade frictions,’ Cui said… China was the biggest source of goods imported to the U.S. in 2015… If the U.S. trade deficit — $367 billion in 2015 — with China is cut by a third, Cui estimates the Asian giant's GDP growth could be hurt by 1 to 2%.”
January 18 – Reuters (Samuel Shen and John Ruwitch): “China's efforts to support its currency and cool its hot property market are encouraging more Chinese companies, including many state firms, to take on extra cost and risk by raising foreign-currency bonds in Hong Kong and other offshore locations. Despite the yuan's nearly 7% slump against the dollar in 2016, Chinese companies including state-owned Bank of China raised a record $111 billion in offshore dollar bonds, according to… Dealogic, up from $88 billion in 2015… The list includes issuers who need dollars to pay for overseas acquisitions and deals but are unable to use their yuan after China tightened its grip on capital outflows last year to support the currency.”
January 17 – Bloomberg: “China home prices increased last month in the fewest cities since January last year, signaling property curbs to deflate a potential housing bubble are taking effect. New-home prices, excluding government-subsidized housing, gained last month in 46 of the 70 cities tracked by the government, compared with 55 in November… Prices dropped in four cities… They were unchanged in 20 cities.”
January 15 – Reuters (Winni Zhou and John Ruwitch): “China should stop intervening in the foreign exchange market, devalue the yuan and let it float freely to restore stability, a senior researcher at a government-backed think tank said. Xiao Lisheng, a finance expert with the Chinese Academy of Social Sciences, made the remarks… in the official China Securities Journal amid a growing debate among the country's economists on whether authorities should let the closely-managed currency trade more freely. The yuan lost 6.6% against the dollar last year, the biggest annual loss since 1994. ‘The more the government delays the release of depreciation pressure, the greater the impact and destructive power of the release of depreciation pressure will be,’ Xiao wrote. The authorities should ‘let the yuan exchange rate have a one-off adjustment to realize a free float’ of the currency, he said.”
Brexit Watch:
January 17 – Reuters (Kylie MacLellan and William James): “Britain will quit the EU single market when it leaves the European Union, Prime Minister Theresa May said on Tuesday in a decisive speech that set a course for a clean break with the world's largest trading bloc. Setting out a vision that could determine Britain's future for generations and the shape of the EU itself, May answered criticism that she has been coy about her strategy with a 12-point plan for what has been dubbed a ‘hard Brexit’. May promised to seek the greatest possible access to European markets but said Britain would aim to establish its own free trade deals with countries far beyond Europe, and impose limits on immigration from the continent.”
Europe Watch:
January 16 – Financial Times: “Donald Trump’s latest verbal assault on Germany, Nato and the EU is forcing the continent’s politicians to consider a challenge they hoped never to confront: dealing with the first US president since the war to champion European disintegration. Weeks of wait-and-see thinking in Europe’s diplomatic capitals were blown away on Monday with a gust of plain-speaking rhetoric disparaging the pillars of the transatlantic relationship, and one of Washington’s closest traditional allies. While Angela Merkel’s government tried to turn down the political temperature after Mr Trump’s interviews with The Times and Bild, it was impossible to contain the anger in Berlin at their chancellor being mentioned in the same breath as Vladimir Putin of Russia, let alone being blamed for co-opting the EU and accelerating its destruction with her refugee policy. Frank-Walter Steinmeier, Germany’s foreign minister, said Mr Trump’s comments were met with ‘astonishment’, adding that he heard first-hand the ‘concern’ of Jens Stoltenberg, the Nato secretary-general. Norbert Röttgen, chairman of the Bundestag’s foreign affairs committee, told the Financial Times that Mr Trump’s remarks showed ‘the west’s political unity doesn’t play any role for him’.”
January 16 – Financial Times (Stefan Wagstyl): “Donald Trump’s latest sweeping criticism of Germany, the EU and Nato came under attack in Berlin on Monday even as Angela Merkel’s government tried to turn down the political temperature. Norbert Röttgen, chairman of the Bundestag’s foreign affairs committee, told the Financial Times that Mr Trump’s remarks showed ‘the west’s political unity doesn’t play any role for him’. Mr Röttgen said he had previously hoped that Mr Trump would soften the approach he had taken during the election campaign once he was on the verge of taking office. ‘But he hasn’t changed at all. He says what he said on the campaign trail . . . The fact that he regards Nato as obsolete and that it doesn’t bother him if the EU is split shows he doesn’t care about the west’s unity.’”
January 16 – Washington Post (Michael Birnbaum): “European leaders grappled with the jolting reality of President-elect Donald Trump’s skepticism of the European Union on Monday, saying they might have to stand without the United States at their side during the Trump presidency. The possibility of an unprecedented breach in transatlantic relations came after Trump — who embraced anti-E.U. insurgents during his campaign and following his victory — said in weekend remarks that the 28-nation European Union was bound for a breakup and that he was indifferent to its fate. He also said NATO’s current configuration is ‘obsolete,’ even as he professed commitment to Europe’s defense. Trump’s attitudes have raised alarm bells across Europe, which is facing a wave of elections this year in which anti-immigrant, Euroskeptic leaders could gain power.”
January 19 – Bloomberg (Piotr Skolimowski): “Mario Draghi called on Germany to be calm as the European Central Bank keeps pumping stimulus into the euro area, saying rising inflation will eventually bring higher interest rates for savers. ‘As the recovery will firm up, rates will go up as well,’ the ECB president told reporters… after the Governing Council reaffirmed its intention to keep its bond-buying program going until at least the end of the year. Asked about German criticism of the strategy, he said ‘the honest answer would be: Just be patient.’ German Finance Minister Wolfgang Schaeuble earlier responded to the ECB’s decision by saying his government will face ‘political problems’ explaining the policy to the public. A surge in headline inflation last month in his country, Europe’s largest economy, sparked a media outcry and calls for the central bank to pull back on its stimulus. ‘I trust the ECB will always do the right thing,’ Schaeuble said... He also warned that Draghi’s loose monetary policy encourages leaders to delay the structural economic reforms the region needs, saying ‘you give the political leaders some way to go around.’”
January 19 – Bloomberg (Alessandro Speciale): “The European Central Bank left its quantitative-easing program unchanged as policy makers wait to see if a pickup in inflation will be sustained. The Governing Council reaffirmed its December decision that asset purchases will be reduced to 60 billion euros ($64bn) a month from April, from 80 billion euros currently. Policy makers also kept the main refinancing rate at zero and the deposit rate at minus 0.4%... The first policy decision of 2017 comes six weeks after Draghi declared the threat of deflation to be almost vanquished.”
For the Week:
The S&P500 was little changed (up 1.5% y-t-d), while the Dow slipped 0.3% (up 0.3%). The Utilities increased 0.2% (down 0.3%). The Banks dropped 2.8% (down 1.4%), and the Broker/Dealers fell 1.5% (up 2.4%). The Transports added 0.5% (up 2.2%). The S&P 400 Midcaps declined 0.7% (up 0.9%), and the small cap Russell 2000 fell 1.5% (down 0.4%). The Nasdaq100 (up 4.1%) and Morgan Stanley High Tech indices were little changed (up 4.4%). The Semiconductors added 0.6% (up 2.6%). The Biotechs fell 2.3% (up 3.3%). With bullion up $13, the HUI gold index gained 1.7% (up 11.1%).
Three-month Treasury bill rates ended the week at 50 bps. Two-year government yields were unchanged at 1.19% (unchanged y-t-d). Five-year T-note yields rose four bps to 1.94% (up one basis point). Ten-year Treasury yields gained seven bps to 2.47% (up 3bps). Long bond yields rose six bps to 3.05% (down 2bps).
Greek 10-year yields rose seven bps to 6.96% (down 6bps y-t-d). Ten-year Portuguese yields declined nine bps to 3.82% (up 7bps). Italian 10-year yields jumped 11 bps to 2.01% (up 20bps). Spain's 10-year yields increased six bps to 1.49% (up 11bps). German bund yields rose eight bps to 0.42% (up 22bps). French yields jumped nine bps to 0.90% (up 22bps). The French to German 10-year bond spread widened one to 48 bps. U.K. 10-year gilt yields gained seven bps to 1.43% (up 20bps). U.K.'s FTSE equities index fell 1.9% (up 0.8%).
Japan's Nikkei 225 equities index slipped 0.8% (up 0.1% y-t-d). Japanese 10-year "JGB" yields were unchanged at 0.05% (up one basis point). The German DAX equities index was unchanged (up 1.3%). Spain's IBEX 35 equities index dropped 1.4% (up 0.3%). Italy's FTSE MIB index slipped 0.2% (up 1.3%). EM equities were mixed. Brazil's Bovespa index gained 1.4% (up 7.1%). Mexico's Bolsa added 0.3% (up 1.5%). South Korea's Kospi declined 0.5% (up 1.9%). India’s Sensex equities index fell 0.7% (up 1.5%). China’s Shanghai Exchange increased 0.3% (up 0.6%). Turkey's Borsa Istanbul National 100 index jumped 1.9% (up 6.3%). Russia's MICEX equities index fell 1.6% (down 3.3%).
Junk bond mutual funds saw inflows of $887 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates slipped three bps to 4.09% (up 28bps y-o-y). Fifteen-year rates were unchanged at 3.37% (up 27bps). The five-year hybrid ARM rate declined two bps to 3.21% (up 30 bps).
Federal Reserve Credit last week dipped $0.4bn to $4.413 TN. Over the past year, Fed Credit contracted $42.9bn (down 1.0%). Fed Credit inflated $1.602 TN, or 57%, over the past 219 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $11.9bn last week to $3.170 TN. "Custody holdings" were down $96.2bn y-o-y, or 2.9%.
M2 (narrow) "money" supply last week jumped $39.1bn to a record $13.307 TN. "Narrow money" expanded $906bn, or 7.3%, over the past year. For the week, Currency increased $4.1bn. Total Checkable Deposits surged $51.5bn, while Savings Deposits declined $16.8bn. Small Time Deposits were little changed. Retail Money Funds were about unchanged.
Total money market fund assets sank $24.8bn to $2.666 TN. Money Funds declined $77bn y-o-y (2.8%).
Total Commercial Paper expanded $7.9bn to $967bn. CP declined $85bn y-o-y, or 8.1%.
Currency Watch:
January 17 – CNBC (Patti Domm): “President-elect Donald Trump's shock comment that the dollar is too strong suggests the U.S. is about to declare as dead a two-decade policy of publicly favoring a strong currency. ‘There's no question that the Trump administration would not want a strong dollar. A strong dollar does nothing good for whatever Trump is basically trying to do,’ said David Woo, Bank of America Merrill Lynch's head of global rates and foreign exchange research. ‘Yes, the U.S. fundamental story is bullish for the U.S. dollar, but the problem here is they actually don't want a strong dollar. I think it's going to go up. However, it's going to be a much more volatile climb.’ Trump's remarks also took a shot at one of the most crowded trades on the planet — long wagers on the dollar.”
January 19 – Bloomberg (Michelle Jamrisko and Saleha Mohsin): “Treasury Secretary nominee Steven Mnuchin said a strong dollar is important over the long term, noting that it’s currently ‘very, very strong,’ and that avoiding U.S. default on the debt would be a top priority if he’s confirmed. Mnuchin also defended his personal record as a founder of OneWest Bank amid the housing crisis, and pushed for tax reform as a key way to lift economic growth as promised by President-elect Donald Trump.”
January 17 – Bloomberg (Samuel Potter and Natasha Doff): “Politics dominated global markets as the dollar weakened after the president-elect called the U.S. currency ‘too strong’ and the pound rallied on British Prime Minister Theresa May’s plans to leave the European Union. Bonds advanced with gold. The greenback fell against most peers after Donald Trump told the Wall Street Journal its value is too high in part because China holds down its own currency. Sterling posted its biggest rally against the dollar since the global financial crisis and the Bloomberg Commodity Index rose to the highest since July.”
The U.S. dollar index slipped 0.4% to 100.74 (down 1.6% y-t-d). For the week on the upside, the British pound increased 1.6%, the Brazilian real 1.4%, the Norwegian krone 1.1%, the Australian dollar 0.7%, the Swiss franc 0.7%, the euro 0.6%, the New Zealand dollar 0.6%, the South Korean won 0.5%, the Swedish krona 0.4% and the Singapore dollar 0.1%. For the week on the downside, the Canadian dollar declined 1.6%, the South African rand 0.6% and the Mexican peso 0.5%. The Chinese yuan increased 0.4% versus the dollar (up 1.0% y-t-d).
Commodities Watch:
January 20 – Bloomberg (Susanne Barton): “Gold bulls wagering the bullion rally has more room to run may have history on their side with the arrival of a new U.S. president. A look at recent presidential transitions supports optimism among traders over the metal’s prospects. Gold has averaged gains of almost 15% in years marking the inauguration of a new president since the 1970s, advancing in five of those seven years. In contrast, the S&P 500 index of equities declined in four of those years for an average loss over the period of 0.9%.”
The Goldman Sachs Commodities Index was little changed (up 0.2% y-t-d). Spot Gold gained 1.1% to $1,211 (up 5.1%). Silver rose 1.2% to $17.03 (up 6.6%). Crude gained 85 cents to $53.22 (down 1.1%). Gasoline dropped 2.8% (down 6.3%), and Natural Gas sank 6.3% (down 14.3%). Copper dropped 2.4% (up 4.7%). Wheat added 0.5% (up 5.0%). Corn jumped 3.1% (up 5.0%).
Trump Administration Watch:
January 20 – Wall Street Journal (Gerald F. Seib): “Donald J. Trump took the oath of office as president at noon Friday, having at last been embraced by the bipartisan Washington establishment gathered around him on the steps of the Capitol. Two minutes later, he went on the attack against that same establishment. In an inaugural address unlike any in recent memory, he indicted the political system he now leads. He also signaled that he will be an entirely new kind of president—and the closest thing to a political independent in the White House since Dwight Eisenhower. ‘For too long, a small group in our nation’s capital has reaped the rewards of government while the people have borne the cost,’ he declared. Lest anyone wonder about his view of the politicians gathered around, he declared: ‘The establishment protected itself, but not the citizens of our country.’ That, he said, will change immediately. The harsh words seemed directed nearly as much at his own Republican Party…”
January 20 – Bloomberg (Margaret Talev): “Donald Trump began his presidency with a combative, populist address aimed squarely at his aggrieved supporters, making little effort to reach beyond his political base or reassure foreign leaders. His inaugural speech on Friday painted an ominous portrait of the nation at the cusp of his administration: a place of violent ‘American carnage’ where ‘rusted-out factories’ are ‘scattered like tombstones’ and the middle class’s wealth is ‘ripped from their homes.’ His predecessor, Barack Obama, sat steps away. Trump promised an unapologetic nationalism that would protect U.S. jobs and a foreign policy that would eradicate Islamic terrorism and put the country’s interests ahead of all others.”
January 14 – Reuters (David Brunnstrom and Matt Spetalnick): “The incoming U.S. administration’s tough talk against China has set the stage for showdowns on everything from security to trade and cyberspace, but contradictory signals are sowing uncertainty over how far President-elect Donald Trump is prepared to go in confronting Beijing. Highlighting the contested South China Sea as a potential flashpoint, Trump’s Secretary of State nominee Rex Tillerson threw out an explosive challenge to Beijing on Wednesday by calling for it be denied access to artificial islands it is building in the strategic waterway. A Trump transition adviser told Reuters that Tillerson, Trump’s pick to be America's top diplomat, did not mean to suggest the new administration would impose a naval blockade, which would risk armed confrontation with China, something the new administration was not seeking. But another official authorized to speak on behalf of the transition team pushed back on that view, saying Tillerson ‘did not misspeak’ when he said China should be barred from its man-made islands.”
January 18 – Financial Times (Shawn Donnan): “The billionaire businessman set to oversee trade policy for Donald Trump has hit back at Chinese leader Xi Jinping and his bid to become the leading advocate for globalisation, calling China the ‘most protectionist’ major economy in the world. The criticism by Wilbur Ross, made at his confirmation hearing to become Mr Trump’s commerce secretary, is the latest in an escalating torrent from the president-elect and his closest economic advisers against Beijing which has already sparked concerns of a US-China trade war. ‘They talk much more about free trade than they actually practise,’ Mr Ross told the Senate commerce committee… ‘China is the most protectionist country of very large countries.’”
January 18 – Bloomberg (Andrew Mayeda): “Billionaire Wilbur Ross, nominated by Donald Trump to serve as Commerce secretary, called China the most protectionist of the world’s major economies and vowed to level the playing field with the Chinese on trade, especially in reducing overcapacity in its steel industry. ‘China is the most protectionist country of very large countries,’ Ross said in testimony… ‘They have both very high tariff barriers and very high non-tariff trade barriers. So they talk much more about free trade than they actually practice.’ Ross, 79, also said the Trump administration will quickly move to redefine relations with Mexico and Canada under the North American Free Trade Agreement.”
January 20 – Reuters (David Brunnstrom): “The new U.S. administration of President Donald Trump said on Friday its trade strategy to protect American jobs would start with withdrawal from the 12-nation Trans-Pacific Partnership (TPP) trade pact. A White House statement issued soon after Trump's inauguration said the United States would also ‘crack down on those nations that violate trade agreements and harm American workers in the process.’ The statement said Trump was committed to renegotiating another trade deal, the North American Free Trade Agreement (NAFTA), which was signed in 1994 by the United States, Canada and Mexico. ‘For too long, Americans have been forced to accept trade deals that put the interests of insiders and the Washington elite over the hard-working men and women of this country,’ it said.”
January 17 – Financial Times (Sam Fleming and Shawn Donnan): “Donald Trump has threatened to overturn two decades of US economic policy by questioning the strong value of the dollar, raising fears that his presidency could set off a new round of currency wars between the world’s major economies. On Monday the president-elect appeared to break from the longstanding ‘strong dollar’ policy of successive administrations, declaring that the currency was too high and that this was preventing US companies from competing with Chinese counterparts. ‘It’s killing us,’ he said in an interview with the Wall Street Journal. Speaking in Switzerland after Mr Trump’s comments, Anthony Scaramucci, a leading figure in the transition team, said the administration would need to take heed of the problems of a buoyant currency.”
January 19 – Wall Street Journal (Aaron Back): “Steven Mnuchin backed away in his confirmation hearing Thursday from some of the more extreme policies suggested by president-elect Donald Trump. But the nominee for Treasury secretary also was vague on major areas of economic and financial policy. He said Mr. Trump doesn't in fact favor a blanket border tax on all imports, instead saying there should be some kind of penalty for companies that move jobs abroad, but Mr. Mnuchin didn’t elaborate. Mr. Mnuchin said he supports in principle the so-called Volcker rule, which bars banks with federally insured deposits from engaging in proprietary trading. But he also approvingly cited a recent Federal Reserve study that found the rule has damaged liquidity in corporate bond markets. He didn’t explain how he would mitigate this impact while keeping the rule in place.”
January 19 – Bloomberg (Saleha Mohsin, Michelle Jamrisko, and Austin Weinstein): “U.S. Treasury Secretary nominee Steven Mnuchin said during his Senate confirmation hearing he’s willing to label China as a currency manipulator if warranted, after President-elect Donald Trump backed away from his pledge to do so immediately. Mnuchin said ‘I would’ when asked by Senator Robert Casey… whether he would recommend naming the Asian country a manipulator if it deserved that label. Trump had already softened his stance on China’s currency policy, saying in an interview this month with the Wall Street Journal that he wouldn’t name the country a manipulator on his first day in office, as previously promised.”
January 19 – Bloomberg (Jesse Hamilton): “Steven Mnuchin indicated he might not give Wall Street everything it wants as Treasury Secretary, saying at his confirmation hearing Thursday that he supports the controversial Volcker Rule and that there might be merit in bringing back some version of the Glass-Steagall Act. Donald Trump’s nominee for Treasury said the Volcker Rule limits on banks’ speculative investments make sense because ‘the concept of proprietary trading does not belong’ in lenders that have a government backstop through deposit insurance. Mnuchin said he opposes reinstating Glass-Steagall, a law Congress repealed almost two decades ago that required a strict firewall between commercial and investment banking. But he conceded that a ‘21st century Glass-Steagall’ is something that policy makers should consider.”
January 16 – Financial Times (Henry Mance, Shawn Donnan and James Shotter): “Donald Trump has taken his strongest swipe yet at the EU, labelling it ‘a vehicle for Germany’ and predicting that other countries will follow Britain in leaving the bloc. The president-elect also warned that his trust for Angela Merkel ‘may not last long at all’, ranking the German chancellor alongside Vladimir Putin as a potentially problematic ally.”
January 17 – Reuters (Edward Taylor and Andreas Rinke): “U.S President-elect Donald Trump warned German car companies he would impose a border tax of 35% on vehicles imported to the U.S. market, a plan that drew sharp rebukes from Berlin and hit the automakers' shares. In an interview with German newspaper Bild, …Trump criticized German carmakers such as BMW, Daimler and Volkswagen for failing to produce more cars on U.S. soil. ‘If you want to build cars in the world, then I wish you all the best. You can build cars for the United States, but for every car that comes to the USA, you will pay 35% tax,’ Trump said… ‘I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the USA, without a 35% tax, then you can forget that,’ Trump said.”
January 15 – Reuters (William James): “U.S. President-elect Donald Trump said that Brexit would turn out to be a great thing and other countries would follow Britain out of the European Union but promised to strike a swift bilateral trade deal with the United Kingdom. Speaking in an interview with The Times of London newspaper…, Trump described himself as a big fan of Britain and endorsed last year's vote to leave the European Union. ‘I think Brexit is going to end up being a great thing,’ Trump said. ‘I’ll tell you, the fact that your pound sterling has gone down? Great. Because business is unbelievable in a lot of parts in the UK.’”
January 20 – Wall Street Journal (AnnaMaria Andriotis): “Less than an hour after Donald Trump became U.S. president, the new administration said it was suspending a recent move to lower charges for borrowers on a risky mortgage backed by the government. The step is the first sign of what is likely to be a changing landscape for housing finance under the new administration. Republicans have long been wary of the government’s role as the major backer of mortgages being originated in the U.S. since the housing bust, arguing too much risk has shifted from the private markets to taxpayers.”
China Bubble Watch:
January 20 – Reuters (Kevin Yao and Elias Glenn): “China's economy grew a faster-than-expected 6.8% in the fourth quarter, boosted by higher government spending and record bank lending, giving it a tailwind heading into what is expected to be a turbulent year. But Beijing's decision to prioritize its official growth target could exact a high price, as policymakers grapple with financial risks created by an explosive growth in debt. China's debt to GDP ratio rose to 277% at the end of 2016 from 254% the previous year, with an increasing share of new credit being used to pay debt servicing costs, UBS analysts said…”
January 17 – Bloomberg: “Volatility in Chinese shares waned amid speculated state efforts to ensure market stability during President Xi Jinping’s appearance at the World Economic Forum in Davos. The Shanghai Composite Index added 0.1% at the close, with 10-day volatility at the lowest level since September. State-owned investors bought shares to steady the market on Monday, while some funds were guided on Tuesday not to sell holdings with big weightings in benchmark indexes, people familiar with the matter said…”
January 17 – Wall Street Journal (Shen Hong): “The turmoil at a Chinese midsized brokerage firm that exacerbated China’s recent bond-market rout also highlighted a little-regulated practice that companies have used to borrow hundreds of billions of dollars and move risky assets temporarily off their books. Called ‘dai chi’ in Chinese—literally, holding something on someone’s behalf—the trading practice resembles a short-term loan backed by bonds, and it has boomed as China’s bond market rallied during the past three years… Typically, sellers pledge to buy the bonds back after terms ranging from a few days to a few months, paying interest on the value of the securities as well as an added fee, the people said. The trade lets the buyer lock in a higher price, while the seller hopes that by the time it buys the bonds back, market prices will have appreciated even further. The risk is that ‘dai chi’ agreements tend to be informal and often don’t leave a paper trail. Several of the executives familiar with the practice said they have conducted the transactions over instant messaging services like China’s QQ, labeling them with the code ‘DC.’ These transactions also, by one estimate, may easily top $1 trillion in value. The practice is just one of the many unexpected risks that have sprouted up in China’s long credit boom.”
January 19 – Bloomberg: “A default storm is brewing for China’s lower-rated corporate bonds with a record amount maturing just as borrowing costs surge. Regulators are curbing leverage, pushing up the cost of capital and adding to challenges for weaker borrowers, according to China Citic Bank… On Jan. 16 alone, two companies missed payments. About 29 notes defaulted last year, up from seven in 2015. ‘Bond issuers are facing huge redemption pressure,’ said Meng Xiangjuan, an analyst at Shenwan Hongyuan Group… ‘Investors should watch out for risks.’ About 211 billion yuan ($31bn) of company notes rated AA or lower, often considered junk in the onshore market, will mature in 2017, up from 155 billion yuan last year... Bond issuance in December by Chinese firms plunged to 205 billion yuan less than the amount of notes they had to repay that month, the lowest on record…”
January 18 – Bloomberg: “China’s benchmark money-market rate jumped the most in two years, with record central bank cash injections being overwhelmed by demand before the Lunar New Year holidays. The People’s Bank of China put in a net 410 billion yuan ($60bn) through open-market operations on Wednesday, the biggest daily addition since Bloomberg began compiling the data in 2004. That brings the total injections so far this week to 845 billion yuan. The interbank seven-day repurchase rate jumped 35 bps, the most since December 2014, to 2.76%...”
January 18 – CNBC (Evelyn Cheng): “If trade frictions increase between the U.S. and China that could have significant fallout for China as it struggles with debt, and weigh on the global economy. President-elect Donald Trump has threatened to take a tougher stance — including imposing tariffs and labeling China a currency manipulator. Meanwhile, with China's Communist Party congress set to meet this fall, the country's ‘leadership cannot afford to be perceived as weak,’ said David Cui, head of China equity strategy at Bank of America Merrill Lynch. ‘That's why the market has grossly underestimated trade frictions,’ Cui said… China was the biggest source of goods imported to the U.S. in 2015… If the U.S. trade deficit — $367 billion in 2015 — with China is cut by a third, Cui estimates the Asian giant's GDP growth could be hurt by 1 to 2%.”
January 18 – Reuters (Samuel Shen and John Ruwitch): “China's efforts to support its currency and cool its hot property market are encouraging more Chinese companies, including many state firms, to take on extra cost and risk by raising foreign-currency bonds in Hong Kong and other offshore locations. Despite the yuan's nearly 7% slump against the dollar in 2016, Chinese companies including state-owned Bank of China raised a record $111 billion in offshore dollar bonds, according to… Dealogic, up from $88 billion in 2015… The list includes issuers who need dollars to pay for overseas acquisitions and deals but are unable to use their yuan after China tightened its grip on capital outflows last year to support the currency.”
January 17 – Bloomberg: “China home prices increased last month in the fewest cities since January last year, signaling property curbs to deflate a potential housing bubble are taking effect. New-home prices, excluding government-subsidized housing, gained last month in 46 of the 70 cities tracked by the government, compared with 55 in November… Prices dropped in four cities… They were unchanged in 20 cities.”
January 15 – Reuters (Winni Zhou and John Ruwitch): “China should stop intervening in the foreign exchange market, devalue the yuan and let it float freely to restore stability, a senior researcher at a government-backed think tank said. Xiao Lisheng, a finance expert with the Chinese Academy of Social Sciences, made the remarks… in the official China Securities Journal amid a growing debate among the country's economists on whether authorities should let the closely-managed currency trade more freely. The yuan lost 6.6% against the dollar last year, the biggest annual loss since 1994. ‘The more the government delays the release of depreciation pressure, the greater the impact and destructive power of the release of depreciation pressure will be,’ Xiao wrote. The authorities should ‘let the yuan exchange rate have a one-off adjustment to realize a free float’ of the currency, he said.”
Brexit Watch:
January 17 – Reuters (Kylie MacLellan and William James): “Britain will quit the EU single market when it leaves the European Union, Prime Minister Theresa May said on Tuesday in a decisive speech that set a course for a clean break with the world's largest trading bloc. Setting out a vision that could determine Britain's future for generations and the shape of the EU itself, May answered criticism that she has been coy about her strategy with a 12-point plan for what has been dubbed a ‘hard Brexit’. May promised to seek the greatest possible access to European markets but said Britain would aim to establish its own free trade deals with countries far beyond Europe, and impose limits on immigration from the continent.”
Europe Watch:
January 16 – Financial Times: “Donald Trump’s latest verbal assault on Germany, Nato and the EU is forcing the continent’s politicians to consider a challenge they hoped never to confront: dealing with the first US president since the war to champion European disintegration. Weeks of wait-and-see thinking in Europe’s diplomatic capitals were blown away on Monday with a gust of plain-speaking rhetoric disparaging the pillars of the transatlantic relationship, and one of Washington’s closest traditional allies. While Angela Merkel’s government tried to turn down the political temperature after Mr Trump’s interviews with The Times and Bild, it was impossible to contain the anger in Berlin at their chancellor being mentioned in the same breath as Vladimir Putin of Russia, let alone being blamed for co-opting the EU and accelerating its destruction with her refugee policy. Frank-Walter Steinmeier, Germany’s foreign minister, said Mr Trump’s comments were met with ‘astonishment’, adding that he heard first-hand the ‘concern’ of Jens Stoltenberg, the Nato secretary-general. Norbert Röttgen, chairman of the Bundestag’s foreign affairs committee, told the Financial Times that Mr Trump’s remarks showed ‘the west’s political unity doesn’t play any role for him’.”
January 16 – Financial Times (Stefan Wagstyl): “Donald Trump’s latest sweeping criticism of Germany, the EU and Nato came under attack in Berlin on Monday even as Angela Merkel’s government tried to turn down the political temperature. Norbert Röttgen, chairman of the Bundestag’s foreign affairs committee, told the Financial Times that Mr Trump’s remarks showed ‘the west’s political unity doesn’t play any role for him’. Mr Röttgen said he had previously hoped that Mr Trump would soften the approach he had taken during the election campaign once he was on the verge of taking office. ‘But he hasn’t changed at all. He says what he said on the campaign trail . . . The fact that he regards Nato as obsolete and that it doesn’t bother him if the EU is split shows he doesn’t care about the west’s unity.’”
January 16 – Washington Post (Michael Birnbaum): “European leaders grappled with the jolting reality of President-elect Donald Trump’s skepticism of the European Union on Monday, saying they might have to stand without the United States at their side during the Trump presidency. The possibility of an unprecedented breach in transatlantic relations came after Trump — who embraced anti-E.U. insurgents during his campaign and following his victory — said in weekend remarks that the 28-nation European Union was bound for a breakup and that he was indifferent to its fate. He also said NATO’s current configuration is ‘obsolete,’ even as he professed commitment to Europe’s defense. Trump’s attitudes have raised alarm bells across Europe, which is facing a wave of elections this year in which anti-immigrant, Euroskeptic leaders could gain power.”
January 19 – Bloomberg (Piotr Skolimowski): “Mario Draghi called on Germany to be calm as the European Central Bank keeps pumping stimulus into the euro area, saying rising inflation will eventually bring higher interest rates for savers. ‘As the recovery will firm up, rates will go up as well,’ the ECB president told reporters… after the Governing Council reaffirmed its intention to keep its bond-buying program going until at least the end of the year. Asked about German criticism of the strategy, he said ‘the honest answer would be: Just be patient.’ German Finance Minister Wolfgang Schaeuble earlier responded to the ECB’s decision by saying his government will face ‘political problems’ explaining the policy to the public. A surge in headline inflation last month in his country, Europe’s largest economy, sparked a media outcry and calls for the central bank to pull back on its stimulus. ‘I trust the ECB will always do the right thing,’ Schaeuble said... He also warned that Draghi’s loose monetary policy encourages leaders to delay the structural economic reforms the region needs, saying ‘you give the political leaders some way to go around.’”
January 19 – Bloomberg (Alessandro Speciale): “The European Central Bank left its quantitative-easing program unchanged as policy makers wait to see if a pickup in inflation will be sustained. The Governing Council reaffirmed its December decision that asset purchases will be reduced to 60 billion euros ($64bn) a month from April, from 80 billion euros currently. Policy makers also kept the main refinancing rate at zero and the deposit rate at minus 0.4%... The first policy decision of 2017 comes six weeks after Draghi declared the threat of deflation to be almost vanquished.”
January 19 – Bloomberg (Rainer Buergin, Birgit Jennen, and Patrick Donahue): “German Finance Minister Wolfgang Schaeuble said he wouldn’t support a new Greek bailout if the International Monetary Fund declines to join the current program, saying Germany is sticking to its ground rules for the country’s financial lifeline. ‘The Greek program is based from the very beginning in 2010 on the participation of the IMF,’ Schaeuble said… He said that if the IMF refuses to join, it will be a sign the Greeks aren’t sticking to their commitments and ‘the program will be ended because the precondition of the program, the basis, is destroyed.’”
Fixed-Income Bubble Watch:
January 18 – Bloomberg (Austin Weinstein and Andrea Wong): “China’s holdings of U.S. Treasuries declined in November for a sixth straight month, as the world’s second-largest economy uses its foreign-exchange reserves to support the yuan. Japan’s holdings also dropped but the country kept its spot as America’s largest foreign creditor. A monthly Treasury Department report… showed China held $1.05 trillion in U.S. government bonds, notes and bills in November, a drop of $66.4 billion from the prior month that was the steepest since December 2011. Japan’s portfolio decreased for fourth consecutive month, falling by $23.3 billion to $1.11 trillion…”
January 19 – CNBC (Evelyn Cheng): “China is selling U.S. Treasurys at a record pace, indicating continued pressure to support the yuan and keep money from leaving the country. In continuous selling over the six months through November, China sold $194.66 billion of Treasurys and over the previous 12 months, sold $215.11 billion. Both figures are records… The People's Bank of China ‘is intervening in this particular case for a very specific reason, that they want to mitigate the downside pressure on the RMB [Chinese yuan] coming from capital flows,’ said Benn Steil, senior fellow and director of international economics at the Council on Foreign Relations…”
January 19 – Wall Street Journal (AnnaMaria Andriotis): “Bonds backed by certain risky single-family mortgages topped $1 trillion for the first time in November, crossing that threshold amid rising warnings for one corner of the housing market. These mortgages are insured by the Federal Housing Administration and typically go to borrowers with small down payments and lower credit scores. Banks have pulled back from issuing those loans and from packaging them into bonds sold to investors. The result: In the first three quarters of 2016, banks accounted for 9% of mortgage dollars originated by the FHA’s top 50 lenders, versus 62% for all of 2010… Nonbank lenders accounted for 80% of mortgage bonds backed by single-family FHA loans in July 2016, versus 9% the same month in 2010… Ginnie Mae head Ted Tozer… has said nonbank lenders may lack the financial wherewithal to withstand future stress in housing… ‘This is the biggest shift in mortgage lending since the savings-and-loans debacle in the 1980s,’ Mr. Tozer said…”
January 17 – Reuters (Karen Freifeld): “Deutsche Bank finalized a $7.2 billion settlement with the U.S. Department of Justice over its sale of toxic mortgage securities in the run-up to the 2008 financial crisis, the government agency said… Deutsche's agreement represents the largest resolution for the conduct of a single entity in misleading investors in residential mortgage-backed securities… The settlement was higher than the $7 billion paid by Citigroup to federal and state authorities in 2014. ‘Deutsche Bank did not merely mislead investors: it contributed directly to an international financial crisis,’ Attorney General Loretta Lynch said…”
Global Bubble Watch:
January 19 – New York Times (Alexandria Stevenson): “For the investors and market-movers at the annual World Economic Forum here, a threat lurks. At cocktail parties where the Champagne flows, financiers have expressed bewilderment over the rise of populist groups that are feeding a backlash against globalization. In the halls of the Davos Congress Center, where many of the meetings this week are taking place, investors have tried to make sense of the political upheaval. The world order has been upended. As the United States retreats from the promise of free trade, China is taking up the mantle. The stark shift leaves investors trying to assess the new risk and opportunities in the global economy. ‘This is the first time there is absolutely no consensus,’ said William F. Browder, a co-founder of Hermitage Capital Management who has been coming to Davos for 21 years. ‘Everyone is looking into the abyss.’”
January 16 – Reuters (Ben Hirschler): “Just eight individuals, all men, own as much wealth as the poorest half of the world's population, Oxfam said... As decision makers and many of the super-rich gather for this week's World Economic Forum (WEF) annual meeting in Davos, the charity's report suggests the wealth gap is wider than ever, with new data for China and India indicating that the poorest half of the world owns less than previously estimated.”
U.S. Bubble Watch:
January 17 – CNBC (Evelyn Cheng): “Financial stocks led market declines Tuesday as Treasury yields fell and traders grew anxious about government policy ahead of Friday's inauguration. The SPDR S&P Bank ETF (KBE) fell nearly 3.4% in its worst day since June 27, 2016. Financials declined nearly 2.3% as the greatest laggard in the S&P 500... ‘I think financials are way, way ahead of themselves,’ said Jeremy Klein, chief market strategist at FBN Securities. The sector is up more than 17% since the election as the top performer in the S&P 500.”
January 18 – Bloomberg (Andrew Mayeda): “The cost of living in the U.S. climbed for a fifth month on the back of shelter and fuel prices, pushing inflation closer to the Federal Reserve’s goal. The consumer-price index rose 0.3% in December, matching the median projection of economists, after a 0.2% gain the previous month… Prices were up 2.1% from a year earlier, the most since June 2014.”
January 19 – Reuters (Lucia Mutikani): “U.S. homebuilding rebounded more than expected in December as a strengthening economy boosts demand for rental housing. Other data… showed the number of Americans filing for unemployment benefits unexpectedly falling last week to a near 43-year low… Housing starts jumped 11.3% to a seasonally adjusted annual rate of 1.23 million units last month…”
January 19 – Bloomberg (Austin Weinstein): “American consumers this month were the most upbeat about the economy than at any time in almost 15 years, according to Bloomberg Consumer Comfort Index… Monthly consumer expectations index climbed to 56 in January, the strongest reading since March 2002, from 53.5…”
January 18 – Reuters (Patrick Rucker and Sarah N. Lynch): “Early optimism among business lobbyists and executives that Donald Trump's election heralded better days has slowly given way to uncertainty as the president-elect fires off mixed and sometimes confusing messages on healthcare, taxes and trade. An initial euphoria in the business world fueled a powerful post-election stock rally. Some of that has frayed as questions arise over the nuts and bolts of Trump's campaign promises, although many in the business community said they remained optimistic. Doubts deepened over the weekend as Trump declared he would replace President Barack Obama's signature healthcare plan known as Obamacare with ‘insurance for everybody’ - a goal far beyond Republican designs - and criticized a key component of a plan in Congress to overhaul corporate taxes. In a later interview, he appeared to adjust both stances, possibly adding to the confusion. ‘It is fair to say that since the election, there has been mounting uncertainty about exactly what the specific policies are likely to be with regard to tax reform and replacing Obamacare,’ a financial industry official said.”
January 17 – Reuters (Tom Anderson): “President-elect Donald Trump has said he will preserve Social Security, though if he and Congress do nothing to fix the funding, the financial reckoning will be huge — as much as $11.4 trillion down the road. The last time Congress changed Social Security in a significant way with a series of benefit cuts and payroll tax increases was in 1983 under President Ronald Reagan. Back then, the federal government needed to fill a funding gap of about 1% of taxable workers' wages. By the time Social Security's trust funds are projected to run out in the early 2030s, the federal government will have to plug a hole of more than 3%, according to estimates by Charles Blahous, a senior research fellow at George Mason University's Mercatus Center. ‘Just to keep the system afloat from year to year at that point they would have to inflict near-term pain over three times as severe as was the case in 1983,’ Blahous said.”
Federal Reserve Watch:
January 17 – Wall Street Journal (Jon Hilsenrath): “An epoch of exceptional monetary stimulus is drawing to a close. Central banks have exhausted themselves in their efforts to spur economic growth with low—even negative—short-term interest rates and bond-purchase programs meant to drive financial-asset prices higher. Now, a range of forces—including political blowback, whiffs of inflation, stirrings of fiscal stimulus, receding unemployment and worries that the policies themselves may backfire—are pressing them to push short-term interest rates no lower. The Federal Reserve is the first mover in this shift. It has nudged up short-term interest rates in two quarter-percentage-point increments in a little more than a year and penciled in three more moves in 2017. If all goes according to plan, its benchmark interest rate will rest at 1.375% by year-end, a level not seen in the U.S. since before Lehman Brothers collapsed in September 2008.”
January 18 – Financial Times (Sam Fleming): “Having taken two tentative steps towards more normal levels of interest rates, Federal Reserve policymakers are preparing to debate an even more fraught undertaking: paring back the vast holdings of securities they amassed when battling the financial crisis. A series of Fed speakers have sent up trial balloons in recent days talking of the possibility of reducing the size of the central bank’s $4.5tn balance sheet. Patrick Harker, Philadelphia Fed chief, suggested the topic would become central once short-term interest rates hit 1% — something the Fed is on course to achieve this year if its current forecasts are borne out. Lael Brainard, a normally ultra-dovish member of the board of governors, suggested… that a big fiscal stimulus by the Donald Trump administration could bring forward the day when the Fed starts trimming its balance sheet. “
January 18 – New York Times (Neil Irwin): “Janet L. Yellen… made it clear Wednesday that she believes that the American economy is pretty much back on track. And that, in turn, sets the stage for a potential conflict with the incoming Trump administration in the months and years ahead. Congress assigns the Fed two goals: seek maximum employment and maintain stable prices. Ms. Yellen, in a speech in San Francisco, rather explicitly made clear that the nation isn’t far from attaining those goals. ‘Now, it’s fair to say, the economy is near maximum employment, and inflation is moving toward our goal,’ she said. The unemployment rate, 4.7%, is back near where it was before the 2008 recession. And ‘although inflation has been running below our 2% objective for quite some time, we have seen it start inching back toward 2% last year.’”
January 18 – Bloomberg (Craig Torres): “Federal Reserve Chair Janet Yellen said the U.S. economy is ‘close’ to the central bank’s objectives of full employment and stable prices and she’s confident it will continue to improve. ‘It is fair to say the economy is near maximum employment and inflation is moving toward our goal,’ Yellen told the Commonwealth Club… While ‘it makes sense to gradually reduce the level of monetary policy support,’ the timing of the next interest-rate increase ‘will depend on how the economy actually evolves over coming months,’ she said.”
Central Bank Watch:
January 16 – Wall Street Journal (Richard Barley): “With central bankers veering into uncharted policy waters since the financial crisis, vacuuming up trillions of dollars in securities and pushing interest rates to zero and beyond, it is perhaps no surprise to see them drawing political attention. But investors should watch for any further deterioration in relations between politicians and central bankers; monetary policy is at a critical juncture. The biggest political events of 2016—Donald Trump’s U.S. election victory and the U.K.’s vote to leave the European Union—both raised questions around central-bank policy and independence. Mr. Trump said in May he would likely replace Federal Reserve Chairwoman Janet Yellen, and Republican lawmakers are reviving an effort to subject the Fed’s decisions to greater scrutiny.”
Leveraged Speculator Watch:
Geopolitical Watch:
January 15 – Reuters (Christian Shepherd): “China will ‘take off the gloves’ and take strong action if U.S. President-elect Donald Trump continues to provoke Beijing over Taiwan once he assumes office, two leading state-run newspapers said… In an interview with the Wall Street Journal…, Trump said the ‘One China’ policy was up for negotiation. China's foreign ministry, in response, said ‘One China’ was the foundation of China-U.S. ties and was non-negotiable. Trump broke with decades of precedent last month by taking a congratulatory telephone call from Taiwan President Tsai Ing-wen, angering Beijing, which sees Taiwan as part of China. ‘If Trump is determined to use this gambit in taking office, a period of fierce, damaging interactions will be unavoidable, as Beijing will have no choice but to take off the gloves,’ the… China Daily said.”
January 18 – Reuters (Ben Blanchard and J.R. Wu): “The United States should not allow a delegation from Taiwan to attend U.S. President-elect Donald Trump's inauguration, China's Foreign Ministry said…, raising a new bone of contention in Beijing's relations with the incoming government. Trump broke with decades of precedent last month by taking a congratulatory telephone call from Taiwan President Tsai Ing-wen… A Taiwan delegation, led by former premier and ex-ruling party leader Yu Shyi-kun, and including a Taiwan national security adviser and some lawmakers, will attend Friday's inauguration, Taiwan's Foreign Ministry said this week. It is typical for Taiwan to send a delegation to U.S. presidential inaugurations.”
January 16 – New York Times (Steven Erlanger): “The Germans are angry. The Chinese are downright furious. Leaders of NATO are nervous, while their counterparts at the European Union are alarmed. Just days before he is sworn into office, President-elect Donald J. Trump has again focused his penchant for unpredictable disruption on the rest of the world. His remarks in a string of discursive and sometimes contradictory interviews have escalated tensions with China while also infuriating allies and institutions critical to America’s traditional leadership of the West. No one knows where exactly he is headed… For now. And that he is an enthusiastic cheerleader of Brexit and an unaffiliated Britain. For now. Mr. Trump’s unpredictability is perhaps his most predictable characteristic. The world is accustomed to his provocative Twitter messages, but is less clear about whether his remarks represent meaningful new policy guidelines, personal judgments or passing whims.”
January 17 – Washington Post (Simon Denyer): “American companies don’t feel welcome in China any more. And while Chinese President Xi Jinping defended globalization at the World Economic Forum in Davos, U.S. companies say his government is not practicing what he preached. An annual survey of business conditions by the American Chamber of Commerce, or AmCham, in China found that 4 out 5 companies feel less welcome in China than before.”
January 18 – Financial Times (Pilita Clark): “The world has passed another global-warming milestone, according to new figures showing that temperatures rose to their hottest on record for the third year in a row in 2016. Global surface temperatures were nearly 1C warmer in 2016 than the mid-20th century average said scientists from Nasa and the National Oceanic and Atmospheric Administration in the US.”
Fixed-Income Bubble Watch:
January 18 – Bloomberg (Austin Weinstein and Andrea Wong): “China’s holdings of U.S. Treasuries declined in November for a sixth straight month, as the world’s second-largest economy uses its foreign-exchange reserves to support the yuan. Japan’s holdings also dropped but the country kept its spot as America’s largest foreign creditor. A monthly Treasury Department report… showed China held $1.05 trillion in U.S. government bonds, notes and bills in November, a drop of $66.4 billion from the prior month that was the steepest since December 2011. Japan’s portfolio decreased for fourth consecutive month, falling by $23.3 billion to $1.11 trillion…”
January 19 – CNBC (Evelyn Cheng): “China is selling U.S. Treasurys at a record pace, indicating continued pressure to support the yuan and keep money from leaving the country. In continuous selling over the six months through November, China sold $194.66 billion of Treasurys and over the previous 12 months, sold $215.11 billion. Both figures are records… The People's Bank of China ‘is intervening in this particular case for a very specific reason, that they want to mitigate the downside pressure on the RMB [Chinese yuan] coming from capital flows,’ said Benn Steil, senior fellow and director of international economics at the Council on Foreign Relations…”
January 19 – Wall Street Journal (AnnaMaria Andriotis): “Bonds backed by certain risky single-family mortgages topped $1 trillion for the first time in November, crossing that threshold amid rising warnings for one corner of the housing market. These mortgages are insured by the Federal Housing Administration and typically go to borrowers with small down payments and lower credit scores. Banks have pulled back from issuing those loans and from packaging them into bonds sold to investors. The result: In the first three quarters of 2016, banks accounted for 9% of mortgage dollars originated by the FHA’s top 50 lenders, versus 62% for all of 2010… Nonbank lenders accounted for 80% of mortgage bonds backed by single-family FHA loans in July 2016, versus 9% the same month in 2010… Ginnie Mae head Ted Tozer… has said nonbank lenders may lack the financial wherewithal to withstand future stress in housing… ‘This is the biggest shift in mortgage lending since the savings-and-loans debacle in the 1980s,’ Mr. Tozer said…”
January 17 – Reuters (Karen Freifeld): “Deutsche Bank finalized a $7.2 billion settlement with the U.S. Department of Justice over its sale of toxic mortgage securities in the run-up to the 2008 financial crisis, the government agency said… Deutsche's agreement represents the largest resolution for the conduct of a single entity in misleading investors in residential mortgage-backed securities… The settlement was higher than the $7 billion paid by Citigroup to federal and state authorities in 2014. ‘Deutsche Bank did not merely mislead investors: it contributed directly to an international financial crisis,’ Attorney General Loretta Lynch said…”
Global Bubble Watch:
January 19 – New York Times (Alexandria Stevenson): “For the investors and market-movers at the annual World Economic Forum here, a threat lurks. At cocktail parties where the Champagne flows, financiers have expressed bewilderment over the rise of populist groups that are feeding a backlash against globalization. In the halls of the Davos Congress Center, where many of the meetings this week are taking place, investors have tried to make sense of the political upheaval. The world order has been upended. As the United States retreats from the promise of free trade, China is taking up the mantle. The stark shift leaves investors trying to assess the new risk and opportunities in the global economy. ‘This is the first time there is absolutely no consensus,’ said William F. Browder, a co-founder of Hermitage Capital Management who has been coming to Davos for 21 years. ‘Everyone is looking into the abyss.’”
January 16 – Reuters (Ben Hirschler): “Just eight individuals, all men, own as much wealth as the poorest half of the world's population, Oxfam said... As decision makers and many of the super-rich gather for this week's World Economic Forum (WEF) annual meeting in Davos, the charity's report suggests the wealth gap is wider than ever, with new data for China and India indicating that the poorest half of the world owns less than previously estimated.”
U.S. Bubble Watch:
January 17 – CNBC (Evelyn Cheng): “Financial stocks led market declines Tuesday as Treasury yields fell and traders grew anxious about government policy ahead of Friday's inauguration. The SPDR S&P Bank ETF (KBE) fell nearly 3.4% in its worst day since June 27, 2016. Financials declined nearly 2.3% as the greatest laggard in the S&P 500... ‘I think financials are way, way ahead of themselves,’ said Jeremy Klein, chief market strategist at FBN Securities. The sector is up more than 17% since the election as the top performer in the S&P 500.”
January 18 – Bloomberg (Andrew Mayeda): “The cost of living in the U.S. climbed for a fifth month on the back of shelter and fuel prices, pushing inflation closer to the Federal Reserve’s goal. The consumer-price index rose 0.3% in December, matching the median projection of economists, after a 0.2% gain the previous month… Prices were up 2.1% from a year earlier, the most since June 2014.”
January 19 – Reuters (Lucia Mutikani): “U.S. homebuilding rebounded more than expected in December as a strengthening economy boosts demand for rental housing. Other data… showed the number of Americans filing for unemployment benefits unexpectedly falling last week to a near 43-year low… Housing starts jumped 11.3% to a seasonally adjusted annual rate of 1.23 million units last month…”
January 19 – Bloomberg (Austin Weinstein): “American consumers this month were the most upbeat about the economy than at any time in almost 15 years, according to Bloomberg Consumer Comfort Index… Monthly consumer expectations index climbed to 56 in January, the strongest reading since March 2002, from 53.5…”
January 18 – Reuters (Patrick Rucker and Sarah N. Lynch): “Early optimism among business lobbyists and executives that Donald Trump's election heralded better days has slowly given way to uncertainty as the president-elect fires off mixed and sometimes confusing messages on healthcare, taxes and trade. An initial euphoria in the business world fueled a powerful post-election stock rally. Some of that has frayed as questions arise over the nuts and bolts of Trump's campaign promises, although many in the business community said they remained optimistic. Doubts deepened over the weekend as Trump declared he would replace President Barack Obama's signature healthcare plan known as Obamacare with ‘insurance for everybody’ - a goal far beyond Republican designs - and criticized a key component of a plan in Congress to overhaul corporate taxes. In a later interview, he appeared to adjust both stances, possibly adding to the confusion. ‘It is fair to say that since the election, there has been mounting uncertainty about exactly what the specific policies are likely to be with regard to tax reform and replacing Obamacare,’ a financial industry official said.”
January 17 – Reuters (Tom Anderson): “President-elect Donald Trump has said he will preserve Social Security, though if he and Congress do nothing to fix the funding, the financial reckoning will be huge — as much as $11.4 trillion down the road. The last time Congress changed Social Security in a significant way with a series of benefit cuts and payroll tax increases was in 1983 under President Ronald Reagan. Back then, the federal government needed to fill a funding gap of about 1% of taxable workers' wages. By the time Social Security's trust funds are projected to run out in the early 2030s, the federal government will have to plug a hole of more than 3%, according to estimates by Charles Blahous, a senior research fellow at George Mason University's Mercatus Center. ‘Just to keep the system afloat from year to year at that point they would have to inflict near-term pain over three times as severe as was the case in 1983,’ Blahous said.”
Federal Reserve Watch:
January 17 – Wall Street Journal (Jon Hilsenrath): “An epoch of exceptional monetary stimulus is drawing to a close. Central banks have exhausted themselves in their efforts to spur economic growth with low—even negative—short-term interest rates and bond-purchase programs meant to drive financial-asset prices higher. Now, a range of forces—including political blowback, whiffs of inflation, stirrings of fiscal stimulus, receding unemployment and worries that the policies themselves may backfire—are pressing them to push short-term interest rates no lower. The Federal Reserve is the first mover in this shift. It has nudged up short-term interest rates in two quarter-percentage-point increments in a little more than a year and penciled in three more moves in 2017. If all goes according to plan, its benchmark interest rate will rest at 1.375% by year-end, a level not seen in the U.S. since before Lehman Brothers collapsed in September 2008.”
January 18 – Financial Times (Sam Fleming): “Having taken two tentative steps towards more normal levels of interest rates, Federal Reserve policymakers are preparing to debate an even more fraught undertaking: paring back the vast holdings of securities they amassed when battling the financial crisis. A series of Fed speakers have sent up trial balloons in recent days talking of the possibility of reducing the size of the central bank’s $4.5tn balance sheet. Patrick Harker, Philadelphia Fed chief, suggested the topic would become central once short-term interest rates hit 1% — something the Fed is on course to achieve this year if its current forecasts are borne out. Lael Brainard, a normally ultra-dovish member of the board of governors, suggested… that a big fiscal stimulus by the Donald Trump administration could bring forward the day when the Fed starts trimming its balance sheet. “
January 18 – New York Times (Neil Irwin): “Janet L. Yellen… made it clear Wednesday that she believes that the American economy is pretty much back on track. And that, in turn, sets the stage for a potential conflict with the incoming Trump administration in the months and years ahead. Congress assigns the Fed two goals: seek maximum employment and maintain stable prices. Ms. Yellen, in a speech in San Francisco, rather explicitly made clear that the nation isn’t far from attaining those goals. ‘Now, it’s fair to say, the economy is near maximum employment, and inflation is moving toward our goal,’ she said. The unemployment rate, 4.7%, is back near where it was before the 2008 recession. And ‘although inflation has been running below our 2% objective for quite some time, we have seen it start inching back toward 2% last year.’”
January 18 – Bloomberg (Craig Torres): “Federal Reserve Chair Janet Yellen said the U.S. economy is ‘close’ to the central bank’s objectives of full employment and stable prices and she’s confident it will continue to improve. ‘It is fair to say the economy is near maximum employment and inflation is moving toward our goal,’ Yellen told the Commonwealth Club… While ‘it makes sense to gradually reduce the level of monetary policy support,’ the timing of the next interest-rate increase ‘will depend on how the economy actually evolves over coming months,’ she said.”
Central Bank Watch:
January 16 – Wall Street Journal (Richard Barley): “With central bankers veering into uncharted policy waters since the financial crisis, vacuuming up trillions of dollars in securities and pushing interest rates to zero and beyond, it is perhaps no surprise to see them drawing political attention. But investors should watch for any further deterioration in relations between politicians and central bankers; monetary policy is at a critical juncture. The biggest political events of 2016—Donald Trump’s U.S. election victory and the U.K.’s vote to leave the European Union—both raised questions around central-bank policy and independence. Mr. Trump said in May he would likely replace Federal Reserve Chairwoman Janet Yellen, and Republican lawmakers are reviving an effort to subject the Fed’s decisions to greater scrutiny.”
Leveraged Speculator Watch:
January 20 – Financial Times (Lindsay Fortado): “The hedge fund industry has surpassed $3tn in assets for the first time, despite investors redeeming $70bn during 2016 as they soured on high fees and some managers’ average returns, according to Hedge Fund Research. Redemptions slowed in the fourth quarter as investors pulled $18.7bn, less than the $28.2bn redeemed in the third quarter. The largest funds, which manage more than $5bn, were hit the hardest by redemptions as investors opted instead for funds with less than $250m. But those losses were mitigated by strengthening performance. HFR’s industry benchmark, which encompasses all strategies, gained 5.5% last year, the highest in three years.”
Geopolitical Watch:
January 15 – Reuters (Christian Shepherd): “China will ‘take off the gloves’ and take strong action if U.S. President-elect Donald Trump continues to provoke Beijing over Taiwan once he assumes office, two leading state-run newspapers said… In an interview with the Wall Street Journal…, Trump said the ‘One China’ policy was up for negotiation. China's foreign ministry, in response, said ‘One China’ was the foundation of China-U.S. ties and was non-negotiable. Trump broke with decades of precedent last month by taking a congratulatory telephone call from Taiwan President Tsai Ing-wen, angering Beijing, which sees Taiwan as part of China. ‘If Trump is determined to use this gambit in taking office, a period of fierce, damaging interactions will be unavoidable, as Beijing will have no choice but to take off the gloves,’ the… China Daily said.”
January 18 – Reuters (Ben Blanchard and J.R. Wu): “The United States should not allow a delegation from Taiwan to attend U.S. President-elect Donald Trump's inauguration, China's Foreign Ministry said…, raising a new bone of contention in Beijing's relations with the incoming government. Trump broke with decades of precedent last month by taking a congratulatory telephone call from Taiwan President Tsai Ing-wen… A Taiwan delegation, led by former premier and ex-ruling party leader Yu Shyi-kun, and including a Taiwan national security adviser and some lawmakers, will attend Friday's inauguration, Taiwan's Foreign Ministry said this week. It is typical for Taiwan to send a delegation to U.S. presidential inaugurations.”
January 16 – New York Times (Steven Erlanger): “The Germans are angry. The Chinese are downright furious. Leaders of NATO are nervous, while their counterparts at the European Union are alarmed. Just days before he is sworn into office, President-elect Donald J. Trump has again focused his penchant for unpredictable disruption on the rest of the world. His remarks in a string of discursive and sometimes contradictory interviews have escalated tensions with China while also infuriating allies and institutions critical to America’s traditional leadership of the West. No one knows where exactly he is headed… For now. And that he is an enthusiastic cheerleader of Brexit and an unaffiliated Britain. For now. Mr. Trump’s unpredictability is perhaps his most predictable characteristic. The world is accustomed to his provocative Twitter messages, but is less clear about whether his remarks represent meaningful new policy guidelines, personal judgments or passing whims.”
January 17 – Washington Post (Simon Denyer): “American companies don’t feel welcome in China any more. And while Chinese President Xi Jinping defended globalization at the World Economic Forum in Davos, U.S. companies say his government is not practicing what he preached. An annual survey of business conditions by the American Chamber of Commerce, or AmCham, in China found that 4 out 5 companies feel less welcome in China than before.”
January 18 – Financial Times (Pilita Clark): “The world has passed another global-warming milestone, according to new figures showing that temperatures rose to their hottest on record for the third year in a row in 2016. Global surface temperatures were nearly 1C warmer in 2016 than the mid-20th century average said scientists from Nasa and the National Oceanic and Atmospheric Administration in the US.”
January 19 – Bloomberg (Olga Kharif): “U.S. companies and government agencies suffered a record 1,093 data breaches last year, a 40% increase from 2015, according to the Identity Theft Resource Center. Headline-grabbing hacks… are increasing despite regulatory scrutiny and more aggressive cyber-security spending. Worldwide spending on security-related hardware, software and services rose to $73.7 billion in 2016 from $68.2 billion a year earlier… And that number is expected to approach $90 billion in 2018.”
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