Saturday, March 31, 2018
Weekly Commentary:
Just the Facts
by Doug Noland
full column here:
My summary is below:
For the Final Week
of a Wild Quarter
ending March 30, 2018:
S&P500 rallied 2.0% (down 1.2% in 1Q 2018)
Dow Industrials gained 2.4% (down 2.5%)
Dow Utilities jumped 2.9% (down 4.5%)
Dow Transports gained 2.3% (down 2.0%)
S&P 400 Midcaps rose 2.1% (down 1.1%)
Small cap Russell 2000 gained 1.3% (down 0.4%)
Nasdaq100 advanced 1.1% (up 2.9%)
Biotechs increased 0.2% (up 6.7%).
With gold bullion down $22,
the HUI gold stock index declined 0.8%
(down 11.1%).
U.K.'s FTSE jumped 1.9% (down 8.2%)
Japan's Nikkei 225 recovered 4.1% (down 5.8% y-t-d).
France's CAC40 gained 1.4% (down 2.7%)
German DAX rallied 1.8% (down 6.4%)
Spain's IBEX 35 recovered 2.2% (down 4.4%)
Italy's FTSE MIB increased 0.5% (up 2.6%)
Brazil's Bovespa gained 1.2% (up 11.7%)
Mexico's Bolsa declined 0.8% (down 6.5%)
South Korea's Kospi gained 1.2% (down 0.9%)
India’s Sensex rose 1.1% (down 3.2%)
China’s Shanghai Exchange increased 0.5% (down 4.2%).
Turkey's Istanbul National 100 fell 1.4% (down 0.3%).
Russia's MICEX was unchanged (up 8.3%).
US Bonds & Mortgages
Ten-year Treasury yields fell seven bps to 2.74% (up 33bps).
Long bond yields dropped nine bps to 2.97% (up 23bps).
Freddie Mac 30-year fixed mortgage rates
slipped a basis point to 4.44% (up 30bps y-o-y).
Fifteen-year rates
declined one basis point to 3.90% (up 51bps).
Five-year hybrid ARM rates
fell two bps to 3.66% (up 51bps).
Jumbo mortgage 30-yr fixed rates
down 11 bps to 4.49% (up 26bps).
M2 money supply declined $13.7bn last week to $13.901 Trillion,
and gained $511bn, or 3.8%, over the past year.
Currency Watch:
The U.S. dollar index gained 0.6% to 89.974 (down 2.3% y-o-y).
Commodities Watch:
Goldman Sachs Commodities Index slipped 0.5% (up 2.4% y-t-d).
Spot Gold dropped 1.7% to $1,325 (up 1.7%).
Silver fell 1.9% to $16.268 (down 5.1%).
Crude declined 94 cents to $64.94 (up 8%).
Gasoline dipped 0.6% (up 13%)
Natural Gas jumped 5.5% (down 8%)
Copper rallied 1.1% (down 8%)
Wheat fell 2.0% (up 6%)
Corn jumped 2.8% (up 10%).
Trump Administration Watch:
March 27 - Bloomberg (Andrew Mayeda, Saleha Mohsin, and David McLaughlin):
"The Trump administration is considering a crackdown on Chinese investments in technologies the U.S. deems sensitive by invoking a law reserved for national emergencies… Treasury Department officials are working on plans to identify technology sectors in which Chinese companies would be banned from investing, such as semiconductors and so-called 5G wireless communications, according to four people with knowledge of the proposal… The investment curbs would be the latest step in President Donald Trump's plan to punish China for what the U.S. sees as violations of American intellectual-property rights."
March 25 - Reuters (Valerie Volcovici):
"Despite threats of retaliation from China over U.S. plans to impose tariffs on up to $60 billion in Chinese goods, Treasury Secretary Steve Mnuchin on Sunday said President Donald Trump had no intention of backing down and was not worried about a trade war. 'We are going to proceed with our tariffs. We're working on that," Mnuchin told Fox News… 'So, as President Trump said, we're not afraid of a trade war, but that's not our objective.'"
March 26 - Reuters (Michelle Fox):
"The spending spree coming out of the nation's capital has to stop, former Government Accountability Office head David Walker told CNBC… 'Fiscal policy is spinning out of control again in Washington, D.C.,' said Walker, who was head of the GAO under Presidents Bill Clinton and George W. Bush. 'We are mortgaging the future of kids and grandkids at record rates. That is irresponsible. It is unethical. It is immoral. It must stop… We've seen the debt ceiling limit go up $1 trillion in the last year. We're facing trillion-dollar annual deficits starting in '19, and we can see on the horizon that the federal budget may end up spending $1 trillion on interest alone in the not-too-distant future. And what do you get for interest? Nothing,' said Walker…"
March 29 - Bloomberg (Anna Edgerton, Allison McCartney and Chloe Whiteaker): "Republicans are presiding over an escalation in U.S. indebtedness after years of railing against widening deficits under Democrats. The GOP's biggest legislative achievement since President Donald Trump took office was a massive tax cut that congressional scorekeepers expect will add more than $1 trillion to deficits over the next decade, even when accounting for faster economic growth. Adding to that, the Republican-controlled House and Senate just passed a massive $1.3 trillion bill to fund most of the government's daily operations. The agreement-which included more money for the military that Republicans wanted in addition to more money for domestic programs that Democrats wanted-was grudgingly accepted by Trump, who vowed he 'will never sign another bill like this again.'"
March 23 - CNBC (Raymond Zhong and Paul Mozur):
"Recent tit-for-tat trade actions could deepen what has become a global contest for technological dominance between the United States and China, home to the planet's largest population of internet users and a flourishing community of start-ups and innovative companies. The Trump administration this week accused Beijing of stealing valuable technological know-how from American companies as it proposed tariffs on $60 billion in Chinese goods and curbs on Chinese investments. China responded with its own set of penalties aimed at American products. The fight between the two countries is cleaving the high-tech realm. The world's two biggest economies have each become increasingly protective of their own leading-edge industries, and mistrustful of the other's."
March 23 - CNBC (Christina Wilkie):
"Some of the nation's loudest and most prominent conservative voices tore into President Donald Trump on Friday, lambasting the president over his decision to sign a $1.3 trillion omnibus spending bill just hours after he threatened to veto it. The attacks represented a swift about-face from a group that typically comprises some of Trump's biggest cheerleaders. Laura Ingraham… wrote on Twitter that it was a 'missed opportunity' for the president. 'If he loses the House, Dems will go straight to impeachment'… Author and commentator Ann Coulter also warned the president that signing the bill, and thereby betraying his conservative base, could lead to his impeachment… Coulter, whose most recent book was titled, 'In Trump We Trust,' also labeled Trump as 'President Schumer,' a reference to liberal Senate Minority Leader…"
March 25 - Wall Street Journal (Jesse Newman, Jacob Bunge and Benjamin Parkin): "Farmers and companies across the agricultural supply chain, many of whom have welcomed some of President Donald Trump's policies, are bracing for disruption from his escalating trade battle with China. China is the second-biggest customer for U.S. agricultural exports after Canada, and its planned tariffs on pork, fruit, nuts and other goods are expected to worsen the U.S. farm economy's slump. Farm incomes this year are expected to slide to their lowest level since 2006…, prolonging a downturn that has pushed some farmers out of business and eroded profits for seed, chemical and equipment companies. 'This could not be happening at a worse time for American agriculture,' said Zippy Duvall, president of the American Farm Bureau Federation."
Federal Reserve Watch
March 29 - Wall Street Journal (Nick Timiraos):
"Federal Reserve Bank of Philadelphia President Patrick Harker said he expects officials will need to raise short-term interest rates a total of three times this year, up from his earlier projection of two, due to stronger inflation. Fed officials voted unanimously last week to raise their benchmark federal-funds rate by a quarter percentage point to a range between 1.5% and 1.75%, and they penciled in two more such increases for this year. 'We saw some firming of inflation,' Mr. Harker said…"
U.S. Bubble Watch:
March 28 - Bloomberg (Sho Chandra):
"The U.S. economy grew in the fourth quarter ... Gross domestic product grew at a 2.9% annualized rate, Consumer spending, biggest part of the economy, grew 4% (revised from 3.8%)
Nonresidential fixed investment rose 6.8% (revised from 6.6% gain)"
March 29 - Bloomberg (Katia Dmitrieva):
"Consumer sentiment in March reached the highest level since 2004 as a solid labor market and growth expectations offset concerns about tariffs and stock-market volatility, a University of Michigan survey showed Thursday."
March 27 - Bloomberg (Katia Dmitrieva):
"A limited number of properties for sale against a backdrop of steady demand helped keep home prices elevated in January, according to S&P CoreLogic Case-Shiller data… 20-city home-price index increased 6.4% y/y (est. 6.2%)… National gauge of home prices rose 6.2% y/y. Seasonally adjusted 20-city index advanced 0.8% m/m (est. 0.6%)."
March 28 - Wall Street Journal (Steven Russolillo):
"The NYSE FANG+ Index-which tracks 10 global tech heavyweights, including Facebook Inc., FB +1.46% Apple Inc. and China's Alibaba Group Holding BABA -1.24% -slumped 5.6% on Tuesday, its worst one-day drop in data going back to September 2014. Investors' concern is that these companies have in recent years grown so much and so fast that they now have outsize influence on broader stock indexes… Their rapid gains have come alongside heavy inflows into passive funds that track these indexes, leaving millions of investors susceptible to greater downside should tech stocks struggle more."
March 26 - Bloomberg (Sara Forden):
"The U.S. Federal Trade Commission confirmed it has an open, non-public investigation into Facebook Inc.'s privacy practices. 'The FTC is firmly and fully committed to using all of its tools to protect the privacy of consumers,' Tom Pahl, the acting director of the FTC's Bureau of Consumer Protection said…"
March 26 - Wall Street Journal (Telis Demos):
"The average banker bonus in New York City was $184,220 last year, the biggest annual haul for Wall Street employees since before the financial crisis. Those bonuses, which totaled $31.7 billion, up 17% from 2016, tracks with a broader rebound for bank stocks last year, were boosted by the prospects of rising interest rates, faster growth and deregulation. The jump, the largest in percentage terms since 2013, continues a long rebound… from their postcrisis nadir in 2008, when they averaged just over $100,000… Last year's average payout was just shy of the high of $191,360 in 2006."
March 25 - Wall Street Journal (Adrienne Roberts):
"As the automotive industry braces for changes including electrification and autonomy, dealers across the U.S. are worried about something much simpler: the price of a new car. After decades of fighting to protect their businesses and advocating for dealers to Congress and the federal government, dealers see their new mission as advocating for the consumer to keep the cost of a new vehicle low. The average price of a car to date through February is about $32,200, about $500 more than the price of a vehicle last year, according to J.D. Power… Customers are also buying more SUVs and pickup trucks, which come with a higher transaction price compared with sedans."
March 26 - CNBC (Nyshka Chandran):
"Washington's trade imbalance with Beijing - the stated motivation behind President Donald Trump's punitive tariffs - will continue expanding in the years ahead, according to Yale University's Stephen Roach. America's trade deficits with China and other countries fundamentally reflect 'the fact that we don't save enough,' said Roach, a former Morgan Stanley Asia chairman. 'When you don't save and you want to spend and grow, you import surplus savings from abroad and you run these massive balance of payments and trade deficits to attract the foreign capital,' he told CNBC Monday at the annual China Development Forum. 'That's the way it's always worked.'"
March 29 - Reuters (Shravanth Vijayakumar):
"U.S. office vacancy rate for the first quarter rose to 16.5%, the highest since 2015,
despite a healthy job market, according to real estate research firm Reis Inc…"
China Watch:
March 25 - Reuters (Gabriel Wildau and Tom Mitchell):
"China's Communist party will appoint Guo Shuqing as party secretary of the central bank, according to two people… Mr Guo's promotion elevates him above newly appointed central bank governor Yi Gang and underscores President Xi Jinping's efforts to exert party control over the civil bureaucracy. Like Mr Yi, the English-speaking Mr Guo is seen as an experienced, liberal-minded reformer who understands financial markets and the concerns of foreign investors. But Mr Guo's greater political heft will supplement the technocratic expertise of the former economics professor Mr Yi, whom China's rubber-stamp parliament approved as central bank chief last week. 'It does undercut Yi Gang's authority at the central bank, there's no question about that,' said a person briefed on Mr Guo's appointment…"
March 29 - Reuters (Sumeet Chatterjee and Meng Meng):
"China is taking its first steps towards paying for imported crude oil in yuan instead of the U.S. dollar, three people with knowledge of the matter told Reuters, a key development in Beijing's efforts to establish its currency internationally. Shifting just part of global oil trade into the yuan is potentially huge. Oil is the world's most traded commodity, with an annual trade value of around $14 trillion, roughly equivalent to China's gross domestic product last year. A pilot program for yuan payment could be launched as early as the second half of this year…"
March 25 - Reuters:
"The total outstanding short-term borrowing instruments issued by Chinese banks has reached a record high, highlighting the difficulties Chinese regulators face in pushing through measures to contain financial risk. As of Friday, the value of outstanding negotiable certificates of deposit (NCDs) issued by Chinese banks had reached 9.15 trillion yuan ($1.45 trillion), …the highest since the instruments were introduced in 2013. At the same time, quarterly issuance of NCDs had reached 5.07 trillion yuan, according to CFETS data, compared with 5.26 trillion yuan in the fourth quarter of 2017. The continued strong issuance comes despite attempts by regulators to bring NCDs under control."
Central Bank Watch:
March 29 - Bloomberg (Ruben Munsterman and Wout Vergauwen):
"The world no longer needs 'extraordinary' monetary stimulus and the European Central Bank should play its part by ending its own bond-buying program after September, according to Dutch central bank Governor Klaas Knot. 'The top priority is to normalize monetary policy and strengthen the economic and monetary union,' Knot, who sits on the ECB's Governing Council, said… 'This is now a widely-shared realization, certainly also in the financial markets.'"
Global Bubble Watch:
March 28 - Financial Times (Eric Platt, Javier Espinoza and Don Weinland):
"More than $50bn worth of takeovers were being lined up on Wednesday, in a final flurry of dealmaking that saw global volumes exceed $1.2tn in a record-breaking quarter… Despite a heightened level of political uncertainty, a potential US-led trade war against China and fraught Brexit negotiations, companies have embarked on an unprecedented number of big acquisitions this year. The value of $5bn-plus deals is more than triple year-ago levels…"
Fixed-Income Bubble Watch:
March 29 - Bloomberg (Cecile Gutscher and Neil Denslow):
"They may have saved Amazon.com Inc. from the dot-com bust, but for many young tech firms convertible bonds could turn into more of a headache than helping hand. Twitter Inc. bonds are now among $30.6 billion of convertibles that are 'out of the money,' meaning the stock is trading below the threshold needed to turn the debt securities into equity… As the rally that pushed U.S. technology heavyweights to the sky shows cracks, the possibility of further declines could force even more convertibles into the out-of-the-money club. For firms that relied on cheap funding to fuel growth, that's a problem. If a company's shares haven't hit their conversion price when the bonds come due, investors have to rely on the company to repay the outstanding debt at a potentially inconvenient time."
March 24 - Bloomberg (Brian Chappatta):
"Bond bulls who enjoyed a rare rally in short-term Treasuries last week might not want to get too comfortable: The world's biggest debt market is about to be inundated with an unprecedented wave of issuance. The U.S. Treasury will probably auction about $294 billion of bills and notes this week, its largest slate of supply ever."
Japan Watch:
March 25 - Wall Street Journal (Suryatapa Bhattacharya and Kosaku Narioka):
"It is the world's second-largest government bond market after the U.S., with some $9 trillion in outstanding debt. Yet in Japan, the daily volume of government-bond trading is often measured these days not in trillions or billions, but in millions of dollars-and sometimes just with a single digit, zero. The central bank is swallowing up so much of the new bond issuance that traders say there is just not much to do. 'It's becoming like a deserted village. All that's left is for us to fade away and die,' said Jun Fukashiro, who oversees bond investments for Sumitomo Mitsui Asset Management Co… Activity has especially shrunk since September 2016, when the Bank of Japan, the nation's central bank, said it would seek to keep the yield on the benchmark 10-year government bond around zero."
Geopolitical Watch:
March 26 - New York Times (Peter S. Goodman):
"In the aftermath of World War II, the victorious Western countries forged institutions - NATO, the European Union, and the World Trade Organization - that aimed to keep the peace through collective military might and shared prosperity. They promoted democratic ideals and international trade while investing in the notion that coalitions were the antidote to destructive nationalism. But now the model that has dominated geopolitical affairs for more than 70 years appears increasingly fragile. Its tenets are being challenged by a surge of nationalism and its institutions under assault from some of the very powers that constructed them - not least, the United States under President Trump. In place of shared approaches to societal problems - from trade disputes, to security, to climate change - national interests have captured primacy."
March 26 - CNBC (Amanda Macias):
"President Donald Trump… ordered the expulsion of 60 Russians from the United States and the closure of the Russian consulate in Seattle… The shutdown of the consulate in Seattle is due to its proximity to a U.S. submarine base as well as defense giant Boeing's operations there. 'The United States takes this action in conjunction with our NATO allies and partners around the world in response to Russia's use of a military-grade chemical weapon on the soil of the United Kingdom, the latest in its ongoing pattern of destabilizing activities around the world,' said a senior administration official…"
March 24 - New York Times (David E. Sanger and Gardiner Harris):
"The incoming national security adviser has called for the 'swift takeover' of North Korea by the South. He and the newly nominated secretary of state have urged withdrawal from the 2015 nuclear deal with Iran. The pick for C.I.A. director once oversaw interrogations in which terrorism suspects were tortured. The two generals celebrated by President Trump for their reputations for toughness are now considered the moderates - and at risk of falling out of favor. Not since the immediate aftermath of Sept. 11, 2001, have key national security leaders so publicly raised the threat of military confrontation if foreign adversaries do not meet America's demands."
March 28 - Bloomberg (David Tweed):
"Kim Jong Un just sent a powerful message to U.S. President Donald Trump ahead of planned talks: China is back on North Korea's side. The North Korean leader and his wife received a warm welcome in his first trip abroad since taking power in 2011, holding talks with President Xi Jinping and meeting a host of dignitaries. Xi told Kim that China has made a 'strategic choice' to have friendly ties with North Korea, and they would 'remain unchanged under any circumstances.'"
March 27 - Reuters (Ben Blanchard and Joyce Lee):
"North Korea's leader Kim Jong Un pledged his commitment to denuclearization and to meet U.S. officials, China said… after his meeting with President Xi Jinping, who promised China would uphold friendship with its isolated neighbor. After two days of speculation, China and North Korea both confirmed that Kim had traveled to Beijing and met Xi during what China called an unofficial visit from Sunday to Wednesday. The visit was Kim's first known trip outside North Korea since he assumed power in 2011 and is believed by analysts to serve as preparation for upcoming summits with South Korea and the United States."
March 24 - Reuters (Lusha Zhang and Ben Blanchard):
"China's air force has held another round of drills in the disputed South China Sea and the Western Pacific after passing though Japan's southern islands, the air force said…, calling such exercises the best preparation for war. China is in the midst of an ambitious military modernization program overseen by President Xi Jinping with a heavy focus on its air force and navy, from building stealth fighters to adding aircraft carriers. China insists it has no hostile intent, but its sabre-rattling in the busy South China Sea waterway, and around Taiwan, has touched a nerve in the region and in Washington."
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