This week saw all-time highs in the S&P500, the Nasdaq Composite, the Nasdaq100, and the Philadelphia Semiconductor Index. Microsoft's market capitalization reached $1 TN for the first time. First quarter GDP was reported at a stronger-than-expected 3.2% pace.
So why would the market this week increase the probability of a rate cut by the December 11th FOMC meeting to 66.6% from last week’s 44.6%? What’s behind the 10 bps drop in two-year yields to 2.28%? And the eight bps decline in five-year Treasury yields to a one-month low 2.29% (10-yr yields down 6bps to 2.50%)? In Europe, German bund yields declined five bps back into negative territory (-0.02%). Spain’s 10-year yields declined five bps to 1.02% (low since 2016), and Portugal’s yields fell four bps to an all-time low 1.13%. French yields were down to 0.35%. Why would markets be pricing in another round of ECB QE?
In the currencies, king dollar gained 0.6%, trading above 98 for the first time in almost two-years. The Japanese yen outperformed even the dollar, adding 0.3%.
April 22 – Financial Times (Hudson Lockett and Yizhen Jia): “Chinese stocks fell on Monday amid concerns that Beijing may renew a campaign against shadow banking that contributed to a heavy sell-off across the market last year. Analysts pinned much of the blame… on a statement issued late on Friday following a politburo meeting chaired by President Xi Jinping in Beijing. They were particularly alarmed by a term that surfaced in state media reports of the meeting of top Communist party leaders: ‘deleveraging’. That word set off alarm bells among investors still hurting from Beijing’s campaign against leverage in the country’s financial system last year. Those reforms focused largely on so-called shadow banking, which before the clampdown saw lenders channel huge sums of money to fund managers who then invested it in stocks.”
And Tuesday from Bloomberg Intelligence (Qian Wan and Chang Shu): “The Central Financial and Economics Affairs Commission (CFEAC) – the Communist Party’s top policy body headed by President XI Jinping – is focused on ongoing structural reform and deleveraging, citing proactive fiscal policy and prudent monetary policy as key tools. Officials set a pragmatic growth target of 6.0%-6.5% for 2019. The government plan also indicated credit growth in line with that of nominal GDP in 2019, echoing the People’s Bank of China’s statement of ‘maintaining macro leverage.’”
The Shanghai Composite was hammered 5.6% this week. After last year’s scare, markets have good reason to fret the prospect of a return of Chinese “deleveraging” along with the PBOC restricting the “floodgates.” I would add that if Beijing actually plans to manage Credit growth to be in line with nominal GDP, the entire world has a big problem. Over the past year, China’s nominal GDP increased about 7.5%. Meanwhile, Chinese Aggregate Financing expanded at a double-digit annualized rate during Q1. This would imply a meaningful deceleration of Credit growth through the remainder of the year. Don’t expect that to go smoothly.
April 23 – Bloomberg: “The debt pain engulfing some of China’s big conglomerates has intensified in recent days with more bond defaults, asset freezes and payment uncertainties. China Minsheng Investment Group Corp. said last week cross defaults had been triggered on dollar bonds worth $800 million. Lenders to HNA Group Co.’s CWT International Ltd. seized control of assets in Singapore, China and the U.S. after the unit failed to repay a loan… Citic Guoan Group Co., backed by a state-owned company, isn’t certain whether it can pay a bond coupon due on April 27. The increased repayment stress sweeping some of China’s biggest corporations is a sign that the liquidity crunch -- induced by a two-year long deleveraging campaign -- is far from over despite an improving economy. Bonds from at least 44 Chinese companies totaling $43.7 billion faced repayment pressure as of last week, a 25% jump from the tally at the end of March… ‘The debt crisis at conglomerates can have more of a contagion impact on the corporate bond market compared with an average corporate default because those issuers typically have more creditors and large amount of outstanding debt,’ said Li Kai, a multi-strategy investment director at Genial Flow Asset Management Co.”
Chinese officials surely appreciate the risks associated with rampant debt growth. They have carefully studied the Japanese experience and have surely studied the history of financial crises. Beijing has had ample time to research Bubbles, yet they still have limited actual experience with Credit booms and busts. China has no experience with mortgage finance and housing Bubbles. They have never before managed an economy with a massively leveraged corporate sector – with much of the borrowings via marketable debt issuance. They have no experience with a multi-trillion (US$) money-market complex – and minimal with derivatives. Beijing has zero experience with a banking system that has inflated to about $40 TN – financing a wildly imbalanced and structurally impaired economy (not to mention fraud and malfeasance of epic proportions).
I’m not confident Beijing comprehends how deranged Credit can become late in the cycle. A system dominated by asset Bubbles and malinvestment over time evolves into a crazed Credit glutton. Keeping the historic Chinese apartment Bubble levitated will require enormous ongoing cheap Credit. Keeping the incredibly bloated Chinese corporate sector afloat will require only more ongoing cheap Credit. Ditto for the frighteningly levered local government sector. And the acute and unrelenting pressure on the banking system to support myriad Bubbles with generous lending terms will require massive unending banking balance sheet expansion. Worse yet, at this late “terminal phase” of the cycle it becomes impossible to control the flow of finance. It will instinctively flood into speculation and non-productive purposes. Has China studied the late-twenties U.S. experience?
If Beijing is serious about managing risk, they have no option other than to move to rein in Credit growth. Last year’s market instability, economic weakness and difficult trade negotiations forced officials to back off restraint and instead push forward with stimulus measures. This had characteristics of a short-term gambit.
Chinese officials will not be slamming on the brakes. But if they’re serious about trying to manage Credit and myriad risks, it would be reasonable to expect the imposition of restraint upon the completion of U.S. trade negotiations. Indeed, there are indications this transition has already commenced.
If this analysis has merit, the global market backdrop is near an important inflection point – potentially one of momentous consequence. Chinese Credit growth is about to slow, with negative ramifications for global market liquidity and economic expansion. I would further argue that the synchronized global “Everything Rally” has ensured latent fragilities even beyond those that erupted last year. The conventional view that China is now full speed ahead, with stimulus resolving myriad issues, could prove one of financial history’s great episodes of wishful thinking.
It’s worth recalling the 2018 market backdrop. After beginning the year with a moonshot (emerging markets trading to record highs in late-January), EM turned abruptly lower and trended down throughout much of the year. The Shanghai Composite traded to a high of 3,587 on January 29th, only to reverse sharply for a two-week 14% drop. By July, the Shanghai Composite had dropped 25% from January highs – and was down 31% at October lows (2,449).
And for much of the year, de-risking/deleveraging at the “Periphery” supported speculative flows to “Core” U.S. securities markets. U.S. equities bounced back from February’s “short vol” blowup and went on a speculative run throughout the summer (in the face of mounting global instability). After trading below 90 for much of April, the Dollar Index had risen to 95 by late-May and 97 in mid-August.
While the Fed raised rates 25 bps in June and again in September, financial conditions remained exceptionally loose. Ten-year Treasury yields traded down to 2.80% (little changed from early-February), held down by global fragilities and the surging dollar. High-yield debt posted positive returns through September. Ignoring rapidly escalating risks, the S&P500 traded right at all-time highs to begin the fourth quarter (10/3). The dam soon broke, with crisis Dynamics coming to fully envelop the “Core.”
After a several month respite, I’m back on “Crisis Dynamics” watch, carefully monitoring for indications of nascent risk aversion and waning liquidity at the “Periphery.” Last year’s market and economic developments provided important confirmation of the Global Bubble Thesis – including the fundamental proposition that major Bubbles function quite poorly in reverse. Years of zero rates and QE had inflated myriad Bubbles and a highly unbalanced global economy surreptitiously addicted to aggressive monetary stimulus. As tepid as it was, policy “normalization” had engendered latent fragilities – though this predicament remained hidden so long as “risk on” held sway over the markets.
A speculative marketplace gleaned its own 2018-experience thesis confirmation: central bankers won’t tolerate bursting Bubbles. The dovish U-turn sparked a major short squeeze, unwind of bearish hedges and, more generally, a highly speculative market rally. And in global markets dominated by a pool of Trillions of trend-following and performance-chasing finance, rallies tend to take on lives of their own. With 2019’s surging markets and speculative leverage creating self-reinforcing liquidity, last year’s waning liquidity – and December’s illiquidity scare – are long forgotten.
But I’ll offer a warning: Liquidity Risk Lies in Wait. When risk embracement runs its course and risk aversion begins to reappear, it won’t be long before anxious sellers outnumber buyers. When “risk off” De-Risking/Deleveraging Dynamics again attain momentum, there will be a scarcity of players ready to accommodate the unwind of speculator leverage. And when a meaningful portion of the marketplace decides to hedge market risk, there will be a paucity of traders willing to take the other side of such trades.
And there’s an additional important facet to the analysis: Come the next serious “risk off” market dislocation, a further dovish U-turn will not suffice. That trump card was played – surely earlier than central bankers had envisaged. Spoon-fed markets will demand rate cuts. And when rate cuts prove insufficient, markets will impatiently clamor for more QE. In January, Powell’s abrupt inter-meeting termination of policy “normalization” carried quite a punch. Markets were caught off guard – with huge amounts of market hedges in place. These days, with markets already anticipating a rate cut this year, one wouldn’t expect the actual Fed announcement (in the midst of market instability) to elicit a big market reaction.
The Fed is clearly preparing for the next episode where it will be called upon to backstop faltering markets. Our central bankers will undoubtedly point to disinflation risk and consumer prices drifting below the Fed’s 2% target. I’ll expect markets to play along. But without the shock effect of spurring a big market reversal – with attendant risk embracement and speculative leveraging – it’s likely that a 25 bps rate cut will have only ephemeral impact on marketplace liquidity. Markets will quickly demand more QE – and Chairman Powell is right back in the hot seat.
I’m getting ahead of myself here. But the reemployment of Fed QE should be expected to have unintended consequences depending on relative U.S. versus global growth dynamics and market performance. If, as was the case last year, king dollar and speculative flows to the “Core” temporarily boost U.S. output, it would be an “interesting” backdrop for restarting QE.
But let’s get back to the present. Happenings at the “Periphery of the Periphery” seem to support the Global Liquidity Inflection Point Hypothesis. The Turkish lira fell 2.1% this week, with 12-month losses up to 31.5%. Turkey’s 10-year lira bond yields surged 30 bps to 17.75%, the high since October. Turkey sovereign CDS jumped 24 bps this week to 461 bps, the high going back to September 13th. Turkey’s 10-year dollar bond yields surged a notable 51 bps this week to 8.08% - the high also since mid-September instability. Turkey is sliding into serious crisis.
April 26 – Financial Times (Adam Samson and Caroline Grady): “Turkey’s central bank has confirmed it began engaging in billions of dollars in short-term borrowing last month, bulking out its reserves during a time when the lira was wobbling amid contentious local elections and concerns were growing over its financial defences. The central bank said… its borrowing from swaps with a maturity of up to one month was $9.6bn at the end of March. Friday’s report precisely matches figures first revealed last week by the Financial Times, which intensified concerns among investors about what they say is a highly unusual practice for a country’s reserve position. Turkey’s use of these transactions, in which it borrows dollars from local banks, ramped up dramatically following a sharp fall in the country’s foreign currency reserve position during the week of March 22.”
Also this week at the “Periphery of the Periphery,” Argentina’s peso sank 8.8% to an all-time low versus the dollar (y-t-d losses 17.9%). Argentine 10-year dollar bond yields jumped 26 bps Friday and 73 bps for the week to a multi-year high 11.53%. As the market increasingly fears default, short-term Argentine dollar bond yields jumped to 20%. Argentina’s sovereign CDS spiked a notable 263 bps this week to 1,234, a three-year high. A whiff of contagion was seen in the 10 bps rise in El Salvador and Costa Rica CDS. The MSCI Emerging Markets Equities Index declined 1.3% this week.
For the week, the Colombian peso dropped 2.4%, the South African rand 2.3%, the South Korean won 2.1%, the Chilean peso 1.8%, the Hungarian forint 1.5%, the Iceland krona 1.3%, and the Polish zloty 1.2%. The Russian ruble, Indonesian rupiah and Czech koruna all declined about 1% against the dollar. Problem child Lebanon saw 10-year domestic yields surge 31 bps to 9.84%.
Hong Kong’s Hang Seng Financial Index dropped 2.4% this week. China’s CSI 300 Financials Index sank 5.0%. China Construction Bank dropped 4.7%, and Industrial and Commercial Bank of China fell 4.5%. Japan’s TOPIX Bank index declined 1.3%. European bank stocks (STOXX 600) dropped 2.3%, led by a 3.2% fall in Italian banks. Deutsche Bank sank 6.7% on the breakdown of merger talks with Commerzbank. Deutsche Bank CDS jumped 12 bps this week to near two-month highs.
Reminiscent of about this time last year, U.S. bank stocks were content this week to ignore weak financial stocks elsewhere. US banks (BKX) jumped 1.6% this week, trading near the high since early December. Powered by fund inflows of a notable $5.8bn, investment-grade corporate bonds (LQD) closed the week at highs going back to February 2018. High-yield bonds similarly added to recent gains, also ending Friday at 14-month highs.
With animal spirits running high and financial conditions remaining loose, the “Core” has remained comfortably numb. But we’re now Officially on “Periphery” Contagion Watch. No reason at this point to expect much risk aversion in exuberant “Core” U.S. securities markets. Indeed, the drop in Treasury yields has been feeding through into corporate Credit, in the process loosening financial conditions. But I would expect risk aversion to begin gathering some momentum globally, with De-Risking/Deleveraging Dynamics ensuring waning liquidity and contagion for the more vulnerable currencies and markets.
April 26 – Bloomberg (Sarah Ponczek): “As equities surge to all-time highs, volatility has all but vanished. Hedge funds are betting the calm will last, shorting the Cboe Volatility Index, or VIX, at rates not seen in at least 15 years. Large speculators, mostly hedge funds, were net short about 178,000 VIX futures contracts on April 23, the largest such position on record, weekly CFTC data that dates back to 2004 show. Commonly known as the stock market fear gauge, aggressive bets against the VIX are, depending on your worldview, evidence of either confidence or complacency.”
When “risk off” does make its return to the “Core,” don’t be surprised by market fireworks. “Short Vol” Blowup 2.0 – compliments of the dovish U-turn? It’s always fascinating to observe how speculative cycles work. Writing/selling put options has been free “money” since Powell’s January 4th about face. Crowded Trade/“tinder” And if we’re now at an inflection point for global market liquidity, those gleefully “selling flood insurance during the drought” should be mindful of a decided shift in global weather patterns.
For the Week:
The S&P500 gained 1.2% (up 17.3% y-t-d), while the Dow was little changed (up 13.8%). The Utilities jumped 1.5% (up 10.7%). The Banks rose 1.6% (up 18.0%), and the Broker/Dealers added 0.2% (up 15.3%). The Transports fell 1.0% (up 18.7%). The S&P 400 Midcaps gained 1.0% (up 18.7%), and the small cap Russell 2000 jumped 1.7% (up 18.0%). The Nasdaq100 advanced 1.8% (up 23.6%). The Semiconductors declined 0.7% (up 34.0%). The Biotechs rallied 2.5% (up 12.8%). While bullion recovering $11, the HUI gold index was unchanged (down 0.1%).
Three-month Treasury bill rates ended the week at 2.36%. Two-year government yields dropped 10 bps to 2.28% (down 21bps y-t-d). Five-year T-note yields fell eight bps to 2.29% (down 22bps). Ten-year Treasury yields declined six bps to 2.50% (down 19bps). Long bond yields fell four bps to 2.92% (down 9bps). Benchmark Fannie Mae MBS yields dropped eight bps to 3.23% (down 26bps).
Greek 10-year yields slipped a basis point to 3.29% (down 111bps y-t-d). Ten-year Portuguese yields declined four bps 1.13% (down 59bps). Italian 10-year yields fell two bps to 2.58% (down 16bps). Spain's 10-year yields declined five bps to 1.02% (down 39bps). German bund yields fell five bps to negative 0.02% (down 26bps). French yields declined two bps to 0.35% (down 36bps). The French to German 10-year bond spread widened three to 37 bps. U.K. 10-year gilt yields dropped six bps to 1.14% (down 14bps). U.K.'s FTSE equities index declined 0.4% (up 10.4% y-t-d).
Japan's Nikkei 225 equities index added 0.3% (up 11.2% y-t-d). Japanese 10-year "JGB" yields dipped a basis point to negative 0.04% (down 4bps y-t-d). France's CAC40 slipped 0.2% (up 17.7%). The German DAX equities index gained 0.8% (up 16.6%). Spain's IBEX 35 equities index declined 0.8% (up 11.3%). Italy's FTSE MIB index fell 1.0% (up 18.6%). EM equities were mixed. Brazil's Bovespa index gained 1.8% (up 5.7%), while Mexico's Bolsa fell 1.2% (up 8.0%). South Korea's Kospi index dropped 1.7% (up 6.8%). India's Sensex equities index dipped 0.2% (up 8.3%). China's Shanghai Exchange sank 5.6% (up 23.8%). Turkey's Borsa Istanbul National 100 index dropped 2.1% (up 3.8%). Russia's MICEX equities index was little changed (up 8.2%).
Investment-grade bond funds saw inflows of $5.864 billion, while junk bond funds posted outflows of $521 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates gained three bps to 4.20% (down 38bps y-o-y). Fifteen-year rates added two bps to 3.64% (down 38bps). Five-year hybrid ARM rates slipped a basis point to 3.77% (up 3bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down nine bps to 4.25% (down 44bps).
Federal Reserve Credit last week declined $4.2bn to $3.892 TN. Over the past year, Fed Credit contracted $451bn, or 10.4%. Fed Credit inflated $1.081 TN, or 38%, over the past 338 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $15.2bn last week to $3.452 TN. "Custody holdings" gained $40.5bn y-o-y, or 1.2%.
M2 (narrow) "money" supply jumped $22.5bn last week to $14.513 TN. "Narrow money" rose $558bn, or 4.0%, over the past year. For the week, Currency increased $3.0bn. Total Checkable Deposits surged $67.7bn, while Savings Deposits dropped $53.6bn. Small Time Deposits were up $4.2bn. Retail Money Funds added $1.3bn.
Total money market fund assets increased $7.0bn to $3.050 TN. Money Funds gained $218bn y-o-y, or 7.7%.
Total Commercial Paper dropped $15.0bn to $1.066 TN. CP gained $10bn y-o-y, or 0.9%.
Currency Watch:
The U.S. dollar index gained 0.6% to 98.006 (up 1.9% y-t-d). For the week on the upside, the Japanese yen increased 0.3%. For the week on the downside, the South African rand declined 2.3%, the South Korean won 2.1%, the Swedish krona 2.1%, the Norwegian krone 2.0%, the Australian dollar 1.5%, the euro 0.8%, the Mexican peso 0.8%, the British pound 0.6%, the Singapore dollar 0.5%, the Swiss franc 0.5%, the Canadian dollar 0.5%, the New Zealand dollar 0.3% and the Brazilian real 0.1%. The Chinese renminbi declined 0.37% versus the dollar this week (up 2.22% y-t-d).
Commodities Watch:
The Bloomberg Commodities Index declined 1.2% this week (up 4.9% y-t-d). Spot Gold rallied 0.9% to $1,286 (up 0.3%). Silver increased 0.3% to $15.085 (down 2.9%). Crude declined 70 cents to $63.30 (up 39%). Gasoline gained 1.4% (up 59%), and Natural Gas recovered 3.6% (down 12%). Copper fell 1.1% (up 10%). Wheat declined 1.2% (down 12%). Corn dropped 1.6% (down 4%).
Market Instability Watch:
April 25 – Bloomberg (Rizal Tupaz and Allan Lopez): “Investors are piling the most cash into high-grade credit funds in more than four years. Inflows reached almost $5.9 billion for the week ended April 24, the most since October 2014, according to Lipper… It’s the 13th straight reporting period showing gains for funds that invest in high-grade debt. New money into the funds now totals $38 billion since the streak began in January.”
April 22 – Financial Times (Robin Wigglesworth): “When markets careened lower late last year, it seemed that perennial predictions of a new ‘age of volatility’ were finally coming true. Instead, tranquillity has reigned throughout 2019. Why? The Vix index — Wall Street’s ‘fear gauge’ in popular parlance — recently slipped below the 12-point mark it last touched in the halcyon days of mid-2018. But it is not the only measure of calm. There has been a remarkable collapse in volatility across asset classes and regions this year. The volatility indices of UK, European, Chinese and Japanese stocks have all sagged back to last year’s lows, and are not far off their 2017 nadirs. Currency and bond volatility gauges are also sedate. Bank of America’s cross-asset volatility index has only been lower for brief periods in early 2018, 2014 and 2007.”
April 22 – Wall Street Journal (Gunjan Banerji): “Volatility in the stock market has continued to drop in 2019, a sign that some investors are embracing riskier assets again. The Cboe Volatility Index, a yardstick for expected swings in equities, has fallen 9.4% this month after recording one of the biggest declines in history to start the year. The gauge measures the speed and severity of the stock market’s moves and tends to fall when equities are rising and demand for hedges on the S&P 500 slips. Volatility measures tracking currencies, bonds and oil have also retreated. ‘Sentiment is incredibly bullish,’ said Nancy Davis, chief investment officer at Quadratic Capital Management. ‘So many people are chasing performance now.’”
April 23 – Bloomberg (Justina Lee): “As the S&P 500 approaches all-time highs, defensive investing styles are trading at their most overbought levels in decades -- a sign of investor incredulity at this gravity-defying rally. Something may have to give. Growth shares have surged to the highest levels versus cheap equities since the dot-com bubble, underscoring fierce demand for companies less exposed to the gyrations of the economic cycle. Stocks posting a strong return on equity are near their most expensive since 1990, according to Sanford C. Bernstein & Co. To cap it all, tech multiples have jumped toward 2009 highs relative to the broader gauge.”
Trump Administration Watch:
April 24 – Reuters (Eric Beech): “U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing for trade talks beginning on April 30… It said Chinese Vice Premier Liu He, who will lead the Beijing talks for China, will travel to Washington for more discussions starting on May 8. ‘The subjects of next week’s discussions will cover trade issues including intellectual property, forced technology transfer, non-tariff barriers, agriculture, services, purchases, and enforcement,’ the White House said.”
April 21 – Wall Street Journal (Josh Zumbrun): “The accord now being drawn up to resolve the trade fight between the world’s two largest economies promises better treatment of U.S. companies in China and more Chinese orders for U.S. crops and other products. But rattled businesses on both sides of the Pacific are skittish about rushing back in to revive the once-booming investment activity between the two countries. ‘There is no way any deal between China and the U.S. will cause everyone on both sides to say, ‘We were just kidding,’’ said Dan Harris, managing partner at Harris Bricken, a law firm that specializes in investment with China. ‘The tariffs and the arrests and the threats and the heightened risk have impacted companies and that will not go away.’ The trade dispute isn’t the only factor driving a decline in investment flows between China and the U.S., which plunged to just over $19 billion last year, from a 2016 peak of $60 billion.”
April 22 – BBC (Ana Nicolaci da Costa): “A US-China trade deal - if it happens - is unlikely to end the rivalry between the two economic giants. Both sides have fought a trade war over the past year with damaging consequences for the global economy. But many say their dispute goes well beyond trade - it represents a power-struggle between two very different world views. Deal or no deal, that rivalry is only expected to broaden and become more difficult to resolve. ‘We have entered into a new normal in which US-China geopolitical competition has intensified and become more explicit,’ says Michael Hirson, Asia director at… Eurasia Group. ‘The trade deal will moderate one phase of the US-China power struggle, but only temporarily and with limited effect.’”
April 24 – Reuters (Makini Brice): “U.S. President Donald Trump… again threatened to close part of the southern border and send more ‘armed soldiers’ to defend it if Mexico did not block a new caravan of migrants traveling toward the United States. ‘A very big Caravan of over 20,000 people started up through Mexico,’ Trump wrote on Twitter. ‘It has been reduced in size by Mexico but is still coming. Mexico must apprehend the remainder or we will be forced to close that section of the Border & call up the Military.’ Trump also said… that Mexican soldiers recently had ‘pulled guns’ on U.S. troops in what he suggested was ‘a diversionary tactic for drug smugglers.’”
April 23 – CNBC (Emma Newburger): “President Donald Trump appeared to reverse course on Harley Davidson…, pledging to retaliate against ‘unfair’ European Union tariffs that the company partially blamed for its nearly 27% drop in first-quarter profit. Trump, who called for a boycott against the motorcycle company last year amid a spat over steel, said that the EU tariffs have forced Harley to move U.S. jobs overseas. ‘So unfair to U.S. We will Reciprocate!’ he said in a tweet.”
April 19 – Reuters (Kanishka Singh): “U.S. intelligence has accused Huawei Technologies of being funded by Chinese state security, The Times said on Saturday, adding to the list of allegations faced by the Chinese technology company in the West. The CIA accused Huawei of receiving funding from China’s National Security Commission, the People’s Liberation Army and a third branch of the Chinese state intelligence network, the British newspaper reported, citing a source.”
Federal Reserve Watch:
April 22 – Bloomberg (Rich Miller): “Some Federal Reserve policy makers seem resigned to running a heightened risk of asset bubbles and other financial excesses as they seek to keep the economic expansion going. That’s one of the messages tucked inside the minutes of the Federal Open Market Committee’s March 19-20 policy making meeting. ‘A few participants observed that the appropriate path for policy, insofar as it implied lower interest rates for longer periods of time, could lead to greater financial stability risks,’ according to the minutes… Chairman Jerome Powell could be one of those officials. He’s publicly pointed out that the last two expansions ended not in a burst of inflation, but in financial froth, first a dot-com stock market boom, then a housing bubble.”
April 20 – Wall Street Journal (Nick Timiraos): “Federal Reserve officials are starting to talk about the conditions under which they would cut interest rates, including a scenario where inflation drifts lower even if the economic growth doesn’t falter. Such a scenario isn’t seen as particularly likely, and a rate cut isn’t imminent or under consideration for their meeting April 30-May 1. But the thresholds for such action have been a topic of conversations in recent interviews and public remarks. Inflation rose last year to the Fed’s 2% target after years of undershooting it. Central bank officials say the target is symmetric, meaning they expect inflation will drift mildly above and below it at different times.”
April 23 – CNBC (Jeff Cox): “The Federal Reserve’s benchmark interest rate has inched up to its highest level in 11 years even though the central bank has sent a clear message that it is done tightening policy indefinitely. In recent days, the effective fed funds rate, which targets the overnight level that banks charge each other for loans, has moved up to 2.44%. That’s the highest since March 2008 and is just 6 bps from the top of the target range and the closest to the top since December, when the Fed last raised rates. For now, the move is looked on as not being especially problematic given that there is still room between the current level and the top of the 2.25% to 2.5% range in which the rate is supposed to trade. But moves toward the upper end of the band have prompted action before, and the trend likely will be a topic of discussion at next week’s Federal Open Market Committee meeting.”
April 22 – New York Times (Jim Tankersley and Alan Rappeport): “President Trump announced… that Herman Cain, one of his two embattled picks for the Federal Reserve Board, had withdrawn his name from consideration, even as his second candidate came under new scrutiny over his attitudes toward women. Mr. Cain… made his decision as he battled old accusations of sexual harassment that had halted his 2012 presidential campaign. His withdrawal bows to political reality in a moment when Mr. Trump has faced mounting criticism for tapping loyalists to join the historically independent Fed. And it moved a spotlight to the other man Mr. Trump has said he wants to put on the Fed, his economic adviser Stephen Moore, who faced new objections… because of a series of magazine columns that denigrated women…”
April 23 – Bloomberg (Jim Bianco): “Most everybody seems to be wondering what’s happened to U.S. inflation and why it hasn’t returned in any meaningful ways as suggested by the economic models. The answer matters to the Federal Reserve’s unique status as a central bank with a rare ‘dual mandate’ of maximum employment and stable prices. The evidence is mounting that this dual mandate is clouding the Fed’s judgment, especially at a time when the relationship between inflation and employment is being openly questioned. Congress has changed the mandate before, and maybe it should do so again. Perhaps Congress can give the Fed a mandate of full employment and financial stability, or a mandate of low inflation and financial stability. But juggling employment and inflation at the same time is becoming more and more problematic.”
U.S. Bubble Watch:
April 26 – Bloomberg (Katia Dmitrieva, Reade Pickert and Jeff Kearns): “President Donald Trump was quick to tout the U.S. economy’s surprisingly strong upturn in the first quarter, but it still seems poised for a slowdown this year. While gross domestic product surpassed all analyst expectations, kicking off the year with a 3.2% advance, more than half the gain came from the volatile trade and inventories components that may soon reverse. Underlying pillars of growth weakened. Consumer spending… cooled for the third straight quarter, and nonresidential business investment grew at the second-slowest pace since Trump took office. The question remains just how strong is the world’s largest economy.”
April 22 – Associated Press (Andrew Taylor): “The financial condition of the government’s bedrock retirement programs for middle- and working-class Americans remains shaky, with Medicare pointed toward insolvency by 2026, according to a report… by the government’s overseers of Medicare and Social Security. It paints a sobering picture of the programs, though it’s relatively unchanged from last year’s update. Social Security would become insolvent in 2035, one year later than previously estimated. Both programs will need to eventually be addressed to avert automatic cuts should their trust funds run dry… Social Security is the government’s largest program, costing $853 billion last year, with another $147 billion for disability benefits. Medicare’s hospital, outpatient care, and prescription drug benefits totaled about $740 billion. Taken together, the two programs combined for 45% of the federal budget, excluding interest payments on the national debt.”
April 26 – Bloomberg (Jenny Surane): “Red flags are flying in the credit-card industry after a key gauge of bad debt jumped to the highest level in almost seven years. The charge-off rate -- the percentage of loans companies have decided they’ll never collect -- rose to 3.82% in the first three months of 2019, the highest since the second quarter of 2012… And loans 30 days past due, a harbinger of future write-offs, increased at all seven of the largest U.S. card issuers. There’s been a ‘degradation’ in credit quality for certain customers, according to Richard Fairbank, chief executive officer at Capital One… Fairbank said some customers with negative credit events during the financial crisis are now seeing those problems disappear from their credit-bureau reports. ‘We may be looking at data that might not paint the full picture of a consumer’s credit history,’ Fairbank said… ‘Part of the context for our caution has been not only how deep we are in the cycle but, also, this is the time period when there is less information than there once was.’”
April 23 – Reuters (Lucia Mutikani): “Sales of new U.S. single-family homes rose to a near 1-1/2-year high in March… New home sales increased 4.5% to a seasonally adjusted annual rate of 692,000 units last month, the highest level since November 2017… Economists polled by Reuters had forecast new home sales, which account for 11.7% of housing market sales, decreasing 2.5% to a pace of 650,000 units in March… The median new house price dropped 9.7% to $302,700 in March from a year ago, the lowest level since February 2017. The drop was because of an increase in the share of homes sold in the $200,000-$300,000 price range.”
April 22 – Bloomberg (Prashant Gopal): “Buyers in the tightest U.S. housing markets finally got what they’ve been looking for: inventory. But instead of sales surging as a result, they’re sinking. In Salt Lake City, where listings jumped 53% in March from a year earlier, transactions fell 21%..., according to… Redfin Corp. Utah’s capital was followed by Los Angeles, Las Vegas and Orange County, California, all previously hot markets where inventory has been rising. Blame affordability. Buyers… stepped back last year after a jump in mortgage rates made it more expensive to purchase homes that were already costly. Trump’s tax plan, which punished pricey areas, added to the slowdown. But there’s hope that lower borrowing costs this year may already be helping. ‘Buyers are back, but they’re picky,’ said Daryl Fairweather, chief economist of Redfin. ‘In order to get back to a balanced market, prices have to come down more.’”
April 22 – CNBC (Diana Olick): “Sales of existing homes were weaker than expected in March. But behind the headline numbers, an even more disconcerting dynamic is playing out. Both the high end and the low end of the market are struggling due to completely different factors. Sales of the lowest-priced homes—those below $100,000—were down 13% in March compared with a year ago… This weakness on the low end started two years ago, as demand began to soar amid very tight supply. The inventory of cheaper homes continues to drop for two reasons: builders are not focused on the sector and investors snapped up lower-end homes during the last housing crisis, turning them into rentals. About 5 million homes were added to the rental stock and very few of them were replaced in the for-sale market. In contrast, sales of high-end homes were soaring in 2017. Million-dollar-plus sales were up nearly 31% that year. This March, sales in that price class were down 11% year over year, even though there are plenty of those homes for sale.”
April 25 – Associated Press (Martin Crutsinger): “Orders to U.S. factories for big-ticket manufactured goods rose 2.7% in March with a key category that tracks business investment decisions rising at the strongest pace in eight months. The increase in orders for durable goods followed a 1.1% drop in orders in February… Both months were influenced by a swing in the volatile category of commercial aircraft…”
April 22 – Associated Press (Joyce M. Rosenberg): “The boom market in small businesses is showing signs of cooling. The number of small business sales counted by online market BizBuySell.com fell 6.5% during the first quarter from the same period of 2018, following a 6% fourth quarter drop. BizBuySell.com reported 2,504 first quarter transactions, down from 2,678 a year earlier. Sales remain very strong, and the first quarter total is close to the record for a January-March period…”
April 24 – Associated Press (David Koenig): “Boeing is already estimating a $1 billion increase in costs related to its troubled 737 Max and has pulled its forecast of 2019 earnings because of uncertainty surrounding the jetliner, which remains grounded after two crashes that killed 346 people. The $1 billion figure is a conservative starting point. It covers increased production costs over the next few years but does not include the company’s spending to fix software implicated in the crashes, additional pilot training, payments to airlines for grounded jets, or compensation for families of the dead passengers… The company also said it is suspending stock buybacks. Boeing spent $2.3 billion in the first quarter to buy its own stock, which is designed to make remaining shares more valuable.”
April 22 – Associated Press (Janie Har): “San Francisco’s renowned waterfront hosts joggers, admiring tourists and towering condos with impressive views. It could also become the site of a new homeless shelter for up to 200 people. Angry residents have packed public meetings, jeering at city officials and even shouting down Mayor London Breed over the proposal. They say they were blindsided and argue billionaire Twitter executive Jack Dorsey and other tech executives who support the idea should lobby city officials to build a shelter by their homes. The waterfront uproar is among recent examples of strife in an expensive city that is both overwhelmed by tech wealth and passionate about social justice. San Francisco companies Pinterest and Lyft recently went public, and Uber and Slack are coming soon, driving fears that newly minted millionaires will snap up the few family homes left for under $2 million.”
April 23 – Reuters (Richard Leong and Trevor Hunnicutt): “American middle class consumers are enjoying the strongest wage growth in a decade, but higher gasoline prices are eating a good chunk of that increase for many, and it looks like pump prices are headed higher. Gasoline pump prices have already jumped about 25% this year, the fastest rate in three years… Some analysts expect the national average pump price, currently near $2.85 a gallon, will climb above $3 a gallon for the first time since 2014. Few goods prices aggravate U.S. consumers as much as high gasoline prices.”
April 21 – Financial Times (Andrew Edgecliffe-Johnson): “When Roger Williams got his turn at the microphone earlier this month, his question for the bank CEOs lined up before the House committee on financial services seemed an unusual one to put to seven sharp-suited financiers. ‘Are you a socialist or are you a capitalist?’ the Texas Republican asked each of them, from Citigroup’s Mike Corbat to David Solomon of Goldman Sachs. None struggled to assure him of their free market bona fides, but the fact the question was even asked reflected a remarkable change in the discussion about business… America’s decades-old system of corporate capitalism is suddenly up for debate. One reason is the rising prominence of self-described democratic socialists such as Alexandria Ocasio-Cortez, Mr Williams’ fellow committee member, which has put a spotlight on critics who were once outside the political mainstream. Yet some of the most influential voices calling for change are the very chief executives who have arguably benefited most from the current model.”
April 22 – Bloomberg (Prashant Gopal): “The Trump Administration is cracking down on national affordable housing programs because of concern over growing risk to the government’s almost $1.3 trillion portfolio of federally insured mortgages. The effort targets providers of money for borrowers who can’t afford the 3.5% down payment typically required on Federal Housing Administration loans. Such help -- from government agencies and families -- enables 4 in 10 FHA loans. Borrowers in government down-payment assistance programs become delinquent at about twice the rate of those who put up their own money.”
April 25 – Gallup (Julie Ray): “Even as their economy roared, more Americans were stressed, angry and worried last year than they have been at most points during the past decade. Asked about their feelings the previous day, the majority of Americans (55%) in 2018 said they had experienced stress during a lot of the day, nearly half (45%) said they felt worried a lot and more than one in five (22%) said they felt anger a lot. Each of these figures matches or tops previous highs in the U.S. Additionally, Gallup's latest annual update on the world's emotional state shows Americans were more likely to be stressed and worried than much of the world.”
April 22 – Bloomberg (Suzanne Woolley): “Just as single-income families began to vanish in the last century, many of America’s elderly are now forgoing retirement for the same reason: They don’t have enough money. Rickety social safety nets, inadequate retirement savings plans and sky high health-care costs are all conspiring to make the concept of leaving the workforce something to be more feared than desired. For the first time in 57 years, the participation rate in the labor force of retirement-age workers has cracked the 20% mark, according to… United Income. As of February, the ranks of people age 65 or older who are working or seeking paid work doubled from a low of 10% back in early 1985. The biggest spike in employment has gone to college-educated older workers; the share of all employees age 65 or older with at least an undergraduate degree is now 53%, up from 25% in 1985.”
China Watch:
April 26 – Bloomberg: “Chinese President Xi Jinping addressed some 40 world leaders at the Belt and Road forum in Beijing, but his speech may have been aimed at a head of state not in the audience: U.S. President Donald Trump. Xi spent a large portion of his speech Friday addressing Chinese domestic reforms, pledging to address state subsidies, protect intellectual property rights, allow foreign investment in more sectors and avoid competitive devaluation of the yuan. All four are issues the U.S. is addressing in trade talks with Beijing. ‘We will establish a binding enforcement system for international agreements,’ Xi said, adding that China will standardize all levels of government in terms of issuing administrative licenses and market regulation, and also ‘eliminate improper rules, subsidies and practices that impede fair competition and distort the market.’”
April 24 – Bloomberg: “The People’s Bank of China offered 267.4 billion yuan ($39.8bn) of targeted medium-term loans on Wednesday, a step that funnels money to some lenders while avoiding broad easing… The injection signals a calibrated approach to liquidity management, with the PBOC trying to keep money moving through the financial system while holding back market expectations for stronger easing. That’s partly because the economy is recovering, thanks to earlier stimulus that drove stronger-than-expected growth in March credit figures and last quarter’s GDP… The TMLF offering is “lower profile, more targeted" than cuts to reserve-requirement ratios, which could create bubbles in the stock market, said Lu Ting, chief China economist at Nomura International… ‘The chance of an RRR cut in the coming month is very small… The PBOC’s tone has changed, which means the pace and scale of easing will moderate. The central bank will stay in a wait and see mode,’ he said.”
April 24 – Reuters (Stella Qiu and Winni Zhou): “China’s central bank has no intent to tighten or relax monetary policy, a vice governor said…, as the market debates how much more support Beijing will give the economy after surprisingly resilient data was released last week. The People’s Bank of China’s use of reverse repos or a medium-term lending facility (MLF) does not signal that it has a loosening bias, Vice-Governor Liu Guoqiang told reporters…”
April 24 – Reuters (Kevin Yao): “China’s economy still faces downward pressure and the government will counter it by deepening reforms and cutting taxes, state television quoted Premier Li Keqiang as saying… The economy grew a steady 6.4% in the first quarter, defying expectations of a further slowdown, with factory output, retail sales and investment in March all growing faster than expected following a raft of stimulus measures. ‘We are keenly aware that China’s economy still faces downward pressure,’ Li said. He called for greater confidence but said authorities should not underestimate the difficulties in the economy.”
April 24 – Bloomberg (Tian Chen and Wenjin Lv): “China’s government bonds, among some of the world’s top-performing debt last year, have tumbled so much over the past month they’ve become the worst bets in Asia-Pacific. The yield on 10-year government bonds has surged more than 30 bps since late March, as wagers on broad monetary easing receded due to a better economic outlook and a rally in stocks. Singapore’s sovereign notes were the second-worst performer, followed by the Philippines.”
April 21 – Bloomberg: “China’s cash-strapped companies are going to new lengths to raise money from the booming stock market, even if it comes at a cost to existing shareholders. Nine firms have said they plan to raise a combined 40.5 billion yuan ($6bn) through rights issues since January, almost twice the amount announced all of last year… That includes Tianqi Lithium Corp. and Xinjiang Tianrun Dairy Co., whose shares slumped 5.4% and 10% immediately after their respective announcements. Chinese companies face restrictions on how much, how often and at what price they can sell new shares through private placements, the hitherto most popular method to raise money via the equity market. That’s sent them on a hunt for alternative funding tools, making the most of this year’s surging risk appetite.”
April 24 – Bloomberg (Carrie Hong and Carol Zhong): “Investor faith in Chinese dollar bonds backed by banks is about to be tested after a default by one of the country’s best known private conglomerates. China Minsheng Investment Group Corp. said last week cross-default clauses have been triggered on dollar bonds worth $800 million. These include $300 million of debt that carries a standby letter of credit from China Construction Bank Corp. -- effectively a pledge to repay if the borrower can’t. So far investor confidence that banks will honor such an agreement is unshaken. While CMIG’s dollar bonds due in August -- which aren’t backed by a letter of credit -- traded at around 58 cents on the dollar, bonds with CCB’s backing due 2020 were indicated at about 99 cents…”
April 21 – Wall Street Journal (Shen Hong): “China’s bond market is hosting a battle of wills between the country’s leadership and lower-ranking officials and corporate bosses. They are fighting over perpetual bonds, debtlike securities that lack a maturity date and technically never need to be repaid. Issuance has surged since the start of 2018, partly because state-backed companies see them as a way to hit Beijing-mandated debt-reduction targets without going through a painful restructuring or diluting government control. The central government, concerned that issuers are adding to their long-term financial risk and deferring more substantive efforts to hit those targets, recently tightened the rules, making it harder to count perpetuals as equity rather than debt for accounting purposes. The securities were first permitted in China in 2013. Some 1.8 trillion yuan ($268bn) of perpetuals are now outstanding—95% issued by state-backed businesses, from energy giants to ‘local government financing vehicles,’ which build and run infrastructure projects.”
April 23 – Wall Street Journal (Mike Bird): “China’s major commercial banks have a funding issues outside Beijing’s control: They’re running low on the U.S. dollars they need for activities both at home and abroad. The combined dollar liabilities at the big four commercial banks exceeded their dollar assets at the end of 2018, …a sharp reversal from just a few years ago. Back in 2013, the four together had around $125 billion more dollar assets than liabilities, but now they owe more dollars to creditors and customers than are owed to them. Bank of China is by far the greatest contributor to the shift. Once the holder of more net assets in dollars than any other Chinese lender, it ended 2018 owing about $70 billion more in dollar liabilities than it booked in dollar assets.”
April 22 – Financial Times (Gregory Meyer, Hudson Lockett and Andres Schipani): “As millions of pigs disappear in China, the rest of the world is beginning to notice. The country’s pig population, the largest in the world, is likely to shrink by almost a third, losing 130m animals as African swine fever ravages the country’s farms. The outbreak will reshape protein markets across the globe, driving up meat prices as China, the leading consumer and producer of pork, braces for years of shortages and disruptions to its food supply. ‘This has been a game-changer,’ says Jais Valeur, group chief executive at Danish Crown, Europe’s leading pork processor. ‘We’re only starting to see the real impact of African swine fever.’ The ASF virus, endemic to Africa, is fatal to pigs and has no cure. The current wave of cases began in Georgia in 2007 and spread to parts of eastern Europe and Russia before reaching China in August.”
April 24 – Bloomberg (Alfred Cang and Anna Kitanaka): “In almost 40 years of analyzing commodity markets, Arlan Suderman says he has never witnessed an industry-jolting event as dramatic as the contagion spreading across China’s hog farms. The chief commodities economist at INTL FCStone Inc… has been warning clients about the impact of African swine fever, which he says is not only under-reported but will spur a restructure of China’s entire farm industry and trigger an escalation in meat prices globally. Most react in disbelief, Suderman said, but the situation is likely to worsen before it gets better.”
April 22 – Financial Times (Tom Hancock): “A massive scheme to demolish nearly 25m homes in designated ‘slum’ areas in China — forcing the relocation of some 100m people over the past four years — is straining local government finances amid a downturn in land sales. Residents of Qiangbei village in the central Chinese city of Jiaozuo say the government has been destroying homes without compensating those evicted with new housing or money. ‘The national policy is to build relocation housing before demolition, but here it’s the opposite way around,’ said Zhang Xiaoqin, a… farmer who was collecting the last items from her two-storey village house ahead of demolition. The villagers’ plight reflects difficulties some municipalities in China have had in meeting spending obligations as they struggle under a collective debt burden that reached Rmb40.3tn ($6tn) last year, according to S&P Global.”
Central Bank Watch:
April 24 – Reuters (Leika Kihara, Tetsushi Kajimoto, Stanley White and Kaori Kaneko): “The Bank of Japan kept monetary policy steady… and clarified its intention to keep interest rates very low for a prolonged period, committing to do so at least through around the spring of next year. In a widely expected move, the BOJ maintained its short-term interest rate target at minus 0.1% and a pledge to guide 10-year government bond yields around zero percent. ‘The BOJ intends to maintain the current extremely low levels of short-term and long-term interest rates for an extended period of time, at least through around spring 2020,’ the BOJ said…”
April 20 – Bloomberg (Catherine Bosley): “The Swiss National Bank can lower its subzero interest rates even further, President Thomas Jordan told newspaper Blick. …Jordan affirmed the ongoing need for a deposit rate of minus 0.75% plus a pledge to intervene in currency markets, if necessary, adding the franc remains highly valued. The SNB had the tools to act, he said, should economic conditions deteriorate.”
Europe Watch:
April 25 – Associated Press (Joseph Wilson): “The outcome of Spain’s election on Sunday is anyone’s guess. A substantial pool of voters is still undecided. The country’s traditional parties have been diluted. And a rising populist party has splintered the right. The ballot will be Spain’s third parliamentary election in less than four years, with no sign that the uncertainty will go away anytime soon. Socialist Prime Minister Pedro Sánchez is hoping voters give him a strong mandate to stay in the office he assumed 11 months ago…”
April 23 – Bloomberg (Ferdinando Giugliano): “The euro zone has only recently recovered from a double-dip recession, but there are already questions about how prepared it would be for a new crisis. All eyes are on the European Central Bank, which has been the strongest line of defense against an economic slowdown. While pessimists worry that the ECB has few tools left if it needs to revive growth — given the region’s already rock-bottom interest rates — such concerns are overdone. A far bigger risk is the replacement of Mario Draghi as the central bank’s president this year. Will the new chief be willing to use all of the instruments available to take the monetary union out of any crisis? It’s far from certain.”
April 24 – Reuters (Paul Carrel and Jörn Poltz): “German business morale deteriorated in April, bucking expectations for a small improvement, as trade tensions hurt the industrial engine of Europe’s largest economy… The Munich-based Ifo economic institute said… its business climate index fell to 99.2 in April from an upwardly revised 99.7 in March, the first rise after six straight declines. The consensus forecast for a rise to 99.9. ‘March’s gentle optimism regarding the coming months has evaporated,’ Ifo President Clemens Fuest said… ‘The German economy continues to lose steam.’”
April 24 – Financial Times (Hannah Roberts): “The well-heeled inhabitants of Munich are sometimes disparaged by other Germans as schickimicki — something like ‘fancy-schmancy’… Münchner have plenty to feel smug about. Top companies such as BMW, Siemens and Allianz are based there, helping to make the city one of the most affluent in Germany. Economic success has had an effect on house prices, causing them to rocket in recent years. Today, Munich is Germany’s most expensive city in which to buy property… The average price per square metre in the city is €7,630, dwarfing the €2,993 in Germany as a whole. Prices have risen so steeply, in fact, that a report by UBS considers Munich to be the biggest bubble risk in Europe. Only Hong Kong is more at risk in the 20 cities analysed in its Real Estate Bubble Index.”
EM Watch:
April 25 – Financial Times (Adam Samson): “Turkey’s financial markets suffered a new blow on Thursday as the country’s central bank unnerved investors by signalling a growing reluctance to raise interest rates and disclosed a further drop in its foreign currency reserves. The monetary policy decision, along with fresh data that show the country’s foreign currency coffers had dropped $1.8bn last week, deepened worries about the country’s deteriorating financial defences.”
Global Bubble Watch:
April 26 – Financial Times (Peter Campbell): “Global gloom swept the auto industry this week with Daimler and Renault becoming the latest in a string of carmakers to report falling sales and squeezed margins. Their results for the first quarter follow falling sales at Peugeot-owned PSA and a sharp earnings drop at Volvo, while Nissan this week slashed its profit forecasts by a fifth… Car sales have slumped in China and emerging markets, while Europe and the US are stagnating, as the global automotive cycle eases into reverse following years of strong growth. At the same time as slowing sales, carmakers are facing rising costs from developing electric and hybrid models to meet emissions targets, as well as new technologies such as self-driving vehicles.”
April 23 – Financial Times (Richard Henderson): “The amount of assets held in exchange-traded bond funds has pushed past $1tn, capping a near fivefold increase since the financial crisis, and underscoring a radical reshaping of the world’s debt markets. ETFs — passive vehicles that try to mimic the performance of an underlying index — have emerged as fixtures of many investors’ portfolios over the past 30 years, giving them relatively cheap and reliable access to a wide variety of assets… Equity ETFs continue to dominate the $5.6tn-in-assets industry, but the rapid rise of fixed income ETFs highlights how investors have become increasingly comfortable using such vehicles… Assets in bond ETFs came to $1.03tn at the end of March, according to ETFGI... At the end of 2009 the equivalent figure stood at $218bn.”
April 24 – Reuters (Joori Roh and Cynthia Kim): “South Korea’s economy unexpectedly shrank in the first quarter, marking its worst performance since the global financial crisis, as companies slashed investment and exports slumped in response to Sino-U.S. trade tensions and cooling Chinese demand… Gross domestic product (GDP) in the first quarter declined a seasonally adjusted 0.3% from the previous quarter, the worst contraction since a 3.3% drop in late 2008…”
April 23 – Wall Street Journal (Jenny Strasburg): “Deutsche Bank AG executives have discussed creating a new unit to house unwanted assets and businesses that could be earmarked for closure, part of contingency planning under way should a possible merger with German rival Commerzbank AG fall through… Deutsche Bank for years has been retooling its strategy and management, promising to reinvigorate profits, repair compliance weaknesses and cut rising costs. Executives insisted publicly up until late 2018 that the bank should only consider deals after it heals itself. Now, deep into merger talks, it is looking at a potentially bigger cleanup effort than it previously signaled.”
April 25 – Bloomberg (Fergal O'Brien): “The global trade funk is dragging on, with new data on Thursday showing volumes are falling at the fastest pace since the depths of the financial crisis. Calculations by Bloomberg based on the Dutch statistics office’s trade monitor show a 1.9% drop in the three months through February compared with the previous three months. That marks the steepest drop since the period through May 2009.”
Japan Watch:
April 25 – Reuters (David Lawder and Jason Lange): “Japanese Finance Minister Taro Aso said… he told U.S. Treasury Secretary Steven Mnuchin that Tokyo cannot accept discussions that link monetary policy to trade issues. Aso, who met Mnuchin on the eve of a summit between U.S. President Donald Trump and Japanese Prime Minister Shinzo Abe in Washington, said the two countries also agreed that exchange-rate matters would be discussed between financial authorities. Trump has made clear he is unhappy with Japan’s trade surplus with the United States - much of it from auto exports - and wants a two-way agreement to address it.”
Fixed-Income Bubble Watch:
April 25 – Wall Street Journal (Sam Goldfarb): “A sharp rally in speculative-grade corporate bonds has pushed the average yield on those bonds below that of comparably rated loans, an unusual market distortion reflecting an improved U.S. economic outlook and the Federal Reserve’s retreat from tightening monetary policy. Bond yields… typically exceed those of loans because holders of the latter are typically paid first in bankruptcies. This year, yields on both are down amid a broad rally in riskier assets. Still, yields on bonds are down more in large part because the floating coupons of loans have become less appealing now that the Fed is no longer raising interest rates. At the same time, investors see little reason to seek shelter in loans given a still-benign economic environment and low rate of corporate defaults. As of Tuesday, the average yield to maturity of bonds in the Bloomberg Barclays high yield index was 6.51%, down from 8% at the end of last year, while the average yield of loans in the S&P/LSTA Leveraged Loan index was 6.53%, down from 7.23%.”
April 25 – Financial Times (Joe Rennison and Ed Crooks): “The junk-rated debt of energy companies has surged this year to become the best-performing sector within the US high-yield bond market, lifted by a rally in commodity prices that was strengthened this week by Washington’s decision to tighten curbs on Iran’s oil exports. The total return on high-yield debt from energy companies has risen to 10.3% for 2019, outpacing a broader recovery across the lower ranks of the corporate bond market, which has returned 8.7%... The main catalyst has been a resurgent oil market. Internationally traded Brent crude has climbed to more than $75 a barrel, up nearly 40% from the turn of the year…”
Leveraged Speculator Watch:
April 21 – Financial Times (Laurence Fletcher): “Life has not been good for many macro hedge funds in recent years — but the green shoots of recovery are beginning to appear. Quantitative easing has been a big drag for traders by pushing bond yields lower and for longer than many had expected, distorting fund managers’ fundamental analysis of markets and suppressing the volatility they like to trade. Macro hedge funds epitomise what many people imagine the hedge fund industry to be — traders taking punchy bets on a move in the yen or the path of US interest rates. So modest positive returns in the first quarter are raising hopes that broader market conditions have become more favourable… While hardly spectacular, the first quarter’s 2.6% average gain… would equate to an annualised return of more than 10%... That would be a welcome improvement after a loss of 4.1% last year and lacklustre performance in the previous three years.”
April 21 – Financial Times (Javier Espinoza): “Some of the largest private equity groups are raising the performance fees they charge investors to well above the industry’s norm at a time when institutions are fighting to put money into the best funds. Institutional investors are in some cases paying 30% in ‘carried interest’ — the share of profits taken by the private equity groups — up from the traditional 20% share of profits that the industry has charged for decades. Funds charging this ‘super carry’ have been launched recently by Carlyle Group, Vista Equity Partners and Bain Capital in the US and EQT, Eurazeo and Altor in Europe. Advisors to large private equity funds have defended the rise of ‘super carry’, arguing it is only the top-tier funds with stellar results that can get away with it.”
April 24 – Reuters (John Kemp): “Hedge funds are betting heavily on higher gasoline prices this summer, anticipating that refiners will struggle to produce enough gasoline to replenish depleted stocks while ramping up diesel output for the shipping industry. Hedge funds and other money managers have accumulated 118 million barrels of bullish long positions in futures and options linked to U.S. gasoline prices compared with just 3 million barrels betting on prices falling.”
Geopolitical Watch:
April 24 – Reuters (Hyonhee Shin, Joyce Lee, Maria Kiselyova, Darya Korsunskaya and Maxim Rodionov): “Russian President Vladimir Putin said after holding his first face-to-face talks with North Korean leader Kim Jong Un on Thursday that U.S. security guarantees would probably not be enough to persuade Pyongyang to shut its nuclear program.”
April 20 – Reuters (Joori Roh and Josh Smith): “North Korea has criticized U.S. National Security Adviser John Bolton’s ‘nonsense’ call for Pyongyang to show that it’s serious about giving up its nuclear weapons, the second time it has criticized a leading U.S. official in less than a week. U.S. President Donald Trump has said he is open to a third summit with North Korean leader Kim Jong Un, but Bolton told Bloomberg… there first needed to be ‘a real indication from North Korea that they’ve made the strategic decision to give up nuclear weapons’.”
April 23 – Financial Times (Lucy Hornby, Anjli Raval, Aime Williams and Najmeh Bozorgmehr): “China has hit out at a US decision to tighten restrictions on oil exports from Iran, warning that the move could destabilise the Middle East even as other buyers scramble to fall into line with Washington. Beijing emerged quickly… as the chief opponent of a Trump administration move to scrap waivers that had enabled China and several other countries to buy Iranian oil despite US sanctions. Chinese oil companies are among Iran’s biggest customers and China’s foreign ministry lodged a formal protest with the US over the decision, according to the ministry spokesman Geng Shuang… ‘The decision from the US will contribute to volatility in the Middle East and in the international energy market,’ he said.”
April 22 – Bloomberg (Arsalan Shahla and Ladane Nasseri): “Iran will close the Strait of Hormuz, a waterway vital for global oil shipments, if the country is prevented from using it, a senior military official said… in what appears to be a response to the U.S. plan to end waivers on Iranian oil exports. ‘If we are prevented from using it, we will close it,’ the state-run Fars news agency reported, citing Alireza Tangsiri, head of the Revolutionary Guard Corps navy force. ‘In the event of any threats, we will not have the slightest hesitation to protect and defend Iran’s waterway.’”
April 22 – Financial Times (Anjli Raval and Ed Crooks): “The US has stepped up pressure on Tehran by deciding to end sanctions waivers that have allowed big economic powers to continue importing crude from Iran, a move that raises questions about the ability of other oil producers to fill the gap. The move helped push up the price of Brent crude…, which climbed above $74 a barrel for the first time in six months this week. The US… restated its desire to bring Iran’s oil exports down to ‘zero’ — an ambition it announced last November when it reintroduced sweeping anti-Iran economic sanctions. Although exports have dropped since then they did not vanish, partly because of the exemptions that will now be phased out. Iran’s exports averaged about 2.5m barrels a day before the US decision to reimpose curbs… In the past five months its exports have dropped to 1m-1.3m barrels per day, according to estimates by consultancy FGE Energy. Tanker-tracking websites suggest Iran has been secretly exporting rather more: about 1.9m b/d.”
April 24 – Reuters (Michelle Nichols, Lesley Wroughton and Phil Stewart): “Iranian Foreign Minister Mohammad Javad Zarif does not believe U.S. President Donald Trump wants war with Iran, but he told Reuters… that Trump could be lured into a conflict. ‘I don’t think he wants war,’ Zarif said… ‘But that doesn’t exclude him being basically lured into one.’”
April 23 – Reuters (David Lague and Benjamin Kang Lim): “In 1938, in the midst of a long campaign to bring China under Communist Party rule, revolutionary leader Mao Zedong wrote: ‘Whoever has an army has power.’ Xi Jinping, Mao’s latest successor, has taken that dictum to heart. He has donned camouflage fatigues, installed himself as commander-in-chief and taken control of the two million-strong Chinese military, the People’s Liberation Army. It is the biggest overhaul of the PLA since Mao led it to victory in the nation’s civil war and founded the People’s Republic in 1949. Xi has accelerated the PLA’s shift to naval power from a traditionally land-based force. He has broken up its vast, Maoist-era military bureaucracy. A new chain of command leads directly to Xi as chairman of the Central Military Commission… The Chinese leader isn’t just revolutionizing the PLA. Xi is making a series of moves that are transforming both China and the global order.”
April 24 – Reuters (David Lague and Benjamin Kang Lim): “China’s powerful military is considered to be a master at concealing its intentions. But there is no secret about how it plans to destroy American aircraft carriers if rivalry becomes war. At November’s biennial air show in the southern city of Zhuhai, the biggest state-owned missile maker, China Aerospace Science and Industry Corporation Ltd, screened an animation showing a hostile ‘blue force,’ comprising an aircraft carrier, escort ships and strike aircraft, approaching ‘red force’ territory. On a giant screen, the animation showed a barrage of the Chinese company’s missiles launched from ‘red force’ warships, submarines, shore batteries and aircraft wreaking havoc on the escort vessels around the carrier. In a final salvo, two missiles plunge onto the flight deck of the carrier and a third slams into the side of the hull near the bow.”
April 23 – Reuters (Brenda Goh, Michael Martina, Cate Cadell, Ben Blanchard and John Ruwitch): “China is expected to promote a recalibrated version of its Belt and Road initiative at a summit of heads of state this week in Beijing, seeking to allay criticism that its flagship infrastructure policy fuels indebtedness and lacks transparency. The policy championed by Chinese President Xi Jinping has become mired in controversy, with some partner nations bemoaning the high cost of projects. Western governments have tended to view it as a means to spread Chinese influence abroad, saddling poor countries with unsustainable debt.”
Friday, April 26, 2019
Thursday, April 25, 2019
Friday's News Links
[Reuters] Wall Street dips as technology stocks weigh
[Reuters] Oil drops 3 percent after Trump again tells OPEC to lower prices
[Reuters] Volatile trade, inventories boost U.S. growth to 3.2 percent in first quarter
[Reuters] U.S. April auto sales seen falling as higher prices keep away young buyers: J.D. Power, LMC Automotive
[CNBC] Xi tells world leaders he’s committed to reforming China, but provides few details
[Reuters] China seeks to allay fears over Belt and Road debt risks
[AP] Deutsche Bank lowers outlook as revenues disappoint
[Reuters] North Korean leader warns of a return to tension, blames U.S. 'bad faith'
[Bloomberg] China’s Xi Signals Approval for Trump’s Trade War Demands
[Bloomberg] Central Banks Have Broken Capitalism
[NYT] China Retools Vast Global Building Push Criticized as Bloated and Predatory
[WSJ] The Euro’s Bad Year Just Keeps Getting Worse
[WSJ] Bitfinex Used Tether Reserves to Mask Missing $850 Million, Probe Says
[WSJ] China’s Xi Vows New Direction for ‘Belt and Road’ After Criticism
[FT] Global gloom sweeps car industry as market stalls
[FT] Germany’s big banks are left grasping for answers
[FT] Turkey confirms March ramp-up in short-term borrowing
[FT] Dead calm in currency markets unnerves investors
[Reuters] Oil drops 3 percent after Trump again tells OPEC to lower prices
[Reuters] Volatile trade, inventories boost U.S. growth to 3.2 percent in first quarter
[Reuters] U.S. April auto sales seen falling as higher prices keep away young buyers: J.D. Power, LMC Automotive
[CNBC] Xi tells world leaders he’s committed to reforming China, but provides few details
[Reuters] China seeks to allay fears over Belt and Road debt risks
[AP] Deutsche Bank lowers outlook as revenues disappoint
[Reuters] North Korean leader warns of a return to tension, blames U.S. 'bad faith'
[Bloomberg] China’s Xi Signals Approval for Trump’s Trade War Demands
[Bloomberg] Central Banks Have Broken Capitalism
[NYT] China Retools Vast Global Building Push Criticized as Bloated and Predatory
[WSJ] The Euro’s Bad Year Just Keeps Getting Worse
[WSJ] Bitfinex Used Tether Reserves to Mask Missing $850 Million, Probe Says
[WSJ] China’s Xi Vows New Direction for ‘Belt and Road’ After Criticism
[FT] Global gloom sweeps car industry as market stalls
[FT] Germany’s big banks are left grasping for answers
[FT] Turkey confirms March ramp-up in short-term borrowing
[FT] Dead calm in currency markets unnerves investors
Thursday Evening Links
[Reuters] S&P 500 flat as losses in industrials offset gains in Facebook, Microsoft
[Reuters] Strong dollar sends emerging currency index to three-month low
[Reuters] Growth worries keep German 10-yr yield below zero, Italy suffers
[Reuters] Trump says China's Xi will soon come to White House
[Reuters] Japan tells U.S. can't link monetary policy to trade: finance minister Aso
[Reuters] Trump administration sidelines offshore drilling plan: WSJ
[Reuters] Investors take 'Spring Break' from risk assets, pulling cash from junk-bond funds
[Gallup] Americans' Stress, Worry and Anger Intensified in 2018
[Bloomberg] World Trade Volumes Are Plunging at the Fastest Pace in a Decade
[Bloomberg] Farming Veteran Warns China's Pig Crisis Only Getting Worse
[FT] Turkish markets weaken on central bank reluctance to raise rates
[Reuters] Strong dollar sends emerging currency index to three-month low
[Reuters] Growth worries keep German 10-yr yield below zero, Italy suffers
[Reuters] Trump says China's Xi will soon come to White House
[Reuters] Japan tells U.S. can't link monetary policy to trade: finance minister Aso
[Reuters] Trump administration sidelines offshore drilling plan: WSJ
[Reuters] Investors take 'Spring Break' from risk assets, pulling cash from junk-bond funds
[Gallup] Americans' Stress, Worry and Anger Intensified in 2018
[Bloomberg] World Trade Volumes Are Plunging at the Fastest Pace in a Decade
[Bloomberg] Farming Veteran Warns China's Pig Crisis Only Getting Worse
[FT] Turkish markets weaken on central bank reluctance to raise rates
Wednesday, April 24, 2019
Thursday's News Links
[Reuters] World stocks slip, euro suffers, growth fears linger
[Bloomberg/Investing.com] Lira Falls as Central Bank Removes Pledge for Further Tightening
[Reuters] U.S. weekly jobless claims post biggest rise in 19 months
[AP] US durable goods orders up solid 2.7% in March
[Reuters] BOJ commits to very low rates at least through spring 2020, keeps policy steady
[AP] White House voices support for embattled Fed choice
[CNBC] Deutsche Bank-Commerzbank merger talks collapse
[Reuters] China central bank says no intent to tighten or relax monetary policy
[AP] Spain election dominated by uncertainty, splintered right
[Bloomberg] China Dollar Bond Default Tests Bank Guarantees for First Time
[Bloomberg] China Sovereign Bonds Go From Market Darling to Asia's Worst Bet
[Reuters] Exclusive: Iran's Zarif believes Trump does not want war, but could be lured into conflict
[Reuters] Putin says U.S. guarantees unlikely to prompt North Korea to de-nuclearize
[Reuters] New missile gap leaves U.S. scrambling to counter China
[WSJ] Fed Shift Shakes Up World of Speculative Debt
[WSJ] Hedge-Fund Honcho Kyle Bass Takes Aim at Hong Kong ‘Time Bomb’
[FT] Junk-rated energy debt rises on crude revival
[FT] Is Munich’s property the biggest bubble risk in Europe?
[FT] Putin woos Kim at Vladivostok summit as US talks founder
[Bloomberg/Investing.com] Lira Falls as Central Bank Removes Pledge for Further Tightening
[Reuters] U.S. weekly jobless claims post biggest rise in 19 months
[AP] US durable goods orders up solid 2.7% in March
[Reuters] BOJ commits to very low rates at least through spring 2020, keeps policy steady
[AP] White House voices support for embattled Fed choice
[CNBC] Deutsche Bank-Commerzbank merger talks collapse
[Reuters] China central bank says no intent to tighten or relax monetary policy
[AP] Spain election dominated by uncertainty, splintered right
[Bloomberg] China Dollar Bond Default Tests Bank Guarantees for First Time
[Bloomberg] China Sovereign Bonds Go From Market Darling to Asia's Worst Bet
[Reuters] Exclusive: Iran's Zarif believes Trump does not want war, but could be lured into conflict
[Reuters] Putin says U.S. guarantees unlikely to prompt North Korea to de-nuclearize
[Reuters] New missile gap leaves U.S. scrambling to counter China
[WSJ] Fed Shift Shakes Up World of Speculative Debt
[WSJ] Hedge-Fund Honcho Kyle Bass Takes Aim at Hong Kong ‘Time Bomb’
[FT] Junk-rated energy debt rises on crude revival
[FT] Is Munich’s property the biggest bubble risk in Europe?
[FT] Putin woos Kim at Vladivostok summit as US talks founder
Wednesday Evening Links
[Reuters] Wall Street edges lower in mixed earnings day
[Reuters] Treasuries - U.S. yields lower on soft global data, after strong auction
[Reuters] Trump renews threat to close Mexican border, send more troops
[Reuters] Iran's Zarif warns U.S. of 'consequences' over oil sanctions, Strait of Hormuz
[Reuters] South Korea economy unexpectedly contracts in first quarter, worst since global financial crisis
[Bloomberg] Mortgage Traders Breathe Easier as the Risk of a Refinancing Wave Ebbs
[WSJ] Fannie and Freddie’s Uncertain Future, Explained
[Reuters] Treasuries - U.S. yields lower on soft global data, after strong auction
[Reuters] Trump renews threat to close Mexican border, send more troops
[Reuters] Iran's Zarif warns U.S. of 'consequences' over oil sanctions, Strait of Hormuz
[Reuters] South Korea economy unexpectedly contracts in first quarter, worst since global financial crisis
[Bloomberg] Mortgage Traders Breathe Easier as the Risk of a Refinancing Wave Ebbs
[WSJ] Fannie and Freddie’s Uncertain Future, Explained
Tuesday, April 23, 2019
Wednesday's News Links
[Reuters] Wall Street dips after mixed earnings
[Reuters] Oil dips on well supplied markets despite tighter Iran sanctions
[Reuters] Lighthizer, Mnuchin to hold trade talks next week in Beijing -White House
[CNBC] Weekly mortgage applications fall as the highest rates in a month are spooking spring buyers
[Reuters] China's economy still faces downward pressure: premier
[Reuters] China to recalibrate Belt and Road, defend scheme against criticism
[Reuters] Struggling industry saps German business morale as trade woes bite
[Reuters] Explainer: Securing the 5G future - what's the issue?
[Reuters] Hedge funds bet big on spike in U.S. gasoline prices: Kemp
[AP] Boeing pulls 2019 forecast, suspends buybacks
[Bloomberg] China Injects Loans While Avoiding Broad Easing
[Reuters] China navy chief takes dig at U.S. freedom of navigation patrols
[Bloomberg] ‘Extreme’ Stock-Valuation Gap Looms Over Gravity-Defying Rally
[Bloomberg] The Fed’s Dual Mandate Is Outdated
[Bloomberg] The Real Crisis Risk at the ECB
[NYT] Made in China, Exported to the World: The Surveillance State
[WSJ] Deutsche Bank Considers Forming ‘Bad Bank’
[FT] China tech groups delay IPOs as US tensions bite
[Reuters] Oil dips on well supplied markets despite tighter Iran sanctions
[Reuters] Lighthizer, Mnuchin to hold trade talks next week in Beijing -White House
[CNBC] Weekly mortgage applications fall as the highest rates in a month are spooking spring buyers
[Reuters] China's economy still faces downward pressure: premier
[Reuters] China to recalibrate Belt and Road, defend scheme against criticism
[Reuters] Struggling industry saps German business morale as trade woes bite
[Reuters] Explainer: Securing the 5G future - what's the issue?
[Reuters] Hedge funds bet big on spike in U.S. gasoline prices: Kemp
[AP] Boeing pulls 2019 forecast, suspends buybacks
[Bloomberg] China Injects Loans While Avoiding Broad Easing
[Reuters] China navy chief takes dig at U.S. freedom of navigation patrols
[Bloomberg] ‘Extreme’ Stock-Valuation Gap Looms Over Gravity-Defying Rally
[Bloomberg] The Fed’s Dual Mandate Is Outdated
[Bloomberg] The Real Crisis Risk at the ECB
[NYT] Made in China, Exported to the World: The Surveillance State
[WSJ] Deutsche Bank Considers Forming ‘Bad Bank’
[FT] China tech groups delay IPOs as US tensions bite
Tuesday Evening Links
[Reuters] S&P 500, Nasdaq hit record closing highs on upbeat earnings
[Reuters] Oil surges amid OPEC caution to offset Iran sanctions
[CNBC] The Fed’s key interest rate keeps climbing higher, and that could become a problem
[Reuters] Sanctions on Iranian oil bring U.S. drivers pain at the pump
[Reuters] Libyan forces push back Haftar's troops south of Tripoli: witnesses
[FT] Exchange-traded bond funds crash through $1tn in assets
[Reuters] Oil surges amid OPEC caution to offset Iran sanctions
[CNBC] The Fed’s key interest rate keeps climbing higher, and that could become a problem
[Reuters] Sanctions on Iranian oil bring U.S. drivers pain at the pump
[Reuters] Libyan forces push back Haftar's troops south of Tripoli: witnesses
[FT] Exchange-traded bond funds crash through $1tn in assets
Monday, April 22, 2019
Tuesday's News Links
[Reuters] Upbeat earnings boost Wall Street
[Reuters] Oil hits highest since November as U.S. to tighten Iran sanctions
[Reuters] Italian bond yields hit seven-week high as govt tensions grow, rating review looms
[Reuters] U.S. new home sales rise to near one-and-a-half-year high
[CNBC] Trump vows to ‘reciprocate’ against EU tariffs after Harley reports nearly 27% drop in profit
[Bloomberg] Fed Seems Resigned to Bubble Risk in Effort to Extend Expansion
[Reuters] North Korea's Kim Jong Un to meet Putin in Russia on Thursday: report
[Reuters] How China is replacing America as Asia’s military titan
[NYT] As Herman Cain Bows Out of Fed Contention, Focus Shifts to Stephen Moore
[NYT] A Vicious, Untreatable Killer Leaves China Guessing
[WSJ] Traders Wager on Calm as Volatility Evaporates
[WSJ] China’s Banks Are Running Out of Dollars
[WSJ] Xi’s Unsteady Steps Revive Worries Over Lack of Succession Plan in China
[FT] Tranquillity reigns but markets are scarred by last year’s mayhem
[FT] China protests against renewed US sanctions on Iran crude oil
[FT] Chinese slum demolitions reveal government debt strains
[Reuters] Oil hits highest since November as U.S. to tighten Iran sanctions
[Reuters] Italian bond yields hit seven-week high as govt tensions grow, rating review looms
[Reuters] U.S. new home sales rise to near one-and-a-half-year high
[CNBC] Trump vows to ‘reciprocate’ against EU tariffs after Harley reports nearly 27% drop in profit
[Bloomberg] Fed Seems Resigned to Bubble Risk in Effort to Extend Expansion
[Reuters] North Korea's Kim Jong Un to meet Putin in Russia on Thursday: report
[Reuters] How China is replacing America as Asia’s military titan
[NYT] As Herman Cain Bows Out of Fed Contention, Focus Shifts to Stephen Moore
[NYT] A Vicious, Untreatable Killer Leaves China Guessing
[WSJ] Traders Wager on Calm as Volatility Evaporates
[WSJ] China’s Banks Are Running Out of Dollars
[WSJ] Xi’s Unsteady Steps Revive Worries Over Lack of Succession Plan in China
[FT] Tranquillity reigns but markets are scarred by last year’s mayhem
[FT] China protests against renewed US sanctions on Iran crude oil
[FT] Chinese slum demolitions reveal government debt strains
Monday Evening Links
[Reuters] Wall Street jogs in place in quiet trading session
[Reuters] Oil jumps on U.S. plans to tighten Iran sanctions; dollar eases
[Reuters] Treasuries -Steeper yield curve kicks off $237 bln auction week
[Reuters] U.S. home sales tumble as supply constraints linger
[AP] Medicare, Social Security face shaky fiscal futures
[AP] San Francisco at ‘boiling point’ over tech, houses, homeless
[AP] Boom market in small businesses shows signs of cooling
[Reuters] Herman Cain withdraws from consideration for Fed seat, Trump says
[CNBC] Sales of the cheapest and swankiest homes are tanking, but for very different reasons
[Bloomberg] Recently Hot Housing Markets Now See Biggest Sales Declines
[Bloomberg] America’s Elderly Are Twice as Likely to Work Now Than in 1985
[WSJ] Social Security Costs to Exceed Income in 2020, Trustees Say
[FT] What does the end of the US waiver on Iran’s oil exports mean?
[Reuters] Oil jumps on U.S. plans to tighten Iran sanctions; dollar eases
[Reuters] Treasuries -Steeper yield curve kicks off $237 bln auction week
[Reuters] U.S. home sales tumble as supply constraints linger
[AP] Medicare, Social Security face shaky fiscal futures
[AP] San Francisco at ‘boiling point’ over tech, houses, homeless
[AP] Boom market in small businesses shows signs of cooling
[Reuters] Herman Cain withdraws from consideration for Fed seat, Trump says
[CNBC] Sales of the cheapest and swankiest homes are tanking, but for very different reasons
[Bloomberg] Recently Hot Housing Markets Now See Biggest Sales Declines
[Bloomberg] America’s Elderly Are Twice as Likely to Work Now Than in 1985
[WSJ] Social Security Costs to Exceed Income in 2020, Trustees Say
[FT] What does the end of the US waiver on Iran’s oil exports mean?
Sunday, April 21, 2019
Monday's News Links
[Reuters] Stocks pull back ahead of earnings; oil stocks jump
[Reuters] Oil hits 2019 high on U.S. plan to tighten squeeze on Iran
[Reuters] China stocks fall from 13-month high on worries Beijing may slow policy easing
[Reuters] Gold recovers from 4-month low, tracks oil price rally
[Reuters] U.S. to announce end to Iran sanctions waivers, oil prices spike
[BBC] Why the US-China rivalry will not end with a trade deal
[Bloomberg] Beijing Just Undermined China's $2.5 Trillion Stock Rally
[Bloomberg] Iran Raises Stakes in U.S. Showdown With Threat to Close Hormuz
[Bloomberg] Trump’s Housing Agency Cracks Down on No-Money-Down Home Loans
[Bloomberg] El-Erian: What’s Missing for a Market ‘Melt Up’
[WSJ] As Stocks Climb, Some Investors Wonder When to Get Out
[FT] Why American CEOs are worried about capitalism
[FT] The rise of ‘super carry’ unsettles private equity investors
[FT] Fatal fever ravages China’s pig farms and shakes global food markets
[FT] Chinese stocks fall on fears of fresh ‘shadow banking’ purge
[FT] Macro hedge funds hopeful the good times are back
[Reuters] Oil hits 2019 high on U.S. plan to tighten squeeze on Iran
[Reuters] China stocks fall from 13-month high on worries Beijing may slow policy easing
[Reuters] Gold recovers from 4-month low, tracks oil price rally
[Reuters] U.S. to announce end to Iran sanctions waivers, oil prices spike
[BBC] Why the US-China rivalry will not end with a trade deal
[Bloomberg] Beijing Just Undermined China's $2.5 Trillion Stock Rally
[Bloomberg] Iran Raises Stakes in U.S. Showdown With Threat to Close Hormuz
[Bloomberg] Trump’s Housing Agency Cracks Down on No-Money-Down Home Loans
[Bloomberg] El-Erian: What’s Missing for a Market ‘Melt Up’
[WSJ] As Stocks Climb, Some Investors Wonder When to Get Out
[FT] Why American CEOs are worried about capitalism
[FT] The rise of ‘super carry’ unsettles private equity investors
[FT] Fatal fever ravages China’s pig farms and shakes global food markets
[FT] Chinese stocks fall on fears of fresh ‘shadow banking’ purge
[FT] Macro hedge funds hopeful the good times are back
Sunday Evening Links
[Reuters] Asia stocks firm, crude hits 5-month high on Iran sanctions report
[Reuters] Strong stock and bond markets at odds over global growth
[Bloomberg] Sudden Rush to Raise Cash in China Is Burning Stock Investors
[Reuters] Tripoli forces push opponents back slightly south of Libyan capital-witnesses
[WSJ] Trade Deal Alone Won’t Fix Strained U.S.-China Business Relations
[WSJ] Perpetual Motion: Chinese State Companies Fine-Tune Their Financial Engineering
[FT] Hold-up to state sell-offs curbs Italy’s plans to cut public debt
[FT] China to showcase growing naval power with parade at sea
[Reuters] Strong stock and bond markets at odds over global growth
[Bloomberg] Sudden Rush to Raise Cash in China Is Burning Stock Investors
[Reuters] Tripoli forces push opponents back slightly south of Libyan capital-witnesses
[WSJ] Trade Deal Alone Won’t Fix Strained U.S.-China Business Relations
[WSJ] Perpetual Motion: Chinese State Companies Fine-Tune Their Financial Engineering
[FT] Hold-up to state sell-offs curbs Italy’s plans to cut public debt
[FT] China to showcase growing naval power with parade at sea
Sunday's News Links
[Reuters] Financial market 'pause party' makes Fed rate cut less likely
[Reuters] In nod to debt concerns, China Belt and Road summit to urge sustainable financing
[Bloomberg] Swiss Rates Can Be Lowered Further, SNB's President Says
[Reuters] Air strikes and explosions hit Libyan capital
[Reuters] In nod to debt concerns, China Belt and Road summit to urge sustainable financing
[Bloomberg] Swiss Rates Can Be Lowered Further, SNB's President Says
[Reuters] Air strikes and explosions hit Libyan capital
Saturday, April 20, 2019
Saturday's News Links
[Reuters] U.S. intelligence says Huawei funded by Chinese state security: report
[Reuters] North Korea slams Bolton's 'dim-sighted' call for sign of denuclearization
[Reuters] China to show new warships as Beijing flexes military muscle on navy anniversary
[WSJ] Fed Officials Contemplate Thresholds for Rate Cuts
[FT] ‘Non-transparent’ ETFs set to be a boon for fund managers
[Reuters] North Korea slams Bolton's 'dim-sighted' call for sign of denuclearization
[Reuters] China to show new warships as Beijing flexes military muscle on navy anniversary
[WSJ] Fed Officials Contemplate Thresholds for Rate Cuts
[FT] ‘Non-transparent’ ETFs set to be a boon for fund managers
Friday, April 19, 2019
Weekly Commentary: Full Capitulation
April 16 – Bloomberg (Rich Miller and Craig Torres): “Federal Reserve Chairman Jerome Powell and his colleagues have made an important shift in their strategy for dealing with inflation in a prelude to what could be a more radical change next year. The central bank has backed off the interest-rate hikes it had been delivering to avoid a potentially dangerous rise in inflation that economic theory says could result from the hot jobs market. Instead, Powell & Co. have put policy on hold until sub-par inflation rises convincingly.”
April 15 – CNBC (Thomas Franck): “Chicago Federal Reserve President Charles Evans said on Monday that he’d be comfortable leaving interest rates alone until autumn 2020 to help ensure sustained inflation in the U.S. ‘I can see the funds rate being flat and unchanged into the fall of 2020. For me, that’s to help support the inflation outlook and make sure it’s sustainable,’ Evans told CNBC’s Steve Liesman.”
April 15 – Reuters (Trevor Hunnicutt): “The U.S. Federal Reserve should embrace inflation above its target half the time and consider cutting rates if prices do not rise as fast as expected, a top policymaker at the central bank said… ‘While policy has been successful in achieving our maximum employment mandate, it has been less successful with regard to our inflation objective,’ Federal Reserve Bank of Chicago President Charles Evans said… ‘To fix this problem, I think the Fed must be willing to embrace inflation modestly above 2% 50% of the time. Indeed, I would communicate comfort with core inflation rates of 2-1/2%, as long as there is no obvious upward momentum and the path back toward 2% can be well managed.”
It's stunning how dramatically the Fed’s perspective has shifted since the fourth quarter. There’s now a chorus of Fed governors and Federal Reserve Bank Presidents calling for the central bank to accommodate higher inflation. Watching the inflation data (March CPI up 1.9% y-o-y), it’s not readily apparent what has them in such a tizzy. And with crude prices surging 40% to start 2019, it takes some imagining to see deflationary pressures in the pipeline.
The Fed’s (and global central banks’) dovish U-turn was clearly in response to December’s global market instability. Quickly, the global system was lurching toward the precipice. Acute fragility revealed – with central bankers left shaken. And witnessing the speculative fervor that has accompanied central bankers' change of heart, the backdrop is increasingly reminiscent of Bubble Dynamics following the 1998 LTCM bailout. A Bloomberg headline from earlier in the week caught my attention: “Evans Sees Lessons From 1998 Rate Cuts for Fed Policy This Year.” It said, “For the Chicago Fed president Charles Evans the situation recalls the Asian financial crisis of 1998. According to Evans, ‘The risk-management approach taken by the Fed is not unusual. It served us well in similar situations in the past.’”
Historical revisionism. For starters, the Asian crisis was in 1997. The Fed aggressively reduced rates from 5.50% to 4.75% in the Autumn of 1998 in response to the simultaneous Russia and Long-Term Capital Management (LTCM) collapses.
From Evans’ April 15, 2019 speech, “Risk Management and the Credibility of Monetary Policy:”
“Later, in the autumn of 1998, the fallout on domestic financial conditions from the Russian default led to a downgrading of the economic outlook and an aggressive 75 basis point easing in the funds rate over a two-month period. When making the first of those cuts, the FOMC noted that easing would ‘provide added insurance against the risk of a further worsening in financial conditions and a related curtailment in the availability of credit to many borrowers.’”
Clearly many borrowers – and the system more generally - should have faced much tighter Credit Availability by late-1998. This certainly included those aggressively partaking in leveraged speculation (equities, fixed-income and derivatives) and debt gluttons in the real economy - including the highly levered telecom companies (i.e. WorldCom, Global Crossing, XO Communications and a long list) and others (i.e. Enron, Conseco, PG&E, etc.).
Evans, not surprisingly, skips over LTCM. That the Fed orchestrated a bailout of this renowned hedge fund sent a very clear message that the Federal Reserve and global central banks were there to backstop the new financial infrastructure that was taking control of global finance (Wall Street firms, derivatives, the leveraged speculating community, Wall Street structured finance and securitizations). Had the Fed allowed the system to take the harsh medicine in 1998, the world would be a much safer place today.
Evans: “How did this risk-management strategy turn out? In the end, the economy weathered the situation well. Productivity accelerated sharply, and by early 1999 growth was on a firm footing. Subsequently, the FOMC raised rates by a cumulative 175 basis points by May of 2000.”
Evans leaves out the near doubling of Nasdaq in 1999, along with what I refer to as “terminal phase” Bubble excess. The bottom line is the Fed aggressively loosened policy while the system was in the late-stage of a significant Bubble, and then failed to remove this accommodation until mid-November 1999.
And let’s not forget that the subsequent bursting of the so-called “tech bubble” led to what was, at the time, unprecedented monetary stimulus – including Dr. Bernanke’s speeches extolling the virtues of the “government printing press” and “helicopter money.” These measures were instrumental in fueling the mortgage finance bubble that burst in 2008. That collapse then led to a decade-long – and ongoing - global experiment in zero rates, open-ended money-printing and yield curve manipulation.
This whole fixation on deflation risk and CPI running (slightly) below target gets tiring - after a few decades. Clearly, the evolution to globalized market-based finance has profoundly altered the nature of inflation. CPI is no longer a paramount issue – especially with the proliferation of new technologies, the digitization of so much “output,” the move to services-based economies and, of course, globalization. There is today a virtual endless supply of goods and services – certainly including digital downloads, electronic devices and pharmaceuticals – that exert downward pressure on aggregate consumer prices. Importantly, consumer price indices are no longer a reliable indicator of price stability, general monetary stability or the appropriateness of central bank policies.
Central bank officials today lack credibility when they direct so much attention to consumer price inflation while disregarding the overarching risks associated with unrelenting global debt growth, highly speculative and leveraged global financial markets, and deep global economic structural maladjustment. In the grand scheme of things, consumer prices running just below target seems rather trivial. What’s not trivial is a central bank community that now appears to have accepted that they will accommodate financial excess and worsening structural impairment. At this point, it appears Full Capitulation.
In the same vein (and same day) as Evans’ speech, former President of the Federal Reserve Bank of Minneapolis, Narayana Kocherlakota, posted a Bloomberg editorial: “The Fed Needs to Fight the Next Recession Now. Its Tools are Limited, so the Central Bank Must Compensate by being Aggressive.”
“Almost 10 years after the Great Recession ended, the growing threat of a new economic slowdown raises a troubling question: When the next recession strikes, what can the world’s central banks do? With interest rates low and their balance sheets still loaded with assets bought to fight the 2008 crisis, do they have the tools to respond? ‘What, then, can the Fed do?’ In my view, it needs to be much more aggressive in using the limited tools that it has. For one, if your medicine chest is nearly empty, you want to keep your patient as healthy as possible. That means cutting interest rates now to lower the unemployment rate even further. Doing so could also boost demand during any recession: If people come to expect stronger recoveries, they will be more likely to keep spending even in downturns. A pre-commitment to strong growth could also help. In the last recession and ensuing slow recovery, the Fed treated its low-interest-rate policy largely as an emergency step that would be removed within the next year or two. Instead, the Fed should publicly commit now to maintain maximum stimulus after a recession until the unemployment rate falls below 3%, as long as the year-over-year core inflation rate remains below 2.5%. Such a promise, much stronger than any used or even suggested during the last recovery, would help minimize the damage and speed up the rebound.”
April 15 – CNBC (Thomas Franck): “Chicago Federal Reserve President Charles Evans said on Monday that he’d be comfortable leaving interest rates alone until autumn 2020 to help ensure sustained inflation in the U.S. ‘I can see the funds rate being flat and unchanged into the fall of 2020. For me, that’s to help support the inflation outlook and make sure it’s sustainable,’ Evans told CNBC’s Steve Liesman.”
April 15 – Reuters (Trevor Hunnicutt): “The U.S. Federal Reserve should embrace inflation above its target half the time and consider cutting rates if prices do not rise as fast as expected, a top policymaker at the central bank said… ‘While policy has been successful in achieving our maximum employment mandate, it has been less successful with regard to our inflation objective,’ Federal Reserve Bank of Chicago President Charles Evans said… ‘To fix this problem, I think the Fed must be willing to embrace inflation modestly above 2% 50% of the time. Indeed, I would communicate comfort with core inflation rates of 2-1/2%, as long as there is no obvious upward momentum and the path back toward 2% can be well managed.”
It's stunning how dramatically the Fed’s perspective has shifted since the fourth quarter. There’s now a chorus of Fed governors and Federal Reserve Bank Presidents calling for the central bank to accommodate higher inflation. Watching the inflation data (March CPI up 1.9% y-o-y), it’s not readily apparent what has them in such a tizzy. And with crude prices surging 40% to start 2019, it takes some imagining to see deflationary pressures in the pipeline.
The Fed’s (and global central banks’) dovish U-turn was clearly in response to December’s global market instability. Quickly, the global system was lurching toward the precipice. Acute fragility revealed – with central bankers left shaken. And witnessing the speculative fervor that has accompanied central bankers' change of heart, the backdrop is increasingly reminiscent of Bubble Dynamics following the 1998 LTCM bailout. A Bloomberg headline from earlier in the week caught my attention: “Evans Sees Lessons From 1998 Rate Cuts for Fed Policy This Year.” It said, “For the Chicago Fed president Charles Evans the situation recalls the Asian financial crisis of 1998. According to Evans, ‘The risk-management approach taken by the Fed is not unusual. It served us well in similar situations in the past.’”
Historical revisionism. For starters, the Asian crisis was in 1997. The Fed aggressively reduced rates from 5.50% to 4.75% in the Autumn of 1998 in response to the simultaneous Russia and Long-Term Capital Management (LTCM) collapses.
From Evans’ April 15, 2019 speech, “Risk Management and the Credibility of Monetary Policy:”
“Later, in the autumn of 1998, the fallout on domestic financial conditions from the Russian default led to a downgrading of the economic outlook and an aggressive 75 basis point easing in the funds rate over a two-month period. When making the first of those cuts, the FOMC noted that easing would ‘provide added insurance against the risk of a further worsening in financial conditions and a related curtailment in the availability of credit to many borrowers.’”
Clearly many borrowers – and the system more generally - should have faced much tighter Credit Availability by late-1998. This certainly included those aggressively partaking in leveraged speculation (equities, fixed-income and derivatives) and debt gluttons in the real economy - including the highly levered telecom companies (i.e. WorldCom, Global Crossing, XO Communications and a long list) and others (i.e. Enron, Conseco, PG&E, etc.).
Evans, not surprisingly, skips over LTCM. That the Fed orchestrated a bailout of this renowned hedge fund sent a very clear message that the Federal Reserve and global central banks were there to backstop the new financial infrastructure that was taking control of global finance (Wall Street firms, derivatives, the leveraged speculating community, Wall Street structured finance and securitizations). Had the Fed allowed the system to take the harsh medicine in 1998, the world would be a much safer place today.
Evans: “How did this risk-management strategy turn out? In the end, the economy weathered the situation well. Productivity accelerated sharply, and by early 1999 growth was on a firm footing. Subsequently, the FOMC raised rates by a cumulative 175 basis points by May of 2000.”
Evans leaves out the near doubling of Nasdaq in 1999, along with what I refer to as “terminal phase” Bubble excess. The bottom line is the Fed aggressively loosened policy while the system was in the late-stage of a significant Bubble, and then failed to remove this accommodation until mid-November 1999.
And let’s not forget that the subsequent bursting of the so-called “tech bubble” led to what was, at the time, unprecedented monetary stimulus – including Dr. Bernanke’s speeches extolling the virtues of the “government printing press” and “helicopter money.” These measures were instrumental in fueling the mortgage finance bubble that burst in 2008. That collapse then led to a decade-long – and ongoing - global experiment in zero rates, open-ended money-printing and yield curve manipulation.
This whole fixation on deflation risk and CPI running (slightly) below target gets tiring - after a few decades. Clearly, the evolution to globalized market-based finance has profoundly altered the nature of inflation. CPI is no longer a paramount issue – especially with the proliferation of new technologies, the digitization of so much “output,” the move to services-based economies and, of course, globalization. There is today a virtual endless supply of goods and services – certainly including digital downloads, electronic devices and pharmaceuticals – that exert downward pressure on aggregate consumer prices. Importantly, consumer price indices are no longer a reliable indicator of price stability, general monetary stability or the appropriateness of central bank policies.
Central bank officials today lack credibility when they direct so much attention to consumer price inflation while disregarding the overarching risks associated with unrelenting global debt growth, highly speculative and leveraged global financial markets, and deep global economic structural maladjustment. In the grand scheme of things, consumer prices running just below target seems rather trivial. What’s not trivial is a central bank community that now appears to have accepted that they will accommodate financial excess and worsening structural impairment. At this point, it appears Full Capitulation.
In the same vein (and same day) as Evans’ speech, former President of the Federal Reserve Bank of Minneapolis, Narayana Kocherlakota, posted a Bloomberg editorial: “The Fed Needs to Fight the Next Recession Now. Its Tools are Limited, so the Central Bank Must Compensate by being Aggressive.”
“Almost 10 years after the Great Recession ended, the growing threat of a new economic slowdown raises a troubling question: When the next recession strikes, what can the world’s central banks do? With interest rates low and their balance sheets still loaded with assets bought to fight the 2008 crisis, do they have the tools to respond? ‘What, then, can the Fed do?’ In my view, it needs to be much more aggressive in using the limited tools that it has. For one, if your medicine chest is nearly empty, you want to keep your patient as healthy as possible. That means cutting interest rates now to lower the unemployment rate even further. Doing so could also boost demand during any recession: If people come to expect stronger recoveries, they will be more likely to keep spending even in downturns. A pre-commitment to strong growth could also help. In the last recession and ensuing slow recovery, the Fed treated its low-interest-rate policy largely as an emergency step that would be removed within the next year or two. Instead, the Fed should publicly commit now to maintain maximum stimulus after a recession until the unemployment rate falls below 3%, as long as the year-over-year core inflation rate remains below 2.5%. Such a promise, much stronger than any used or even suggested during the last recovery, would help minimize the damage and speed up the rebound.”
It’s simply difficult to believe such analysis resonates – yet it sure does. These are strange and dangerous times. Kocherlakota: “If your medicine chest is nearly empty, you want to keep your patient as healthy as possible.” Noland: If you’re running short of medicine, you better not encourage your patient to live a reckless lifestyle. You certainly don’t want to convince the foolhardy that you possess an elixir that will cure whatever ails them. These central bankers have really lost their minds: What they administer is anything but medicine.
Such central bank crazy talk should have longer-term bonds beginning to sweat. But, then again, bond markets are confident that central bankers from across the globe will be buying plenty of bonds over the coming months and years. When central bankers talk about accommodating higher inflation, bonds hear “more QE”. And while safe haven bonds may not be overjoyed at the thought of CPI creeping higher, they remain more than fine with bubbling risk markets – prospective bursting Bubbles that ensure only more expansive QE programs. The so-called U-turn marked an inflection point from a meek attempt to return central banking to sounder principles - to a decisive breakdown in any semblance of responsible monetary management.
I was convinced in ‘98 the Fed was committing a major policy error. Like today, the Fed and global central bankers were afraid of global fragilities. Yet markets and economies do turn progressively fragile after years of excess. These days, I worry about what central bankers have unleashed with their ultra-dovishness in the face of historic late-stage global Bubble “terminal excess.”
For the Week:
In the holiday-shortened week, the S&P500 was little changed (up 15.9% y-t-d), while the Dow added 0.6% (up 13.9%). The Utilities fell 1.4% (up 9.0%). The Banks added 0.1% (up 16.1%), and the Broker/Dealers gained 1.1% (up 15.1%). The Transports increased 0.7% (up 19.8%). The S&P 400 Midcaps declined 0.6% (up 17.5%), and the small cap Russell 2000 fell 1.2% (up 16.1%). The Nasdaq100 gained 0.8% (up 21.5%). The Semiconductors surged 4.1% (up 34.9%). The Biotechs sank 7.7% (up 10.1%). With bullion down $15, the HUI gold index dropped 4.7% (down 0.1%).
Three-month Treasury bill rates ended the week at 2.36%. Two-year government yields slipped a basis point to 2.38% (down 11bps y-t-d). Five-year T-note yields declined one basis point to 2.37% (down 14bps). Ten-year Treasury yields dipped a basis point to 2.56% (down 13bps). Long bond yields declined two bps to 2.96% (down 5bps). Benchmark Fannie Mae MBS yields increased three bps to 3.31% (down 19bps).
Greek 10-year yields increased two bps to 3.30% (down 110bps y-t-d). Ten-year Portuguese yields were unchanged at 1.17% (down 55bps). Italian 10-year yields rose six bps to 2.60% (down 14bps). Spain's 10-year yields added two bps to 1.07% (down 35bps). German bund yields declined three bps to 0.03% (down 22bps). French yields fell three bps to 0.37% (down 34bps). The French to German 10-year bond spread was little changed at 34 bps. U.K. 10-year gilt yields declined one basis point to 1.20% (down 8bps). U.K.'s FTSE equities index added 0.3% (up 10.9% y-t-d).
Japan's Nikkei 225 equities index gained 1.5% (up 10.9% y-t-d). Japanese 10-year "JGB" yields rose three bps to negative 0.03% (down 3bps y-t-d). France's CAC40 rose 1.4% (up 18.0%). The German DAX equities index jumped 1.9% (up 15.8%). Spain's IBEX 35 equities index rose 1.2% (up 12.2%). Italy's FTSE MIB index added 0.4% (up 19.8%). EM equities were mostly higher. Brazil's Bovespa index rallied 1.8% (up 3.9%), and Mexico's Bolsa jumped 1.9% (up 9.3%). South Korea's Kospi index declined 0.8% (up 8.6%). India's Sensex equities index increased 1.0% (up 8.5%). China's Shanghai Exchange rallied 2.6% (up 31.2%). Turkey's Borsa Istanbul National 100 index increased 0.9% (up 6.1%). Russia's MICEX equities index was little changed (up 3.9%).
Investment-grade bond funds saw inflows of $2.308 billion, and junk bond funds posted inflows of $1.101 billion (from Lipper).
Freddie Mac 30-year fixed mortgage rates rose five bps to 4.17% (down 38bps y-o-y). Fifteen-year rates added two bps to 3.62% (down 39bps). Five-year hybrid ARM rates slipped two bps to 3.78% (up 22bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up five bps to 4.30% (down 12bps).
Federal Reserve Credit last week declined $0.6bn to $3.893 TN. Over the past year, Fed Credit contracted $452bn, or 10.4%. Fed Credit inflated $1.086 TN, or 39%, over the past 337 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt fell $3.7bn last week to $3.467 TN. "Custody holdings" gained $30.5bn y-o-y, or 0.9%.
M2 (narrow) "money" supply fell $24.3bn last week to $14.489 TN. "Narrow money" rose $543bn, or 3.9%, over the past year. For the week, Currency increased $0.7bn. Total Checkable Deposits jumped $15.2bn, while Savings Deposits sank $48.9bn. Small Time Deposits were little changed. Retail Money Funds gained $8.4bn.
Total money market fund assets sank $55.3bn to $3.043 TN. Money Funds gained $214bn y-o-y, or 7.6%.
Total Commercial Paper rose $9.9bn to $1.081 TN. CP gained $16.6bn y-o-y, or 1.6%.
Currency Watch:
The U.S. dollar index increased 0.5% to 97.378 (up 1.2% y-t-d). For the week on the upside, the South Korean won increased 0.2% and the Japanese yen added 0.1%. For the week on the downside, the Swiss franc declined 1.2%, the New Zealand dollar 1.2%, the Brazilian real 1.2%, the South African rand 0.7%, the British pound 0.6%, the Canadian dollar 0.5%, the euro 0.5%, the Swedish krona 0.3%, the Norwegian krone 0.3%, the Australian dollar 0.3%, the Mexican peso 0.2% and the Singapore dollar 0.2%. The Chinese renminbi was about unchanged versus the dollar this week (up 2.60% y-t-d).
Commodities Watch:
The Bloomberg Commodities Index declined 1.2% this week (up 6.1% y-t-d). Spot Gold fell 1.2% to $1,275 (down 0.5%). Silver increased 0.5% to $15.038 (down 3.2%). Crude added 11 cents to $64.00 (up 41%). Gasoline rose 1.7% (up 57%), while Natural Gas sank 6.4% (down 15%). Copper declined 0.7% (up 11%). Wheat dropped 4.3% (down 11%). Corn dipped 0.6% (down 2%).
Market Instability Watch:
April 15 – Bloomberg (Sarah Ponczek and Vildana Hajric): “The S&P 500 has grown by $4 trillion since its December meltdown, and exchange-traded fund investors are betting there may be more room to run. Investors poured more than $5.6 billion into the SPDR S&P 500 ETF Trust, known as SPY, last week… The last time the world’s largest ETF saw inflows of this magnitude, U.S. stocks were on the cusp of a bear market in late 2018. But this time around, the cash infusion comes as the benchmark nears new highs.”
April 18 – Reuters (Jennifer Ablan): “Investors’ appetite for risk was on display yet again this week with huge cash inflows into U.S.-based stock exchange-traded funds, corporate bond funds and high-yield ‘junk’ bond portfolios, according to Refinitiv’s Lipper research service… U.S.-based investment-grade corporate bond funds attracted more than $2.3 billion in the week ended Wednesday, extending their weekly inflow streak since late January… U.S.-based high-yield junk bond funds attracted more than $1.1 billion in the week…, their sixth consecutive week of inflows, Lipper said. Stock exchange-traded funds (ETFs) attracted about $7.35 billion of inflows…”
April 17 – Financial Times (Colby Smith and Robin Wigglesworth): “The soaring cost of buying protection against dollar gyrations is spurring more foreign investors to buy US bonds ‘unhedged’, raising the risk of painful losses and wider market ructions if the US currency weakens. With the trade-weighted dollar near its most expensive levels in 20 years and US interest rates high compared to Europe and Japan — despite the Federal Reserve’s dovish turn this year — the cost for foreign investors to insure, or hedge, against fluctuations is near an all-time high. The effect is to turn US Treasuries, a risk-free staple of investment portfolios the world over, into a negative-yielding investment for many foreign buyers.”
April 14 – Bloomberg (Joanna Ossinger): “A combination of low liquidity and high complacency mean cross-asset volatility won’t stay at historic lows for much longer, according to Morgan Stanley. ‘There are still two things that argue against the current levels of volatility being correct or sustainable,’ cross-asset strategist Andrew Sheets said… ‘The first is that market liquidity is still not great. The second: I’m not sure that the market in its newfound optimism has taken the story to the logical conclusion’ about where asset prices are headed, he said.”
April 15 – Bloomberg (Liz McCormick): “There is a complacency haunting foreign-exchange markets. Measures of how much traders expect currencies to gyrate over the coming months have plunged amid apparent assurances from central banks that they aren’t going to create major waves with further policy normalization anytime soon. But some observers, including strategists at Canadian Imperial Bank of Commerce, Morgan Stanley and Scotiabank are raising warning flags about the lack of volatility.”
Trump Administration Watch:
April 15 – Reuters (Steve Holland): “President Donald Trump said… he believed the United States would emerge from its trade dispute with China as a winner, no matter what happened. ‘We’re going to win either way. We either win by getting a deal or we win by not getting a deal,’ Trump said during a visit to a business roundtable in Burnsville, Minnesota.”
April 17 – Wall Street Journal (William Mauldin and Josh Zumbrun): “The U.S. and China are planning two rounds of face-to-face meetings as they seek to wrap up a trade deal, with negotiators aiming for a signing ceremony in late May or early June, according to people familiar with the situation. Under the tentative schedule, U.S. trade representative Robert Lighthizer is set to travel to Beijing the week of April 29, the people said, with Chinese envoy Liu He coming to Washington the week of May 6. Treasury Secretary Steven Mnuchin also will be a part of the delegation to China, a senior administration official said. President Trump said… negotiations were ‘moving along quite well.’”
April 15 – Reuters (Philip Blenkinsop): “The European Union is ready to start talks on a trade agreement with the United States and aims to conclude a deal before year-end, European Trade Commissioner Cecilia Malmstrom said…"
April 14 – The Hill (Sylvan Lane): “President Trump is struggling to win his fight to reshape the Federal Reserve with Republicans rebelling over a potential nominee and the bank's chairman resisting calls to cut interest rates. The independent central bank has long been a popular target for the president who has hammered it over its policies. But despite Trump's persistent criticism, his efforts to shake up the bank and influence its decisions have fallen short. Four Republican senators this week announced they would reject Herman Cain if Trump appointed him to the Federal Reserve's Board of Governors… It's only the latest blow to Trump, marking the third time his own party has derailed one of his picks for the central bank.”
April 14 – Financial Times (Sam Fleming and Chris Giles): “Donald Trump’s attempts to influence the US Federal Reserve have triggered anxiety among policymakers gathered for meetings in Washington, as economists fret that the apparent absence of an inflationary threat is making it easier for politicians to push for looser monetary policy. Officials at the spring meetings of the International Monetary Fund and World Bank defended the Fed following Mr Trump’s attempts to appoint two political allies to its board, and demands that it lower rates and restart quantitative easing. The Fed is not alone in facing a threat to its independence: the Turkish and Indian central banks have also been pressured to loosen policy in recent months.”
April 15 – Wall Street Journal (Nick Timiraos): “Former Federal Reserve officials and foreign central bankers said President Trump’s combative stance toward the U.S. central bank could over time weaken the institution and its role in the global economy. A string of central bankers, including several gathered in Washington for International Monetary Fund meetings over the weekend, expressed concern about the Fed’s political independence as Mr. Trump again criticized the central bank and as he seeks to nominate two stalwart political supporters to the organization who also disapprove of its actions. Though the Fed signaled in recent weeks that it was done for now with interest-rate increases, Mr. Trump wrote… on Twitter that the economy and stock market would be growing faster ‘if the Fed had done its job properly, which it has not.’”
Federal Reserve Watch:
April 15 – Reuters (Trevor Hunnicutt): “The U.S. Federal Reserve should shore up its ability to fight economic downturns by committing to let inflation run above 2% ‘in good times,’ a top policymaker said… The comments by Eric Rosengren, president of the Boston Fed, echoed remarks made earlier in the day by another Fed policymaker who cited the U.S. economy’s falling a bit short on the central bank’s inflation target as a problem. The Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) price index, is currently at 1.8%. Rosengren said he supports an approach that would see the Fed, which is ‘forced to accept’ inflation below its 2% target during recessions, commit to achieve above-2% inflation ‘in good times.’”
April 13 – New York Times (Jim Tankersley and Neil Irwin): “As soon as the Federal Reserve chairman, Jerome H. Powell, finished speaking at his December news conference, it was clear, even to him, that he had blown it. Stocks were tumbling. Analysts worried that the Fed was steering the economy into recession. And President Trump was furious. Four months later, Mr. Powell and the Fed have mostly repaired the damage, ending a steady march of interest rate increases and signaling that their next policy move may well be a rate cut if the economy continues to soften. Markets have rallied and recession fears have cooled. But one challenge has only worsened for Mr. Powell: Mr. Trump and his escalating anger at the Fed. The president’s relentless attacks on the central bank, which he blames for slowing United States economic growth, are putting Mr. Powell in a bind as he tries to bolster the economy without feeding fears that he is buckling under political pressure and damaging the integrity of an independent Fed.”
U.S. Bubble Watch:
April 17 – Reuters (Richard Leong): “Applications to U.S. lenders seeking loans to buy a home climbed to their highest level in almost nine years last week even as mortgage rates increased for a second week, the Mortgage Bankers Association said… ‘The spring buying season continues to be robust, with activity more than 7% higher than a year ago and up year-over-year for the ninth straight week,’ Joel Kan, MBA’s associate vice president of economic and industry forecasting, said…”
April 17 – Reuters (Pete Schroeder): “Labor markets remained tight across the United States as businesses struggled to find skilled workers and wages grew modestly, the Federal Reserve said… in its latest report on the economy. Prices have risen modestly since the last Beige Book, with tariffs, freight costs and rising wages often cited as key factors, the Fed said… Wages grew moderately in most districts for both skilled and unskilled workers, with only three reporting slight growth in workers’ pay… Businesses in most districts reported shortages of skilled workers, mainly in manufacturing and construction, but also in technical and professional roles. Companies have responded to the tight labor market by boosting bonuses and benefits packages, along with raising wages moderately…”
April 18 – Reuters (Lucia Mutikani): “U.S. retail sales increased by the most in 1-1/2 years in March as households boosted purchases of motor vehicles and a range of other goods, the latest indication that economic growth picked up in the first quarter after a false start. …Retail sales surged 1.6% last month. That was the biggest increase since September 2017 and followed an unrevised 0.2% drop in February… In March, sales at auto dealerships jumped 3.1%, the most since September 2017.”
April 15 – New York Times (Erin Griffith and Michael J. de la Merced): “When Jennifer Tejada, chief executive of PagerDuty, decided to take the software company public, she wanted to avoid this week. The stock market closes on Good Friday, and many people are on spring break. She had also feared being drowned out by a horde of other tech initial public offerings. ‘I remember saying, ‘I hope we don’t get run over by the ‘unicorn’ stampede,’ she said, using the term for private companies valued at more than $1 billion.”
April 12 – New York Times (Sapna Maheshwari): “As an executive vice president at Great American Group, a firm that helps liquidate the merchandise, clothing racks and mannequins at stores that are closing, Ryan Mulcunry has been watching booms and busts in the retail industry for almost two decades. Companies like his have been busy in recent years, but lately one thing has been missing. ‘In all the other cycles, including 2008, a lot of people would come in and buy racking, circular racks and so on,” Mr. Mulcunry said. ‘They’d buy it all and warehouse it and wait until somebody wanted to reopen a store and sell it back to them. Those people have gone away.’ …As the internet continues to change shopping habits, stores across the United States continue to close. Less than halfway through April, American retailers have announced plans this year to shut 5,994 stores, exceeding the 5,854 announced in all of 2018…”
April 14 – Reuters (Anna Irrera): “U.S. online lenders such as LendingClub Corp, Kabbage Inc and Avant LLC are scrutinizing loan quality, securing long-term financing and cutting costs, as executives prepare for what they fear could be the sector’s first economic downturn. A recession could bring escalating credit losses, liquidity crunch and higher funding costs, testing business models in a relatively nascent industry. Peer-to-peer and other digital lenders sprouted up largely after the Great Recession of 2008. Unlike banks, which tend to have lower-cost and more stable deposits, online lenders rely on market funding that can be harder to come by in times of stress.”
April 16 – Financial Times (Robert Smith): “Private equity firms have become notorious for juicing the numbers. It is rather less common for their senior partners to be bracingly honest about it. This year marks the 30th anniversary of Barbarians at the Gate — the seminal account of the 1980s leveraged buyout boom — and the private equity playbook remains essentially unchanged: pile debt on a company to fund its acquisition, strip out as many costs as possible, then flip the ‘improved company to another buyer for a higher price.’ Today’s masters of the universe have taken this template one stage further, giving themselves credit for the cost-cutting before they even get their hands on the company. Heavily adjusted earnings have become an inescapable fact of life in the modern buyout boom. Private equity firms now use eyebrow-raising ‘pro forma’ earnings numbers, a useful bit of Latin allowing them to factor in cost savings before they are even made.”
April 15 – Wall Street Journal (Christopher M. Matthews): “Two years ago, investors handed veteran oilman Jim Hackett a $1 billion check and sent him to seek riches in shale drilling. Today, the company he founded with their money, Alta Mesa Resources Inc., has a market value of about $43 million and is teetering on financial ruin—one of the more spectacular failures met chasing the next big thing in the American shale boom. Mr. Hackett bet big on an up-and-coming Oklahoma oil field after early wells there rivaled those of the best fields in Texas, but subsequent output has been disappointing.”
April 16 – Wall Street Journal (Patrick Thomas): “The best place to make money in the world of finance and investment may not be at a bank but in real estate. Real-estate investment trusts had some of the highest median worker pay among financial, real-estate and insurance companies in 2018… Property companies such as Host Hotels & Resorts Inc. and HCP Inc. paid their median employees more than some of the largest banks did. Host Hotels & Resorts, the lodging REIT formed through deals including a spinoff over 20 years ago from what was Marriott Corp., had median worker pay of $183,956…”
April 17 – Reuters (Lucia Mutikani): “The U.S. trade deficit fell to an eight-month low in February as imports from China plunged, temporarily providing a boost to President Donald Trump’s ‘America First’ agenda and economic growth in the first quarter… The trade deficit tumbled 3.4% to $49.4 billion in February, the lowest level since June 2018.”
China Watch:
April 16 – Bloomberg (Yinan Zhao and Enda Curran): “China’s economy rebounded through the first quarter, a welcome sign of stabilization for the world and handing the government room for maneuver as trade negotiations with the U.S. enter a crucial stage. Gross domestic product rose 6.4% in the first three months from a year earlier -- matching last quarter’s pace and beating economists’ estimates. Factory output in March jumped 8.5% from a year earlier, much higher than forecast. Retail sales expanded 8.7% while investment was up 6.3% in the year to date… ‘President Trump and other U.S. officials spent much of the last year saying that China’s slowdown was making Beijing desperate for a deal,’ said Michael Hirson, Practice Head, China and Northeast Asia at Eurasia Group… ‘Now that China’s growth is recovering, Trump and team will be getting more questions from pundits and the media about whether his leverage is slipping away.’”
April 16 – Reuters: “China’s industrial output grew 8.5% in March from a year earlier, the fastest pace since July 2014…, as factories ramped up output in anticipation of more businesses amid government support measures. Analysts polled by Reuters had expected industrial output would grow 5.9%, accelerating from 5.3% in the combined January-February period. The fixed-asset investment grew 6.3% in the first three months of 2019 from the same period a year earlier, the strongest pace since January-April last year…”
April 15 – Bloomberg (Robert Burgess): “An economic slowdown in China is the biggest risk facing markets, according to Bank of America’s monthly investor survey. So it should be good news that the most recent data indicate the Asian nation’s economy is perking up. The problem, as seen in the performance of global stocks Monday, is that the economy may be rebounding a bit too strongly, leading the People’s Bank of China to pull back on its latest stimulus measures. The PBOC admitted as much…, saying it will keep good control of the money supply ‘floodgate’ and not ‘flood’ the economy with excessive liquidity as the economy improves.”
April 16 – Reuters (Kevin Yao): “China’s stimulus measures will shore up economic growth this year and next but may undermine the country’s drive to control debt and worsen structural distortions over the medium term, the OECD said… Local governments will be allowed to issue 2.15 trillion yuan ($320.60bn) worth of special purpose bonds in 2019 to fund infrastructure projects, a jump of 59% from last year. But S&P Global Ratings estimated last year that local governments were already sitting on hidden debt that could be as high as 40 trillion yuan. ‘Infrastructure stimulus could lift growth over the projection horizon, but it could lead to a further build-up of imbalances and capital misallocation, and thereby weaker growth in the medium term,’ the OECD said… ‘The stimulus risks increasing once again corporate sector indebtedness and, more generally, reversing progress in deleveraging,’ it said.”
April 17 – Bloomberg: “China may be poised to take more stimulus steps to drive an expansion showing renewed signs of health. Officials are drafting measures to bolster sales of cars and electronics, according to people familiar…That news coincided with data showing a 6.4% year-on-year expansion in the first quarter -- beating economists’ estimates. Speculation over the stimulus swirled in the markets Wednesday, pushing up shares of domestic carmakers…”
April 17 – Bloomberg (Livia Yap): “The overnight borrowing cost in China’s money market rose to a four-year high as cash supply tightened just as tax payments increased demand for liquidity. The overnight repurchase rate rose as much as 11 basis points to 3.0006%, the first time it’s reached that level since April 2015… It has jumped 35 bps in three sessions, and is higher than the seven-day rate, which fell to 2.7905%.”
April 16 – Reuters (Winni Zhou and Andrew Galbraith): “China’s bond market sold off sharply this week as a slew of unexpectedly strong economic indicators prompted investors to ask if the country’s latest round of monetary easing may be drawing to a close. The first sign of trouble came when Chinese 10-year Treasury futures for June delivery… fell as much as 0.7% in initial deals on Monday… At 3.40%, the 10-year yield has now retraced to levels last seen in December.”
April 16 – Bloomberg (Livia Yap): “A sell-off in Chinese corporate bonds is accelerating as signs of a stabilizing economy bears down on the debt market. In the first two weeks of April, the average yield for three-year AAA rated corporate notes surged 23 bps in the steepest bi-weekly gain since November 2017… The yield for similar five-year debentures jumped the most since last August in comparison. Meanwhile, the five-year government yield surged to a five-month high of 3.24%.”
April 16 – Reuters (Lusha Zhang and Ryan Woo): “New home prices in China grew slightly faster in March after growth slowed the previous month, putting a floor under the cooling market, as Beijing rolled out stimulus to boost the economy. The sector’s solid growth could cushion the impact of a vigorous multi-year government crackdown on debt and escalating trade tensions with the United States, although some analysts say bubble risks are rising as prices continue to climb. Average new home prices in China’s 70 major cities rose 0.6% in March, quickening from a 0.5% gain in February… On the whole, it logged the 47th straight month of price increases. Most of the 70 cities surveyed by the NBS reported monthly price increases for new homes, and the number climbed sharply to 65 from 57 in February. On an annual basis, home prices rose 10.6% in March, the highest since April 2017, and also accelerating from a 10.4% gain in February.”
April 17 – Bloomberg: “Property developers that focus on smaller cities in China are set to be the beneficiaries of a reform last week that could encourage 100 million rural citizens to move to urban areas. Policy makers said cities with an urban population of 1 million to 3 million should scrap the residency registration system this year, a move that is seen boosting housing demand in lower-tier cities. Developers with higher land reserves or housing inventories in those cities, especially growing areas such as the Yangtze River Delta and Greater Bay Area are among the winners from the policy, analysts say.”
April 14 – Bloomberg: “Alarm bells are ringing as Chinese citizens keep pouring their savings into wealth-management products, a market that has tripled to more than $4 trillion in a little over three years. Like mortgage-backed securities were in the U.S., these products are building blocks of a shadow-banking system that exists largely off banks’ balance sheets. In China, a history of bailouts has persuaded many investors that WMPs are implicitly guaranteed by the issuing bank or the state. The People’s Bank of China has taken note, as have other regulators. Issued by banks, WMPs have emerged as a key tool for lenders to attract funds. Investors are lured by yields of 3% to 5%, compared with 1.5% for one-year bank deposits. The WMPs invest in everything from bonds to property and can be exposed to struggling industries like mining. The banks can keep the WMPs off their balance sheets provided the products are not principal-guaranteed, which most are not. They can also hand over the products to non-banks to manage in return for a predetermined interest rate.”
April 14 – Bloomberg (Livia Yap): “China’s savers are turning a deaf ear to government warnings about one of their favorite investments. Individuals hold nearly 90% of instruments known as wealth management products, a record share, because many believe they’re shielded from losses -- a view officials have tried hard to discourage. The assumption of safety has been buttressed by the fact that the large banks that issue WMPs have at times dipped into their own balance sheets to protect investors from losses or even outright defaults. That retail buyers have kept piling into WMPs even as corporate investors and financial institutions pared their exposure presents a quandary for Chinese policy makers preoccupied with controlling risks. While they want to stress that WMPs aren’t immune from losses to curb moral hazard, they must also avoid sparking a stampede for the exit among China’s millions of yield-hungry savers. ‘Regulators face the tough task of having to educate investors about the risks without actually having these risks play out,’ said Dexter Hsu, a Taipei-based analyst at Macquarie Research.”
April 15 – Wall Street Journal (Mike Bird): “China’s banks are lending again. The more they extend in credit, the more they’ll feel the pressure to boost their capital buffers. One method banks are already using is convertible bond issuance. The good news for the issuers is that this market is currently booming. The amount of convertible bonds listed on the Shanghai Stock Exchange has more than doubled in the past year… But investors should keep an eye on the market, which is still nascent: the evolution of the assets and their accounting is still uncertain.”
April 17 – Bloomberg: “Donald Trump once called himself the ‘king of debt.’ Hui Ka Yan, China’s richest property mogul, has a much stronger claim to the throne. No one has gotten wealthier on the back of a corporate borrowing binge than Hui. His junk-rated China Evergrande Group is not only the nation’s most indebted developer, it also has the highest leverage among companies underlying the world’s largest fortunes. Hui, who has a net worth of $35 billion, is the 26th richest person in the Bloomberg Billionaires Index. Everyone above him for whom data is publicly available… has grown their fortune via companies with far more conservative balance sheets. In many ways, Hui is more emblematic of recent trends in global business than his richer peers. Worldwide corporate debt has swelled by 26% over the past decade to $132 trillion as companies have taken advantage of historically low interest rates to fund their growth. Like Evergrande, many have also used borrowed cash to repurchase shares and boost dividends.”
April 14 – Bloomberg: “An iPhone assembler, e-commerce emporium and real-estate developer typically don’t compete in the same business -- except when it comes to electric vehicles in China. That’s because of a seismic shift toward EVs, which has spurred billions of dollars in investments by traditional carmakers, startups and titans of the internet, electronics and real-estate industries. The rush is on even as the government pulls back on the subsidies that juiced the industry to begin with. There are now 486 EV manufacturers registered in China, more than triple the number from two years ago. While sales of passenger EVs are projected to reach a record 1.6 million units this year, that’s likely not enough to keep all those assembly lines humming, prompting warnings that the ballooning EV market could burst and leave behind only a few survivors.”
Central Bank Watch:
April 14 – Reuters (Howard Schneider): “As a financial crisis spread across the globe in September of 2008, the U.S. Federal Reserve gathered in an emergency atmosphere as requests flooded in from other central banks for access to dollars. The ‘swap lines’ that the Fed quickly approved helped ease intense financial stress in foreign markets, but also showed the U.S. central bank was prepared to stand behind the global system. Would an ‘America First’ Fed do the same? The question is suddenly relevant for global economic officials and central bankers after moves by President Donald Trump to put two strong partisans on the Federal Reserve board.”
April 16 – Wall Street Journal (Jon Sindreu): “Fears of a global economic slowdown have led the European Central Bank to once again ponder the idea of taking interest rates into deeply negative territory and then come up with ways so to cushion any ill effects. That last bit in itself should be a red flag. Only a few months ago, investors expected central banks to keep tightening financial conditions after a decade of unprecedented stimulus. Now they think more easing is at hand. In the U.S., futures markets price in almost a 50% probability that the Federal Reserve will lower interest rates by January. But the real problem is in the eurozone, where the ECB never lifted rates from their record-low minus-0.4%, and officials need to do something to signal that their arsenal isn’t spent. At their latest policy meeting…, they suggested rates could go further below zero, accompanied by a tiered deposit mechanism designed to shield banks from the damage.”
April 14 – Financial Times (Claire Jones): “A technical measure of the inflation expectations of eurozone investors has fallen to its lowest level for three years, putting pressure on the European Central Bank to convince doubters that it is willing to use fresh stimulus to boost the region’s economy. In August 2014 ECB president Mario Draghi highlighted the so-called ‘five-year, five-year inflation swap rate’ at the US Federal Reserve’s annual retreat in Jackson Hole… Six months later, after the rate had fallen further, the bank launched an economic stimulus programme, buying €2.6tn of government and corporate bonds.”
Brexit Watch:
April 14 – Financial Times (Wolfgang Münchau): “Last week’s European Council was dominated by Brexit. But it may be remembered for the visible cracks in the Franco-German relationship. Emmanuel Macron’s refusal to accept the German-led majority view to agree to a long Brexit extension is perhaps the most clear sign of an end to the love-in between the two countries. The French president’s uncompromising stance caught most German political observers off-guard. Some members of Angela Merkel’s entourage in Brussels expressed unbridled fury at Mr Macron’s insurrection. How dare he? What the debate in Germany misses is that Mr Macron owes little to the German chancellor. She managed to fend off most of his eurozone reforms.”
Such central bank crazy talk should have longer-term bonds beginning to sweat. But, then again, bond markets are confident that central bankers from across the globe will be buying plenty of bonds over the coming months and years. When central bankers talk about accommodating higher inflation, bonds hear “more QE”. And while safe haven bonds may not be overjoyed at the thought of CPI creeping higher, they remain more than fine with bubbling risk markets – prospective bursting Bubbles that ensure only more expansive QE programs. The so-called U-turn marked an inflection point from a meek attempt to return central banking to sounder principles - to a decisive breakdown in any semblance of responsible monetary management.
I was convinced in ‘98 the Fed was committing a major policy error. Like today, the Fed and global central bankers were afraid of global fragilities. Yet markets and economies do turn progressively fragile after years of excess. These days, I worry about what central bankers have unleashed with their ultra-dovishness in the face of historic late-stage global Bubble “terminal excess.”
For the Week:
In the holiday-shortened week, the S&P500 was little changed (up 15.9% y-t-d), while the Dow added 0.6% (up 13.9%). The Utilities fell 1.4% (up 9.0%). The Banks added 0.1% (up 16.1%), and the Broker/Dealers gained 1.1% (up 15.1%). The Transports increased 0.7% (up 19.8%). The S&P 400 Midcaps declined 0.6% (up 17.5%), and the small cap Russell 2000 fell 1.2% (up 16.1%). The Nasdaq100 gained 0.8% (up 21.5%). The Semiconductors surged 4.1% (up 34.9%). The Biotechs sank 7.7% (up 10.1%). With bullion down $15, the HUI gold index dropped 4.7% (down 0.1%).
Three-month Treasury bill rates ended the week at 2.36%. Two-year government yields slipped a basis point to 2.38% (down 11bps y-t-d). Five-year T-note yields declined one basis point to 2.37% (down 14bps). Ten-year Treasury yields dipped a basis point to 2.56% (down 13bps). Long bond yields declined two bps to 2.96% (down 5bps). Benchmark Fannie Mae MBS yields increased three bps to 3.31% (down 19bps).
Greek 10-year yields increased two bps to 3.30% (down 110bps y-t-d). Ten-year Portuguese yields were unchanged at 1.17% (down 55bps). Italian 10-year yields rose six bps to 2.60% (down 14bps). Spain's 10-year yields added two bps to 1.07% (down 35bps). German bund yields declined three bps to 0.03% (down 22bps). French yields fell three bps to 0.37% (down 34bps). The French to German 10-year bond spread was little changed at 34 bps. U.K. 10-year gilt yields declined one basis point to 1.20% (down 8bps). U.K.'s FTSE equities index added 0.3% (up 10.9% y-t-d).
Japan's Nikkei 225 equities index gained 1.5% (up 10.9% y-t-d). Japanese 10-year "JGB" yields rose three bps to negative 0.03% (down 3bps y-t-d). France's CAC40 rose 1.4% (up 18.0%). The German DAX equities index jumped 1.9% (up 15.8%). Spain's IBEX 35 equities index rose 1.2% (up 12.2%). Italy's FTSE MIB index added 0.4% (up 19.8%). EM equities were mostly higher. Brazil's Bovespa index rallied 1.8% (up 3.9%), and Mexico's Bolsa jumped 1.9% (up 9.3%). South Korea's Kospi index declined 0.8% (up 8.6%). India's Sensex equities index increased 1.0% (up 8.5%). China's Shanghai Exchange rallied 2.6% (up 31.2%). Turkey's Borsa Istanbul National 100 index increased 0.9% (up 6.1%). Russia's MICEX equities index was little changed (up 3.9%).
Investment-grade bond funds saw inflows of $2.308 billion, and junk bond funds posted inflows of $1.101 billion (from Lipper).
Freddie Mac 30-year fixed mortgage rates rose five bps to 4.17% (down 38bps y-o-y). Fifteen-year rates added two bps to 3.62% (down 39bps). Five-year hybrid ARM rates slipped two bps to 3.78% (up 22bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up five bps to 4.30% (down 12bps).
Federal Reserve Credit last week declined $0.6bn to $3.893 TN. Over the past year, Fed Credit contracted $452bn, or 10.4%. Fed Credit inflated $1.086 TN, or 39%, over the past 337 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt fell $3.7bn last week to $3.467 TN. "Custody holdings" gained $30.5bn y-o-y, or 0.9%.
M2 (narrow) "money" supply fell $24.3bn last week to $14.489 TN. "Narrow money" rose $543bn, or 3.9%, over the past year. For the week, Currency increased $0.7bn. Total Checkable Deposits jumped $15.2bn, while Savings Deposits sank $48.9bn. Small Time Deposits were little changed. Retail Money Funds gained $8.4bn.
Total money market fund assets sank $55.3bn to $3.043 TN. Money Funds gained $214bn y-o-y, or 7.6%.
Total Commercial Paper rose $9.9bn to $1.081 TN. CP gained $16.6bn y-o-y, or 1.6%.
Currency Watch:
The U.S. dollar index increased 0.5% to 97.378 (up 1.2% y-t-d). For the week on the upside, the South Korean won increased 0.2% and the Japanese yen added 0.1%. For the week on the downside, the Swiss franc declined 1.2%, the New Zealand dollar 1.2%, the Brazilian real 1.2%, the South African rand 0.7%, the British pound 0.6%, the Canadian dollar 0.5%, the euro 0.5%, the Swedish krona 0.3%, the Norwegian krone 0.3%, the Australian dollar 0.3%, the Mexican peso 0.2% and the Singapore dollar 0.2%. The Chinese renminbi was about unchanged versus the dollar this week (up 2.60% y-t-d).
Commodities Watch:
The Bloomberg Commodities Index declined 1.2% this week (up 6.1% y-t-d). Spot Gold fell 1.2% to $1,275 (down 0.5%). Silver increased 0.5% to $15.038 (down 3.2%). Crude added 11 cents to $64.00 (up 41%). Gasoline rose 1.7% (up 57%), while Natural Gas sank 6.4% (down 15%). Copper declined 0.7% (up 11%). Wheat dropped 4.3% (down 11%). Corn dipped 0.6% (down 2%).
Market Instability Watch:
April 15 – Bloomberg (Sarah Ponczek and Vildana Hajric): “The S&P 500 has grown by $4 trillion since its December meltdown, and exchange-traded fund investors are betting there may be more room to run. Investors poured more than $5.6 billion into the SPDR S&P 500 ETF Trust, known as SPY, last week… The last time the world’s largest ETF saw inflows of this magnitude, U.S. stocks were on the cusp of a bear market in late 2018. But this time around, the cash infusion comes as the benchmark nears new highs.”
April 18 – Reuters (Jennifer Ablan): “Investors’ appetite for risk was on display yet again this week with huge cash inflows into U.S.-based stock exchange-traded funds, corporate bond funds and high-yield ‘junk’ bond portfolios, according to Refinitiv’s Lipper research service… U.S.-based investment-grade corporate bond funds attracted more than $2.3 billion in the week ended Wednesday, extending their weekly inflow streak since late January… U.S.-based high-yield junk bond funds attracted more than $1.1 billion in the week…, their sixth consecutive week of inflows, Lipper said. Stock exchange-traded funds (ETFs) attracted about $7.35 billion of inflows…”
April 17 – Financial Times (Colby Smith and Robin Wigglesworth): “The soaring cost of buying protection against dollar gyrations is spurring more foreign investors to buy US bonds ‘unhedged’, raising the risk of painful losses and wider market ructions if the US currency weakens. With the trade-weighted dollar near its most expensive levels in 20 years and US interest rates high compared to Europe and Japan — despite the Federal Reserve’s dovish turn this year — the cost for foreign investors to insure, or hedge, against fluctuations is near an all-time high. The effect is to turn US Treasuries, a risk-free staple of investment portfolios the world over, into a negative-yielding investment for many foreign buyers.”
April 14 – Bloomberg (Joanna Ossinger): “A combination of low liquidity and high complacency mean cross-asset volatility won’t stay at historic lows for much longer, according to Morgan Stanley. ‘There are still two things that argue against the current levels of volatility being correct or sustainable,’ cross-asset strategist Andrew Sheets said… ‘The first is that market liquidity is still not great. The second: I’m not sure that the market in its newfound optimism has taken the story to the logical conclusion’ about where asset prices are headed, he said.”
April 15 – Bloomberg (Liz McCormick): “There is a complacency haunting foreign-exchange markets. Measures of how much traders expect currencies to gyrate over the coming months have plunged amid apparent assurances from central banks that they aren’t going to create major waves with further policy normalization anytime soon. But some observers, including strategists at Canadian Imperial Bank of Commerce, Morgan Stanley and Scotiabank are raising warning flags about the lack of volatility.”
Trump Administration Watch:
April 15 – Reuters (Steve Holland): “President Donald Trump said… he believed the United States would emerge from its trade dispute with China as a winner, no matter what happened. ‘We’re going to win either way. We either win by getting a deal or we win by not getting a deal,’ Trump said during a visit to a business roundtable in Burnsville, Minnesota.”
April 17 – Wall Street Journal (William Mauldin and Josh Zumbrun): “The U.S. and China are planning two rounds of face-to-face meetings as they seek to wrap up a trade deal, with negotiators aiming for a signing ceremony in late May or early June, according to people familiar with the situation. Under the tentative schedule, U.S. trade representative Robert Lighthizer is set to travel to Beijing the week of April 29, the people said, with Chinese envoy Liu He coming to Washington the week of May 6. Treasury Secretary Steven Mnuchin also will be a part of the delegation to China, a senior administration official said. President Trump said… negotiations were ‘moving along quite well.’”
April 15 – Reuters (Philip Blenkinsop): “The European Union is ready to start talks on a trade agreement with the United States and aims to conclude a deal before year-end, European Trade Commissioner Cecilia Malmstrom said…"
April 14 – The Hill (Sylvan Lane): “President Trump is struggling to win his fight to reshape the Federal Reserve with Republicans rebelling over a potential nominee and the bank's chairman resisting calls to cut interest rates. The independent central bank has long been a popular target for the president who has hammered it over its policies. But despite Trump's persistent criticism, his efforts to shake up the bank and influence its decisions have fallen short. Four Republican senators this week announced they would reject Herman Cain if Trump appointed him to the Federal Reserve's Board of Governors… It's only the latest blow to Trump, marking the third time his own party has derailed one of his picks for the central bank.”
April 14 – Financial Times (Sam Fleming and Chris Giles): “Donald Trump’s attempts to influence the US Federal Reserve have triggered anxiety among policymakers gathered for meetings in Washington, as economists fret that the apparent absence of an inflationary threat is making it easier for politicians to push for looser monetary policy. Officials at the spring meetings of the International Monetary Fund and World Bank defended the Fed following Mr Trump’s attempts to appoint two political allies to its board, and demands that it lower rates and restart quantitative easing. The Fed is not alone in facing a threat to its independence: the Turkish and Indian central banks have also been pressured to loosen policy in recent months.”
April 15 – Wall Street Journal (Nick Timiraos): “Former Federal Reserve officials and foreign central bankers said President Trump’s combative stance toward the U.S. central bank could over time weaken the institution and its role in the global economy. A string of central bankers, including several gathered in Washington for International Monetary Fund meetings over the weekend, expressed concern about the Fed’s political independence as Mr. Trump again criticized the central bank and as he seeks to nominate two stalwart political supporters to the organization who also disapprove of its actions. Though the Fed signaled in recent weeks that it was done for now with interest-rate increases, Mr. Trump wrote… on Twitter that the economy and stock market would be growing faster ‘if the Fed had done its job properly, which it has not.’”
Federal Reserve Watch:
April 15 – Reuters (Trevor Hunnicutt): “The U.S. Federal Reserve should shore up its ability to fight economic downturns by committing to let inflation run above 2% ‘in good times,’ a top policymaker said… The comments by Eric Rosengren, president of the Boston Fed, echoed remarks made earlier in the day by another Fed policymaker who cited the U.S. economy’s falling a bit short on the central bank’s inflation target as a problem. The Fed’s preferred inflation measure, the core personal consumption expenditures (PCE) price index, is currently at 1.8%. Rosengren said he supports an approach that would see the Fed, which is ‘forced to accept’ inflation below its 2% target during recessions, commit to achieve above-2% inflation ‘in good times.’”
April 13 – New York Times (Jim Tankersley and Neil Irwin): “As soon as the Federal Reserve chairman, Jerome H. Powell, finished speaking at his December news conference, it was clear, even to him, that he had blown it. Stocks were tumbling. Analysts worried that the Fed was steering the economy into recession. And President Trump was furious. Four months later, Mr. Powell and the Fed have mostly repaired the damage, ending a steady march of interest rate increases and signaling that their next policy move may well be a rate cut if the economy continues to soften. Markets have rallied and recession fears have cooled. But one challenge has only worsened for Mr. Powell: Mr. Trump and his escalating anger at the Fed. The president’s relentless attacks on the central bank, which he blames for slowing United States economic growth, are putting Mr. Powell in a bind as he tries to bolster the economy without feeding fears that he is buckling under political pressure and damaging the integrity of an independent Fed.”
U.S. Bubble Watch:
April 17 – Reuters (Richard Leong): “Applications to U.S. lenders seeking loans to buy a home climbed to their highest level in almost nine years last week even as mortgage rates increased for a second week, the Mortgage Bankers Association said… ‘The spring buying season continues to be robust, with activity more than 7% higher than a year ago and up year-over-year for the ninth straight week,’ Joel Kan, MBA’s associate vice president of economic and industry forecasting, said…”
April 17 – Reuters (Pete Schroeder): “Labor markets remained tight across the United States as businesses struggled to find skilled workers and wages grew modestly, the Federal Reserve said… in its latest report on the economy. Prices have risen modestly since the last Beige Book, with tariffs, freight costs and rising wages often cited as key factors, the Fed said… Wages grew moderately in most districts for both skilled and unskilled workers, with only three reporting slight growth in workers’ pay… Businesses in most districts reported shortages of skilled workers, mainly in manufacturing and construction, but also in technical and professional roles. Companies have responded to the tight labor market by boosting bonuses and benefits packages, along with raising wages moderately…”
April 18 – Reuters (Lucia Mutikani): “U.S. retail sales increased by the most in 1-1/2 years in March as households boosted purchases of motor vehicles and a range of other goods, the latest indication that economic growth picked up in the first quarter after a false start. …Retail sales surged 1.6% last month. That was the biggest increase since September 2017 and followed an unrevised 0.2% drop in February… In March, sales at auto dealerships jumped 3.1%, the most since September 2017.”
April 15 – New York Times (Erin Griffith and Michael J. de la Merced): “When Jennifer Tejada, chief executive of PagerDuty, decided to take the software company public, she wanted to avoid this week. The stock market closes on Good Friday, and many people are on spring break. She had also feared being drowned out by a horde of other tech initial public offerings. ‘I remember saying, ‘I hope we don’t get run over by the ‘unicorn’ stampede,’ she said, using the term for private companies valued at more than $1 billion.”
April 12 – New York Times (Sapna Maheshwari): “As an executive vice president at Great American Group, a firm that helps liquidate the merchandise, clothing racks and mannequins at stores that are closing, Ryan Mulcunry has been watching booms and busts in the retail industry for almost two decades. Companies like his have been busy in recent years, but lately one thing has been missing. ‘In all the other cycles, including 2008, a lot of people would come in and buy racking, circular racks and so on,” Mr. Mulcunry said. ‘They’d buy it all and warehouse it and wait until somebody wanted to reopen a store and sell it back to them. Those people have gone away.’ …As the internet continues to change shopping habits, stores across the United States continue to close. Less than halfway through April, American retailers have announced plans this year to shut 5,994 stores, exceeding the 5,854 announced in all of 2018…”
April 14 – Reuters (Anna Irrera): “U.S. online lenders such as LendingClub Corp, Kabbage Inc and Avant LLC are scrutinizing loan quality, securing long-term financing and cutting costs, as executives prepare for what they fear could be the sector’s first economic downturn. A recession could bring escalating credit losses, liquidity crunch and higher funding costs, testing business models in a relatively nascent industry. Peer-to-peer and other digital lenders sprouted up largely after the Great Recession of 2008. Unlike banks, which tend to have lower-cost and more stable deposits, online lenders rely on market funding that can be harder to come by in times of stress.”
April 16 – Financial Times (Robert Smith): “Private equity firms have become notorious for juicing the numbers. It is rather less common for their senior partners to be bracingly honest about it. This year marks the 30th anniversary of Barbarians at the Gate — the seminal account of the 1980s leveraged buyout boom — and the private equity playbook remains essentially unchanged: pile debt on a company to fund its acquisition, strip out as many costs as possible, then flip the ‘improved company to another buyer for a higher price.’ Today’s masters of the universe have taken this template one stage further, giving themselves credit for the cost-cutting before they even get their hands on the company. Heavily adjusted earnings have become an inescapable fact of life in the modern buyout boom. Private equity firms now use eyebrow-raising ‘pro forma’ earnings numbers, a useful bit of Latin allowing them to factor in cost savings before they are even made.”
April 15 – Wall Street Journal (Christopher M. Matthews): “Two years ago, investors handed veteran oilman Jim Hackett a $1 billion check and sent him to seek riches in shale drilling. Today, the company he founded with their money, Alta Mesa Resources Inc., has a market value of about $43 million and is teetering on financial ruin—one of the more spectacular failures met chasing the next big thing in the American shale boom. Mr. Hackett bet big on an up-and-coming Oklahoma oil field after early wells there rivaled those of the best fields in Texas, but subsequent output has been disappointing.”
April 16 – Wall Street Journal (Patrick Thomas): “The best place to make money in the world of finance and investment may not be at a bank but in real estate. Real-estate investment trusts had some of the highest median worker pay among financial, real-estate and insurance companies in 2018… Property companies such as Host Hotels & Resorts Inc. and HCP Inc. paid their median employees more than some of the largest banks did. Host Hotels & Resorts, the lodging REIT formed through deals including a spinoff over 20 years ago from what was Marriott Corp., had median worker pay of $183,956…”
April 17 – Reuters (Lucia Mutikani): “The U.S. trade deficit fell to an eight-month low in February as imports from China plunged, temporarily providing a boost to President Donald Trump’s ‘America First’ agenda and economic growth in the first quarter… The trade deficit tumbled 3.4% to $49.4 billion in February, the lowest level since June 2018.”
China Watch:
April 16 – Bloomberg (Yinan Zhao and Enda Curran): “China’s economy rebounded through the first quarter, a welcome sign of stabilization for the world and handing the government room for maneuver as trade negotiations with the U.S. enter a crucial stage. Gross domestic product rose 6.4% in the first three months from a year earlier -- matching last quarter’s pace and beating economists’ estimates. Factory output in March jumped 8.5% from a year earlier, much higher than forecast. Retail sales expanded 8.7% while investment was up 6.3% in the year to date… ‘President Trump and other U.S. officials spent much of the last year saying that China’s slowdown was making Beijing desperate for a deal,’ said Michael Hirson, Practice Head, China and Northeast Asia at Eurasia Group… ‘Now that China’s growth is recovering, Trump and team will be getting more questions from pundits and the media about whether his leverage is slipping away.’”
April 16 – Reuters: “China’s industrial output grew 8.5% in March from a year earlier, the fastest pace since July 2014…, as factories ramped up output in anticipation of more businesses amid government support measures. Analysts polled by Reuters had expected industrial output would grow 5.9%, accelerating from 5.3% in the combined January-February period. The fixed-asset investment grew 6.3% in the first three months of 2019 from the same period a year earlier, the strongest pace since January-April last year…”
April 15 – Bloomberg (Robert Burgess): “An economic slowdown in China is the biggest risk facing markets, according to Bank of America’s monthly investor survey. So it should be good news that the most recent data indicate the Asian nation’s economy is perking up. The problem, as seen in the performance of global stocks Monday, is that the economy may be rebounding a bit too strongly, leading the People’s Bank of China to pull back on its latest stimulus measures. The PBOC admitted as much…, saying it will keep good control of the money supply ‘floodgate’ and not ‘flood’ the economy with excessive liquidity as the economy improves.”
April 16 – Reuters (Kevin Yao): “China’s stimulus measures will shore up economic growth this year and next but may undermine the country’s drive to control debt and worsen structural distortions over the medium term, the OECD said… Local governments will be allowed to issue 2.15 trillion yuan ($320.60bn) worth of special purpose bonds in 2019 to fund infrastructure projects, a jump of 59% from last year. But S&P Global Ratings estimated last year that local governments were already sitting on hidden debt that could be as high as 40 trillion yuan. ‘Infrastructure stimulus could lift growth over the projection horizon, but it could lead to a further build-up of imbalances and capital misallocation, and thereby weaker growth in the medium term,’ the OECD said… ‘The stimulus risks increasing once again corporate sector indebtedness and, more generally, reversing progress in deleveraging,’ it said.”
April 17 – Bloomberg: “China may be poised to take more stimulus steps to drive an expansion showing renewed signs of health. Officials are drafting measures to bolster sales of cars and electronics, according to people familiar…That news coincided with data showing a 6.4% year-on-year expansion in the first quarter -- beating economists’ estimates. Speculation over the stimulus swirled in the markets Wednesday, pushing up shares of domestic carmakers…”
April 17 – Bloomberg (Livia Yap): “The overnight borrowing cost in China’s money market rose to a four-year high as cash supply tightened just as tax payments increased demand for liquidity. The overnight repurchase rate rose as much as 11 basis points to 3.0006%, the first time it’s reached that level since April 2015… It has jumped 35 bps in three sessions, and is higher than the seven-day rate, which fell to 2.7905%.”
April 16 – Reuters (Winni Zhou and Andrew Galbraith): “China’s bond market sold off sharply this week as a slew of unexpectedly strong economic indicators prompted investors to ask if the country’s latest round of monetary easing may be drawing to a close. The first sign of trouble came when Chinese 10-year Treasury futures for June delivery… fell as much as 0.7% in initial deals on Monday… At 3.40%, the 10-year yield has now retraced to levels last seen in December.”
April 16 – Bloomberg (Livia Yap): “A sell-off in Chinese corporate bonds is accelerating as signs of a stabilizing economy bears down on the debt market. In the first two weeks of April, the average yield for three-year AAA rated corporate notes surged 23 bps in the steepest bi-weekly gain since November 2017… The yield for similar five-year debentures jumped the most since last August in comparison. Meanwhile, the five-year government yield surged to a five-month high of 3.24%.”
April 16 – Reuters (Lusha Zhang and Ryan Woo): “New home prices in China grew slightly faster in March after growth slowed the previous month, putting a floor under the cooling market, as Beijing rolled out stimulus to boost the economy. The sector’s solid growth could cushion the impact of a vigorous multi-year government crackdown on debt and escalating trade tensions with the United States, although some analysts say bubble risks are rising as prices continue to climb. Average new home prices in China’s 70 major cities rose 0.6% in March, quickening from a 0.5% gain in February… On the whole, it logged the 47th straight month of price increases. Most of the 70 cities surveyed by the NBS reported monthly price increases for new homes, and the number climbed sharply to 65 from 57 in February. On an annual basis, home prices rose 10.6% in March, the highest since April 2017, and also accelerating from a 10.4% gain in February.”
April 17 – Bloomberg: “Property developers that focus on smaller cities in China are set to be the beneficiaries of a reform last week that could encourage 100 million rural citizens to move to urban areas. Policy makers said cities with an urban population of 1 million to 3 million should scrap the residency registration system this year, a move that is seen boosting housing demand in lower-tier cities. Developers with higher land reserves or housing inventories in those cities, especially growing areas such as the Yangtze River Delta and Greater Bay Area are among the winners from the policy, analysts say.”
April 14 – Bloomberg: “Alarm bells are ringing as Chinese citizens keep pouring their savings into wealth-management products, a market that has tripled to more than $4 trillion in a little over three years. Like mortgage-backed securities were in the U.S., these products are building blocks of a shadow-banking system that exists largely off banks’ balance sheets. In China, a history of bailouts has persuaded many investors that WMPs are implicitly guaranteed by the issuing bank or the state. The People’s Bank of China has taken note, as have other regulators. Issued by banks, WMPs have emerged as a key tool for lenders to attract funds. Investors are lured by yields of 3% to 5%, compared with 1.5% for one-year bank deposits. The WMPs invest in everything from bonds to property and can be exposed to struggling industries like mining. The banks can keep the WMPs off their balance sheets provided the products are not principal-guaranteed, which most are not. They can also hand over the products to non-banks to manage in return for a predetermined interest rate.”
April 14 – Bloomberg (Livia Yap): “China’s savers are turning a deaf ear to government warnings about one of their favorite investments. Individuals hold nearly 90% of instruments known as wealth management products, a record share, because many believe they’re shielded from losses -- a view officials have tried hard to discourage. The assumption of safety has been buttressed by the fact that the large banks that issue WMPs have at times dipped into their own balance sheets to protect investors from losses or even outright defaults. That retail buyers have kept piling into WMPs even as corporate investors and financial institutions pared their exposure presents a quandary for Chinese policy makers preoccupied with controlling risks. While they want to stress that WMPs aren’t immune from losses to curb moral hazard, they must also avoid sparking a stampede for the exit among China’s millions of yield-hungry savers. ‘Regulators face the tough task of having to educate investors about the risks without actually having these risks play out,’ said Dexter Hsu, a Taipei-based analyst at Macquarie Research.”
April 15 – Wall Street Journal (Mike Bird): “China’s banks are lending again. The more they extend in credit, the more they’ll feel the pressure to boost their capital buffers. One method banks are already using is convertible bond issuance. The good news for the issuers is that this market is currently booming. The amount of convertible bonds listed on the Shanghai Stock Exchange has more than doubled in the past year… But investors should keep an eye on the market, which is still nascent: the evolution of the assets and their accounting is still uncertain.”
April 17 – Bloomberg: “Donald Trump once called himself the ‘king of debt.’ Hui Ka Yan, China’s richest property mogul, has a much stronger claim to the throne. No one has gotten wealthier on the back of a corporate borrowing binge than Hui. His junk-rated China Evergrande Group is not only the nation’s most indebted developer, it also has the highest leverage among companies underlying the world’s largest fortunes. Hui, who has a net worth of $35 billion, is the 26th richest person in the Bloomberg Billionaires Index. Everyone above him for whom data is publicly available… has grown their fortune via companies with far more conservative balance sheets. In many ways, Hui is more emblematic of recent trends in global business than his richer peers. Worldwide corporate debt has swelled by 26% over the past decade to $132 trillion as companies have taken advantage of historically low interest rates to fund their growth. Like Evergrande, many have also used borrowed cash to repurchase shares and boost dividends.”
April 14 – Bloomberg: “An iPhone assembler, e-commerce emporium and real-estate developer typically don’t compete in the same business -- except when it comes to electric vehicles in China. That’s because of a seismic shift toward EVs, which has spurred billions of dollars in investments by traditional carmakers, startups and titans of the internet, electronics and real-estate industries. The rush is on even as the government pulls back on the subsidies that juiced the industry to begin with. There are now 486 EV manufacturers registered in China, more than triple the number from two years ago. While sales of passenger EVs are projected to reach a record 1.6 million units this year, that’s likely not enough to keep all those assembly lines humming, prompting warnings that the ballooning EV market could burst and leave behind only a few survivors.”
Central Bank Watch:
April 14 – Reuters (Howard Schneider): “As a financial crisis spread across the globe in September of 2008, the U.S. Federal Reserve gathered in an emergency atmosphere as requests flooded in from other central banks for access to dollars. The ‘swap lines’ that the Fed quickly approved helped ease intense financial stress in foreign markets, but also showed the U.S. central bank was prepared to stand behind the global system. Would an ‘America First’ Fed do the same? The question is suddenly relevant for global economic officials and central bankers after moves by President Donald Trump to put two strong partisans on the Federal Reserve board.”
April 16 – Wall Street Journal (Jon Sindreu): “Fears of a global economic slowdown have led the European Central Bank to once again ponder the idea of taking interest rates into deeply negative territory and then come up with ways so to cushion any ill effects. That last bit in itself should be a red flag. Only a few months ago, investors expected central banks to keep tightening financial conditions after a decade of unprecedented stimulus. Now they think more easing is at hand. In the U.S., futures markets price in almost a 50% probability that the Federal Reserve will lower interest rates by January. But the real problem is in the eurozone, where the ECB never lifted rates from their record-low minus-0.4%, and officials need to do something to signal that their arsenal isn’t spent. At their latest policy meeting…, they suggested rates could go further below zero, accompanied by a tiered deposit mechanism designed to shield banks from the damage.”
April 14 – Financial Times (Claire Jones): “A technical measure of the inflation expectations of eurozone investors has fallen to its lowest level for three years, putting pressure on the European Central Bank to convince doubters that it is willing to use fresh stimulus to boost the region’s economy. In August 2014 ECB president Mario Draghi highlighted the so-called ‘five-year, five-year inflation swap rate’ at the US Federal Reserve’s annual retreat in Jackson Hole… Six months later, after the rate had fallen further, the bank launched an economic stimulus programme, buying €2.6tn of government and corporate bonds.”
Brexit Watch:
April 14 – Financial Times (Wolfgang Münchau): “Last week’s European Council was dominated by Brexit. But it may be remembered for the visible cracks in the Franco-German relationship. Emmanuel Macron’s refusal to accept the German-led majority view to agree to a long Brexit extension is perhaps the most clear sign of an end to the love-in between the two countries. The French president’s uncompromising stance caught most German political observers off-guard. Some members of Angela Merkel’s entourage in Brussels expressed unbridled fury at Mr Macron’s insurrection. How dare he? What the debate in Germany misses is that Mr Macron owes little to the German chancellor. She managed to fend off most of his eurozone reforms.”
Europe Watch:
April 17 – Associated Press (Geir Moulson): “The German government… slashed its 2019 economic growth forecast for the country for the second time this year, halving its outlook to a meager 0.5%. The update came less than three months after the government cut its forecast to 1% from 1.8% in late January. Weaker growth elsewhere as a result of global trade tensions and uncertainty over Britain’s exit from the European Union has weighed on Germany’s prospects — along with the after-effects of its own weak performance at the end of last year, when output was dragged down largely by one-time factors related to new car emissions standards.”
April 17 – Bloomberg (Arne Delfs): “The German economy is turning into Europe’s underperformer, with the government now predicting 2019 will see the weakest expansion in six years. Amid slowing global momentum and concerns over Brexit and trade disputes, the economy ministry… cut its estimate to 0.5%, half the pace previously forecast. It’s the latest in a series of downward revisions from a 2.1% projection a year ago. Growth for next year is seen at 1.5%.”
April 15 – Financial Times (Ian Mount): “At a Vox rally at a former bullring in the working-class Madrid suburb of Leganés, Sandra Gutiérrez says she is drawn to the far-right party for a simple reason. ‘I’m here because of the disaster that is Spain,’ said Ms Gutiérrez, a public relations consultant from Madrid. ‘You have to put your foot down and say, ‘Enough. It’s over.’ The same that happened in Italy, Austria, Hungary, Poland. The people explode because of the oligarchies, the bureaucracy. The money is for them, not for the citizens.’ At the rally, Ms Gutiérrez had listened alongside almost 9,000 others as Vox’s leader, Santiago Abascal, thundered about protecting rural traditions such as bullfighting and hunting and the need for immigrants to ‘accept our culture’.”
EM Watch:
April 17 – Financial Times (Laura Pitel and Adam Samson): “Turkey’s central bank has bolstered its foreign currency reserves with billions of dollars of short-term borrowed money, raising fears among analysts and investors that the country is overstating its ability to defend itself in a fresh lira crisis. Reported net foreign reserves held by the central bank stood at $28.1bn in early April — a sum that investors already believed was inadequate because of Turkey’s heavy need for dollars to cover debt and foreign trade. But calculations by the Financial Times suggest that this total has been enhanced by an unusual surge in the use of short-term borrowing, or swaps, since March 25. Stripping those swaps out, the total is less than $16bn. Analysts and investors, already skittish about putting money to work in Turkey given the direction of economic policy under President Recep Tayyip Erdogan, are concerned that the state of the financial defences leaves the country ill-equipped to deal with any potential market crisis.”
April 17 – Associated Press (Geir Moulson): “The German government… slashed its 2019 economic growth forecast for the country for the second time this year, halving its outlook to a meager 0.5%. The update came less than three months after the government cut its forecast to 1% from 1.8% in late January. Weaker growth elsewhere as a result of global trade tensions and uncertainty over Britain’s exit from the European Union has weighed on Germany’s prospects — along with the after-effects of its own weak performance at the end of last year, when output was dragged down largely by one-time factors related to new car emissions standards.”
April 17 – Bloomberg (Arne Delfs): “The German economy is turning into Europe’s underperformer, with the government now predicting 2019 will see the weakest expansion in six years. Amid slowing global momentum and concerns over Brexit and trade disputes, the economy ministry… cut its estimate to 0.5%, half the pace previously forecast. It’s the latest in a series of downward revisions from a 2.1% projection a year ago. Growth for next year is seen at 1.5%.”
April 15 – Financial Times (Ian Mount): “At a Vox rally at a former bullring in the working-class Madrid suburb of Leganés, Sandra Gutiérrez says she is drawn to the far-right party for a simple reason. ‘I’m here because of the disaster that is Spain,’ said Ms Gutiérrez, a public relations consultant from Madrid. ‘You have to put your foot down and say, ‘Enough. It’s over.’ The same that happened in Italy, Austria, Hungary, Poland. The people explode because of the oligarchies, the bureaucracy. The money is for them, not for the citizens.’ At the rally, Ms Gutiérrez had listened alongside almost 9,000 others as Vox’s leader, Santiago Abascal, thundered about protecting rural traditions such as bullfighting and hunting and the need for immigrants to ‘accept our culture’.”
EM Watch:
April 17 – Financial Times (Laura Pitel and Adam Samson): “Turkey’s central bank has bolstered its foreign currency reserves with billions of dollars of short-term borrowed money, raising fears among analysts and investors that the country is overstating its ability to defend itself in a fresh lira crisis. Reported net foreign reserves held by the central bank stood at $28.1bn in early April — a sum that investors already believed was inadequate because of Turkey’s heavy need for dollars to cover debt and foreign trade. But calculations by the Financial Times suggest that this total has been enhanced by an unusual surge in the use of short-term borrowing, or swaps, since March 25. Stripping those swaps out, the total is less than $16bn. Analysts and investors, already skittish about putting money to work in Turkey given the direction of economic policy under President Recep Tayyip Erdogan, are concerned that the state of the financial defences leaves the country ill-equipped to deal with any potential market crisis.”
April 17 – Bloomberg (Michelle Jamrisko and Catarina Saraiva): “Inflation that’s projected to reach an eyeball-popping 8 million percent this year has left Venezuela saddled with the title of the world’s most miserable economy. The embattled South American nation topped the rankings of Bloomberg’s Misery Index, which sums inflation and unemployment outlooks for 62 economies, for the fifth straight year.”
Global Bubble Watch:
April 16 – Financial Times (Chelsea Bruce-Lockhart and Joe Rennison): “Bond sales are booming in 2019, running at a record pace globally for the year so far, as a pivot in monetary policy among the world’s central banks prompts a fresh binge in corporate borrowing. Global corporate bond issuance has reached almost $747bn for the year…, according to… Dealogic, edging ahead of the previous record of $734bn issued over the same time period in 2017, which ended up being the biggest year on record for new debt sales. A sharp U-turn in global monetary policy, with the Federal Reserve pausing further interest rate increases in the US and the European Central Bank committing to reviving growth, has breathed life into corporate debt markets.”
April 15 – Financial Times (Philip Stafford): “Global regulators reminded the world last week that they would like to see the Libor lending benchmark all but gone by 2022, and they will be watching banks’ progress carefully. Figuring out how to replace the London interbank offered rate, however, is fast becoming one of the prickliest issues in global markets. The benchmark, embedded in everything from the most sophisticated derivatives to the average mortgage, is based only partly on real transactions — a clear anomaly that left it subject to abuse. Banks are backing away from supporting the rate, which is now, in effect, on life support… But the estimated $350tn of contracts tied to it represent a huge challenge that market participants, primarily banks, are expected to fix by themselves.”
April 15 – Financial Times (Sarah Provan and Adam Samson): “Greek bond yields hit the lowest level in nearly 14 years, highlighting a comeback for the country that was the focal point of a debt crisis that crippled the eurozone a decade ago. The benchmark 10-year yield fell 3 bps to 3.274%, its lowest since September 2005… The fall… marks a stark contrast from eight years ago, when yields climbed above 40%. Athens was then at the epicentre of the eurozone debt crisis that began in 2009. The country went through a deep recession and a trio of IMF bailouts, the last of which it emerged from in the summer.”
Japan Watch:
April 15 – Reuters (Tetsushi Kajimoto): “Bank of Japan Governor Haruhiko Kuroda… vowed to ‘patiently continue’ the central bank’s ‘powerful’ monetary easing as it was taking longer than previously thought to accelerate inflation to its 2% target. Prices remain weak despite a tight labor market, but the momentum toward 2% inflation is intact, Kuroda told lawmakers… While continuing its massive monetary stimulus, the BOJ will examine whether the decline in profits at regional banks may undermine financial intermediation, Kuroda added…”
April 12 – Reuters (Leika Kihara): “Bank of Japan Governor Haruhiko Kuroda said… the central bank was ready to expand monetary stimulus if needed, brushing aside the view the BOJ had little ammunition left to fight the next economic downturn. Kuroda said it was true major central banks may have less room to cut interest rates because they are already very low after years of aggressive monetary easing. ‘But that doesn’t mean central banks have no ammunition left to ease further in response to financial developments,’ Kuroda told a news conference…’The BOJ also has room to ease monetary policy further if doing so becomes necessary,’ he said.”
Fixed-Income Bubble Watch:
April 15 – Reuters (Richard Leong): “Foreigners purchased U.S. Treasury securities in February after selling them for three consecutive months, suggesting some overseas appetite for low-risk government debt due to worries about the global economy… They bought $19.91 billion in Treasuries in February, compared with $11.99 billion in sales the month before…”
April 17 – Financial Times (Joe Rennison): “While most areas of the debt markets have rebounded sharply from a slump in prices at the end of 2018, one corner remains under pressure: collateralised loan obligations. CLOs bundle up loans that then back a series of bonds and equity, with varying degrees of risk and return for investors. Pristine, triple-A slices of new debt have languished behind the recovery seen in other markets such as investment grade debt, junk bonds and risky leveraged loans, with yields rising to an average of 1.44 percentage points above the interest rate benchmark Libor. That is the highest it has been in more than two years. The drab performance in this $600bn market reflects a stark change in appetite among the fund managers, insurance companies and international banks that had piled into one of the hottest corners of debt markets in recent years.”
Geopolitical Watch:
April 18 – Reuters (Yimou Lee): “China was stepping up a campaign to exert influence over Taiwan, including its upcoming presidential election, a senior U.S. official said…, at a time of heightened tension between the self-ruled island and Beijing. China has increased military and diplomatic pressure on Taiwan, whose president, Tsai Ing-wen, Beijing suspects of pushing for the island’s formal independence, a red line for China which has never renounced the use of force to bring Taiwan under its control. The island is gearing up for a presidential election in January that could shake up the political landscape, with contenders including Terry Gou, chairman of Apple supplier Foxconn. ‘They’ve obviously stepped up campaigns of disinformation and direct influence against Taiwan,’ James Moriarty, chairman of the American Institute in Taiwan, told Reuters.”
April 14 – Reuters (Yimou Lee): “Chinese bombers and warships conducted drills around Taiwan on Monday, the latest military maneuvers near the self-ruled island that a senior U.S. official denounced as ‘coercion’ and a threat to stability in the region. The United States has no formal ties with Taiwan but is bound by law to help provide the island with the means to defend itself and is its main source of arms.”
April 15 – Reuters (Yimou Lee): “Taiwan has not been intimidated by China’s military drills this week, President Tsai Ing-wen said…, after the latest Chinese maneuvers were denounced by a senior U.S. official as ‘coercion’ and a threat to regional stability. China’s People’s Liberation Army said its warships, bombers and reconnaissance aircraft had conducted ‘necessary drills’ around Taiwan on Monday… ‘China’s armed forces yesterday sent a large number of military aircraft and naval vessels into our vicinity. Their actions threaten Taiwan and other-like minded countries in the region,’ Tsai said.”
April 16 – Reuters (Ulf Laessing and Ahmed Elumami): “At least four people were killed in heavy shelling in the Libyan capital Tripoli, an official said on Wednesday as Europe and the Gulf were divided over a push by eastern forces commander Khalifa Haftar to seize the city. Nearly two weeks into its assault, the veteran general’s eastern-based Libyan National Army (LNA) is stuck in the city’s southern outskirts battling armed groups loyal to the internationally recognized Tripoli government.”
April 16 – Reuters (David Brunnstrom): “Satellite images from last week show movement at North Korea’s main nuclear site that could be associated with the reprocessing of radioactive material into bomb fuel, a U.S. think tank said… Any new reprocessing activity would underscore the failure of a second summit between U.S. President Donald Trump and North Korean leader Kim Jong Un in Hanoi in late February to make progress toward North Korea’s denuclearization.”
April 14 – Reuters (Julia Symmes Cobb and Matt Spetalnick): “The United States will use all economic and political tools at its disposal to hold Venezuelan President Nicolas Maduro accountable for his country’s crisis and will make clear to Cuba and Russia they will pay a price for supporting him, U.S. Secretary of State Mike Pompeo said...”
April 12 – Reuters (Natalia A. Ramos Miranda): “U.S. Secretary of State Mike Pompeo… defended sanctions on Venezuela and said the United States would not ‘quit the fight’ in the socialist-run Latin American nation which is spiraling into deepening economic and political crisis. Pompeo is on a three-day trip to Chile, Paraguay and Peru, a clutch of fast-growing countries in a region where Washington’s concerns are focused on China’s growing presence as well as the Venezuelan crisis.”
Global Bubble Watch:
April 16 – Financial Times (Chelsea Bruce-Lockhart and Joe Rennison): “Bond sales are booming in 2019, running at a record pace globally for the year so far, as a pivot in monetary policy among the world’s central banks prompts a fresh binge in corporate borrowing. Global corporate bond issuance has reached almost $747bn for the year…, according to… Dealogic, edging ahead of the previous record of $734bn issued over the same time period in 2017, which ended up being the biggest year on record for new debt sales. A sharp U-turn in global monetary policy, with the Federal Reserve pausing further interest rate increases in the US and the European Central Bank committing to reviving growth, has breathed life into corporate debt markets.”
April 15 – Financial Times (Philip Stafford): “Global regulators reminded the world last week that they would like to see the Libor lending benchmark all but gone by 2022, and they will be watching banks’ progress carefully. Figuring out how to replace the London interbank offered rate, however, is fast becoming one of the prickliest issues in global markets. The benchmark, embedded in everything from the most sophisticated derivatives to the average mortgage, is based only partly on real transactions — a clear anomaly that left it subject to abuse. Banks are backing away from supporting the rate, which is now, in effect, on life support… But the estimated $350tn of contracts tied to it represent a huge challenge that market participants, primarily banks, are expected to fix by themselves.”
April 15 – Financial Times (Sarah Provan and Adam Samson): “Greek bond yields hit the lowest level in nearly 14 years, highlighting a comeback for the country that was the focal point of a debt crisis that crippled the eurozone a decade ago. The benchmark 10-year yield fell 3 bps to 3.274%, its lowest since September 2005… The fall… marks a stark contrast from eight years ago, when yields climbed above 40%. Athens was then at the epicentre of the eurozone debt crisis that began in 2009. The country went through a deep recession and a trio of IMF bailouts, the last of which it emerged from in the summer.”
Japan Watch:
April 15 – Reuters (Tetsushi Kajimoto): “Bank of Japan Governor Haruhiko Kuroda… vowed to ‘patiently continue’ the central bank’s ‘powerful’ monetary easing as it was taking longer than previously thought to accelerate inflation to its 2% target. Prices remain weak despite a tight labor market, but the momentum toward 2% inflation is intact, Kuroda told lawmakers… While continuing its massive monetary stimulus, the BOJ will examine whether the decline in profits at regional banks may undermine financial intermediation, Kuroda added…”
April 12 – Reuters (Leika Kihara): “Bank of Japan Governor Haruhiko Kuroda said… the central bank was ready to expand monetary stimulus if needed, brushing aside the view the BOJ had little ammunition left to fight the next economic downturn. Kuroda said it was true major central banks may have less room to cut interest rates because they are already very low after years of aggressive monetary easing. ‘But that doesn’t mean central banks have no ammunition left to ease further in response to financial developments,’ Kuroda told a news conference…’The BOJ also has room to ease monetary policy further if doing so becomes necessary,’ he said.”
Fixed-Income Bubble Watch:
April 15 – Reuters (Richard Leong): “Foreigners purchased U.S. Treasury securities in February after selling them for three consecutive months, suggesting some overseas appetite for low-risk government debt due to worries about the global economy… They bought $19.91 billion in Treasuries in February, compared with $11.99 billion in sales the month before…”
April 17 – Financial Times (Joe Rennison): “While most areas of the debt markets have rebounded sharply from a slump in prices at the end of 2018, one corner remains under pressure: collateralised loan obligations. CLOs bundle up loans that then back a series of bonds and equity, with varying degrees of risk and return for investors. Pristine, triple-A slices of new debt have languished behind the recovery seen in other markets such as investment grade debt, junk bonds and risky leveraged loans, with yields rising to an average of 1.44 percentage points above the interest rate benchmark Libor. That is the highest it has been in more than two years. The drab performance in this $600bn market reflects a stark change in appetite among the fund managers, insurance companies and international banks that had piled into one of the hottest corners of debt markets in recent years.”
Geopolitical Watch:
April 18 – Reuters (Yimou Lee): “China was stepping up a campaign to exert influence over Taiwan, including its upcoming presidential election, a senior U.S. official said…, at a time of heightened tension between the self-ruled island and Beijing. China has increased military and diplomatic pressure on Taiwan, whose president, Tsai Ing-wen, Beijing suspects of pushing for the island’s formal independence, a red line for China which has never renounced the use of force to bring Taiwan under its control. The island is gearing up for a presidential election in January that could shake up the political landscape, with contenders including Terry Gou, chairman of Apple supplier Foxconn. ‘They’ve obviously stepped up campaigns of disinformation and direct influence against Taiwan,’ James Moriarty, chairman of the American Institute in Taiwan, told Reuters.”
April 14 – Reuters (Yimou Lee): “Chinese bombers and warships conducted drills around Taiwan on Monday, the latest military maneuvers near the self-ruled island that a senior U.S. official denounced as ‘coercion’ and a threat to stability in the region. The United States has no formal ties with Taiwan but is bound by law to help provide the island with the means to defend itself and is its main source of arms.”
April 15 – Reuters (Yimou Lee): “Taiwan has not been intimidated by China’s military drills this week, President Tsai Ing-wen said…, after the latest Chinese maneuvers were denounced by a senior U.S. official as ‘coercion’ and a threat to regional stability. China’s People’s Liberation Army said its warships, bombers and reconnaissance aircraft had conducted ‘necessary drills’ around Taiwan on Monday… ‘China’s armed forces yesterday sent a large number of military aircraft and naval vessels into our vicinity. Their actions threaten Taiwan and other-like minded countries in the region,’ Tsai said.”
April 16 – Reuters (Ulf Laessing and Ahmed Elumami): “At least four people were killed in heavy shelling in the Libyan capital Tripoli, an official said on Wednesday as Europe and the Gulf were divided over a push by eastern forces commander Khalifa Haftar to seize the city. Nearly two weeks into its assault, the veteran general’s eastern-based Libyan National Army (LNA) is stuck in the city’s southern outskirts battling armed groups loyal to the internationally recognized Tripoli government.”
April 16 – Reuters (David Brunnstrom): “Satellite images from last week show movement at North Korea’s main nuclear site that could be associated with the reprocessing of radioactive material into bomb fuel, a U.S. think tank said… Any new reprocessing activity would underscore the failure of a second summit between U.S. President Donald Trump and North Korean leader Kim Jong Un in Hanoi in late February to make progress toward North Korea’s denuclearization.”
April 14 – Reuters (Julia Symmes Cobb and Matt Spetalnick): “The United States will use all economic and political tools at its disposal to hold Venezuelan President Nicolas Maduro accountable for his country’s crisis and will make clear to Cuba and Russia they will pay a price for supporting him, U.S. Secretary of State Mike Pompeo said...”
April 12 – Reuters (Natalia A. Ramos Miranda): “U.S. Secretary of State Mike Pompeo… defended sanctions on Venezuela and said the United States would not ‘quit the fight’ in the socialist-run Latin American nation which is spiraling into deepening economic and political crisis. Pompeo is on a three-day trip to Chile, Paraguay and Peru, a clutch of fast-growing countries in a region where Washington’s concerns are focused on China’s growing presence as well as the Venezuelan crisis.”
Thursday, April 18, 2019
Friday's News Links
[Bloomberg] Stocks Mixed in Holiday Hit Trading; Dollar Steady: Markets Wrap
[Reuters] JGB yields rise as BOJ trims debt purchase amount
[Reuters] U.S. housing starts fall to near to two-year low; permits weak
[Reuters] Japan inflation edges higher but Bank of Japan still in a bind
[Reuters] China will keep supporting economy as 'pressure' lingers: politburo
[Bloomberg] BOJ Surprises With Cut to Bond Purchases Ahead of Japan Holidays
[Bloomberg] What Trump Can (And Can't) Do to Steer Fed Policy
[Bloomberg] China's Stock Investors Are Still Hooked on Economic Stimulus
[Bloomberg] Why Is Everyone Worried About Turkey's Foreign Reserves?
[Bloomberg] Crisis at China's JPMorgan Wannabe Deepens on Bond Defaults
[WSJ] OPEC vs. Shale: the Battle for Oil Price Supremacy
[WSJ] Fed’s Kaplan Says U.S. Growth Isn’t Likely to Change His Stance on Rates
[FT] Chinese company endorsed by premier embroiled in $800m defaults
[Reuters] JGB yields rise as BOJ trims debt purchase amount
[Reuters] U.S. housing starts fall to near to two-year low; permits weak
[Reuters] Japan inflation edges higher but Bank of Japan still in a bind
[Reuters] China will keep supporting economy as 'pressure' lingers: politburo
[Bloomberg] BOJ Surprises With Cut to Bond Purchases Ahead of Japan Holidays
[Bloomberg] What Trump Can (And Can't) Do to Steer Fed Policy
[Bloomberg] China's Stock Investors Are Still Hooked on Economic Stimulus
[Bloomberg] Why Is Everyone Worried About Turkey's Foreign Reserves?
[Bloomberg] Crisis at China's JPMorgan Wannabe Deepens on Bond Defaults
[WSJ] OPEC vs. Shale: the Battle for Oil Price Supremacy
[WSJ] Fed’s Kaplan Says U.S. Growth Isn’t Likely to Change His Stance on Rates
[FT] Chinese company endorsed by premier embroiled in $800m defaults
Thursday Evening Links
[Reuters] Wall Street closes slightly higher, industrials lead
[Reuters] Stock ETFs, corporate bonds, junk debt enjoy another week of inflows
[Reuters] Potential Fed nominee Cain says not withdrawing from consideration
[Reuters] Mortar bombs land on Tripoli suburb as two-week battle rages on
[Reuters] Stock ETFs, corporate bonds, junk debt enjoy another week of inflows
[Reuters] Potential Fed nominee Cain says not withdrawing from consideration
[Reuters] Mortar bombs land on Tripoli suburb as two-week battle rages on
Wednesday, April 17, 2019
Thursday's News Links
[Reuters] Poor PMIs wipe week's gains off global shares
[Reuters] U.S. retail sales post biggest gain in one-and-a-half years in March
[Reuters] U.S. weekly jobless claims lowest since 1969; unemployment rolls shrink
[ShareCast] Eurozone PMI Data Disappoint
[Reuters] Fed may need to buy more bonds than before crisis to manage U.S. rates: official
[Reuters] Major automakers fear Trump 'grenade' - imposing U.S. auto tariffs
[Reuters] State media says new tactical weapons test overseen by North Korean leader
[Bloomberg] China's King of Debt Has a $35 Billion Fortune, Lots of Doubters
[Reuters] U.S. says China steps up campaign to influence Taiwan, including vote
[Bloomberg] Factory Slump Deals Euro-Area Economy Weak Second-Quarter Start
[Bloomberg] The World's Most Miserable Economy Has Seven-Figure Inflation
[WSJ] The Student-Debt Crisis Hits Hardest at Historically Black Colleges
[FT] Bondholders take on forex risk as hedging costs soar
[FT] CLO prices languish behind recovery in debt markets
[Reuters] U.S. retail sales post biggest gain in one-and-a-half years in March
[Reuters] U.S. weekly jobless claims lowest since 1969; unemployment rolls shrink
[ShareCast] Eurozone PMI Data Disappoint
[Reuters] Fed may need to buy more bonds than before crisis to manage U.S. rates: official
[Reuters] Major automakers fear Trump 'grenade' - imposing U.S. auto tariffs
[Reuters] State media says new tactical weapons test overseen by North Korean leader
[Bloomberg] China's King of Debt Has a $35 Billion Fortune, Lots of Doubters
[Reuters] U.S. says China steps up campaign to influence Taiwan, including vote
[Bloomberg] Factory Slump Deals Euro-Area Economy Weak Second-Quarter Start
[Bloomberg] The World's Most Miserable Economy Has Seven-Figure Inflation
[WSJ] The Student-Debt Crisis Hits Hardest at Historically Black Colleges
[FT] Bondholders take on forex risk as hedging costs soar
[FT] CLO prices languish behind recovery in debt markets
Wednesday Evening Links
[Reuters] Wall Street dips as healthcare slide offsets chip boost
[Reuters] U.S. labor market remains tight, economy continues to grow: Fed Beige Book
[Reuters] Fed's Harker sees 'sound' economy, forecasts future rate hike
[Reuters] Wall Street banks under pressure to make deeper cost cuts
[Bloomberg] Fed Saw ‘Some Strengthening’ Amid Slight-to-Moderate Expansion
[WSJ] U.S., China Set Tentative Timeline for Next Round of Trade Talks
[FT] Turkey props up reserves with billions of dollars in short-term borrowing
[Reuters] U.S. labor market remains tight, economy continues to grow: Fed Beige Book
[Reuters] Fed's Harker sees 'sound' economy, forecasts future rate hike
[Reuters] Wall Street banks under pressure to make deeper cost cuts
[Bloomberg] Fed Saw ‘Some Strengthening’ Amid Slight-to-Moderate Expansion
[WSJ] U.S., China Set Tentative Timeline for Next Round of Trade Talks
[FT] Turkey props up reserves with billions of dollars in short-term borrowing
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