Economic News for the week ending May 11, 2018

Saturday, May 12, 2018
Weekly Commentary: 
Disequilibrium
by Doug Noland

      full column here:
http://creditbubblebulletin.blogspot.com/2018/05/weekly-commentary-disequilibrium.html


          My summary is below:

For the week ending May 11, 2018:

STOCKS:
S&P500 rose 2.4% (up 2.4% y-t-d)
Dow Industrials gained 2.3% (up 0.5%)
Dow Utilities fell 2.1% (down 4.9%)
Dow Transports rose 3.3% (up 1.0%)

S&P 400 Midcaps gained 2.0% (up 2.0%)
Small cap Russell 2000 jumped 2.6% (up 4.6%)
Nasdaq100 advanced 2.7% (up 8.7%)
Biotechs jumped 4.0% (up 10.5%). 

With gold bullion gaining $3, 
the HUI gold stock index recovered 0.5% 
   (down 5.2%).

U.K.'s FTSE jumped 2.1% (up 0.5%).

Japan's Nikkei 225 rose 1.3% (unchanged y-t-d)

France's CAC40 added 0.5% (up 4.3%)

German DAX rose 1.3% (up 0.6%)

Spain's IBEX 35 jumped 1.7% (up 2.3%)

Italy's FTSE MIB declined 0.7% (up 10.6%)

Brazil's Bovespa rallied 2.5% (up 11.5%), 

Mexico's Bolsa slipped 0.6% (down 5.3%). 

South Korea's Kospi gained 0.7% (up 0.4%).

India’s Sensex rose 1.8% (up 4.3%)

China’s Shanghai jumped 2.3% (down 4.4%). 

Turkey's Istanbul National 100 declined 0.7% (down 11.7%). 

Russia's MICEX surged 2.4% (up 11.2%).


US BONDS & MORTGAGES:
Ten-year Treasury yields added two bps to 2.97% 
   (up 57bps).
 Long bond yields slipped two bps to 3.10% 
   (up 36bps). 

Benchmark Fannie Mae MBS yields increased two bps to 3.66% 
   (up 66bps).

Freddie Mac 30-year fixed mortgage rate were unchanged at 4.55% 
    (up 50bps y-o-y). 

Fifteen-year rates slipped two bps to 4.01% 
   (up 72bps). 

Five-year hybrid ARM rates jumped eight bps to 3.77% 
   (up 63bps). 

Jumbo mortgage 30-yr fixed rates unchanged at 4.71% 
   (up 55bps).

M2 money supply declined $8.2bn last week to $13.955 TN. 
M2 gained $480bn, or 3.6%, over the past year. 


Currency Watch:
The U.S. dollar index was little changed at 92.537 
   (up 0.4% y-t-d). 


Commodities Watch:
Goldman Sachs Commodities Index gained 0.1% (up 9.5% y-t-d). 

Spot Gold increased 0.2% to $1,318 (up 1.2%). 

Silver rose 1.4% to $16.752 (down 2.3%). 

Crude oil gained 98 cents to $70.70 (up 17%). 

Gasoline jumped 3.5% (up 22%)

Natural Gas rose 3.5% (down 5%)

Copper increased 0.8% (down 6%). 

Wheat sank 5.2% (up 17%). 

Corn dropped 2.4% (up 13%).


Market Dislocation Watch:
May 10 - Bloomberg (Dani Burger): 
"Here's another sign the synchronized global growth story is on shaky ground: an investing strategy that outperforms in economic booms has suffered its biggest drop since the crisis-era heyday. A U.S. long-short value portfolio, an investing style typically deployed by quantitative funds, fell for 10 consecutive days through Wednesday, the longest losing run on record. That defies the market's prediction for a stellar trajectory for value stocks -- those priced cheaply relative to their assets -- amid record profit forecasts for Corporate America and continued expansion in Europe. If sustained, it's a troubling signal about the growth trajectory, and defies Wall Street projections at the start of the year."

May 10 - Bloomberg (Brian Chappatta): 
"The Treasury yield curve from 5 to 30 years flattened Thursday to the lowest level since August 2007, as a combination of weaker-than-expected U.S. inflation and solid demand for a record-sized bond auction bolstered investor confidence in owning long-dated securities. The gap was poised for its biggest one-day decline in more than a month, with the differential dropping through a previous intraday low from April to as little as 28.3 bps. The spread between 2 and 10 year Treasuries also narrowed in a bull flattening move."


Trump Administration Watch:
May 8 - CNBC (Thomas Franck): 
"President Donald Trump's decision to pull the U.S. out of the Iran nuclear deal… could have widespread global implications ranging from the price of oil to the future of Tehran's nuclear ambitions. The U.S. withdrawal from the deal could stress already strained diplomatic relations with a number of key allies, including European Union leaders in Germany, France and the United Kingdom, all original parties in the 2015 accord. President Emmanuel Macron of France and British Foreign Secretary Boris Johnson have both implored Trump in recent days to stay in the landmark deal brokered under President Barack Obama. Macron later tweeted… his disappointment with Trump's decision to exit the deal, formally known as the Joint Comprehensive Plan of Action. 'France, Germany, and the UK regret the U.S. decision to leave the JCPOA,' Macron said… 'The nuclear non-proliferation regime is at stake.'"

May 9 - Bloomberg (Javier Blas): 
"The U.S. is giving its allies 180 days to extricate themselves from Iranian oil deals, making explicit its desire to start curbing the nation's crude exports quickly in a bid to go after Tehran's economic lifeline. The sanctions 'effectively' go into place immediately, U.S. Treasury Secretary Steven Mnuchin said... In a document accompanying the announcement, the Treasury Department gave an unequivocal 'Yes' to the question of 'Will the United States resume efforts to reduce Iran's crude oil sales?' It was a message harsher than some oil traders had expected."

May 9 - Financial Times (Sam Fleming, Shawn Donnan and Michael Peel): 
"Even as European leaders prepared their pleas for exemptions from US president Donald Trump's sanctions on Iran, advisers were warning of a deepening chill on multinationals' willingness to do business with the Islamic republic. The US has offered grace periods ranging from 90 to 180 days before imposing the new restrictions on companies' ability to conduct transactions with Iran. But Steven Mnuchin, the US Treasury secretary, warned after the president's statement that while licences and waivers could be applied for, America's objective is to impose 'maximum sanctions' on Iran. Andrew Peek, deputy assistant secretary for near eastern affairs, told reporters… that the Europeans had been responsive to previous US calls for sanctions on Iran, and he expected the same this time."

May 9 - New York Times (Jack Ewing and Stanley Reed):
 "European companies moved quickly to invest in Iran after it agreed in 2015 to mothball its nuclear weapons program in return for an end to economic sanctions. Automakers… linked up with Iranian partners to sell vehicles. Siemens of Germany struck a deal to deliver locomotives. Total of France began a project to explore offshore natural gas. Yet even before President Trump pulled out of the agreement with Iran, many companies had already tempered their expectations and limited their investment. Now their prospects look murkier as European leaders try to determine whether there is a path forward without the United States."

May 10 - CNBC (Jeff Cox): 
"Trade negotiations between U.S. and Chinese leaders are focused in part on getting China to buy more goods rather than getting it to ship less, Commerce Secretary Wilbur Ross said… Fresh from a high-level meeting in China between members of both nations, Ross said there was progress made but that barriers remain. 'The Chinese are very good at the rhetoric of free trade, but in fact they are probably the most protectionist country of the major countries,' he told Tyler Mathisen… Despite the criticism, he was at least pleased with China's willingness to listen and respond to U.S. concerns over a growing trade gap… 'It was the right level of people,' Ross said. 'There's a considerable gap between what they put on the table and what we feel we need. But that's OK, you sort of expect that at this stage in the game.'"


U.S. Bubble Watch:
May 9 - Bloomberg (Steve Matthews and Prashant Gopal): 
"Adam Blaylock was pretty sure he overpriced his Santa Clara, California, home by offering it in February for $1.48 million… But within a week, the 1,280-square-foot ranch-style house was in contract for $155,000 above asking. The $1.5 trillion tax overhaul President Donald Trump signed in December capped mortgage-interest deductions on loans up to $750,000, down from the prior limit of $1 million. It also set a $10,000 maximum for state and local tax deductions… Those provisions prompted one of the most powerful lobbying groups -- the National Association of Realtors -- to warn that home prices in some high-end markets would tank. So far though, those areas have proven to be resilient. There are 308 U.S. ZIP codes that have homes with median values in excess of $1 million -- more than 92% of them saw their median home prices increase in March from a year earlier… 'We are seeing the opposite of what was expected,' said Aaron Terrazas, senior economist at Zillow."

May 8 - Bloomberg (Shobhana Chandra): 
"U.S. job openings surged to a record in March, putting vacancies roughly on par with the number of unemployed workers, Labor Department data showed… Number of positions waiting to be filled rose by 472k to 6.55m (est. 6.1m) from upwardly revised 6.08m in Feb."

May 10 - Wall Street Journal (Ben Eisen and Akane Otani): 
"U.S. companies are buying back their shares at a record pace, providing fresh support during a rocky stretch for the stock market when many investors have rushed for the exits. S&P 500 companies that have reported earnings for the first three months of 2018 have bought $150 billion of their own stock in the first quarter… About 80% of S&P 500 components have reported so far. That is on pace for the biggest amount in any quarter, based on data going back to 1998. It has been fueled in part by a new tax law that is freeing up cash and encouraging companies to bring back money held abroad… S&P 500 firms are on pace to have returned almost $1 trillion to shareholders for the 12 months through March though dividends and buybacks."

May 9 - Wall Street Journal (Theo Francis and Jieqian Zhang): 
"Median pay reached $12.1 million for CEOs of the biggest U.S. companies in 2017, a new post-recession high, as profits and stock prices soared. Most S&P 500 CEOs received raises of 9.7% or better last year, according to a WSJ analysis of data from MyLogIQ… CEOs at pharmaceutical, media, technology and financial firms dominated the WSJ's pay ranking, taking 16 of the 25 top spots."

May 10 - Reuters (Lucia Mutikani): 
"U.S. consumer prices rebounded less than expected in April as rising costs for gasoline and rental accommodation were tempered by a moderation in healthcare prices, pointing to a steady buildup of inflation. [The]… Consumer Price Index rose 0.2% after slipping 0.1% in March. In the 12 months through April, the CPI increased 2.5%, the biggest gain since February 2017, after rising 2.4% March. Excluding the volatile food and energy components, the CPI edged up 0.1% after two straight monthly increases of 0.2%. The so-called core CPI rose 2.1% year-on-year in April…"


China Watch
May 10 - Bloomberg: 
"With corporate-debt defaults on the rise, China's securities regulator will probe bond funds to ensure that they have proper risk controls in place, according to people familiar with the matter. The China Securities Regulatory Commission's investigation will include whether individual firms' funds are shuffling high-risk bonds between them, said the people… One suspicion is mutual-fund companies may be motivated to beautify their holdings to avoid a mass withdrawal by investors, the people said."


Europe Watch:
May 11 - Bloomberg (Lorenzo Totaro): 
"Populists may be coming soon to power in Italy with ideas including a flat tax for all that could blow a hole in the country's finances if they are ever implemented. The various promises, which also cover a lower retirement age and a guaranteed income for the poor, would probably provide a short-term growth boost. Still, they risk heaping additional fiscal burden on an economy already crippled with debt… Italy's economy is forecast to grow 1.5% this year, making it the worst performer in the 19-nation euro area. Unemployment constantly around 11% is above euro-area average, while the nation's debt burden at over 130% of its output is the region's second-highest after Greece."


Fixed Income Bubble Watch:
May 9 - Bloomberg (Shelly Hagan): 
"Corporate America partied like never before on cheap money over the past decade, and now comes the hangover. Companies will need to refinance an estimated $4 trillion of bonds over the next five years, about two-thirds of all their outstanding debt, according to Wells Fargo Securities. This has investors concerned because rising rates means it will cost more to pay for unprecedented amounts of borrowing, which could push balance sheets toward a tipping point. And on top of that, many see the economy slowing down at the same time the rollovers are peaking."


Geopolitical Watch:
May 9 - Reuters (Dan Williams and Angus McDowall): 
"Israel said it attacked nearly all of Iran's military infrastructure in Syria… after Iranian forces fired rockets at Israeli-held territory for the first time in the most extensive military exchange ever between the two adversaries. It was the heaviest Israeli barrage in Syria since the 2011 start of the civil war in which Iranians, allied Shi'ite Muslim militias and Russian troops have deployed in support of President Bashar al-Assad. The confrontation came two days after the United States announced its withdrawal, with Israel's urging, from a nuclear accord with Iran."

May 10 - Bloomberg (Arne Delfs and Gregory Viscusi): 
"German Chancellor Angela Merkel said Europe can no longer count on the U.S. for military protection and must 'take its destiny into its own hands.' Merkel's comments… reprise a theme she first sounded last year in response to U.S. President Donald Trump's 'America First' foreign policy, and his hectoring of European NATO allies for allegedly spending too little on defense. It's her latest retort to Trump… 'It's no longer the case that the United States will simply just protect us,' Merkel said to applause… 'Rather, Europe needs to take its fate into its own hands. That's the task for the future.'"