Saturday, July 14, 2018
Weekly Commentary:
$247 Trillion and (Rapidly) Counting
by Doug Noland
full column here:
My summary is below:
For the week
ending July 13, 2018:
S&P500 rallied 1.5% (up 4.8% y-t-d)
Dow Industrials jumped 2.3% (up 1.2%)
Dow Utilities fell 1.0% (down 0.5%)
Dow Transports gained 0.7% (down 0.6%)
S&P 400 Midcaps increased 0.3% (up 5.0%)
Small cap Russell 2000 slipped 0.4% (up 9.9%)
Nasdaq100 advanced 2.3% (up 15.3%)
Biotechs rose 2.2% (up 21.2%).
With gold bullion down $14,
the HUI gold stock index sank 3.2%
U.K.'s FTSE increased 0.6% (down 0.3% year-to-date).
Japan's Nikkei 225 rallied 3.7% (down 0.7%).
France's CAC40 gained 1.0% (up 2.2%)
German DAX increased 0.4% (down 2.9%).
Spain's IBEX 35 fell 1.7% (down 3.1%).
Italy's FTSE MIB slipped 0.2% (up 0.2%).
Brazil's Bovespa gained 2.1% (up 0.3%)
Mexico's Bolsa fell 1.2% (down 1.9%).
South Korea's Kospi rallied 1.7% (down 6.3%).
India’s Sensex jumped 2.5% (up 7.3%).
China’s Shanghai recovered 3.1% (down 14.4%).
Turkey's Istanbul National 100 sank 8.9% (down 22.1%).
Russia's MICEX was little changed (up 11.2%).
Ten-year US Treasury bond yields
slipped a basis point to 2.83%
(up 42bps)
US Freddie Mac 30-year fixed mortgage rates
added a basis point to 4.53%
(up 50bps y-o-y).
Fifteen-year rates gained three bps to 4.02%
(up 73bps).
Five-year hybrid ARM rates jumped 12 bps to 3.86%
(up 58bps)
Jumbo mortgage 30-yr fixed rates
down two bps to 4.56%
(up 45bps).
M2 (narrow) "money" supply gained $8.3bn last week
to a record $14.141 TN. "Narrow money" gained $622bn,
or 4.6%, over the past year.
Currency Watch:
The U.S. dollar index gained 0.8% to 94.677 (up 2.8% y-t-d).
Commodities Watch:
Goldman Sachs Commodities Index sank 3.6% (up 4.7% y-t-d).
Spot Gold lost 1.1% to $1,241 (down 4.7%).
Silver dropped 1.6% to $15.815 (down 7.8%).
Crude dropped $2.79 to $77.01 (up 18%).
Gasoline was little changed (up 17%)
Natural Gas sank 3.7% (down 7%).
Copper dropped 1.7% (down 16%).
Wheat fell 3.5% (up 16%).
Corn sank 4.9% (up 1%).
Trump Administration Watch:
July 11 - Bloomberg (Brendan Scott and Enda Curran):
"U.S. President Donald Trump is pushing his trade conflict with China toward a point where neither side can back down. By Aug. 30, as the U.S. nears mid-term elections vital for Trump's legislative agenda, the White House will be ready to impose 10% tariffs on $200 billion of Chinese-made products, ranging from clothing to television parts to refrigerators. The levies announced Tuesday -- together with some $50 billion already in the works -- stand to raise import prices on almost half of everything the U.S. buys from the Asian nation. China has seven weeks to make a deal or dig in and try to outlast the U.S. leader. President Xi Jinping, facing his own political pressures to look tough, has vowed to respond blow-for-blow."
July 11 - Bloomberg (Saleha Mohsin, Jenny Leonard, Jennifer Jacobs and Andrew Mayeda): "High-level trade talks between the U.S. and China have ground to a halt as the Trump administration threatens to escalate a trade war that shows little sign of abating, according to five people familiar… The countries held three rounds of formal negotiations since May, led by U.S. Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross and Vice Premier Liu He in China. But communications between senior members of the Trump and Xi administrations have petered out, and there's no immediate plan to restart the formal talks…"
July 6 - Wall Street Journal (Bob Davis):
"The U.S. economy's strength is emboldening the Trump administration to play hardball in its trade offensive against China. Tariffs tend to be economic downers with an impact like sales taxes, which push up costs for consumers and businesses and slow growth. But so far it is tough to argue that the spat with China is having a broad macroeconomic impact. Economic output in the second quarter is estimated by many economists to have expanded at a 4% annual rate or more, roughly twice the pace of the nine-year-old expansion."
July 7 - Associated Press: "High-level talks between the United States and North Korea appeared to hit a snag… as Pyongyang said a visit by U.S. Secretary of State Mike Pompeo had been 'regrettable' and accused Washington of making 'gangster-like' demands to pressure the country into abandoning its nuclear weapons. The statement from the North came just hours after Pompeo wrapped up two days of talks with senior North Korean officials without meeting North Korean leader Kim Jong Un…"
July 9 - Reuters (Susan Heavey and David Brunnstrom): "President Donald Trump suggested on Monday that China might be seeking to derail U.S. efforts aimed at denuclearizing North Korea, but said he was confident that North Korean leader Kim Jong Un would uphold a pact the two agreed last month."
July 10 - Reuters (Jeff Mason, Robin Emmott, Alissa de Carbonnel): "U.S. President Donald Trump accused Germany on Wednesday of being a 'captive' of Russia due to its energy reliance, before a NATO summit where he pressed allies to more than double defense spending. Having lambasted NATO members for failing to reach a target of spending 2% of national income on defense, Trump told fellow leaders in Brussels he would prefer a goal of 4%, similar to U.S. levels, officials said."
U.S. Bubble Watch:
July 12 - Bloomberg (Reade Pickert): "The U.S. budget deficit widened by 16% to $607 billion three-quarters of the way through Donald Trump's first full fiscal year as president, as spending accelerated faster than revenue. The shortfall in the nine months through June was larger than the $523 billion gap in the same period of fiscal 2017… Revenue rose to $2.54 trillion in the period, up 1.3% from a year earlier. Spending rose 3.9% to $3.15 trillion."
July 8 - CNBC (Michael Ivanovitch): "America's foreign trade deficits on goods transactions are getting worse. After an increase of 7.7% in 2017, those deficits were growing in the first five months of this year at an almost identical annual rate. Particularly disappointing is the fact that there is no progress at all in bringing trade deficits down with the European Union and China. The deficit with those two large economic systems came in at $218 billion during the January-May period, accounting for nearly two-thirds (64%) of America's total trade gap. That deficit was 11.3% more than recorded over the same interval of last year…"
July 11 - Reuters (Lucia Mutikani): "U.S. producer prices increased more than expected in June amid gains in the cost of services and motor vehicles, leading to the biggest annual increase in 6-1/2 years… The producer price index for final demand climbed 0.3% last month after rising 0.5% in May. That pushed the annual increase in the PPI of 3.4% was the largest rise since November 2011, from 3.1% in May."
July 12 - Reuters: "U.S. consumer prices barely rose in June, but the underlying trend continued to point to a steady buildup of inflation pressures… Consumer Price Index edged up 0.1% as gasoline price increases moderated and apparel prices fell. The CPI rose 0.2% in May. In the 12 months through June, the CPI increased 2.9%, the biggest gain since February 2012… Excluding the volatile food and energy components, the CPI rose 0.2%, matching May's gain. That lifted the annual increase in the so-called core CPI to 2.3%, the largest rise since January 2017…"
July 10 - Financial Times (Andrew Edgecliffe-Johnson): "Stock buyback announcements by US companies smashed records in the second quarter, feeding the debate over how boardrooms are spending their windfall from the Republican tax cuts… The almost $437bn in buyback plans announced in the three months to June 30 eclipsed the previous quarterly record of $242bn, which was set just three months earlier, according to TrimTabs… 'Corporate America's actions suggest that most of the benefits of the corporate tax cut will flow to investors in general and top corporate executives in particular,' TrimTabs said."
July 9 - Associated Press: "Americans increased their borrowing in May at the fastest pace in a year and a half, boosted by a big increase in credit card borrowing. Consumer debt rose $24.5 billion in May after an increase of $10 billion in April… It was the biggest monthly increase since a rise of $24.8 billion in November 2016. The category that includes credit cards climbed $16.3 billion in May after increasing by $5 billion in April."
July 6 - CNBC (Matt Rosoff): "The average price of a house bought in San Francisco rose by $205,000 in the first half of 2018, the largest six-month increase in history… The average house in the city limits now costs $1.62 million. Condo prices also rose by $71,000, which is a significantly slower pace of change than in past years, but still comes in at a startling $1.21 million. This is a direct outgrowth of the current tech boom in Silicon Valley, which shows no signs of slowing down."
China Watch:
July 12 - Reuters (Yawen Chen): "China's commerce ministry said on Thursday that China has not been in touch with the United States about restarting trade negotiations and said complaints about forced technology transfers and IP theft are unacceptable. China does not want a trade war, but it does not fear one and would fight if necessary, ministry spokesman Gao Feng told reporters…"
July 11 - Financial Times (Keyu Jin): "The concern in Beijing is that this trade war is not really about surpluses or unfair practices, but about Chinese aspiration. In the Bill Clinton era, the US viewed China as a 'constructive strategic partner'. The administration of George W Bush saw the Chinese as 'responsible stakeholders', while Barack Obama sought to build a relationship with Beijing based on 'mutual respect'. But by the time of the Trump administration's first national security strategy, …China had become the US's principal 'competitor'. So what does 'chopping off one finger' signify in this context? It means focusing on pain points; going after a narrow set of products in the US, goods which have easy substitutes readily available in other markets - soyabeans from South America, for instance."
July 12 - Bloomberg (Ben Bartenstein and Giulia Morpurgo): "Donald Trump's tariff barrage pushed Chinese markets into their worst selloff since a shocking currency devaluation three years ago. The offshore yuan fell the most since August 2015…, as the White House said it's ready to impose 10% tariffs on $200 billion of Chinese-made products. Beijing said it would be forced to retaliate, describing the move as 'totally unacceptable.' Meanwhile, the iShares China Large-Cap exchange-traded fund extended a two-day slide to 2.5%. 'It's going to be difficult to find some place to hide," said David Lebovitz, global strategist at JPMorgan Asset Management… China can allow the currency to weaken a bit further, but at some point it will step in as too much weakness would be counterproductive, according to him."
July 8 - Financial Times (Gabriel Wildau and Yizhen Jia): "China is retreating from a policy that has channelled about $1tn in subsidies to homebuyers since 2016, a reversal that has sent tremors through the country's residential property market amid broader concerns about a housing bubble. Mainland property shares have tumbled since an executive from China Development Bank said… this month that CDB was tightening loan approvals for the subsidy programme. CDB, the state-owned policy bank with $2.4tn in assets, is the main source of loans for China's slum redevelopment policy, which began as a lending programme to support urban renewal but evolved into cash payments for displaced residents."
Emerging Markets Watch:
July 10 - Wall Street Journal (Christopher Whittall, Yeliz Candemir and Ira Iosebashvili): "Global investors who were once eager to buy any dip in emerging markets are now backing away, fearing that a big tumble could herald more weakness ahead… Global money that flowed into developing countries last year is slowing considerably. Flows into emerging market stocks and bonds have been $59.7 billion this year, down from $167.6 billion in the same time in 2017… A stronger dollar and higher yields in the U.S. have made it more difficult for investors to ignore shortcomings in countries like Turkey, where external debt stands at 53.4% of gross domestic product…"
Global Bubble Watch:
July 11 - Bloomberg (Shannon D. Harrington, Sally Bakewell, Christopher Cannon and Mathieu Benhamou): "Masayoshi Son and Elon Musk leveraged their dreams to the hilt. Patrick Drahi stockpiled debt to build a global cable empire. Michael Dell loaded his computer company with risky loans to buy out activists threatening his control. And a group of Chinese developers borrowed big to expand in the nation's booming property market. Call them the titans of junk. They're the headliners in a decade-long, $11 trillion corporate borrowing frenzy, fueled by central banks that flooded the global financial system with ultra-cheap money. Investors have been lending to virtually anyone willing to pay a decent yield. But now the easy money is coming to an end… For many companies, it will bring new financial pressures… Bloomberg News delved into corporate filings, debt offerings, M&A deal tables and bond indexes to find the biggest beneficiaries of this decade of loose lending. The search identified 69 companies spanning the globe that have boosted their debt levels by 50% or more in the past five years and now have at least $5 billion of debt. Together, they're sitting on almost $1.2 trillion of bonds and loans, most of it rated junk…"
Europe Watch:
July 10 - Financial Times (Claire Jones): "House prices across the eurozone are rising at their fastest since before the global financial crisis, forcing the region's banks to squeeze the supply of credit to would-be mortgage holders. …House prices in the 19-member currency area rose 4.5% in the year to the first quarter of 2018 - a level last seen in early 2007. Five countries - Latvia, Slovenia, Ireland, Portugal and Slovakia - saw double-digit price rises."
Brexit Watch:
July 9 - Bloomberg (Thomas Penny, Kitty Donaldson, Robert Hutton and Timothy Ross): "Prime Minister Theresa May battled to stave off a full-blown crisis after three ministers quit within 24 hours to protest her Brexit plan. The resignation of Foreign Secretary Boris Johnson, the face of the campaign to leave the European Union in 2016, compounded the chaos in government following the departures of Brexit Secretary David Davis and his deputy late Sunday."
Geopolitical Watch:
July 7 - Reuters (Phil Stewart, Idrees Ali and Jess Macy Yu):
"Two U.S. warships passed through the Taiwan Strait on Saturday on a voyage that will likely be viewed in the self-ruled island as a sign of support by President Donald Trump amid heightened tension with China… Washington has no formal ties with Taiwan but is bound by law to help it defend itself and is the island's main source of arms. China regularly says Taiwan is the most sensitive issue in its ties with the United States."
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