Economic news for week ending July 20, 2018

Saturday, July 21, 2018

Weekly Commentary: 

Intimidate Nobody

by Doug Noland

full column here:

http://creditbubblebulletin.blogspot.com/2018/07/weekly-commentary-intimidate-nobody.html

My summary is below:

For the week

ending July 20, 2018:

STOCKS:

S&P500 little changed (up 4.8% y-t-d)

Dow Industrials added 0.2% (up 1.4%)

Dow Utilities declined 0.5% (down 0.9%)

Dow Transports gained 1.8% (up 1.2%). 

S&P 400 Midcaps little changed (up 5.1%)

Small cap Russell 2000 added 0.6% (up 10.5%)

Nasdaq100 slipped 0.3% (up 14.9%)

Biotechs were about unchanged (up 21.1%). 

With GOLD bullion down $9, 

the HUI gold stock index declined 0.9% 

   (down 10.6%).

U.K.'s FTSE added 0.2% (down 0.1% y-t-d).

Japan's Nikkei 225 increased 0.4% (down 0.3%). 

France's CAC40 declined 0.6% (up 1.6%). 

German DAX dipped 0.2% (down 2.8%). 

Spain's IBEX 35 little changed (down 3.2%). 

Italy's FTSE MIB declined 0.4% (down 0.3%)

Brazil's Bovespa rallied 2.6% (up 2.8%)

Mexico's Bolsa gained 1.0% (down 0.9%)

South Korea's Kospi declined 0.9% (down 7.2%)

India’s Sensex about unchanged (up 7.2%). 

China’s Shanghai little changed (down 14.5%). 

Turkey's Istanbul National 100 recovered 4.7% (down 18.4%). 

Russia's MICEX sank 4.2% (up 6.5%).

US  INTEREST  RATES:

Ten-year Treasury yields gained seven bps to 2.89% (up 49bps). 

Long bond yields jumped nine bps to 3.03% (up 29bps). 

Benchmark Fannie Mae MBS yields rose five bps to 3.61% (up 62bps).

Freddie Mac 30-year fixed mortgage rates 

slipped a basis point to 4.52% (up 56bps y-o-y). 

Fifteen-year rates declined two bps to 4.00% (up 77bps). 

Five-year hybrid ARM rates added a basis point to 3.87% (up 66bps). 

Jumbo mortgage 30-yr fixed rates down two bps to 4.54% (up 48bps).

M2 (narrow) "money" supply declined $11.8bn last week to $14.128 TN. 

"Narrow money" gained $526bn, or 3.9%, over the past year. 

Currency Watch:

The U.S. dollar index slipped 0.2% to 94.476 (up 2.6% y-t-d). 

Commodities Watch:

Goldman Sachs Commodities Index declined 1.2% (up 3.4% y-t-d). 

Spot Gold slipped 0.8% to $1,232 (down 5.5%). 

Silver lost 1.7% to $15.549 (down 9.3%). 

Crude dropped $2.75 to $68.26 (up 13%). 

Gasoline dropped 1.8% (up 15%)

Natural Gas increased 0.2% (down 7%)

Copper declined another 0.7% (down 17%). 

Wheat rallied 3.8% (up 21%). 

Corn recovered 4.0% (up 5%).

Trump Administration Watch:

July 20 - CNBC (Jeff Cox): 

"President Donald Trump has indicated that he is willing to slap tariffs on every Chinese good imported to the U.S. should the need arise. 'I'm ready to go to 500,' the president told CNBC's Joe Kernen… The reference is to the dollar amount of Chinese imports the U.S. accepted in 2017 - $505.5 billion to be exact, compared with the $129.9 billion the U.S. exported to China… Thus far in the burgeoning trade war, the U.S. has slapped tariffs on just $34 billion of Chinese products, which China met with retaliatory duties… Trump's comments point to a willingness to push the envelope as far as the U.S. needs to get Chinese tariff concessions, along with a pledge to stop allegedly stealing American technology."

July 18 - CNBC (Michael Sheetz): 

"President Donald Trump's top economic advisor Larry Kudlow said China trade talks have stalled… 'I do not think President Xi has any intention of following through on any of the discussions we've made and I think the President is so dissatisfied with China on these so-called talks that he is keeping the pressure on and I support that,' Kudlow said. Kudlow pointed to the gap between U.S. and Chinese tariffs, saying 'our average tariff is about' 2.5% while 'China's average tariff is about 14%.' 'Here's my solution, and the president agrees with this: Lower your barriers,' Kudlow said. 'We will export like crazy.' Kudlow added that President XI of China himself is 'holding the game up' but that overall the country would like to make a deal."

July 18 - CNBC (Brian Schwartz): 

"Steve Bannon, former top advisor to Donald Trump, said Wednesday that the U.S. has been embroiled in a trade conflict with China for decades. 'We're at war with China,' Bannon said, praising Trump for taking on the Chinese. 'We're winning.' Bannon was speaking at CNBC's Delivering Alpha… His appearance comes on the heels of a provocative statement he gave to CNBC on Tuesday in which he said Trump knows he needs to 'unite the West against the rise of a totalitarian China.' For Bannon, the war against China can only end in one way and that's with the U.S. as victors. 'How it ends is in victory. Victory is when they give all full access to their markets,' he said. Bannon says his message is still heard within the White House."

July 19 - CNBC (Mike Calia): 

"Peter Navarro, one of President Donald Trump's top trade advisors, said… that China is in a 'zero-sum game' with the rest of the world when it comes to trade. Talking to CNBC's Joe Kernen…, he argued that the U.S. needs to protect its interests in rapidly developing technologies. 'This is our future,' Navarro said, citing artificial intelligence, robotics and high-tech industries - all of which are Chinese priorities for the next decade, as well. 'Unfortunately, it's a zero-sum game now between China and the rest of the world, and what we need to do as a country is to work with the rest of the world' to ensure prosperity and high stock markets, he said."

July 20 - Wall Street Journal (Nick Timiraos and Harriet Torry): 

"President Donald Trump escalated his criticism of the Federal Reserve Friday, saying in a tweet that its efforts to raise short-term interest rates hurt the U.S. economic expansion, and he accused China and the European Union of manipulating their currencies to hurt the U.S. on trade. The tweets came shortly after CNBC broadcast an interview with Mr. Trump in which the president said he was prepared to raise U.S. tariffs on $500 billion worth of imports from China as part of his push to narrow U.S. trade deficits with China. In the same interview he said he wasn't happy about Fed rate increases. The president had previously been silent about Fed policy, in keeping with a long tradition…"

July 18 - Wall Street Journal (Chester Dawson and Joshua Zumbrun): 

"President Donald Trump stood by his threats to levy sweeping tariffs on automobile imports as a way to extract concessions from trading partners, despite opposition from the industry and discontent in Congress with the White House's proposal. Resistance to the tariffs is strong and growing. A coalition of foreign and domestic auto companies, along with auto dealers and auto-parts makers, released a letter on Wednesday urging Mr. Trump to refrain from the tariffs. A bipartisan group of 149 House members also urged the president not to move forward with the tariffs. Auto unions were among the few industry players offering qualified support for the tariffs."

U.S. Bubble Watch:

July 18 - Wall Street Journal (Nick Timiraos): 

"The Trump administration expects annual budget deficits to rise nearly $100 billion more than previously forecast in each of the next three years, pushing the federal deficit above $1 trillion starting next year. The revisions… reflect the cost of federal spending increases agreed to earlier this year and higher interest payments. The budget proposal released in February showed annual deficits totaling $7.1 trillion over 10 years. The latest revisions increase these cumulative deficits by $926 billion, to $8 trillion."

July 19 - Reuters (Lucia Mutikani): 

"The number of Americans filing for unemployment benefits dropped to a more than 48-1/2-year low last week as the labor market strengthens further, but trade tensions are casting a shadow over the economy's outlook."

July 16 - Wall Street Journal (Justin Lahart and Aaron Back): 

"Economists at Barclays pushed their estimate of second-quarter gross-domestic-product growth to 5.2% from 5%. The personal saving rate-the share of after-tax income that doesn't get spent-was previously reported at 3.2% in May versus 3.8% a year earlier, and it seems likely it will be revised even lower."

July 19 - Bloomberg (Jeanna Smialek): 

"American businesses want to keep trucking along, but they're running into a persistent roadblock: A driver shortage amid high demand for freight services. The Federal Reserve's July Beige Book, a collection of anecdotes from across the Fed's regional bank districts, showed 25 mentions of 'truck' or 'trucking,' up from just 10 a year earlier. For months, businesses have been expressing anxiety on earnings calls about rising shipping costs and capacity constraints in the trucking industry as a hot economy stokes demand."

July 18 - Reuters (Lucia Mutikani): 

"U.S. homebuilding fell to a nine-month low in June and permits for future construction declined for a third straight month, dealing a blow to the housing market as it struggles with a dearth of properties available for sale. 'We're seeing pressure on both sides of the market, from increasingly expensive inputs on the supply side to prices that are charging ahead of wage growth on the demand side, and the result is that neither builders nor buyers can keep up,' said John Pataky, executive vice president at TIAA Bank…"

July 16 - Financial Times (Javier Espinoza): 

"Private equity groups are raising money at the fastest rate in more than a decade. Buyout executives are rushing to tap investor demand just as fears grow of a market correction. The average time PE funds, including those investing in infrastructure and real estate, are taking to raise money has fallen to 12 months - from almost two years in 2010 - the quickest pace since at least 2006, according to an analysis by Pitchbook, a data provider. But the figures also show there are fewer funds raising cash from investors in the US - from 328 in 2014 to 271 last year and 111 by the end of June this year."

China Watch:

July 18 - Bloomberg: 

"China accused American officials of making false accusations as it fired back against a claim Xi Jinping is blocking talks with the U.S. over the trade war between both nations. The rebuke from China's foreign ministry highlights the deepening impasse between the world's two biggest economies over allegations of unfair trade. 'In front of the whole world some U.S. officials are turning facts on their head and making false accusations,' Chinese foreign ministry spokeswoman Hua Chunying said… 'This is beyond the imagination of most people and is shocking.'" 

July 19 - Bloomberg: 

"Chinese companies are facing a reality check after years of ramping up debt. The deleveraging campaign that President Xi Jinping began in 2016 to curb risks in the nation's financial markets has cracked down on shadow financing and tightened rules on asset management. As a result, firms are having a tough time raising new funds to repay existing debt, leading to a record amount of bond defaults this year… Chinese companies have been piling on debt for at least a decade, ever since the leadership team under Xi's predecessor unleashed a record borrowing binge in response to the global financial crisis. Corporate debt to GDP ratio surged to a record 160% at the end of 2017 from 101% 10 years earlier. Xi and his lieutenants have vowed to deflate asset bubbles by, among other steps, reining in excessive corporate borrowing."

July 17 - Financial Times (James Kynge): 

"A majority of Chinese consumers would be prepared to boycott US goods in the event of a trade war with Washington, a survey has found, signaling the high stakes in the escalating trade conflict… The survey found that 54% of 2,000 respondents in 300 cities across China would 'probably' or 'definitely' stop buying US-branded goods 'in the event of a trade war'. Just 13% said they would not. The remaining 33% said they were unsure or did not at present buy US branded goods…"

Emerging Markets Watch:

July 19 - Wall Street Journal (Manju Dalal and Mike Bird): 

"Asia's junk-bond market, anxious over China's debt problem, is showing cracks after years of rampant growth. Falling prices for below-investment-grade Asian bonds have sent yields sharply higher, leaving creditors nursing big paper losses and clouding the prospects for refinancing maturing debt… When 2018 began, interest rates on dollar-denominated Asian junk bonds broadly matched the global market, according to ICE Bank of America Merrill Lynch indexes. Now the yield on the Asian index-representing $138.1 billion in government and corporate debt-runs nearly 2 percentage points above the world average, having recently topped 9%."

Global Bubble Watch:

July 17 - Reuters (Stephanie Nebehay): 

"The credibility and survival of the World Trade Organization (WTO) is under 'serious threat' as major economies put up protectionist barriers, independent experts warned… The report issued by the Bertelsmann Foundation comes amid a deepening trade dispute between China and the United States which has engulfed other major trading partners."

July 16 - Bloomberg (Andrew Mayeda): 

"Escalating trade tensions are threatening to derail a global upswing that's already losing momentum amid weaker-than-expected growth in Europe and Japan as financial markets seem complacent to the mounting risks, the International Monetary Fund warned. The IMF kept its global forecast unchanged Monday in the latest update to its Global Economic Outlook. The world economy will grow 3.9% this year and next… The pace this year would be the fastest since 2011."

Europe Watch:

July 17 - New York Times (Jack Ewing): 

"President Trump is inciting a trade war, undermining NATO and painting Europe as a foe. It's no wonder, then, that the European Union is looking elsewhere for friends. On Tuesday in Tokyo, it signed its largest trade deal ever, a pact with Japan that will slash customs duties on products like European wine and cheese, while gradually reducing tariffs on cars. The agreement will cover a quarter of the global economy - by some measures the largest free-trade area in the world - and is the latest in a string of efforts either concluded or in the works with countries like Australia, Vietnam and even China. The deal with Japan, and the others being negotiated, point to a more assertive Europe, one that is looking past the frosty ties with the United States…"

July 18 - Reuters (Foo Yun Chee): 

"European antitrust regulators fined Google a record 4.34 billion euro ($5bn)… and ordered it to stop using its popular Android mobile operating system to block rivals, a ruling which the U.S. tech company said it would appeal."

Japan Watch:

July 19 - Bloomberg (Connor Cislo and Emi Nobuhiro): 

"If the U.S. imposes tariffs on cars it can expect a stronger response from Japan than when it slapped levies on steel and aluminum shipments. That's the message from an interview… with Japanese Trade Minister Hiroshige Seko. Japan and the European Union are already working together to address President Donald Trump's protectionist trade policies, and need to cooperate even more closely on threatened auto tariffs, Seko said in Tokyo."