Global “Risk Off” has been Making Some Headway. This week saw ten-year Treasury yields drop 15 bps to 2.23%, the low since the week following the election. German bund yields declined another four bps to a 2017 low 19 bps. The Crowded Trade hedging against higher rates is blowing apart. The Crowded yen short has similarly been blown to pieces, with the Japanese currency surging an additional 2.3% this week (increasing 2017 gains to an impressive 7.7%). Japan’s Nikkei equities index dropped 1.8% this week, with y-t-d losses rising to 4.1%.
Meanwhile, this week Gold surged 2.5%, Silver jumped 2.9% and Platinum gained 1.9%. In contrast to the safe haven precious metals, Copper dropped 2.8%, Aluminum fell 2.7% and nickel sank 4.2%.
European periphery spreads (to bunds) widened meaningfully. Italian spreads widened 14 to 213 bps, the widest since early-2014. Spanish spreads widened 13 to an eight-month high 152 bps. Portuguese spreads widened six bps and French spreads seven. Italy’s stocks fell 2.6%, with Italian banks down 5.9%. Spanish stocks lost 1.9%. European bank stocks dropped 2.6% this week.
A little air began to leak from the EM Bubble. Russian stocks were hammered 5.9% to an eight-month low, increasing 2017 losses to 14.2%. Brazilian stocks lost 2.5%. Chinese equities suffered moderate declines, while appearing increasingly vulnerable. For the most part, however, EM held its own. The weak dollar helped. EM equites (EEM) declined only 0.6% for the week, while EM bonds (EMB) gained 0.4%.
U.S. equities trade unimpressively. The VIX rose slightly above 16 Thursday to the highest level since the election. The banks (BKX) sank 3.2%, increasing 2017 losses to 4.1%. The broker/dealers also lost 3.2% (down 0.7% y-t-d). The Transports were hit 2.5% (down 1.9%). The broader market continues to struggle. The mid-caps dropped 1.5% (up 1.2%), and the small caps fell 1.4% (down 0.9%). Even the beloved tech sector has started to roll over. At the same time, high-yield and investment grade debt for the most part cling to “Risk On.”
A number of articles this week pronounced the death of the “reflation trade.” It’s worth noting that the GSCI Commodities index gained 2.2% this week, trading to a six-week high and back to positive y-t-d. Rising geopolitical tensions helped Crude rise to almost $54, before closing the week at $53.18. President Trump talked down the U.S. dollar, and I’ll add “careful what you wish for.” The dollar index declined 0.6% this week. Is it a coincidence that the President calls the dollar “too strong” only a few days after meeting with Chinese President Xi Jinping? China is no currency manipulator, not if it can rein in a psycho North Korean despot.
When it comes to global reflation, China continues to play a leading role. Chinese Credit enjoyed a historic 2016 – and, after a record first quarter, China's Credit growth is on track to surpass $3.5 Trillion in 2017.
For March, China’s Total Social Finance (TSM) increased a much stronger-than-expected $308 billion. This put first quarter consumer and corporate Credit growth at $1.014 TN, a record exceeding even 2016’s unprecedented Q1. For comparison, China’s Q1 2017 TSM growth was 50% greater than Q1 2015. TSM ended March at $23.65 TN, up 12.5% y-o-y - expanding at a rate almost double the real economy.
And while Chinese bank loan growth slowed to a 12.4% rate in March, there were notable trends that must worry officials. First, shadow banking components expanded a much stronger-than-expected almost $110 billion during the month. Meanwhile, China’s mortgage finance Bubble continues to prove resilient in the face of various efforts to cool overheated housing markets.
April 14 – Reuters (Elias Glenn): “Loans to households surged to 797.7 billion yuan ($115bn) in March, …accounting for 78% of all new loans in the month. That was much higher than either January or February and even the 50% of new loans in 2016. The rise likely was due to a surge in short-term lending to households, as individuals may be turning to alternative types of loans as banks tighten rules on traditional mortgages, said Wendy Chen, an economist at Nomura in Shanghai. ‘We think (the increase in short-term loans) is possibly due to attempts to circumvent strict regulations on mortgages… The high loans to households reflect that property sales are still very hot, and likely shifting from top tier cities to more third or fourth tier cities.’”
In a precarious “Terminal Phase” Credit Bubble Dynamic, Chinese shadow banking has gone parabolic. Over the past five months, shadow banking assets (compiled by Bloomberg) have expanded $472 billion, or about 35% annualized. For comparison, shadow banking increased about $70 billion for all of 2015. Chinese shadow banking increased $300 billion during Q1.
April 11 – Wall Street Journal (Shen Hong): “China’s battle to counter rising stress in its financial system has escalated this week, with regulators making a fresh warning to banks not to engage in speculation that creates unhealthy asset bubbles and prevents money from flowing to more productive parts of the economy. In a directive circulated to banks Monday, the country’s banking regulator instructed banks to carry out self-checks by late November on their involvement in what it termed ‘irregularities.’ The seven-page document… said such actions include making highly leveraged bets on markets via popular investment products, and the excessive use of a newly popular form of short-term debt that banks are increasingly relying on for funding.”
April 10 – Bloomberg: “Like many individual investors in China, Yang Mo has no idea what’s in the wealth management products that make up a big chunk of her net worth. She says there’s really no point in finding out. Sure, WMPs invest in all kinds of risky assets, but the government would never let a big one fail, she says. ‘It’s not how the Chinese government does things, and it’s not even Chinese culture,’ explains Yang, a 29-year-old public relations professional… Hers is a common refrain in Asia’s largest economy, where savers have poured $9 trillion into WMPs and similar products on the assumption that they’ll get bailed out if the investments sour. Even after news in February that policy makers are drafting rules to make it clear that state guarantees don’t exist, Yang is undaunted… ‘Cracking down on implicit guarantees is just like curbing home prices,’ she says. ‘It’s something that the government needs to say, but it’s not something they will eventually do.’”
For several years now, Chinese policymakers have made myriad attempts at the old “lean against the wind” approach to counter mounting financial excess. They’re now facing a Credit typhoon of their own making. At this point, Beijing must inflict pain if they intend to break what is now deeply ingrained inflationary psychology in housing finance as well as powerful speculative impulses throughout finance more generally. Apparently, everyone – from Chinese citizen to global investor – is confident that no dramatic policy measures will be employed prior to the autumn meetings of the National Congress of the Community Party.
Yet Chinese fragility is but one of what has become a litany of risks to the global Bubble. And while largely numb to Chinese risks, speculative global markets are having more difficulty disregarding the troubling geopolitical backdrop. With North Korea at the brink of another nuclear test and warning of nuclear war – and Trump sending an “armada” to the Korean peninsula and threatening a preemptive military strike if a “looking for trouble” North Korea test appears imminent – it’s enough to take some risk off the table and buy gold, Treasuries and bunds. That Trump would send a flurry of Tomahawk missiles into Syria, confront Russia on Assad and drop “the mother of all bombs” into the Afghan mountainside have some thinking it’s time to take geopolitical risks more seriously.
Assuming we make it through Easter weekend without tensions ratcheting up in Korea or elsewhere, market attention will turn to next Sunday’s first round French election.
April 12 – Reuters (Sudip Kar-Gupta and Sarah White): “France's presidential race looked tighter than it has all year on Friday, nine days before voting begins, as two polls put the four frontrunners within reach of a two-person run-off vote. The latest voter surveys may raise investor concerns about the outside possibility of a second round that pits the far-right candidate Marine Le Pen against hard-left challenger Jean-Luc Melenchon. The election is one of the most unpredictable in modern French history, as a groundswell of anti-establishment feeling and frustration at France's economic malaise has seen a growing number of voters turn their backs on the mainstream parties. An Ipsos-Sopra Sterna poll showed independent centrist Emmanuel Macron and Le Pen tied on 22% in the April 23 first round, with Melenchon and conservative Francois Fillon on 20 and 19% respectively.”
Basically, there are four candidates all within the margin of statistical error vying for two spots in the May 7th second round head-to-head. For months now, far-right candidate Marine Le Pen has led first round polling numbers. While somewhat unsettling to markets, the assumption has been that Le Pen would lose badly to the leading “establishment” candidate, presently Emmanuel Macron. But with just over a week to go, far-left candidate Jean-Luc Melenchon is enjoying a surge in popularity. This increases the odds that market favorite Macron might not make it out of the first round.
A Le Pen versus Melenchon second round would be a nightmare scenario for skittish markets. Concern would quickly turn to Italy, where the anti-euro 5-Star Party has been rapidly gaining in the polls ahead of next year’s general election.
Plenty of worries globally and here at home. Especially after last week’s release of weak March auto sales data, concern is growing that tightened Credit conditions have begun to restrain the U.S. economy. For the most part, quarterly earnings reports from the major banks confirmed a weakening of loan growth. Yet it isn’t clear how much of this is the result of tightened lending standards and waning demand for borrowings, or instead more a reflection of huge corporate debt issuance (issue bonds rather than borrow from banks) and a slowing of big M&A deals.
It’s worth noting that the recent drop in mortgage rates comes at a most opportune time for the peak home sales period. Mortgage purchase applications jumped last week to the high since last June - and were the third highest weekly level since 2009. Mortgage rates remain extraordinarily low, consumer confidence quite high and the inventory of homes for sale unusually low. A significant Treasury market squeeze could further stoke housing markets already demonstrating strong inflationary/Bubble biases.
April 13 – CNBC (Diana Olick): “Homes are flying off the shelves this spring, as demand rises and supply continues to drop. Record high prices in some local markets are not thwarting hungry buyers, as they rush to take advantage of the lowest mortgage rates of the year. Home sales jumped nearly 9% in March compared with March 2016, even as the number of homes for sale plunged 13%, according to… Redfin… That demand dynamic further increased competition in the market, resulting in the fastest average sales pace since Redfin began tracking in 2010. The typical home went under contract in just 49 days, down from 60 days a year ago. Steep competition also pushed the median price of a home sold in March to $273,000, up 7.5% year over year.”
As for the U.S. stock market, it appears a decent amount of hedging has taken place over the past couple weeks. Previously such dynamics often created the firepower to squeeze the shorts and force the risk averse to unwind hedges and scamper back aboard the bull market. Complacent markets may have forgotten that put options and myriad “portfolio insurance” strategies can as well provide firepower for a self-reinforcing downside. North Korea, Syria, Russia and France provide potential for clear and present danger.
There is as well the risk of a U.S. government shutdown at the end of the month, along with all the ambiguity surrounding the Trump Administration’s shifting agenda. What appeared a united group determined to go right down the list of campaign promises – keen to focus on tax cuts/reform and infrastructure spending – these days appears confused, less than cohesive and without much of a list. If markets abhor uncertainty, it’s hard to see them enamored with the stunning degree of policy reversals and flip-flopping. Return to healthcare and deal with tax and spending legislation later? Roused from a state of deep depression, the Democrats now count down the days until next year’s mid-terms.
For the Week:
The S&P500 fell 1.1% (up 4.0% y-t-d), and the Dow declined 1.0% (up 3.5%). The Utilities added 0.5% (up 5.8%). The Banks (down 4.1%) and the Broker/Dealers (down 0.7%) sank 3.2%. The Transports were hit 2.5% (down 1.9%). The S&P 400 Midcaps fell 1.5% (up 1.2%), and the small cap Russell 2000 dropped 1.4% (down 0.9%). The Nasdaq100 declined 1.2% (up 10.1%), and the Morgan Stanley High Tech Index fell 1.3% (up 11.8%). The Semiconductors sank 3.9% (up 5.9%). The Biotechs gained 1.4% (up 14.7%). With bullion up $31, the HUI gold index jumped 4.5% (up 16.8%).
Three-month Treasury bill rates ended the week at 79 bps. Two-year government yields dropped eight bps to 1.21% (up 2bps y-t-d). Five-year T-note yields sank 15 bps to 1.77% (down 16bps). Ten-year Treasury yields fell 15 bps to 2.24% (down 21bps). Long bond yields dipped two bps to 2.98% (down 8bps).
Greek 10-year yields sank 21 bps to 6.57% (down 45bps y-t-d). Ten-year Portuguese yields added two bps to 3.89% (up 14bps). Italian 10-year yields jumped 10 bps to 2.32% (up 51bps). Spain's 10-year yields rose nine bps to 1.71% (up 33bps). German bund yields fell four bps to 0.19% (down 2bps). French yields increased three bps to 0.92% (up 24bps). The French to German 10-year bond spread widened seven to 73 bps. U.K. 10-year gilt yields slipped three bps to 1.04% (down 19bps). U.K.'s FTSE equities index dipped 0.3% (up 2.6%).
Japan's Nikkei 225 equities index dropped 1.8% (down 4.1% y-t-d). Japanese 10-year "JGB" yields fell four bps to 0.01% (down 3bps). The German DAX equities index declined 0.9% (up 5.5%). Spain's IBEX 35 equities index fell 1.9% (up 10.4%). Italy's FTSE MIB index sank 2.6% (up 2.8%). EM equities were mostly lower. Brazil's Bovespa index was hit 2.5% (up 4.3%). Mexico's Bolsa declined 0.8% (up 7.3%). South Korea's Kospi dipped 0.8% (up 5.4%). India’s Sensex equities index fell 0.8% (up 10.6%). China’s Shanghai Exchange lost 1.2% (up 4.6%). Turkey's Borsa Istanbul National 100 index gained 1.8% (up 15.3%). Russia's MICEX equities index sank 5.1% (down 14.2%).
Junk bond mutual funds saw outflows of $348 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates declined two bps to a 19-week low 4.08% (up 50bps y-o-y). Fifteen-year rates dipped two bps to 3.34% (up 48bps). The five-year hybrid ARM rate declined a basis point to 3.18% (up 34bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down four bps to 4.15% (up 46bps).
Federal Reserve Credit last week was little changed at $4.434 TN. Over the past year, Fed Credit declined $13.6bn (down 0.3%). Fed Credit inflated $1.617 TN, or 58%, over the past 231 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt declined $1.5bn last week to $3.213 TN. "Custody holdings" were down $30.8bn y-o-y, or 0.9%.
M2 (narrow) "money" supply last week declined $38.5bn to $13.379 TN. "Narrow money" expanded $773bn, or 6.1%, over the past year. For the week, Currency increased $1.9bn. Total Checkable Deposits surged $79.7bn, while Savings Deposits sank $126bn. Small Time Deposits increased $2.8bn. Retail Money Funds rose $3.4bn.
Total money market fund assets declined $4.1bn to $2.644 TN. Money Funds fell $88bn y-o-y (3.2%).
Total Commercial Paper contracted $7.8bn to $984.9bn. CP declined $108bn y-o-y, or 9.9%.
Currency Watch:
The U.S. dollar index declined 0.6% to 100.51 (down 1.8% y-t-d). For the week on the upside, the South African rand increased 2.4%, the Japanese yen 2.3%, the British pound 1.2%, the Australian dollar 1.1%, the Norwegian krone 0.9%, the New Zealand dollar 0.8%, the Mexican peso 0.8%, the Canadian dollar 0.6%, the Singapore dollar 0.5%, the Swedish krona 0.4%, the Swiss franc 0.4% and the euro 0.3%. For the week on the downside, the South Korean won declined 0.5%. The Chinese renminbi increased 0.22% versus the dollar this week (up 0.87% y-t-d).
Commodities Watch:
The Goldman Sachs Commodities Index jumped 2.2% (up 0.8% y-t-d). Spot Gold surged 2.5% to $1,286 (up 11.6%). Silver rose 2.9% to $18.51 (up 15.8%). Crude gained 89 cents to $53.18 (down 1.2%). Gasoline slipped 0.5% (up 4%), and Natural Gas declined 0.7% (down 14%). Copper dropped 2.8% (up 3%). Wheat gained 1.5% (up 9%). Corn jumped 2.9% (up 7%).
Trump Administration Watch:
April 12 – New York Times (Alan Rappeport): “President Trump made three startling economic policy reversals on Wednesday, stepping away from pledges he made as a candidate and even policies he supported only days ago. The shifts confounded many of Mr. Trump’s supporters and suggested that the moderate financiers he brought from Wall Street are eclipsing the White House populist wing led by Stephen K. Bannon… In a series of interviews, Mr. Trump said he no longer wanted to label China a currency manipulator — a week after telling The Financial Times that the Chinese were the ‘world champions’ of currency manipulation. In an interview with The Wall Street Journal, the president said he no longer wanted to eliminate the Export-Import Bank. And he said that he might consider reappointing Janet Yellen as chairwoman of the Federal Reserve when her term ends next year.”
April 14 – NBC (William M. Arkin, Cynthia McFadden, Courtney Kube and Kenzi Abou-Sabe): “The U.S. is prepared to launch a preemptive strike with conventional weapons against North Korea should officials become convinced that North Korea is about to follow through with a nuclear weapons test, multiple senior U.S. intelligence officials told NBC News. North Korea has warned that a ‘big event’ is near, and U.S. officials say signs point to a nuclear test that could come as early as this weekend. The intelligence officials told NBC News that the U.S. has positioned two destroyers capable of shooting Tomahawk cruise missiles in the region, one just 300 miles from the North Korean nuclear test site.”
April 11 – Reuters (Sue-Lin Wong and David Brunnstrom): “North Korean state media warned… of a nuclear attack on the United States at any sign of American aggression, as a U.S. Navy strike group steamed toward the western Pacific - a force U.S. President Donald Trump described as an ‘armada’. Trump, who has urged China to do more to rein in its impoverished ally and neighbor, said in a tweet that North Korea was ‘looking for trouble’ and the United States would ‘solve the problem’ with or without Beijing's help.”
April 12 – New York Times (Julie Hirschfeld Davis and David E. Sanger): “President Trump and Secretary of State Rex W. Tillerson sought… to isolate President Vladimir V. Putin of Russia for backing the Syrian government in the wake of its lethal chemical weapons attack on civilians, and worked to build international pressure on Moscow to change course. In Washington, Moscow and New York, the Trump administration publicly chastised Mr. Putin but privately worked to hash out increasingly bitter differences with him. At the same time, Mr. Trump embraced NATO — a military alliance he had previously derided as obsolete — as an effective and vital force for peace and security in a region where Russia has been an aggressive actor.”
April 9 – CNBC (Nyshka Chandran): “As of last week, President Donald Trump's foreign policy vision remained mired in fog. Now, recent developments show an administration that's ready to go on offense. From attacking a Syrian government airfield on Thursday to moving an aircraft carrier group closer to North Korea on Sunday, the White House seems to be pursuing an aggressive approach to reign in rogue nations. ‘Clearly, what the Syrian situation does is illustrate that the Trump administration is willing to use force,’ Adrian Mowat, managing director and chief Asian/EM equity strategist at J.P. Morgan, told CNBC...”
April 14 – Financial Times (Sam Fleming): “The US Treasury warned China that it is closely scrutinising its foreign exchange and trade practices after past interventions caused “significant and long-lasting hardship” for American workers. But it declined to brand the country a currency manipulator despite Donald Trump’s campaign pledges. The Treasury’s twice-annual report on foreign exchange policies lashed the People’s Republic of China for its ‘long track record of engaging in persistent, large-scale, one-way foreign exchange intervention’ but acknowledged that its more recent practices have aimed to prevent excessive depreciation in its exchange rate.”
April 12 – Wall Street Journal (Gunjan Banerji): “Volatility watchers are circling a new date on their calendars: April 28. That is when the U.S. government’s current funding ends. Lawmakers need to pass a new spending bill by then or they risk triggering a partial government shutdown. The CBOE Volatility Index, or VIX, has jumped 29% since April 6 to its highest level since November. The volatility measure is based on options prices and tends to move in the opposite direction of stocks.”
April 10 – Bloomberg (Billy House): “Members of Congress are back home for a two-week recess after one of the most bitterly divided and least productive starts in recent history. A new, urgent challenge is waiting for them when they return: finding a way to set aside their anger and mistrust long enough to keep the federal government open. Government funding expires on April 28, which will give Congress five days to unveil, debate and pass an enormous spending bill, or trigger a government shutdown. ‘What a mess,’ said Paul Brace, a congressional expert at Rice University…”
April 11 – Wall Street Journal (Jacob M. Schlesinger): “The Trump administration moved Wednesday to ramp up its tougher new trade policy, adding another trade hawk to its policy team, while invoking new import penalties against South Korean steelmakers. The steps help kick into gear a trade agenda that has had a slow start compared with the robust trade rhetoric President Donald Trump used on the campaign trail. Democrats in recent days have sought to capitalize on that delay, portraying Mr. Trump as slow to implement his new ‘America First’ approach to global commerce…”
April 11 – New York Times (Neil Irwin): “As Congress and the Trump administration turn their sights on overhauling the tax code, it’s a good time to think about the great three-dimensional brain twister of the 1980s, the Rubik’s Cube. That’s partly because the first and last time there was a comprehensive rewrite of the tax code, it was 1986. But there is more than that. What makes trying to solve a Rubik’s Cube so exasperating is that every rotation you make to align the colors on one side messes up something on one of the other sides. Nothing moves in isolation; everything affects everything else, and rarely for the better. The 1986 tax overhaul took two years. Despite bipartisan backing from the Reagan administration and congressional Democrats, it had many false starts and reversals in its voyage to becoming a law.”
April 12 – Reuters (David Morgan): “U.S. House Speaker Paul Ryan's tax reform blueprint appears to be losing its status as the likely framework for the first major tax overhaul since 1986, with rival approaches emerging from the White House, Senate and other quarters in Congress. Congressional aides, lobbyists and analysts say the changing focus could delay passage of a tax bill until late 2017 or 2018… Like the healthcare bill, the House Republican tax blueprint stems from Ryan's ‘A Better Way’ legislative agenda launched during the 2016 election campaign.”
April 11 – Reuters (Jeff Mason and Sarah N. Lynch): “President Donald Trump told a group of chief executives on Tuesday that his administration was revamping the Wall Street reform law known as Dodd-Frank and might eliminate the rules and replace them with ‘something else.’ At the beginning of his administration, Trump ordered reviews of the major banking rules put in place after the 2008 financial crisis, and last week he said officials were planning a "major haircut" for them. ‘For the bankers in the room, they'll be very happy because we're really doing a major streamlining and, perhaps, elimination, and replacing it with something else,’ Trump said… ‘That will be the minimum. But we're doing a major elimination of the horrendous Dodd-Frank regulations, keeping some obviously, but getting rid of many,’ he said.”
China Bubble Watch:
April 14 – Reuters (Elias Glenn): “China's banks unexpectedly extended less credit in March than in the previous month as the government tries to contain the risks from an explosive build-up in debt and an overheating housing market. But aggregate financing, which includes bank loans as well as off-balance sheet lending, surged in March and was a record in the first quarter, raising doubts about the effectiveness of official efforts so far to clamp down on risks in the financial system. A surge in household lending in March also added to worries about whether authorities will be able to get the frenzied property market under control… China's total social financing (TSF), a broad measure of credit and liquidity in the economy, rocketed to 2.12 trillion yuan in March from 1.15 trillion yuan in February. For the first quarter, TSF reached a record 6.93 trillion yuan -- roughly equivalent to the size of Mexico's economy -- and well above last year's first quarter total.”
April 12 – Bloomberg: “China’s overseas shipments last month jumped the most in two years as global demand held up. Imports moderated after a holiday-season surge in February and the trade balance rose. Exports rose 16.4% in dollar terms, reversing a 1.3% drop a month earlier… Imports increased 20.3%, pulling back after soaring 38.1% the prior month, to leave a trade surplus of $23.93 billion.”
April 13 – Wall Street Journal (Lingling Wei): “President Xi Jinping gathered with his economic mandarins in December for their annual strategy meeting at a heavily guarded government hotel. In closed-door sessions, say people familiar with the confab, he made clear what their mandate was for 2017: He would tolerate no wobbliness in the economy. The communiqué coming out of the session singled out one policy objective in particular—keep the yuan stable. What followed has been the marked acceleration of a shift in priorities at the People’s Bank of China, the central bank, toward preventing the currency from cratering above all else.”
April 12 – Bloomberg: “China’s bond issuers, faced with 9.7 trillion yuan ($1.4 trillion) of maturing debt this year, are stepping on the gas. Companies and governments sold 1.3 trillion yuan of onshore notes in March, about as much as in the first two months of the year combined… Fitch Ratings expects refinancing needs to drive issuance in the coming months, with corporate debt sales for the year forecast to match or even exceed last year’s total. Chinese companies issued a record 9.8 trillion yuan of bonds in 2016.”
April 11 – Bloomberg: “People’s Bank of China Governor Zhou Xiaochuan’s shift toward new tools to steer the economy has swollen a targeted lending program to such a level that outstanding funds are now worth more than the annual output of the Malaysian and Danish economies combined. The Medium-term Lending Facility has increased to 4.1 trillion yuan ($594 billion), with 3.2 trillion yuan coming due from April to December this year, according to data compiled by Bloomberg. About 2 trillion yuan matured in the same period last year. While the monetary authority has shown a willingness to roll over the funds, with new loans extending maturities in each of the first three months of 2017, the ballooning amount illustrates the challenge Zhou faces as he tries to reduce leverage in the financial system while keeping the monetary base big enough to avoid a credit crunch.”
April 10 – Bloomberg (Alfred Liu): “Hong Kong’s de facto central bank expressed concern about the riskiness of mortgages with high loan-to-value ratios issued by developers… ‘The accumulation of these high LTV mortgages may change the risk profiles of these property developers to which banks may have exposures,’ Raymond Chan, executive director for banking supervision at the Hong Kong Monetary Authority, said… The HKMA said it may ask banks to take additional steps to manage their exposure to the sector.”
Global Bubble Watch:
April 12 – Bloomberg (Brian Chappatta): “Gold and the yen rallied to five-month highs while Treasury note yields approached the lowest levels of the year as investors sought out traditional havens from geopolitical risks. The U.S. equity market’s standard fear gauge rose to the highest since November. The yen strengthened versus all of its G-10 peers as tensions in Asia ratcheted higher… U.S. Secretary of State Rex Tillerson said during a Group of Seven meeting in Italy that Russia must abandon its support of Syrian President Bashar al-Assad’s regime.”
April 11 – Financial Times (Philip Stafford): “The Bank for International Settlements has recommended that central banks become more active participants in the plumbing system that underpins the trading of government bonds to offset increasing market volatility. The bank… said… it had become concerned about the functioning of repo markets because of the effect of accommodative monetary policy and post-crisis regulation, and planned a two-year study to better understand them. The comments from the… institution echo market fears that regulation and expansive policy are collectively having serious repercussions within the $12tn global repo market… Volatility in repo has become more frequent around the end of quarterly reporting periods for financial institutions.”
April 9 – Wall Street Journal (Ben Eisen, Chris Dieterich and Sam Goldfarb): “Investors are buying record volumes of new bonds… Companies and governments in emerging markets sold $178.5 billion of dollar-denominated debt in the first three months of the year, the best first quarter on record, according to… Dealogic. U.S. companies with junk-bond ratings issued $79.6 billion, double from a year earlier. Highly rated U.S. companies also issued $414.5 billion of debt during the first three months of the year. That was a record for any quarter.”
April 9 – Wall Street Journal (Chuin-Wei Yap): “Big Chinese banks are lending record volumes abroad in a bid to tap new growth, helped by state-backed ambitions to build infrastructure around the world. For banks, the timing of one of President Xi Jinping’s showpiece initiatives—known as ‘One Belt, One Road’—is fortuitous: Loans to finance hundreds of projects along ancient trade routes promise oases of profitability amid faltering returns at home. For the first time, three of the country’s four largest lenders last year posted larger increases in overseas lending than in domestic corporate loans… Bank of China, the fourth-biggest Chinese lender by assets, was the top originator of overseas corporate loans last year, with 1.7 trillion yuan ($246.8bn) in such lending…”
April 10 – Bloomberg (Greg Quinn): “Canadian housing starts surged to the fastest pace in a decade, led by apartments and condominiums. Housing starts soared 18% to an annualized 253,720 units in March, from 214,253 units in February… Multiple-unit starts in urban areas surged 30% to 160,989 units. Housing has been one of the main drivers of Canada’s economy over the last several years, as interest rates remain at historically low levels.”
April 12 – Bloomberg (Michael Heath): “Australia’s central bank signaled deeper concern amid ‘heightened risks’ from rising household debt and escalating property prices in Sydney and Melbourne. The Reserve Bank of Australia… said interest-only loans are rising and now account for almost a quarter of owner-occupier mortgages. It also noted about one-third of mortgage holders have either no buffer or less than one month’s repayments.”
April 10 – Bloomberg (Michael Heath): “Australian business conditions jumped to the highest level since February 2008, signaling the economy could be set to strengthen. A gauge of business conditions -- measuring hiring, sales and profits -- jumped to 14 in March from 9 in February, the highest reading since January 2008…”
Fixed Income Bubble Watch:
April 10 – Bloomberg (Liz McCormick and Brian Chappatta): “These days, it seems like everyone in the bond market is obsessed over what will happen when the Federal Reserve starts whittling down its mammoth, crisis-era investments in U.S. government bonds. Yet lost in the hullabaloo is one little-noticed fact: there’s an even bigger debt pile that could draw buyers away from Treasuries at just the wrong time. In overseas markets, more than $3 trillion of negative-yielding government bonds -- which all but guarantee losses for buy-and-hold investors -- have turned positive in recent months… Foreigners currently own 43% of the $13.9 trillion Treasury market. With the Trump administration’s pro-growth agenda likely to swell the public debt burden in coming years, they’ll be crucial in helping hold down long-term borrowing costs as the Fed raises interest rates.”
April 12 – Reuters (Nick Brown): “Bankruptcy for Puerto Rico is looking ever more likely as the clock ticks down toward a May 1 deadline to restructure $70 billion in debt, ramping up uncertainty for anyone betting on returns from the island's widely held U.S. municipal bonds. When U.S. Congress last year passed the Puerto Rico rescue law dubbed PROMESA, it froze creditor lawsuits against the island so its federally appointed oversight board and creditors could negotiate out of court on the biggest debt restructuring in U.S. municipal history. The freeze expires on May 1, however, and an extension by Congress is "not going to happen," said a Republican aide to the House Committee on Natural Resources, which is in charge of territory matters.”
April 10 – Wall Street Journal (Ben Eisen): “The market for risky bonds sold by U.S. companies is showing a never-seen-before pattern, one sign of how expensive that corner of the market has become. BB-rated junk bonds are now characterized by so-called negative convexity, suggesting that junk bonds become more rate-sensitive as rates rise and less rate-sensitive as rates fall, according to Bank of America Merrill Lynch. That’s something that had never happened until last fall. The upside-down condition is happening largely because many high-yield bonds now have provisions built into them to allow the issuer to redeem them early at a set price.”
Europe Watch:
April 11 – Bloomberg (Stefania Spezzati): “The impending French presidential election is rippling across Europe’s bond markets. French bonds fell on Tuesday, increasing the yield spread over Germany to 74 bps. Italian 10-year yields climbed to 2.27%, widening the spread over bunds to the highest level since 2014. Jitters are increasing before the first round of voting on April 23, with polls indicating the stage may be set for a four-way race.”
April 12 – Wall Street Journal (Gunjan Banerji): “Investors have exuded sangfroid about the French presidential election, largely ignoring the risk of Marine Le Pen’s far-right Front National riding on the populist wave that propelled Brexiters and Donald Trump to victory. Such market composure always seemed too good to be true, and this week it showed signs of cracking. As the first round of election on April 23 nears, the cost of insuring against a volatile swing in the euro has jumped. One-month options contracts on the euro-dollar pair have risen to their highest level since the fortnight before the Brexit vote.”
April 12 – Financial Times (Joël Gombin): “Could Marine Le Pen, leader of the far-right National Front (FN), become the next president of France? Since January, opinion polls have consistently suggested that she will win around 26% of the vote in the first round of the presidential election at the end of April, a score in line with those the FN achieved in the European Parliament elections in 2014 and the regional elections in 2015. More recent polls have her at between 23 and 24%, but this would still be enough to ensure she makes it into the run-off in early May. But once there, her chances of prevailing are slim to non-existent. Since President François Hollande withdrew from the race in December, no poll has had Ms Le Pen winning in the second round against the independent centrist Emmanuel Macron or indeed any other opponent. Most surveys give her a second-round score of around 40%.”
April 11 – Wall Street Journal (Christopher Whittall and Riva Gold): “Investors’ next political test is the French election, but many are zeroing in on a different European risk for global markets: Italy. French bonds and shares sold off this week as investors focused again on the country’s presidential election, a two-round vote that begins on April 23 and has triggered concerns of a win for anti-euro candidate Marine Le Pen. Italian bonds also came under pressure and continued to weaken on Wednesday, even as French debt rallied. Those moves came as investors looked beyond France’s election to the problems of Italy, the third-largest economy in the eurozone.”
April 12 – Reuters (Jeremy Gaunt): “The euro zone's greatest existential threat may no longer center on small, peripheral countries such as Greece and Portugal dragging it down, but instead on the prospect that its third largest economy, Italy, could abandon ship. Two recent economic reports show what the euro has meant to Italians and why polls suggest they are no longer keen. One suggests they are poorer as a result of being part of the currency bloc, the other that they are falling further behind their counterparts in main trading partner Germany. It is a distant risk to the currency bloc that Italy will actually walk away, but not beyond imagination. Italy's 5-Star movement, which wants to dump the euro through a referendum, has been surging in opinion polls recently, getting as much as a third of the vote in a March Corriere Della Sera poll. The anti-European Union Northern League got another 12 or so percent - and there are others.”
Federal Reserve Watch:
April 11 – Wall Street Journal (David Harrison): “Federal Reserve Chairwoman Janet Yellen indicated… that the era of extremely stimulative monetary policy was coming to an end. …Ms. Yellen said the Fed was moving away from its efforts to revive a recession-scarred economy and focusing instead on maintaining the gains of the past few years. That will change the central bank’s policy-making stance, she said, noting that Fed officials plan to continue gradually raising interest rates unless the economy begins to deteriorate. ‘Where before we had our foot pressed down on the gas pedal trying to give the economy all the oomph we possibly could, now [we’re] allowing the economy to kind of coast and remain on an even keel… To give it some gas, but not so much that we’re pressing down hard on the accelerator.’”
U.S. Bubble Watch:
April 13 – Reuters (David Henry): “Big U.S. banks revealed more evidence of a slowdown in loan growth in their earnings reports…, though executives assured there is still healthy demand from borrowers and no reason to worry about the state of the economy. JPMorgan… and Citigroup Inc posted higher first-quarter earnings that beat analysts' expectations on large gains in trading revenue. Wells Fargo… reported a slight dip in profit due to a slowdown in mortgage banking. The results underscored concerns expressed recently by analysts and investors that higher interest rates, combined with uncertainty about geopolitical events, could hurt economic growth - and therefore crimp lenders' bottom lines.”
April 9 – Financial Times (Rana Foroohar): “Rapid run-ups in debt are the single biggest predictor of market trouble. So it is worth noting that over the past 10 years the amount of student loan debt in the US has grown by 170%, to a whopping $1.4tn — more than car loans, or credit card debt. Indeed, as an expert at the Consumer Financial Protection Bureau recently pointed out to me, since 2008 we have basically swapped a housing debt bubble for a student loan bubble… In America, 44m people have student debt. Eight million of those borrowers are in default… While the headline consumer price index is 2.7%, between 2016 and 2017 published tuition and fee prices rose by 9% at four-year state institutions, and 13% at posher private colleges.”
April 11 – Wall Street Journal (Gunjan Banerji): “The popular Wall Street trade of shorting volatility stumbled this week as a sharp reversal in markets forced investors to unwind their bets. Concerns over U.S. policy changes and geopolitical developments across the globe sparked a flight to safety on Tuesday, sending stocks and government bond yields lower. The CBOE Volatility Index, or VIX — a gauge that tracks investor anxiety — bounced back sharply, jumping 8% to 15.17, on track for the highest close since the U.S. presidential election on Nov. 8.”
April 11 – Financial Times (Alistair Gray): “More than a million new apartments have sprung up across the US in a post-crisis construction surge. Now bankers who funded the boom are worried: have developers built too much? As concerns grow about a supply glut, financial watchdogs this month began scrutinising how the largest lenders would cope with a property market crash. Officials at the Federal Reserve ordered banks to set out how they would fare if commercial real estate (CRE) prices dropped 35% and rental apartment values collapsed by more… Almost a decade since the financial crisis — when CRE prices dropped as much as 40%, even more than residential housing — bankers as well as regulators are again growing nervous about the sector.”
April 11 – Wall Street Journal (Peter Grant): “Commercial real-estate lending by banks, insurance companies and other financial institutions is declining as sales activity slows and regulators voice concern about the sector. Lenders closed roughly $491 billion of mortgage loans backed by U.S. property in 2016, down 3% from 2015… Most of the decline occurred in the fourth quarter, when volume was 7% lower than the same quarter in 2015… Despite the decrease, the new-volume number was the third highest since the association began doing the survey, behind 2015 and the record year of 2007.”
April 10 – Bloomberg (Romy Varghese): “California cities and counties will see their required contributions to the largest U.S. pension fund almost double in five years, according to an analysis by the California Policy Center. In the fiscal year beginning in July, local payments to the California Public Employees’ Retirement System will total $5.3 billion and rise to $9.8 billion in fiscal 2023… The increase reflects Calpers’ decision in December to roll back the expected rate of return on its investments. That means the system’s 3,000 cities, counties, school districts and other public agencies will have to put more taxpayer money into the fund because they can’t count as heavily on anticipated investment income to cover future benefit checks.”
Japan Watch:
April 10 – Bloomberg (Pavel Alpeyev and Takako Taniguchi): “The troubles at Japan’s Toshiba Corp. grew deeper as the 142-year-old conglomerate warned it may not be able to continue as a going concern because of losses from its Westinghouse Electric nuclear business… The disclosure came… as the… company took the unusual step of reporting third quarter earnings without approval from its auditors. Toshiba said losses last year had left it with negative shareholders equity of 225.6 billion yen ($2.1bn)…”
EM Watch:
April 12 – Bloomberg (Michael Heath): “Brazil’s central bank signaled further aggressive key rate cuts are in store after slashing borrowing costs by the most in nearly eight years to help boost growth. Policy makers… voted unanimously to reduce the benchmark rate by a full percentage point to 11.25% following two 75 bps cuts. The monetary authority has lowered borrowing costs 300 bps since beginning the easing cycle in October.”
Geopolitical Watch:
April 12 – Reuters (Nobuhiro Kubo): “Japan's navy plans a joint show of force with the U.S. Navy's USS Carl Vinson aircraft carrier strike group as it steams towards the Korean peninsula aimed at deterring secretive North Korean regime from further missile tests, two sources said. With tension growing markedly, the Korean peninsula is the closest it has been to a ‘military clash’ since Pyongyang's first nuclear test in 2006, an influential state-run Chinese newspaper said…”
April 12 – Reuters (Sue-Lin Wong and David Brunnstrom): “North Korean state media warned… of a nuclear attack on the United States at any sign of American aggression, as a U.S. Navy strike group steamed toward the western Pacific - a force U.S. President Donald Trump described as an ‘armada’. Trump, who has urged China to do more to rein in its impoverished ally and neighbor, said in a tweet that North Korea was ‘looking for trouble’ and the United States would ‘solve the problem’ with or without Beijing's help.”
April 8 – Wall Street Journal (Asa Fitch): “Following a U.S. strike on a Syrian air base, Iran has sought to buttress ties with a key ally: Russia. On Saturday, several Iranian military officials and diplomats discussed the conflict in Syria with Russian counterparts, after dozens of U.S. Tomahawk cruise missile strikes on Thursday targeted the Shayrat Airfield near Homs, Syria. The U.S. strikes marked the first time during Syria’s civil war that the U.S. directly targeted the regime of Iran’s close ally, Syrian President Bashar al-Assad…”
Friday, April 14, 2017
Friday Evening Links
[Reuters] French presidential race tightens further as vote looms
[Bloomberg] U.S. Urges China to Open Trade After Sparing It Manipulator Tag
[NBC] Panetta: Trump Is Risking Nuclear War With North Korea
[WSJ] Confidence Is High but Economic Gains Are Elusive
[WSJ] For Inflation, It’s All About Oil
[WSJ] Chinese Aluminum Giant Faces Credit Crunch
[FT] Beijing warns a ‘storm is about to break’ as tensions mount over N Korea
[Bloomberg] U.S. Urges China to Open Trade After Sparing It Manipulator Tag
[NBC] Panetta: Trump Is Risking Nuclear War With North Korea
[WSJ] Confidence Is High but Economic Gains Are Elusive
[WSJ] For Inflation, It’s All About Oil
[WSJ] Chinese Aluminum Giant Faces Credit Crunch
[FT] Beijing warns a ‘storm is about to break’ as tensions mount over N Korea
Thursday, April 13, 2017
Friday's News Links
[Bloomberg] Stocks Drop, Yen Gains as Geopolitical Angst Grows: Markets Wrap
[Reuters] U.S. retail sales, inflation data highlight weak first quarter growth
[Bloomberg] Consumer Prices in U.S. Fall 0.3%, First Decline in a Year
[Bloomberg] Retail Sales in U.S. Declined for a Second Month in March
[Reuters] Trump and Yellen may not be an odd couple after all
[Reuters] China's shadow banking rebounds in March, household loans surge despite curbs
[Reuters] Macron - Banking whizz-kid is anti-establishment presidential favourite
[Bloomberg] Turkey Central Bank's Net Reserves Drop Below $30 Billion: Chart
[Bloomberg] China Warns of War Risk as Trump Rattles Saber at North Korea
[CNBC] U.S. may launch strike if North Korea reaches for nuclear trigger
[Bloomberg] North Korean Official: Situation in a 'Vicious Cycle'
[Bloomberg] Russia Says Evidence Growing Syria Chemical Attack Was Staged
[NYT] North Korea Says Nuclear War Could Break Out ‘At Any Moment’
[Reuters] U.S. retail sales, inflation data highlight weak first quarter growth
[Bloomberg] Consumer Prices in U.S. Fall 0.3%, First Decline in a Year
[Bloomberg] Retail Sales in U.S. Declined for a Second Month in March
[Reuters] Trump and Yellen may not be an odd couple after all
[Reuters] China's shadow banking rebounds in March, household loans surge despite curbs
[Reuters] Macron - Banking whizz-kid is anti-establishment presidential favourite
[Bloomberg] Turkey Central Bank's Net Reserves Drop Below $30 Billion: Chart
[Bloomberg] China Warns of War Risk as Trump Rattles Saber at North Korea
[CNBC] U.S. may launch strike if North Korea reaches for nuclear trigger
[Bloomberg] North Korean Official: Situation in a 'Vicious Cycle'
[Bloomberg] Russia Says Evidence Growing Syria Chemical Attack Was Staged
[NYT] North Korea Says Nuclear War Could Break Out ‘At Any Moment’
Thursday Evening Links
[Bloomberg] Stocks Decline Amid Mounting Geopolitical Unease: Markets Wrap
[Reuters] Loan growth stalls despite profit, trading gains at some big banks
[CNBC] Homes this spring are selling faster than ever
[WSJ] Loan Growth Slowdown Hurts Some Banks More than Others
[WSJ] China’s Gamble: How a Crusade to Prop Up the Yuan Imperils Other Pressing Mandates
[FT] Rise of private debt creates fears of a bubble
[Bloomberg, Lake] Trump Said No to Troops in Syria. His Aides Aren't So Sure.
[Reuters] Loan growth stalls despite profit, trading gains at some big banks
[CNBC] Homes this spring are selling faster than ever
[WSJ] Loan Growth Slowdown Hurts Some Banks More than Others
[WSJ] China’s Gamble: How a Crusade to Prop Up the Yuan Imperils Other Pressing Mandates
[FT] Rise of private debt creates fears of a bubble
[Bloomberg, Lake] Trump Said No to Troops in Syria. His Aides Aren't So Sure.
Wednesday, April 12, 2017
Thursday's News Links
[Bloomberg] Stocks Retreat on Trump Talk as Dollar Steadies: Markets Wrap
[Reuters] Trump triggers U.S. bond yield slide, dollar recovers
[Bloomberg] U.S. Producer Prices Decline for First Time Since August 2016
[Bloomberg] Fear Is Creeping Back Into Markets
[Bloomberg] Populism in Developed World Trumps EM as Geopolitical Risks Rise
[Bloomberg] China Exports Surged the Most in Two Years as Imports Moderated
[Bloomberg] China's $1.4 Trillion Debt Wall Seen Forcing Issuance Rise
[Bloomberg] RBA Intensifies Alert on Aussie Household Debt, Property Market
[Reuters] Foreign journalists in North Korea gather for 'big event' amid tensions
[NYT] Trump Reversals Hint at Wall Street Wing’s Sway in White House
[WSJ] Looming Threat of U.S. Government Shutdown Drives Options Bets
[FT] Investors buckle up as French election first round looms
[Reuters] Trump triggers U.S. bond yield slide, dollar recovers
[Bloomberg] U.S. Producer Prices Decline for First Time Since August 2016
[Bloomberg] Fear Is Creeping Back Into Markets
[Bloomberg] Populism in Developed World Trumps EM as Geopolitical Risks Rise
[Bloomberg] China Exports Surged the Most in Two Years as Imports Moderated
[Bloomberg] China's $1.4 Trillion Debt Wall Seen Forcing Issuance Rise
[Bloomberg] RBA Intensifies Alert on Aussie Household Debt, Property Market
[Reuters] Foreign journalists in North Korea gather for 'big event' amid tensions
[NYT] Trump Reversals Hint at Wall Street Wing’s Sway in White House
[WSJ] Looming Threat of U.S. Government Shutdown Drives Options Bets
[FT] Investors buckle up as French election first round looms
Wednesday Evening Links
[Reuters] Wall Street ends lower; Trump comments dampen sentiment late
[CNBC] Trump tanks the dollar after saying it's 'getting too strong'
[Bloomberg] Trump Says He's Open to Renominating Yellen at Fed, WSJ Says
[Reuters] U.S. tax reform debate moves away from Ryan blueprint
[Reuters] U.S. government posts $176 billion deficit in March
[Bloomberg] Trump Drops Campaign Promise to Label China a Currency Manipulator
[Bloomberg] Brazil Slashes Key Rate by Most Since 2009 to Revive Economy
[NYT] Trump Says It’s Likely Russia Knew of Syrian Gas Attack in Advance
[WSJ] Tillerson Says U.S.-Russia Relations at ‘Low Point’ After Meeting With Putin
[CNBC] Trump tanks the dollar after saying it's 'getting too strong'
[Bloomberg] Trump Says He's Open to Renominating Yellen at Fed, WSJ Says
[Reuters] U.S. tax reform debate moves away from Ryan blueprint
[Reuters] U.S. government posts $176 billion deficit in March
[Bloomberg] Trump Drops Campaign Promise to Label China a Currency Manipulator
[Bloomberg] Brazil Slashes Key Rate by Most Since 2009 to Revive Economy
[NYT] Trump Says It’s Likely Russia Knew of Syrian Gas Attack in Advance
[WSJ] Tillerson Says U.S.-Russia Relations at ‘Low Point’ After Meeting With Putin
Tuesday, April 11, 2017
Wednesday's News Links
[Bloomberg] U.S. Stocks Down, Bucking Rally in Europe Shares: Markets Wrap
[Reuters] Yen holds near multi-month highs as risk-aversion persists
[Bloomberg] Melenchon Crashes Front-Runners’ Party as French Risks Rise
[Bloomberg] Why the Fed Might Have to ‘Live’ With a Large Balance Sheet
[Reuters] Trump's message to bankers: Wall Street reform rules may be eliminated
[Reuters] Puerto Rico seen sliding toward bankruptcy as deadline nears
[Reuters] U.S. mortgage activity rises in latest week: MBA
[Bloomberg] China's Central Bank Faces a $600 Billion Test
[Bloomberg] China Producer Price Reflation Moderates as Commodities Cool Off
[Reuters] Two reasons why Italians are turning sour on the euro
[CNBC] Russia gives Tillerson a dressing down, demands to know the White House's real intentions on Syria
[Reuters] Japanese, U.S. navies plan joint show of force towards North Korea
[NYT] As Tillerson Begins Russia Talks, Putin Leaves Him Guessing
[WSJ] Trump Taps Another Trade Hawk, Invokes New Import Penalties
[FT] Fears mount over US construction boom
[WSJ] Forget France, Italy Could Be Markets’ Big Risk
[FT] BIS raises fears over $12tn global repo market
[WSJ] Higher Yields Damp China’s Corporate Bond Market
[FT] Stakes rise in Portugal’s battle with major investors
[FT] Win or lose, Le Pen could change the political landscape
[Reuters] Yen holds near multi-month highs as risk-aversion persists
[Bloomberg] Melenchon Crashes Front-Runners’ Party as French Risks Rise
[Bloomberg] Why the Fed Might Have to ‘Live’ With a Large Balance Sheet
[Reuters] Trump's message to bankers: Wall Street reform rules may be eliminated
[Reuters] Puerto Rico seen sliding toward bankruptcy as deadline nears
[Reuters] U.S. mortgage activity rises in latest week: MBA
[Bloomberg] China's Central Bank Faces a $600 Billion Test
[Bloomberg] China Producer Price Reflation Moderates as Commodities Cool Off
[Reuters] Two reasons why Italians are turning sour on the euro
[CNBC] Russia gives Tillerson a dressing down, demands to know the White House's real intentions on Syria
[Reuters] Japanese, U.S. navies plan joint show of force towards North Korea
[NYT] As Tillerson Begins Russia Talks, Putin Leaves Him Guessing
[WSJ] Trump Taps Another Trade Hawk, Invokes New Import Penalties
[FT] Fears mount over US construction boom
[WSJ] Forget France, Italy Could Be Markets’ Big Risk
[FT] BIS raises fears over $12tn global repo market
[WSJ] Higher Yields Damp China’s Corporate Bond Market
[FT] Stakes rise in Portugal’s battle with major investors
[FT] Win or lose, Le Pen could change the political landscape
Tuesday Evening Links
[Bloomberg] Asia Stocks Mixed as Haven Bids Ease; Yen Steadies: Markets Wrap
[Bloomberg] Gold, Yen Climb to 5-Month Highs as Refuges Sought: Markets Wrap
[Bloomberg] Yen Gains Against All G-10 Peers as Geopolitical Tensions Rise
[Bloomberg] Extreme Positioning in Options Markets Can Offer Trade Signals, Says Morgan Stanley
[WSJ] The 2017 Short Trade That’s Getting Pummelled This Week
[FT] Gold miners jump as jitters prompt haven buying
[Reuters] North Korea warns of nuclear strike if provoked; Trump 'armada' steams on
[WSJ] White House Says Russia Tried to Cover Up Syrian Chemical Attack
[Bloomberg] Gold, Yen Climb to 5-Month Highs as Refuges Sought: Markets Wrap
[Bloomberg] Yen Gains Against All G-10 Peers as Geopolitical Tensions Rise
[Bloomberg] Extreme Positioning in Options Markets Can Offer Trade Signals, Says Morgan Stanley
[WSJ] The 2017 Short Trade That’s Getting Pummelled This Week
[FT] Gold miners jump as jitters prompt haven buying
[Reuters] North Korea warns of nuclear strike if provoked; Trump 'armada' steams on
[WSJ] White House Says Russia Tried to Cover Up Syrian Chemical Attack
Monday, April 10, 2017
Tuesday's News Links
[Bloomberg] Gold Gains With Treasuries and Yen on Haven Demand: Markets Wrap
[Bloomberg] Asia Stocks Slump as China Shares Drop, Yen Gains: Markets Wrap
[Bloomberg] French Election Jitters Sets Bearish Tone for Italian Bonds
[Bloomberg] Huishan Says HSBC Claims Loan Default as Court Freezes Assets
[Bloomberg] Australian Business Conditions Jump to 2008 High in Show of Strength
[Bloomberg] Toshiba Warns of Its Ability to Continue as Going Concern
[NYT] Can Trump and Congress Solve the Rubik’s Cube of Tax Reform?
[WSJ] Fed’s Janet Yellen Says Era of Stimulative Monetary Policy Is Ending
[WSJ] Lending for Commercial Property Falls as Investors Pull Back
[WSJ] An Unusual Pattern Is Taking Hold in the Junk Bond Market
[WSJ] Investors Dump French Assets as Presidential Race Opens Up
[WSJ] China Regulator Warns Banks Away From Speculative Activity
[Reuters] Tillerson carries Syria stance to Moscow as Trump administration speaks for West
[Reuters] South Korea warns of North Korea 'provocations', U.S. navy group approaches
[Reuters] North Korea state media warns of nuclear strike if provoked as U.S. warships approach
[Bloomberg] North Korea Calls U.S. Aircraft Carrier Dispatch Outrageous
[Bloomberg] Asia Stocks Slump as China Shares Drop, Yen Gains: Markets Wrap
[Bloomberg] French Election Jitters Sets Bearish Tone for Italian Bonds
[Bloomberg] Huishan Says HSBC Claims Loan Default as Court Freezes Assets
[Bloomberg] Australian Business Conditions Jump to 2008 High in Show of Strength
[Bloomberg] Toshiba Warns of Its Ability to Continue as Going Concern
[NYT] Can Trump and Congress Solve the Rubik’s Cube of Tax Reform?
[WSJ] Fed’s Janet Yellen Says Era of Stimulative Monetary Policy Is Ending
[WSJ] Lending for Commercial Property Falls as Investors Pull Back
[WSJ] An Unusual Pattern Is Taking Hold in the Junk Bond Market
[WSJ] Investors Dump French Assets as Presidential Race Opens Up
[WSJ] China Regulator Warns Banks Away From Speculative Activity
[Reuters] Tillerson carries Syria stance to Moscow as Trump administration speaks for West
[Reuters] South Korea warns of North Korea 'provocations', U.S. navy group approaches
[Reuters] North Korea state media warns of nuclear strike if provoked as U.S. warships approach
[Bloomberg] North Korea Calls U.S. Aircraft Carrier Dispatch Outrageous
Monday Evening Links
[Bloomberg] Asia Stocks Set to Drop as Caution Fuels Bond Gain: Markets Wrap
[Bloomberg] Yellen Says Fed's Focus Has Shifted to Sustaining Economic Gains
[Reuters] Yellen says Fed's independence under threat from Congress
[CNBC] Banks may be behind the mysterious drop-off in car sales
[Bloomberg] China Is Playing a $9 Trillion Game of Chicken With Investors
[Reuters] U.S. stocks rise with oil futures, investors await earnings
[Bloomberg] This Is What Dimon and Kashkari Are Really Fighting About
[Bloomberg] California Cities' Pension Tab Seen Almost Doubling in 5 Years
[Bloomberg] Condos Drive Fastest Surge in Canadian Housing Starts Since 2007
[Bloomberg] Yellen Says Fed's Focus Has Shifted to Sustaining Economic Gains
[Reuters] Yellen says Fed's independence under threat from Congress
[CNBC] Banks may be behind the mysterious drop-off in car sales
[Bloomberg] China Is Playing a $9 Trillion Game of Chicken With Investors
[Reuters] U.S. stocks rise with oil futures, investors await earnings
[Bloomberg] This Is What Dimon and Kashkari Are Really Fighting About
[Bloomberg] California Cities' Pension Tab Seen Almost Doubling in 5 Years
[Bloomberg] Condos Drive Fastest Surge in Canadian Housing Starts Since 2007
Sunday, April 9, 2017
Monday's News Links
[Bloomberg] Oil Climbs and Stocks Are Mixed as Risks Linger: Markets Wrap
[Bloomberg] French Election Risk Reawakens as Bonds Drop, Volatility Jumps
[Reuters] Hopes fade for U.S. bank earnings despite rally in financial shares
[Bloomberg] Congress Sinks Into Partisan Morass as Shutdown Threat Looms
[Bloomberg] Japan’s Current-Account Surplus Bounces Back in February
[Bloomberg] Hong Kong Concerned About Risks From Developer Mortgages
[CNBC] Trump team isn't afraid to use force on Syria, North Korea
[WSJ] Chinese Banks Ramp Up Overseas Loans
[WSJ] U.S. Officials Fault Moscow on Syria Ahead of Tillerson Visit
[Bloomberg] French Election Risk Reawakens as Bonds Drop, Volatility Jumps
[Reuters] Hopes fade for U.S. bank earnings despite rally in financial shares
[Bloomberg] Congress Sinks Into Partisan Morass as Shutdown Threat Looms
[Bloomberg] Japan’s Current-Account Surplus Bounces Back in February
[Bloomberg] Hong Kong Concerned About Risks From Developer Mortgages
[CNBC] Trump team isn't afraid to use force on Syria, North Korea
[WSJ] Chinese Banks Ramp Up Overseas Loans
[WSJ] U.S. Officials Fault Moscow on Syria Ahead of Tillerson Visit
Sunday Evening Links
[Bloomberg] Asia Stocks Set for Gains as Profit Season Starts: Markets Wrap
[Bloomberg] A Foreign Threat to U.S. Treasuries That Dwarfs Fed's Debt Hoard
[Reuters] G7 foreign ministers seek U.S. clarity over Syria
[WSJ] Record Bond Issuance Shows Many Investors Still Doubt Economic Growth
[WSJ] Nothing to Fear, But the Lack of Fear in Markets
[FT] China offers concessions to avert trade war with US
[FT] The US college debt bubble is becoming dangerous
[FT] Unease grows about bets on market stability
[Washington Post] Trump officials tell Russia to drop its support for Syria’s Assad
[Bloomberg] A Foreign Threat to U.S. Treasuries That Dwarfs Fed's Debt Hoard
[Reuters] G7 foreign ministers seek U.S. clarity over Syria
[WSJ] Record Bond Issuance Shows Many Investors Still Doubt Economic Growth
[WSJ] Nothing to Fear, But the Lack of Fear in Markets
[FT] China offers concessions to avert trade war with US
[FT] The US college debt bubble is becoming dangerous
[FT] Unease grows about bets on market stability
[Washington Post] Trump officials tell Russia to drop its support for Syria’s Assad
Saturday, April 8, 2017
Sunday's News Links
[Reuters] Greek PM says debt relief is a condition for more austerity
[Reuters] Investors flock to 'macro' hedge funds, but not only the old guard
[Bloomberg] China Insurance Regulator Chairman Under Probe for Violations
[NYT] Boom or Bust: Stark Partisan Divide on How Consumers View Economy
[FT] Will the reflation trade show further cracks?
[FT] Huishan Dairy dream sours for China tycoon Yang Kai
[Bloomberg] Trump's Syria Missile Strike Ramps Up Tensions With Moscow
[Bloomberg] Trump, Japan's Abe Agree to Keep Unity on North Korea: NHK
[Reuters] U.S. Navy strike group to move toward Korean peninsula: U.S. official
[Reuters] Trump's U.N. envoy says ouster of al-Assad is a priority of U.S.
[NYT] Iran Seeks Stronger Russia Alliance After U.S. Strikes in Syria
[Reuters] Investors flock to 'macro' hedge funds, but not only the old guard
[Bloomberg] China Insurance Regulator Chairman Under Probe for Violations
[NYT] Boom or Bust: Stark Partisan Divide on How Consumers View Economy
[FT] Will the reflation trade show further cracks?
[FT] Huishan Dairy dream sours for China tycoon Yang Kai
[Bloomberg] Trump's Syria Missile Strike Ramps Up Tensions With Moscow
[Bloomberg] Trump, Japan's Abe Agree to Keep Unity on North Korea: NHK
[Reuters] U.S. Navy strike group to move toward Korean peninsula: U.S. official
[Reuters] Trump's U.N. envoy says ouster of al-Assad is a priority of U.S.
[NYT] Iran Seeks Stronger Russia Alliance After U.S. Strikes in Syria
Saturday's News Links
[CNBC] The Fed's new frontier: What happens, why it matters and what could go wrong
[Reuters] Chinese state media cheer Xi-Trump meeting, say confrontation not inevitable
[Spiegel] The World at a Crossroads in Syria
[WSJ] U.S. Strike in Syria Raises Tensions With Iran
[FT] US and Russia clash over Trump’s strike on Syria
[Reuters] Chinese state media cheer Xi-Trump meeting, say confrontation not inevitable
[Spiegel] The World at a Crossroads in Syria
[WSJ] U.S. Strike in Syria Raises Tensions With Iran
[FT] US and Russia clash over Trump’s strike on Syria
Friday, April 7, 2017
Weekly Commentary: Just the Facts - April 7
For the Week:
The S&P500 slipped 0.3% (up 5.2% y-t-d), while the Dow was about unchanged (up 4.5%). The Utilities added 0.3% (up 5.3%). The Banks fell 1.2% (down 1.0%), and the Broker/Dealers dropped 2.4% (up 2.7%). The Transports were little changed (up 0.7%). The S&P 400 Midcaps declined 0.8% (up 2.8%), and the small cap Russell 2000 fell 1.5% (up 0.5%). The Nasdaq100 dipped 0.3% (up 11.4%), and the Morgan Stanley High Tech index declined 0.2% (up 13.3%). The Semiconductors lost 1.2% (up 10.2%). The Biotechs sank 2.5% (up 13.1%). With bullion gaining $5, the HUI gold index rallied 3.3% (up 11.8%).
Three-month Treasury bill rates ended the week at 80 bps. Two-year government yields increased three bps to 1.29% (up 10bps y-t-d). Five-year T-note yields were unchanged at 1.92% (down 1bp). Ten-year Treasury yields slipped a basis point to 2.38% (down 6bps). Long bond yields were unchanged at 3.01% (down 6bps).
Greek 10-year yields declined 11 bps to 6.79% (down 23bps y-t-d). Ten-year Portuguese yields fell 11 bps to 3.87% (up 12bps). Italian 10-year yields dropped 10 bps to 2.22% (up 41bps). Spain's 10-year yields declined five bps to 1.61% (up 23bps). German bund yields sank 10 bps to 0.23% (up 2bps). French yields fell eight bps to 0.89% (up 21bps). The French to German 10-year bond spread widened one to 66 bps. U.K. 10-year gilt yields fell six bps to 1.08% (down 16bps). U.K.'s FTSE equities index added 0.4% (up 2.9%).
Japan's Nikkei 225 equities index dropped 1.3% to a four-month low (down 2.4% y-t-d). Japanese 10-year "JGB" yields slipped a basis point to 0.06% (up 2bps). The German DAX equities index dipped 0.7% (up 6.5%). Spain's IBEX 35 equities index added 0.6% (up 12.6%). Italy's FTSE MIB index fell 0.9% (up 5.5%). EM equities were mixed. Brazil's Bovespa index lost 0.8% (up 7.0%). Mexico's Bolsa jumped 1.6% (up 8.1%). South Korea's Kospi slipped 0.4% (up 6.2%). India’s Sensex equities index added 0.3% (up 11.6%). China’s Shanghai Exchange jumped 2.0% (up 5.9%). Turkey's Borsa Istanbul National 100 index declined 0.5% (up 13.3%). Russia's MICEX equities index advanced 1.2% (down 9.5%).
Junk bond mutual funds saw inflows surge to $2.375 billion (from Lipper).
Freddie Mac 30-year fixed mortgage rates declined four bps to 4.10% (up 51bps y-o-y). Fifteen-year rates declined three bps to 3.36% (up 48bps). The five-year hybrid ARM rate added a basis point to 3.19% (up 37bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down four bps to 4.19% (up 51bps).
Federal Reserve Credit last week slipped $1.6bn to $4.435 TN. Over the past year, Fed Credit declined $8.8bn (down 0.2%). Fed Credit inflated $1.617 TN, or 58%, over the past 230 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt gained $7.2bn last week to $3.214 TN. "Custody holdings" were down $43.4bn y-o-y, or 1.3%.
M2 (narrow) "money" supply last week expanded $12.3bn to a record $13.418 TN. "Narrow money" expanded $777bn, or 6.2%, over the past year. For the week, Currency increased $4.3bn. Total Checkable Deposits dropped $25bn, while Savings Deposits jumped $31.4bn. Small Time Deposits were little changed. Retail Money Funds added $1.8bn.
Total money market fund assets declined $6.0bn to $2.648 TN. Money Funds fell $91bn y-o-y (3.3%).
Total Commercial Paper gained $6.7bn to $993bn. CP declined $109bn y-o-y, or 9.9%.
Currency Watch:
The U.S. dollar index gained 0.8% to 101.13 (down 1.2% y-t-d). For the week on the upside, the Mexican peso and Japanese yen increased 0.3%. For the week on the downside, the South African rand declined 2.5%, the Australian dollar 1.7%, the British pound 1.4%, the South Korean won 1.4%, the Swedish krona 1.1%, the New Zealand dollar 0.9%, the Brazilian real 0.8%, the Norwegian krone 0.7%, the Swiss franc 0.6%, the Canadian dollar 0.6%, the euro 0.6% and the Singapore dollar 0.6%. The Chinese yuan declined 0.19% versus the dollar this week (up 0.64% y-t-d).
Commodities Watch:
The Goldman Sachs Commodities Index advanced 1.2% (down 1.4% y-t-d). Spot Gold added 0.4% to $1,254 (up 8.9%). Silver fell 1.5% to $17.99 (up 12.6%). Crude jumped $1.69 to $52.29 (down 2.9%). Gasoline rose 2.3% (up 4%), and Natural Gas gained 1.8% (down 13%). Copper slipped 0.3% (up 6%). Wheat declined 0.6% (up 4%). Corn fell 1.3% (up 2%).
Trump Administration Watch:
April 4 – Reuters (David Brunnstrom, Matt Spetalnick and Ben Blanchard): “When U.S. President Donald Trump meets Chinese President Xi Jinping this week, their summit will be marked not only by deep policy divisions but a clash of personalities between America’s brash ‘tweeter-in-chief’ and Beijing’s cautious, calculating leader. They may have one thing in common: their rhetoric about restoring their nations to greatness. But the two men differ in almost every other respect, from their political styles to their diplomatic experience, adding uncertainty to what has been called the world’s most important bilateral relationship. Five months after his election on a stridently anti-China platform, Trump appears to have set himself on a course for collision rather than conciliation with Xi, raising doubts as to whether the world's two biggest economies can find common ground.”
April 3 – Financial times (Song Jung-a, Ben Bland and Tom Mitchell): “Donald Trump’s warning that he could take unilateral action to eliminate North Korea’s nuclear threat has sparked alarm among some analysts in Asia about the implications for South Korea, Japan and China of a military conflict with Pyongyang. ‘China has great influence over North Korea. And China will either decide to help us with North Korea, or they won’t,’ Mr Trump told the Financial Times... ‘If China is not going to solve North Korea, we will.’ The comments by the US president came weeks after Rex Tillerson, secretary of state, declared during a visit to Asia that the US policy of ‘strategic patience has ende’. Mr Tillerson said that Washington would not rule out any option in response to provocations by North Korea.”
April 6 – Bloomberg (Elizabeth Dexheimer): “In a private meeting with lawmakers, White House economic adviser Gary Cohn said he supports a policy that could radically reshape Wall Street’s biggest firms by separating their consumer-lending businesses from their investment banks, said people with direct knowledge… Cohn, the ex-Goldman Sachs Group Inc. executive who is now advising President Donald Trump, said he generally favors banking going back to how it was when firms like Goldman focused on trading and underwriting securities, and companies such as Citigroup Inc. primarily issued loans… The remarks surprised some senators and congressional aides who attended the Wednesday meeting, as they didn’t expect a former top Wall Street executive to speak favorably of proposals that would force banks to dramatically rethink how they do business.”
April 5 – Reuters (Roberta Rampton and Jeff Mason): “‘We’re going to be coming out with some very strong - far beyond recommendations - we're going to be doing things that are going to be very good for the banking industry so that the banks can loan money to people who need it,’ Trump told a meeting with a business leaders… ‘We’re going to do a very major haircut on Dodd-Frank. We want strong restrictions, we want strong regulation. But not regulation that makes it impossible for the banks to loan to people that are going to create jobs,’ Trump said.”
April 4 – Bloomberg (Matthew Townsend, Ben Brody, and Elizabeth Dexheimer): “Donald Trump’s surprising election and his promise to overhaul the U.S. tax code set off celebrations across corporate America -- but some industries had barely applauded before they began gearing up for a fight. Trump’s win gave Republicans control of the U.S. government for the first time in a decade and quickly drew attention to a tax plan that House Speaker Paul Ryan unveiled last summer with little fanfare. Ryan’s radical tax-code rewrite would replace the corporate income tax with a 20% tax on businesses’ domestic sales and imports; their exports would be exempt. Cue the alarm bells for import-heavy companies like Wal-Mart Stores Inc., Target Corp. and Nike Inc. Retailers, apparel-makers, shoemakers, automakers and others unleashed one of their most robust lobbying and public-relations pushes in recent memory against the so-called ‘border-adjusted’ tax.”
China Bubble Watch:
April 2 – Bloomberg: “China’s deleveraging push has racked up the most defaults on corporate bonds ever for a first quarter, and the identity of the debtors is pretty revealing. Seven companies have defaulted on a total of nine bonds onshore so far in 2017, versus 29 for all of last year… In a sign of the struggles facing China’s old economic model, most of them depend on heavy industry and construction… ‘Weak companies can’t sell bonds, which adds to the pressure on their cash flow,’ said Liu Dongliang, a senior analyst at China Merchants Bank… ‘The pace of defaults will continue. It will be even more difficult for weak companies to sell bonds because corporate bond yields may rise further -- the current yield premium doesn’t provide enough protection against credit risks.’”
April 4 – Reuters (Jake Spring): “The crisis at Huishan Dairy, one of China's biggest dairy companies, is a stark reminder of what can lurk in the dark corners of corporate China, where rapid growth can go hand in hand with tangled finances and heavy debt. China Huishan Dairy Holdings Co Ltd embraced what its executives called ‘innovative financing’, from the sale and leaseback of its cows, to selling wealth management products for rich investors - financial antics that seem incongruous with the dusty fields, tin-roofed sheds and plastic greenhouses of Zhangwu county in northeast China. Now it is battling swollen liabilities, a short-term debt squeeze and considerable unwanted attention… It has reported a key finance executive missing. Its misfortunes are a reminder that even as banks' bad debt numbers stabilise, there remain many question marks over the quality of their balance sheets… ‘When you move down to the local lenders in less developed provinces and counties, there could be hundreds and thousands of similar cases to Huishan, albeit at a smaller scale,’ said Shawlin Chaw, Control Risks analyst focused on Greater China.”
April 4 – Financial Times (Jennifer Hughes): “The disclosure that China Huishan Dairy’s founder pledged 71% of his company’s shares for loans before the group’s stock collapsed has raised fears that more companies could be at risk if other large shareholders have followed his example. Share-backed lending is common in Asia and a sought-after business in Hong Kong for banks keen to build deeper links with favoured tycoons, whose wealth is often tied up in their company’s stock. Private equity funds also regularly borrow against the value of their holdings in listed groups. While the loans carry strict triggers and borrowers forfeit shares if they cannot meet margin calls promptly, the extreme nature of Huishan’s crash — the shares plummeted 85% in 45 minutes before dealing was halted and are still not trading — means it is unclear whether Yang Kai might be forced to cede control of the group.”
April 6 – Bloomberg (Lianting Tu, Carrie Hong, and Denise Wee): “The first ever downgrade of a Chinese local-government financing vehicle by an international ratings agency is reigniting concern over the debt-saddled entities, amid angst there could be more cuts to come. S&P Global Ratings reduced its credit rating on Jiangsu NewHeadline Development Group, a construction services provider and one of the largest financing firms owned by Lianyungang City -- in China’s eastern Jiangsu province… S&P attributed the cut to the local government’s high debt burden and said the LGFV’s credit profile will remain under pressure for the next two years. ‘I wouldn’t be surprised if we see more downgrades by rating agencies,’ said Anne Zhang, executive director at… JPMorgan… ‘If S&P downgrades, we might see Fitch start to review their ratings as well.’”
April 7 – Bloomberg: “The scent of doom is returning to China’s local government bond market. S&P Global Ratings pulled the trigger on the first ever downgrade of a Chinese local-government financing vehicle Thursday, citing the city in eastern Jiangsu province’s high debt burden. Traders and analysts are uneasy as well, with 18 of 29 polled in a Bloomberg News survey saying they’d sooner buy corporate debt than LGFV bonds. Concern Beijing is trying to wean local bodies off their support is quelling demand for the debt, with the yield premium on LGFV notes versus company bonds swelling to near the most since March 2014.”
April 3 – Financial times (Don Weinland): “China’s so-called bad banks are thriving as alternative lenders, evolving from bad-debt managers into some of the country’s largest financial conglomerates just as margins at the big state-owned banks come under pressure. China’s four centrally controlled asset management companies (AMCs) were set up in 1999 to swallow toxic assets from banks, and have had their assets grow expansively over the past five years. Assets at Cinda Asset Management Company… rose 360% to Rmb1.1tn ($160bn) between 2012 and 2016… The four groups — Cinda, Huarong, Great Wall and Orient — have been the primary buyers of non-performing loans in China. But they have also profited from low interest rates in recent years, borrowing cheaply and lending to companies at much higher rates to restructure problematic loans.”
April 5 – Reuters (Yawen Chen and Nicholas Heath): “Activity in China's service sector expanded at its weakest pace in six months in March, hurt by slower growth in new orders and intensifying cost pressures… The Caixin/Markit services purchasing managers' index (PMI) for March fell to 52.2 from February's 52.6…”
Global Bubble Watch:
April 4 – Reuters (Dion Rabouin): “Global debt rose to 325% of the world's gross domestic product in 2016, totalling $215 trillion, an Institute for International Finance report released… showed, boosted by the rapid growth of issuance in emerging markets. Global debt grew by $7.6 trillion in 2016 compared with the prior year. Issuance rose from 320% of GDP in 2015. Emerging market debt saw a ‘spectacular rise’ to $55 trillion outstanding in 2016, equal to 215% of their GDP. This was driven mostly by non-financial corporate debt, the report said. Emerging markets have raised nearly $40 trillion of new debt between 2006 and 2016, a significant acceleration from the roughly $9 trillion added between 1996 and 2006… Global debt has risen more than $70 trillion in the last decade to a record high for debt issuance… Developed market countries accounted for $160 trillion, the lion's share of global debt, reaching… 390% of those markets' combined GDP. The report found that the $32 trillion increase in developed market debt had been driven largely by governments, with U.S. and UK public sector debt having more than doubled since 2006.”
April 5 – Bloomberg (Fergal O'Brien): “Inflation across Organization for Economic Cooperation and Development member nations is accelerating, with the average reaching the fastest in five years in February. The increase was driven by energy prices, where the year-on-year change jumped to 11.1% from 8.5%, and food. Among the OECD’s biggest economies, the fastest inflation was in the U.S…”
April 3 – Bloomberg (Luke Kawa): “So much for America First. In the first quarter, investors dumped an U.S. exchange-traded fund that holds mid and small-cap U.S. stocks and flooded into another that owns large emerging-market equities. The iShares Russell 2000 ETF… was hit with $1.41 billion in outflows since the start of the year, the most among U.S.-listed equity ETFs. The iShares Core MSCI Emerging Markets ETF… attracted $6.63 billion in assets, the most among funds tracked by Bloomberg.”
April 5 – Bloomberg (Kim Chipman and Erik Hertzberg): “Toronto’s housing market showed no signs of cooling last month, with the average sale price soaring the most in almost three decades as the cost of a detached downtown home climbed to nearly C$1.6 million ($1.2 million). Prices increased by a third in every major housing category, including townhouses and condominiums, amid intense competition among buyers…”
April 2 – Bloomberg (Emily Cadman): “Australian house prices rose the most in almost seven years in March as the country’s housing boom accelerated. Average home values in Australia’s eight state and territory capitals rose 12.9% in the 12 months through March, the fastest pace since May 2010, according to… CoreLogic… The boom is being led by Sydney, where average house values surged 18.9% in the past 12 months, the most since November 2002. Sydney home values climbed 5% in the first three months of the year.”
April 4 – Bloomberg (Emily Cadman): “Australian regulators may take further steps to rein in mortgage lending amid growing concern booming home prices pose a risk to the financial system. Restrictions on interest-only loans announced last week were a ‘tactical response’ to growth in lending to property investors, Australian Prudential Regulation Authority Chairman Wayne Byres said... The regulator ‘can and will do more, or less, as conditions evolve,’ he said… Australian house prices rose the most in almost seven years in March, data from CoreLogic… showed. The boom is being led by Sydney, where average house values surged 18.9% in the past 12 months, the most since November 2002.”
Fixed Income Bubble Watch:
April 4 – Wall Street Journal (Christopher Whittall): “High-grade corporate bonds surged when the European Central Bank added them to its €2.3 trillion purchase program last year. Now, with a slowdown in ECB buying on the horizon—alongside potentially risky European elections—some investors are bracing for a selloff. The ECB started paring its monthly purchases of European debt from €80 billion to €60 billion in April, meaning it will buy around €1.9 billion fewer corporate bonds every month…”
April 4 – Financial Times (Nicholas Megaw): “Growing risk appetite as investors embraced the so-called ‘Trump trade’ helped issuance of high-yield corporate bonds in Europe more than double in the first quarter, but from a very low base, according to data from Fitch… Total junk bond issuance of €30bn was 2.5 times greater than in the first quarter of 2016… The riskiest debt, with credit ratings below B-, made up the highest share of total high-yield issuance since 2013, highlighting the extent of market optimism.”
ECB Watch:
April 4 – Reuters (Stephen Jewkes): “Italy's Target 2 liabilities rose to a new record high in March pointing to growing imbalances in the position of different central banks within the euro zone. The Bank of Italy's position within the Target 2 system, which settles cross-border payments in the euro zone, is monitored because its increase can indicate financial stress. The Bank of Italy said on Friday its Target 2 position rose to 419.8 billion euros ($446.2bn) in March from 386.1 billion euros in February.”
April 6 – Bloomberg (Alessandro Speciale): “Mario Draghi may have hoped to put an end to the bubbling debate on the European Central Bank’s exit strategy on Thursday. It didn’t take long for a reminder of how complicated this will be. Speaking in Frankfurt, the ECB president sought to quash the idea that policy makers will begin tightening policy sooner than planned and dispel doubts about the planned route to the eventual stimulus exit. Less than three hours later, Bundesbank President Jens Weidmann re-opened the issue, saying that a discussion on forward guidance is ‘legitimate.’ The conflicting signals are exactly what executive board member Benoit Coeure warned about last week when he said public disagreements may hamper the effectiveness of policy.”
Europe Watch:
April 3 – Reuters (Jonathan Cable): “Factories across the euro zone struggled to keep up with demand last month despite increasing activity at the fastest rate in nearly six years, according to a survey that showed them again hiking prices. IHS Markit's final manufacturing Purchasing Managers’ Index for the euro zone rose to 56.2 in March, the highest since April 2011, from February's 55.4.”
April 3 – Bloomberg (Zoe Schneeweiss): “Euro-area unemployment fell to the lowest level in almost eight years in February, in a sign that the region’s economy is strengthening. Joblessness decreased to 9.5%... That’s the lowest since May 2009…”
April 3 – Financial times (Dan McCrum): “Italian government bond prices were lower on Monday, as investors focused on signs of political sclerosis rather than economic data pointing to strength in manufacturing and a drop in the ranks of the unemployed. The difference between Italian 10-year sovereign bonds and the benchmark German Bund — a key measure of investor confidence as it shows the premium traders are demanding to buy Italian debt — hit a more than three-year high on Monday of 2.03%.”
April 4 – Financial times (Mehreen Khan): “The yield gap between French and German two-year debt has blown out to its highest level since the eurozone crisis as investors snap up German assets ahead of France’s presidential elections in three weeks’ time. The two-year spread – a measure of the premium investors demand to hold French over German debt – has hit 47 bps, surpassing the 42 bps reached during the height of jitters about Marine Le Pen’s chance of victory in France’s presidential elections and the widest since the bloc’s debt crisis abated five years ago. The spread has swollen from 26bps just 10 days ago…”
April 2 – Reuters (Dominique Vidalon): “French presidential candidate Marine Le Pen told a political rally on Sunday that the euro currency which she wants France to ditch was like a knife in the ribs of the French people. The leader of the eurosceptic and anti-immigrant National Front (FN) also told the rally in the city of Bordeaux that the forthcoming election for president could herald a ‘change in civilization’.”
Federal Reserve Watch:
April 5 – Reuters (Lindsay Dunsmuir and Howard Schneider): “Most Federal Reserve policymakers think the central bank should take steps to begin trimming its $4.5 trillion balance sheet later this year as long as the economic data holds up, minutes from their last meeting showed. The minutes… of the March 14-15 policy discussion… also showed that the rate-setting committee had a broad discussion about whether to phase out or halt reinvestments all at once. ‘Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee's reinvestment policy would likely be appropriate later this year’…”
April 6 – Bloomberg (Catherine Bosley and Lucy Meakin): “Federal Reserve Bank of San Francisco President John Williams said it may take the U.S. central bank around five years to shrink its balance sheet to a more normal size once that process gets underway. Speaking with reporters…, Williams said it made sense to begin the roll-off toward the end of 2017. The length of time it takes would depend on how far officials want to trim a balance sheet swollen to $4.5 trillion by three rounds of asset purchases… ‘The number of years we’re thinking about just based on the arithmetic is something like 5 years,’ said Williams…”
April 4 – Bloomberg (Craig Torres, Christopher Condon , and Jeanna Smialek): “The Federal Reserve’s inspector general says it will be ending its investigation into the 2012 release of confidential information. Even after the scandal cut short the career of one top Fed official, the answer to the most important question remains a mystery. Who did the initial leaking? Richmond Fed President Jeffrey Lacker resigned abruptly… as he announced his role in the unauthorized disclosure of information to Medley Global Advisors about policy options that the central bank was considering in 2012. His explanation suggested he was confirming facts the Medley analyst already knew. It was a sudden career stop for a Fed president who was frequently in opposition to the Fed board consensus on interest-rate policy, and the news will likely revive questions in Congress about the value of the central bank’s discretion and transparency.”
April 3 – Bloomberg (Matthew Boesler and Shahien Nasiripour): “The rising burden of student debt is weighing on interest rates in the U.S., and it would be a ‘reasonable conversation’ for policy makers to explore making college tuition free, Federal Reserve Bank of New York President William Dudley said. The growing pile of student debt is ‘obviously one headwind to economic activity’ that ‘probably pushes in that direction of lower equilibrium real rates’ because it limits households’ spending power, Dudley said… Fed officials have been trying to estimate the so-called equilibrium level of interest rates that keeps economic growth on a steady and sustainable pace. The concept has increasingly dominated the debate about where to set the U.S. central bank’s benchmark rate and how quickly to move after policy makers in December 2015 embarked on their first tightening cycle in nearly a decade.”
U.S. Bubble Watch:
April 7 – Wall Street Journal (Jon Sindreu and Christopher Whittall): “What if selling insurance against tornadoes made tornadoes occur less frequently? Something like that may be behind the incredible calm in global financial markets. The theory, advanced by several money managers, bankers and analysts, describes a type of feedback loop in which calm markets make selling insurance against sharp swings in asset prices profitable, which makes the markets more calm, which then makes selling insurance yet more attractive. And on and on. Behind the loop is a danger: If a giant shock—a big tornado—does materialize, the loop could suddenly run in the other direction, amplifying big moves rather than damping them.”
April 3 – CNBC (Jeff Cox): “The bullish beginning of 2017 did more than set a sizzling pace for the year — it actually pulled some long-dormant cash off the sidelines. As the S&P 500 gained 4.7%, and bonds managed to stay above water, investors yanked about $75 billion out of low-yielding money market accounts and put it to work, according to… the Investment Company Institute and TrimTabs… That money accounted for a sizable chunk of the $162 billion that flowed to both stocks and bond funds during the quarter, TrimTabs said. The money market total is through February…”
April 7 – Bloomberg (Gabrielle Coppola, Matt Scully and David Welch): “On countless occasions in recent years, the U.S. auto industry has relied on cheap and easy credit from Wall Street to get it through rough patches. Not this time. With both bad loans and interest rates on the rise, financial institutions are becoming more selective in doling out credit for new-car purchases, adding to the pressure for automakers already up against the wall with sliding sales, swelling inventories and a used-car glut. ‘We’ve been having a party for a few years and it was fun,’ said Maryann Keller, an industry consultant… ‘Now lenders are getting back to basics.’”
April 3 – Bloomberg (Vince Golle): “America’s factories continued to expand in March at a robust pace, demonstrating momentum in an industry that struggled for the better part of the last two years, Institute for Supply Management data showed… ISM’s diffusion index eased to 57.2 from February’s 57.7, which was the highest since August 2014… Factory employment gauge climbed to 58.9, the strongest reading since June 2011, from 54.2. Prices-paid index increased to 70.5, the highest since May 2011, from 68…”
April 5 – Bloomberg (Patricia Laya): “American service companies expanded in March at the slowest pace in five months, adding to signs of tepid economic growth in the first quarter, a survey by the Institute for Supply Management showed… ISM’S non-manufacturing index eased to 55.2 (forecast was 57) from February’s 57.6, which was the highest since 2015…”
April 3 – Bloomberg (Jamie Butters and David Welch): “U.S. auto sales trailed estimates, with Kia Motors Corp. and Ford Motor Co. reporting some of the biggest declines, as heavy incentive spending failed to contain plunging demand for sedan and compact models… Combined deliveries for Kia and its affiliate Hyundai Motor Co. slumped 11%, and Ford’s dropped 7.2% last month… General Motors Co., Fiat Chrysler Automobiles NV and Toyota Motor Corp. also fell short of expectations.”
April 3 – CNBC (Diana Olick): “Fast-rising home prices gave homeowners more equity than many expected, and they are now tapping that equity at the fastest rate in eight years. Homeowners gained a collective $570 billion throughout 2016, bringing the number of homeowners with ‘tappable’ equity up to 39.5 million, according to Black Knight Financial Services… But the fact that mortgage rates were lower last year makes it less likely today's borrowers would want to refinance this year. About 68% of tappable equity belongs to borrowers with mortgage rates below today's levels.”
April 7 – Wall Street Journal (Jay Greene): “Just as oil and gas companies plow billions of dollars in searching for new energy reserves, big technology companies are spending lavishly on a global footprint of sophisticated computers to run every startup and corporate colossus’s business in the cloud. Amazon.com Inc. upped the ante this week, announcing plans to plunk down a massive collection of data centers in Stockholm. It is the latest move in a high-stakes race to own the biggest piece of a market that is expected to reach into the hundreds of billions of dollars. Amazon and its chief rivals— Microsoft Corp. and Alphabet Inc.’s Google—are aggressive players in so-called hyperscale computing, which provides digital horsepower that scales quickly when needed in real time… Combined, Amazon, Microsoft and Alphabet doled out $31.54 billion in 2016 in capital expenditures and capital leases, according to company filings. That is up 22% from 2015.”
April 7 – Bloomberg (David M Levitt): “One of the most visible symbols of San Francisco’s technology-fueled boom is nearing completion and reshaping the city’s skyline. Builders laid the final beam yesterday for Salesforce Tower, a $1 billion skyscraper that now stands as the tallest office building west of Chicago. The 1,070-foot tower is set to be finished this summer and the main tenant, Salesforce.com Inc., expects to start moving in by the end of the year… It’s the biggest and most ambitious project in what city Supervisor Jane Kim called San Francisco’s largest construction boom since the 1906 earthquake… There is 5.9 million square feet of offices under construction in the city, with about 38.8% pre-leased…”
April 7 – Wall Street Journal (AnnaMaria Andriotis): “Credit-card debt breached the $1 trillion threshold in the U.S., joining auto loans and student debt in crossing that level, and hitting its highest mark since the nation’s last recession. The new data from the Federal Reserve marks the latest sign of a growing appetite for household debt. Rising consumer borrowing is often a positive sign for the U.S. economy as it typically means consumers are spending more on big-ticket items, such as cars, and smaller purchases often charged on cards. And while some are concerned about auto lending to risky borrowers and defaults on student loans, the quality of most credit-card debt remains strong.”
April 5 – Bloomberg (Oshrat Carmiel): “A home on Manhattan’s Upper East Side sold for $79.5 million…, making it the highest price ever paid for a townhouse in the borough. The 20,500-square-foot property, at 19 E. 64th St., had been owned by the Wildenstein family, billionaire art dealers whose gallery was located at the site for more than 80 years. The previous record for a Manhattan townhouse was the $53 million paid for 4 E. 75th St., in 2006…”
Japan Watch:
April 5 – Reuters (Stanley White): “Activity in Japan’s services sector expanded at the fastest pace in 19 months in March as outstanding business improved, allowing companies to charge more for their goods... The Markit/Nikkei Japan Services Purchasing Managers Index (PMI) rose to 52.9 in March on a seasonally adjusted basis from 51.3 in February.”
EM Watch:
April 2 – Bloomberg (Filipe Pacheco): “It’s been a tumultuous few days in Latin America, with anti-government protests in Venezuela and Paraguay, an attack on the opposition presidential candidate in Ecuador and recurring unrest in Brazil, where the president’s popularity is tumbling amid attempts to reform the pension system. All are reigniting concern about political stability in some of this year’s best-performing emerging markets and key U.S. trading partners.”
April 3 – Bloomberg (Rene Vollgraaff): “South Africa lost its investment-grade credit rating from S&P Global Ratings for the first time in 17 years in response to a cabinet purge by President Jacob Zuma… S&P cut the foreign-currency rating to BB+, the highest junk score, on Monday and warned that a deterioration of the nation’s fiscal and macroeconomic performance could lead to further reductions… Moody’s…, which rates the nation at two levels above junk with a negative outlook, said the rating is under review for a downgrade.”
April 6 – Bloomberg (Anirban Nag): “India unexpectedly raised the reverse repo rate while keeping the benchmark unchanged, effectively tightening policy to step up the fight against accelerating inflation. Bonds fell. The reverse repo rate was raised to 6% from 5.75% while the benchmark repurchase rate was kept steady at 6.25%, the Reserve Bank of India said…, citing excess funds in the banking system after the government’s clampdown on cash.”
April 6 – Reuters (Jason Hovet and Jan Lopatka): “The Czech central bank scrapped its cap on the crown currency on Thursday, allowing it to float freely to stronger levels against the euro for the first time since 2013.”
Leveraged Speculation Watch:
April 7 – Bloomberg (Katia Porzecanski): “Equity hedge funds are getting a pick-me-up after a harsh 2016, when they suffered almost a third of the industry’s withdrawals, amid a global stock rally. The long-short strategy returned 3.2% in the first quarter on an asset-weighted basis, marking the best start to a year since 2013, according to Hedge Fund Research Inc. The strategy was the top performer over the period, with the average hedge fund returning 2.3%, on a fund-weighted basis.”
Geopolitical Watch:
April 7 – Washington Post (David Filipov and Anne Gearan): “Russia on Friday condemned a U.S. missile strike against Syrian government forces as an attack on its ally and said it was suspending an agreement to minimize the risk of in-flight incidents between U.S. and Russian aircraft operating over Syria. Even as Russian officials expressed hope that the strike against Syrian President Bashad al-Assad’s forces would not lead to an irreversible breakdown in U.S. relations with Moscow, the Kremlin’s decision to suspend the 2015 memorandum of understanding on the air operations immediately raised tensions in the skies over Syria.”
April 5 – Wall Street Journal (Carol E. Lee and Felicia Schwartz): “A confluence of crises in Syria and North Korea is forcing President Donald Trump to re-evaluate his fledgling foreign policy, deciding which advisers he will listen to and which campaign pledges to jettison. The apparent chemical-weapons attack in Syria and the latest ballistic missile test by North Korea raise the stakes for two upcoming events: Mr. Trump’s summit this week with Chinese President Xi Jinping… and Secretary of State Rex Tillerson’s planned visit next week to Russia, a patron of the Syrian regime.”
April 6 – Reuters (Tim Kelly and Ju-min Park): “Diplomatic and economic measures taken to rein in North Korea's missile program have not had the desired effect, a senior U.S. military commander said on Thursday after the North's latest test triggered a flurry of calls among world leaders. U.S President Donald Trump led calls with leaders and senior officials from Japan and South Korea on Thursday to discuss the latest provocation from Pyongyang, hours before Trump begins a much-anticipated summit with Chinese counterpart Xi Jinping.”
April 5 – Wall Street Journal (Carol E. Lee Dion Nissenbaum and Farnaz Fassihi): “President Donald Trump said a suspected chemical attack by the Assad regime was ‘a terrible affront to humanity’ that changed his mind about the Syrian strongman, signaling a more aggressive U.S. policy toward Syria. Mr. Trump didn’t elaborate on how his administration would respond to the latest attack, which killed at least 85 people, but said it made him re-evaluate his approach to Syrian President Bashar al-Assad and his regime.”
April 4 – CNBC (Clay Dillow): “OKINAWA-While the world watches mounting military tensions in the South China Sea, another, more ominous situation is brewing in the East China Sea that could be the trigger point for a major war between the superpowers. At the heart of tensions are eight uninhabited islands controlled by Japan that are close to important shipping lanes, rich fishing grounds and potential oil and gas reserves. China contests Japan's claims and is escalating its military activity in Japan airspace. In response, Japan has been doubling its F-15 jet intercepts. The situation increases the risk of an accidental confrontation — and could draw other countries, like the United States, into a conflict. It's a topic President Trump will likely bring up with Chinese President Xi Jinping at his Mar-a-Lago estate this week.”
The S&P500 slipped 0.3% (up 5.2% y-t-d), while the Dow was about unchanged (up 4.5%). The Utilities added 0.3% (up 5.3%). The Banks fell 1.2% (down 1.0%), and the Broker/Dealers dropped 2.4% (up 2.7%). The Transports were little changed (up 0.7%). The S&P 400 Midcaps declined 0.8% (up 2.8%), and the small cap Russell 2000 fell 1.5% (up 0.5%). The Nasdaq100 dipped 0.3% (up 11.4%), and the Morgan Stanley High Tech index declined 0.2% (up 13.3%). The Semiconductors lost 1.2% (up 10.2%). The Biotechs sank 2.5% (up 13.1%). With bullion gaining $5, the HUI gold index rallied 3.3% (up 11.8%).
Three-month Treasury bill rates ended the week at 80 bps. Two-year government yields increased three bps to 1.29% (up 10bps y-t-d). Five-year T-note yields were unchanged at 1.92% (down 1bp). Ten-year Treasury yields slipped a basis point to 2.38% (down 6bps). Long bond yields were unchanged at 3.01% (down 6bps).
Greek 10-year yields declined 11 bps to 6.79% (down 23bps y-t-d). Ten-year Portuguese yields fell 11 bps to 3.87% (up 12bps). Italian 10-year yields dropped 10 bps to 2.22% (up 41bps). Spain's 10-year yields declined five bps to 1.61% (up 23bps). German bund yields sank 10 bps to 0.23% (up 2bps). French yields fell eight bps to 0.89% (up 21bps). The French to German 10-year bond spread widened one to 66 bps. U.K. 10-year gilt yields fell six bps to 1.08% (down 16bps). U.K.'s FTSE equities index added 0.4% (up 2.9%).
Japan's Nikkei 225 equities index dropped 1.3% to a four-month low (down 2.4% y-t-d). Japanese 10-year "JGB" yields slipped a basis point to 0.06% (up 2bps). The German DAX equities index dipped 0.7% (up 6.5%). Spain's IBEX 35 equities index added 0.6% (up 12.6%). Italy's FTSE MIB index fell 0.9% (up 5.5%). EM equities were mixed. Brazil's Bovespa index lost 0.8% (up 7.0%). Mexico's Bolsa jumped 1.6% (up 8.1%). South Korea's Kospi slipped 0.4% (up 6.2%). India’s Sensex equities index added 0.3% (up 11.6%). China’s Shanghai Exchange jumped 2.0% (up 5.9%). Turkey's Borsa Istanbul National 100 index declined 0.5% (up 13.3%). Russia's MICEX equities index advanced 1.2% (down 9.5%).
Junk bond mutual funds saw inflows surge to $2.375 billion (from Lipper).
Freddie Mac 30-year fixed mortgage rates declined four bps to 4.10% (up 51bps y-o-y). Fifteen-year rates declined three bps to 3.36% (up 48bps). The five-year hybrid ARM rate added a basis point to 3.19% (up 37bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down four bps to 4.19% (up 51bps).
Federal Reserve Credit last week slipped $1.6bn to $4.435 TN. Over the past year, Fed Credit declined $8.8bn (down 0.2%). Fed Credit inflated $1.617 TN, or 58%, over the past 230 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt gained $7.2bn last week to $3.214 TN. "Custody holdings" were down $43.4bn y-o-y, or 1.3%.
M2 (narrow) "money" supply last week expanded $12.3bn to a record $13.418 TN. "Narrow money" expanded $777bn, or 6.2%, over the past year. For the week, Currency increased $4.3bn. Total Checkable Deposits dropped $25bn, while Savings Deposits jumped $31.4bn. Small Time Deposits were little changed. Retail Money Funds added $1.8bn.
Total money market fund assets declined $6.0bn to $2.648 TN. Money Funds fell $91bn y-o-y (3.3%).
Total Commercial Paper gained $6.7bn to $993bn. CP declined $109bn y-o-y, or 9.9%.
Currency Watch:
The U.S. dollar index gained 0.8% to 101.13 (down 1.2% y-t-d). For the week on the upside, the Mexican peso and Japanese yen increased 0.3%. For the week on the downside, the South African rand declined 2.5%, the Australian dollar 1.7%, the British pound 1.4%, the South Korean won 1.4%, the Swedish krona 1.1%, the New Zealand dollar 0.9%, the Brazilian real 0.8%, the Norwegian krone 0.7%, the Swiss franc 0.6%, the Canadian dollar 0.6%, the euro 0.6% and the Singapore dollar 0.6%. The Chinese yuan declined 0.19% versus the dollar this week (up 0.64% y-t-d).
Commodities Watch:
The Goldman Sachs Commodities Index advanced 1.2% (down 1.4% y-t-d). Spot Gold added 0.4% to $1,254 (up 8.9%). Silver fell 1.5% to $17.99 (up 12.6%). Crude jumped $1.69 to $52.29 (down 2.9%). Gasoline rose 2.3% (up 4%), and Natural Gas gained 1.8% (down 13%). Copper slipped 0.3% (up 6%). Wheat declined 0.6% (up 4%). Corn fell 1.3% (up 2%).
Trump Administration Watch:
April 4 – Reuters (David Brunnstrom, Matt Spetalnick and Ben Blanchard): “When U.S. President Donald Trump meets Chinese President Xi Jinping this week, their summit will be marked not only by deep policy divisions but a clash of personalities between America’s brash ‘tweeter-in-chief’ and Beijing’s cautious, calculating leader. They may have one thing in common: their rhetoric about restoring their nations to greatness. But the two men differ in almost every other respect, from their political styles to their diplomatic experience, adding uncertainty to what has been called the world’s most important bilateral relationship. Five months after his election on a stridently anti-China platform, Trump appears to have set himself on a course for collision rather than conciliation with Xi, raising doubts as to whether the world's two biggest economies can find common ground.”
April 3 – Financial times (Song Jung-a, Ben Bland and Tom Mitchell): “Donald Trump’s warning that he could take unilateral action to eliminate North Korea’s nuclear threat has sparked alarm among some analysts in Asia about the implications for South Korea, Japan and China of a military conflict with Pyongyang. ‘China has great influence over North Korea. And China will either decide to help us with North Korea, or they won’t,’ Mr Trump told the Financial Times... ‘If China is not going to solve North Korea, we will.’ The comments by the US president came weeks after Rex Tillerson, secretary of state, declared during a visit to Asia that the US policy of ‘strategic patience has ende’. Mr Tillerson said that Washington would not rule out any option in response to provocations by North Korea.”
April 6 – Bloomberg (Elizabeth Dexheimer): “In a private meeting with lawmakers, White House economic adviser Gary Cohn said he supports a policy that could radically reshape Wall Street’s biggest firms by separating their consumer-lending businesses from their investment banks, said people with direct knowledge… Cohn, the ex-Goldman Sachs Group Inc. executive who is now advising President Donald Trump, said he generally favors banking going back to how it was when firms like Goldman focused on trading and underwriting securities, and companies such as Citigroup Inc. primarily issued loans… The remarks surprised some senators and congressional aides who attended the Wednesday meeting, as they didn’t expect a former top Wall Street executive to speak favorably of proposals that would force banks to dramatically rethink how they do business.”
April 5 – Reuters (Roberta Rampton and Jeff Mason): “‘We’re going to be coming out with some very strong - far beyond recommendations - we're going to be doing things that are going to be very good for the banking industry so that the banks can loan money to people who need it,’ Trump told a meeting with a business leaders… ‘We’re going to do a very major haircut on Dodd-Frank. We want strong restrictions, we want strong regulation. But not regulation that makes it impossible for the banks to loan to people that are going to create jobs,’ Trump said.”
April 4 – Bloomberg (Matthew Townsend, Ben Brody, and Elizabeth Dexheimer): “Donald Trump’s surprising election and his promise to overhaul the U.S. tax code set off celebrations across corporate America -- but some industries had barely applauded before they began gearing up for a fight. Trump’s win gave Republicans control of the U.S. government for the first time in a decade and quickly drew attention to a tax plan that House Speaker Paul Ryan unveiled last summer with little fanfare. Ryan’s radical tax-code rewrite would replace the corporate income tax with a 20% tax on businesses’ domestic sales and imports; their exports would be exempt. Cue the alarm bells for import-heavy companies like Wal-Mart Stores Inc., Target Corp. and Nike Inc. Retailers, apparel-makers, shoemakers, automakers and others unleashed one of their most robust lobbying and public-relations pushes in recent memory against the so-called ‘border-adjusted’ tax.”
China Bubble Watch:
April 2 – Bloomberg: “China’s deleveraging push has racked up the most defaults on corporate bonds ever for a first quarter, and the identity of the debtors is pretty revealing. Seven companies have defaulted on a total of nine bonds onshore so far in 2017, versus 29 for all of last year… In a sign of the struggles facing China’s old economic model, most of them depend on heavy industry and construction… ‘Weak companies can’t sell bonds, which adds to the pressure on their cash flow,’ said Liu Dongliang, a senior analyst at China Merchants Bank… ‘The pace of defaults will continue. It will be even more difficult for weak companies to sell bonds because corporate bond yields may rise further -- the current yield premium doesn’t provide enough protection against credit risks.’”
April 4 – Reuters (Jake Spring): “The crisis at Huishan Dairy, one of China's biggest dairy companies, is a stark reminder of what can lurk in the dark corners of corporate China, where rapid growth can go hand in hand with tangled finances and heavy debt. China Huishan Dairy Holdings Co Ltd embraced what its executives called ‘innovative financing’, from the sale and leaseback of its cows, to selling wealth management products for rich investors - financial antics that seem incongruous with the dusty fields, tin-roofed sheds and plastic greenhouses of Zhangwu county in northeast China. Now it is battling swollen liabilities, a short-term debt squeeze and considerable unwanted attention… It has reported a key finance executive missing. Its misfortunes are a reminder that even as banks' bad debt numbers stabilise, there remain many question marks over the quality of their balance sheets… ‘When you move down to the local lenders in less developed provinces and counties, there could be hundreds and thousands of similar cases to Huishan, albeit at a smaller scale,’ said Shawlin Chaw, Control Risks analyst focused on Greater China.”
April 4 – Financial Times (Jennifer Hughes): “The disclosure that China Huishan Dairy’s founder pledged 71% of his company’s shares for loans before the group’s stock collapsed has raised fears that more companies could be at risk if other large shareholders have followed his example. Share-backed lending is common in Asia and a sought-after business in Hong Kong for banks keen to build deeper links with favoured tycoons, whose wealth is often tied up in their company’s stock. Private equity funds also regularly borrow against the value of their holdings in listed groups. While the loans carry strict triggers and borrowers forfeit shares if they cannot meet margin calls promptly, the extreme nature of Huishan’s crash — the shares plummeted 85% in 45 minutes before dealing was halted and are still not trading — means it is unclear whether Yang Kai might be forced to cede control of the group.”
April 6 – Bloomberg (Lianting Tu, Carrie Hong, and Denise Wee): “The first ever downgrade of a Chinese local-government financing vehicle by an international ratings agency is reigniting concern over the debt-saddled entities, amid angst there could be more cuts to come. S&P Global Ratings reduced its credit rating on Jiangsu NewHeadline Development Group, a construction services provider and one of the largest financing firms owned by Lianyungang City -- in China’s eastern Jiangsu province… S&P attributed the cut to the local government’s high debt burden and said the LGFV’s credit profile will remain under pressure for the next two years. ‘I wouldn’t be surprised if we see more downgrades by rating agencies,’ said Anne Zhang, executive director at… JPMorgan… ‘If S&P downgrades, we might see Fitch start to review their ratings as well.’”
April 7 – Bloomberg: “The scent of doom is returning to China’s local government bond market. S&P Global Ratings pulled the trigger on the first ever downgrade of a Chinese local-government financing vehicle Thursday, citing the city in eastern Jiangsu province’s high debt burden. Traders and analysts are uneasy as well, with 18 of 29 polled in a Bloomberg News survey saying they’d sooner buy corporate debt than LGFV bonds. Concern Beijing is trying to wean local bodies off their support is quelling demand for the debt, with the yield premium on LGFV notes versus company bonds swelling to near the most since March 2014.”
April 3 – Financial times (Don Weinland): “China’s so-called bad banks are thriving as alternative lenders, evolving from bad-debt managers into some of the country’s largest financial conglomerates just as margins at the big state-owned banks come under pressure. China’s four centrally controlled asset management companies (AMCs) were set up in 1999 to swallow toxic assets from banks, and have had their assets grow expansively over the past five years. Assets at Cinda Asset Management Company… rose 360% to Rmb1.1tn ($160bn) between 2012 and 2016… The four groups — Cinda, Huarong, Great Wall and Orient — have been the primary buyers of non-performing loans in China. But they have also profited from low interest rates in recent years, borrowing cheaply and lending to companies at much higher rates to restructure problematic loans.”
April 5 – Reuters (Yawen Chen and Nicholas Heath): “Activity in China's service sector expanded at its weakest pace in six months in March, hurt by slower growth in new orders and intensifying cost pressures… The Caixin/Markit services purchasing managers' index (PMI) for March fell to 52.2 from February's 52.6…”
Global Bubble Watch:
April 4 – Reuters (Dion Rabouin): “Global debt rose to 325% of the world's gross domestic product in 2016, totalling $215 trillion, an Institute for International Finance report released… showed, boosted by the rapid growth of issuance in emerging markets. Global debt grew by $7.6 trillion in 2016 compared with the prior year. Issuance rose from 320% of GDP in 2015. Emerging market debt saw a ‘spectacular rise’ to $55 trillion outstanding in 2016, equal to 215% of their GDP. This was driven mostly by non-financial corporate debt, the report said. Emerging markets have raised nearly $40 trillion of new debt between 2006 and 2016, a significant acceleration from the roughly $9 trillion added between 1996 and 2006… Global debt has risen more than $70 trillion in the last decade to a record high for debt issuance… Developed market countries accounted for $160 trillion, the lion's share of global debt, reaching… 390% of those markets' combined GDP. The report found that the $32 trillion increase in developed market debt had been driven largely by governments, with U.S. and UK public sector debt having more than doubled since 2006.”
April 5 – Bloomberg (Fergal O'Brien): “Inflation across Organization for Economic Cooperation and Development member nations is accelerating, with the average reaching the fastest in five years in February. The increase was driven by energy prices, where the year-on-year change jumped to 11.1% from 8.5%, and food. Among the OECD’s biggest economies, the fastest inflation was in the U.S…”
April 3 – Bloomberg (Luke Kawa): “So much for America First. In the first quarter, investors dumped an U.S. exchange-traded fund that holds mid and small-cap U.S. stocks and flooded into another that owns large emerging-market equities. The iShares Russell 2000 ETF… was hit with $1.41 billion in outflows since the start of the year, the most among U.S.-listed equity ETFs. The iShares Core MSCI Emerging Markets ETF… attracted $6.63 billion in assets, the most among funds tracked by Bloomberg.”
April 5 – Bloomberg (Kim Chipman and Erik Hertzberg): “Toronto’s housing market showed no signs of cooling last month, with the average sale price soaring the most in almost three decades as the cost of a detached downtown home climbed to nearly C$1.6 million ($1.2 million). Prices increased by a third in every major housing category, including townhouses and condominiums, amid intense competition among buyers…”
April 2 – Bloomberg (Emily Cadman): “Australian house prices rose the most in almost seven years in March as the country’s housing boom accelerated. Average home values in Australia’s eight state and territory capitals rose 12.9% in the 12 months through March, the fastest pace since May 2010, according to… CoreLogic… The boom is being led by Sydney, where average house values surged 18.9% in the past 12 months, the most since November 2002. Sydney home values climbed 5% in the first three months of the year.”
April 4 – Bloomberg (Emily Cadman): “Australian regulators may take further steps to rein in mortgage lending amid growing concern booming home prices pose a risk to the financial system. Restrictions on interest-only loans announced last week were a ‘tactical response’ to growth in lending to property investors, Australian Prudential Regulation Authority Chairman Wayne Byres said... The regulator ‘can and will do more, or less, as conditions evolve,’ he said… Australian house prices rose the most in almost seven years in March, data from CoreLogic… showed. The boom is being led by Sydney, where average house values surged 18.9% in the past 12 months, the most since November 2002.”
Fixed Income Bubble Watch:
April 4 – Wall Street Journal (Christopher Whittall): “High-grade corporate bonds surged when the European Central Bank added them to its €2.3 trillion purchase program last year. Now, with a slowdown in ECB buying on the horizon—alongside potentially risky European elections—some investors are bracing for a selloff. The ECB started paring its monthly purchases of European debt from €80 billion to €60 billion in April, meaning it will buy around €1.9 billion fewer corporate bonds every month…”
April 4 – Financial Times (Nicholas Megaw): “Growing risk appetite as investors embraced the so-called ‘Trump trade’ helped issuance of high-yield corporate bonds in Europe more than double in the first quarter, but from a very low base, according to data from Fitch… Total junk bond issuance of €30bn was 2.5 times greater than in the first quarter of 2016… The riskiest debt, with credit ratings below B-, made up the highest share of total high-yield issuance since 2013, highlighting the extent of market optimism.”
ECB Watch:
April 4 – Reuters (Stephen Jewkes): “Italy's Target 2 liabilities rose to a new record high in March pointing to growing imbalances in the position of different central banks within the euro zone. The Bank of Italy's position within the Target 2 system, which settles cross-border payments in the euro zone, is monitored because its increase can indicate financial stress. The Bank of Italy said on Friday its Target 2 position rose to 419.8 billion euros ($446.2bn) in March from 386.1 billion euros in February.”
April 6 – Bloomberg (Alessandro Speciale): “Mario Draghi may have hoped to put an end to the bubbling debate on the European Central Bank’s exit strategy on Thursday. It didn’t take long for a reminder of how complicated this will be. Speaking in Frankfurt, the ECB president sought to quash the idea that policy makers will begin tightening policy sooner than planned and dispel doubts about the planned route to the eventual stimulus exit. Less than three hours later, Bundesbank President Jens Weidmann re-opened the issue, saying that a discussion on forward guidance is ‘legitimate.’ The conflicting signals are exactly what executive board member Benoit Coeure warned about last week when he said public disagreements may hamper the effectiveness of policy.”
Europe Watch:
April 3 – Reuters (Jonathan Cable): “Factories across the euro zone struggled to keep up with demand last month despite increasing activity at the fastest rate in nearly six years, according to a survey that showed them again hiking prices. IHS Markit's final manufacturing Purchasing Managers’ Index for the euro zone rose to 56.2 in March, the highest since April 2011, from February's 55.4.”
April 3 – Bloomberg (Zoe Schneeweiss): “Euro-area unemployment fell to the lowest level in almost eight years in February, in a sign that the region’s economy is strengthening. Joblessness decreased to 9.5%... That’s the lowest since May 2009…”
April 3 – Financial times (Dan McCrum): “Italian government bond prices were lower on Monday, as investors focused on signs of political sclerosis rather than economic data pointing to strength in manufacturing and a drop in the ranks of the unemployed. The difference between Italian 10-year sovereign bonds and the benchmark German Bund — a key measure of investor confidence as it shows the premium traders are demanding to buy Italian debt — hit a more than three-year high on Monday of 2.03%.”
April 4 – Financial times (Mehreen Khan): “The yield gap between French and German two-year debt has blown out to its highest level since the eurozone crisis as investors snap up German assets ahead of France’s presidential elections in three weeks’ time. The two-year spread – a measure of the premium investors demand to hold French over German debt – has hit 47 bps, surpassing the 42 bps reached during the height of jitters about Marine Le Pen’s chance of victory in France’s presidential elections and the widest since the bloc’s debt crisis abated five years ago. The spread has swollen from 26bps just 10 days ago…”
April 2 – Reuters (Dominique Vidalon): “French presidential candidate Marine Le Pen told a political rally on Sunday that the euro currency which she wants France to ditch was like a knife in the ribs of the French people. The leader of the eurosceptic and anti-immigrant National Front (FN) also told the rally in the city of Bordeaux that the forthcoming election for president could herald a ‘change in civilization’.”
Federal Reserve Watch:
April 5 – Reuters (Lindsay Dunsmuir and Howard Schneider): “Most Federal Reserve policymakers think the central bank should take steps to begin trimming its $4.5 trillion balance sheet later this year as long as the economic data holds up, minutes from their last meeting showed. The minutes… of the March 14-15 policy discussion… also showed that the rate-setting committee had a broad discussion about whether to phase out or halt reinvestments all at once. ‘Provided that the economy continued to perform about as expected, most participants anticipated that gradual increases in the federal funds rate would continue and judged that a change to the Committee's reinvestment policy would likely be appropriate later this year’…”
April 6 – Bloomberg (Catherine Bosley and Lucy Meakin): “Federal Reserve Bank of San Francisco President John Williams said it may take the U.S. central bank around five years to shrink its balance sheet to a more normal size once that process gets underway. Speaking with reporters…, Williams said it made sense to begin the roll-off toward the end of 2017. The length of time it takes would depend on how far officials want to trim a balance sheet swollen to $4.5 trillion by three rounds of asset purchases… ‘The number of years we’re thinking about just based on the arithmetic is something like 5 years,’ said Williams…”
April 4 – Bloomberg (Craig Torres, Christopher Condon , and Jeanna Smialek): “The Federal Reserve’s inspector general says it will be ending its investigation into the 2012 release of confidential information. Even after the scandal cut short the career of one top Fed official, the answer to the most important question remains a mystery. Who did the initial leaking? Richmond Fed President Jeffrey Lacker resigned abruptly… as he announced his role in the unauthorized disclosure of information to Medley Global Advisors about policy options that the central bank was considering in 2012. His explanation suggested he was confirming facts the Medley analyst already knew. It was a sudden career stop for a Fed president who was frequently in opposition to the Fed board consensus on interest-rate policy, and the news will likely revive questions in Congress about the value of the central bank’s discretion and transparency.”
April 3 – Bloomberg (Matthew Boesler and Shahien Nasiripour): “The rising burden of student debt is weighing on interest rates in the U.S., and it would be a ‘reasonable conversation’ for policy makers to explore making college tuition free, Federal Reserve Bank of New York President William Dudley said. The growing pile of student debt is ‘obviously one headwind to economic activity’ that ‘probably pushes in that direction of lower equilibrium real rates’ because it limits households’ spending power, Dudley said… Fed officials have been trying to estimate the so-called equilibrium level of interest rates that keeps economic growth on a steady and sustainable pace. The concept has increasingly dominated the debate about where to set the U.S. central bank’s benchmark rate and how quickly to move after policy makers in December 2015 embarked on their first tightening cycle in nearly a decade.”
U.S. Bubble Watch:
April 7 – Wall Street Journal (Jon Sindreu and Christopher Whittall): “What if selling insurance against tornadoes made tornadoes occur less frequently? Something like that may be behind the incredible calm in global financial markets. The theory, advanced by several money managers, bankers and analysts, describes a type of feedback loop in which calm markets make selling insurance against sharp swings in asset prices profitable, which makes the markets more calm, which then makes selling insurance yet more attractive. And on and on. Behind the loop is a danger: If a giant shock—a big tornado—does materialize, the loop could suddenly run in the other direction, amplifying big moves rather than damping them.”
April 3 – CNBC (Jeff Cox): “The bullish beginning of 2017 did more than set a sizzling pace for the year — it actually pulled some long-dormant cash off the sidelines. As the S&P 500 gained 4.7%, and bonds managed to stay above water, investors yanked about $75 billion out of low-yielding money market accounts and put it to work, according to… the Investment Company Institute and TrimTabs… That money accounted for a sizable chunk of the $162 billion that flowed to both stocks and bond funds during the quarter, TrimTabs said. The money market total is through February…”
April 7 – Bloomberg (Gabrielle Coppola, Matt Scully and David Welch): “On countless occasions in recent years, the U.S. auto industry has relied on cheap and easy credit from Wall Street to get it through rough patches. Not this time. With both bad loans and interest rates on the rise, financial institutions are becoming more selective in doling out credit for new-car purchases, adding to the pressure for automakers already up against the wall with sliding sales, swelling inventories and a used-car glut. ‘We’ve been having a party for a few years and it was fun,’ said Maryann Keller, an industry consultant… ‘Now lenders are getting back to basics.’”
April 3 – Bloomberg (Vince Golle): “America’s factories continued to expand in March at a robust pace, demonstrating momentum in an industry that struggled for the better part of the last two years, Institute for Supply Management data showed… ISM’s diffusion index eased to 57.2 from February’s 57.7, which was the highest since August 2014… Factory employment gauge climbed to 58.9, the strongest reading since June 2011, from 54.2. Prices-paid index increased to 70.5, the highest since May 2011, from 68…”
April 5 – Bloomberg (Patricia Laya): “American service companies expanded in March at the slowest pace in five months, adding to signs of tepid economic growth in the first quarter, a survey by the Institute for Supply Management showed… ISM’S non-manufacturing index eased to 55.2 (forecast was 57) from February’s 57.6, which was the highest since 2015…”
April 3 – Bloomberg (Jamie Butters and David Welch): “U.S. auto sales trailed estimates, with Kia Motors Corp. and Ford Motor Co. reporting some of the biggest declines, as heavy incentive spending failed to contain plunging demand for sedan and compact models… Combined deliveries for Kia and its affiliate Hyundai Motor Co. slumped 11%, and Ford’s dropped 7.2% last month… General Motors Co., Fiat Chrysler Automobiles NV and Toyota Motor Corp. also fell short of expectations.”
April 3 – CNBC (Diana Olick): “Fast-rising home prices gave homeowners more equity than many expected, and they are now tapping that equity at the fastest rate in eight years. Homeowners gained a collective $570 billion throughout 2016, bringing the number of homeowners with ‘tappable’ equity up to 39.5 million, according to Black Knight Financial Services… But the fact that mortgage rates were lower last year makes it less likely today's borrowers would want to refinance this year. About 68% of tappable equity belongs to borrowers with mortgage rates below today's levels.”
April 7 – Wall Street Journal (Jay Greene): “Just as oil and gas companies plow billions of dollars in searching for new energy reserves, big technology companies are spending lavishly on a global footprint of sophisticated computers to run every startup and corporate colossus’s business in the cloud. Amazon.com Inc. upped the ante this week, announcing plans to plunk down a massive collection of data centers in Stockholm. It is the latest move in a high-stakes race to own the biggest piece of a market that is expected to reach into the hundreds of billions of dollars. Amazon and its chief rivals— Microsoft Corp. and Alphabet Inc.’s Google—are aggressive players in so-called hyperscale computing, which provides digital horsepower that scales quickly when needed in real time… Combined, Amazon, Microsoft and Alphabet doled out $31.54 billion in 2016 in capital expenditures and capital leases, according to company filings. That is up 22% from 2015.”
April 7 – Bloomberg (David M Levitt): “One of the most visible symbols of San Francisco’s technology-fueled boom is nearing completion and reshaping the city’s skyline. Builders laid the final beam yesterday for Salesforce Tower, a $1 billion skyscraper that now stands as the tallest office building west of Chicago. The 1,070-foot tower is set to be finished this summer and the main tenant, Salesforce.com Inc., expects to start moving in by the end of the year… It’s the biggest and most ambitious project in what city Supervisor Jane Kim called San Francisco’s largest construction boom since the 1906 earthquake… There is 5.9 million square feet of offices under construction in the city, with about 38.8% pre-leased…”
April 7 – Wall Street Journal (AnnaMaria Andriotis): “Credit-card debt breached the $1 trillion threshold in the U.S., joining auto loans and student debt in crossing that level, and hitting its highest mark since the nation’s last recession. The new data from the Federal Reserve marks the latest sign of a growing appetite for household debt. Rising consumer borrowing is often a positive sign for the U.S. economy as it typically means consumers are spending more on big-ticket items, such as cars, and smaller purchases often charged on cards. And while some are concerned about auto lending to risky borrowers and defaults on student loans, the quality of most credit-card debt remains strong.”
April 5 – Bloomberg (Oshrat Carmiel): “A home on Manhattan’s Upper East Side sold for $79.5 million…, making it the highest price ever paid for a townhouse in the borough. The 20,500-square-foot property, at 19 E. 64th St., had been owned by the Wildenstein family, billionaire art dealers whose gallery was located at the site for more than 80 years. The previous record for a Manhattan townhouse was the $53 million paid for 4 E. 75th St., in 2006…”
Japan Watch:
April 5 – Reuters (Stanley White): “Activity in Japan’s services sector expanded at the fastest pace in 19 months in March as outstanding business improved, allowing companies to charge more for their goods... The Markit/Nikkei Japan Services Purchasing Managers Index (PMI) rose to 52.9 in March on a seasonally adjusted basis from 51.3 in February.”
EM Watch:
April 2 – Bloomberg (Filipe Pacheco): “It’s been a tumultuous few days in Latin America, with anti-government protests in Venezuela and Paraguay, an attack on the opposition presidential candidate in Ecuador and recurring unrest in Brazil, where the president’s popularity is tumbling amid attempts to reform the pension system. All are reigniting concern about political stability in some of this year’s best-performing emerging markets and key U.S. trading partners.”
April 3 – Bloomberg (Rene Vollgraaff): “South Africa lost its investment-grade credit rating from S&P Global Ratings for the first time in 17 years in response to a cabinet purge by President Jacob Zuma… S&P cut the foreign-currency rating to BB+, the highest junk score, on Monday and warned that a deterioration of the nation’s fiscal and macroeconomic performance could lead to further reductions… Moody’s…, which rates the nation at two levels above junk with a negative outlook, said the rating is under review for a downgrade.”
April 6 – Bloomberg (Anirban Nag): “India unexpectedly raised the reverse repo rate while keeping the benchmark unchanged, effectively tightening policy to step up the fight against accelerating inflation. Bonds fell. The reverse repo rate was raised to 6% from 5.75% while the benchmark repurchase rate was kept steady at 6.25%, the Reserve Bank of India said…, citing excess funds in the banking system after the government’s clampdown on cash.”
April 6 – Reuters (Jason Hovet and Jan Lopatka): “The Czech central bank scrapped its cap on the crown currency on Thursday, allowing it to float freely to stronger levels against the euro for the first time since 2013.”
Leveraged Speculation Watch:
April 7 – Bloomberg (Katia Porzecanski): “Equity hedge funds are getting a pick-me-up after a harsh 2016, when they suffered almost a third of the industry’s withdrawals, amid a global stock rally. The long-short strategy returned 3.2% in the first quarter on an asset-weighted basis, marking the best start to a year since 2013, according to Hedge Fund Research Inc. The strategy was the top performer over the period, with the average hedge fund returning 2.3%, on a fund-weighted basis.”
Geopolitical Watch:
April 7 – Washington Post (David Filipov and Anne Gearan): “Russia on Friday condemned a U.S. missile strike against Syrian government forces as an attack on its ally and said it was suspending an agreement to minimize the risk of in-flight incidents between U.S. and Russian aircraft operating over Syria. Even as Russian officials expressed hope that the strike against Syrian President Bashad al-Assad’s forces would not lead to an irreversible breakdown in U.S. relations with Moscow, the Kremlin’s decision to suspend the 2015 memorandum of understanding on the air operations immediately raised tensions in the skies over Syria.”
April 5 – Wall Street Journal (Carol E. Lee and Felicia Schwartz): “A confluence of crises in Syria and North Korea is forcing President Donald Trump to re-evaluate his fledgling foreign policy, deciding which advisers he will listen to and which campaign pledges to jettison. The apparent chemical-weapons attack in Syria and the latest ballistic missile test by North Korea raise the stakes for two upcoming events: Mr. Trump’s summit this week with Chinese President Xi Jinping… and Secretary of State Rex Tillerson’s planned visit next week to Russia, a patron of the Syrian regime.”
April 6 – Reuters (Tim Kelly and Ju-min Park): “Diplomatic and economic measures taken to rein in North Korea's missile program have not had the desired effect, a senior U.S. military commander said on Thursday after the North's latest test triggered a flurry of calls among world leaders. U.S President Donald Trump led calls with leaders and senior officials from Japan and South Korea on Thursday to discuss the latest provocation from Pyongyang, hours before Trump begins a much-anticipated summit with Chinese counterpart Xi Jinping.”
April 5 – Wall Street Journal (Carol E. Lee Dion Nissenbaum and Farnaz Fassihi): “President Donald Trump said a suspected chemical attack by the Assad regime was ‘a terrible affront to humanity’ that changed his mind about the Syrian strongman, signaling a more aggressive U.S. policy toward Syria. Mr. Trump didn’t elaborate on how his administration would respond to the latest attack, which killed at least 85 people, but said it made him re-evaluate his approach to Syrian President Bashar al-Assad and his regime.”
April 4 – CNBC (Clay Dillow): “OKINAWA-While the world watches mounting military tensions in the South China Sea, another, more ominous situation is brewing in the East China Sea that could be the trigger point for a major war between the superpowers. At the heart of tensions are eight uninhabited islands controlled by Japan that are close to important shipping lanes, rich fishing grounds and potential oil and gas reserves. China contests Japan's claims and is escalating its military activity in Japan airspace. In response, Japan has been doubling its F-15 jet intercepts. The situation increases the risk of an accidental confrontation — and could draw other countries, like the United States, into a conflict. It's a topic President Trump will likely bring up with Chinese President Xi Jinping at his Mar-a-Lago estate this week.”
Friday Evening Links
[Bloomberg] Stocks Mixed, Bonds Pare Drop as Jobs Hit Fades: Markets Wrap
[Bloomberg] Gold Rises to Five-Month High as Jobs Fizzle Adds to Demand
[Bloomberg] Gary Cohn Says White House Will Push ‘One Cohesive’ Tax Plan
[Reuters] Fed might avoid simultaneous rate hike, bond runoff: Dudley
[Bloomberg] New York Fed's Dudley Supports Reconsidering Key Banking Rules
[Reuters] Italy's Target 2 liabilities reach new high in March
[Bloomberg] San Francisco Skyline Remade by Tallest West Coast Office Tower
[NYT] The Man in Charge of Fixing Fannie and Freddie Knows Them All Too Well
[WSJ] America’s Credit-Card Tab Hits $1 Trillion
[APA] Russian PM: "US on brink of military clash with Russia"
[FT] US and Russia clash over Trump’s strike on Syria
[Bloomberg] Gold Rises to Five-Month High as Jobs Fizzle Adds to Demand
[Bloomberg] Gary Cohn Says White House Will Push ‘One Cohesive’ Tax Plan
[Reuters] Fed might avoid simultaneous rate hike, bond runoff: Dudley
[Bloomberg] New York Fed's Dudley Supports Reconsidering Key Banking Rules
[Reuters] Italy's Target 2 liabilities reach new high in March
[Bloomberg] San Francisco Skyline Remade by Tallest West Coast Office Tower
[NYT] The Man in Charge of Fixing Fannie and Freddie Knows Them All Too Well
[WSJ] America’s Credit-Card Tab Hits $1 Trillion
[APA] Russian PM: "US on brink of military clash with Russia"
[FT] US and Russia clash over Trump’s strike on Syria
Thursday, April 6, 2017
Friday's News Links
[Bloomberg] Dollar, Stocks Fluctuate Amid Jobs, Syria Tension: Markets Wrap
[Bloomberg] Payroll Gains Slow While U.S. Jobless Rate at Lowest Since 2007
[Reuters] Gold hits 5-mth peak after Trump launches missile strike on Syria
[Reuters] Nikkei hits 4-mth low as US strike on Syria hurts risk sentiment
[Bloomberg] Second Junk-Rating Blow Sends South African Assets Tumbling
[Bloomberg] Wall Street Is Making It Harder to Buy a Car
[Bloomberg] Here's What Trump's Syria Strike Just Did to Financial Markets
[CNBC] Kremlin says Syria strikes do significant damage to US-Russia ties
[Reuters] Escalating U.S. role in Syria, Trump orders strikes on Assad airbase
[Bloomberg] Traders Are Worried About China Local Government Debt Again
[Reuters] Currency 'misalignment' gains stature in Trump trade plans - official
[WSJ] Are Traders Creating a Bizarre New Feedback Loop... Feedback Loop... Feedback Loop?
[WSJ] Trump Flashes Confidence as China Summit Begins
[WSJ] Tech’s High-Stakes Arms Race: Costly Data Centers
[Bloomberg] Payroll Gains Slow While U.S. Jobless Rate at Lowest Since 2007
[Reuters] Gold hits 5-mth peak after Trump launches missile strike on Syria
[Reuters] Nikkei hits 4-mth low as US strike on Syria hurts risk sentiment
[Bloomberg] Second Junk-Rating Blow Sends South African Assets Tumbling
[Bloomberg] Wall Street Is Making It Harder to Buy a Car
[Bloomberg] Here's What Trump's Syria Strike Just Did to Financial Markets
[CNBC] Kremlin says Syria strikes do significant damage to US-Russia ties
[Reuters] Escalating U.S. role in Syria, Trump orders strikes on Assad airbase
[Bloomberg] Traders Are Worried About China Local Government Debt Again
[Reuters] Currency 'misalignment' gains stature in Trump trade plans - official
[WSJ] Are Traders Creating a Bizarre New Feedback Loop... Feedback Loop... Feedback Loop?
[WSJ] Trump Flashes Confidence as China Summit Begins
[WSJ] Tech’s High-Stakes Arms Race: Costly Data Centers
Thursday Evening Links
[Reuters] Trump orders military strikes against Assad airbase in Syria
[NBC] Defense Sec Mattis Briefs President Trump on Military Options in Syria
[Bloomberg] Asia Stocks Set to Nudge Higher Before U.S. Jobs: Markets Wrap
[Bloomberg] Stocks Edge Up, Bonds Pare Drop as Caution Rises: Markets Wrap
[Bloomberg] Riding Cohn Momentum, Senators Call for Glass-Steagall Return
[Bloomberg] Kashkari Slams Jamie Dimon's Complaints About Regulatory Burden
[Bloomberg] Watch These Assets for Clues on Trade Policy as Trump Meets Xi
[WSJ] Gary Cohn Backs Breaking Up Big Banks
[WSJ] Not a Dot-Com Bubble, Not 2007, but a Nasty Mix of Both
[FT] Complacency and self-delusion: the most significant risk to markets — BIS economists
[Bloomberg] Trump says 'something should happen' with Assad as U.S. weighs military options
[Reuters] China fighter plane spotted on South China Sea island: think tank
[NBC] Defense Sec Mattis Briefs President Trump on Military Options in Syria
[Bloomberg] Asia Stocks Set to Nudge Higher Before U.S. Jobs: Markets Wrap
[Bloomberg] Stocks Edge Up, Bonds Pare Drop as Caution Rises: Markets Wrap
[Bloomberg] Riding Cohn Momentum, Senators Call for Glass-Steagall Return
[Bloomberg] Kashkari Slams Jamie Dimon's Complaints About Regulatory Burden
[Bloomberg] Watch These Assets for Clues on Trade Policy as Trump Meets Xi
[WSJ] Gary Cohn Backs Breaking Up Big Banks
[WSJ] Not a Dot-Com Bubble, Not 2007, but a Nasty Mix of Both
[FT] Complacency and self-delusion: the most significant risk to markets — BIS economists
[Bloomberg] Trump says 'something should happen' with Assad as U.S. weighs military options
[Reuters] China fighter plane spotted on South China Sea island: think tank
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