Saturday, July 7, 2018
Weekly Commentary:
BIS Annual Economic Report
by Doug Noland
full column here:
My summary is below:
For the week
ending July 6, 2018:
S&P500 rallied 1.5% (up 3.2% y-t-d)
Dow Industrials increased 0.8% (down 1.1%)
Dow Utilities surged 2.4% (up 0.5%).
Dow Transports gained 1.2% (down 1.3%)
S&P 400 Midcaps jumped 1.9% (up 4.7%)
Small cap Russell 2000 surged 3.1% (up 10.3%)
Nasdaq100 jumped 2.4% (up 12.7%)
Biotechs surged 5.4% (up 18.6%).
With gold bullion up $2,
the HUI gold stock index rallied 2.7%
(down 6.8%).
U.K. FTSE slipped 0.3% (down 0.9% year-to-date).
Japan's Nikkei 225 fell 2.3% (down 4.3%).
France's CAC40 gained 1.0% (up 1.2%)
German DAX recovered 1.5% (down 3.3%).
Spain's IBEX 35 surged 2.9% (down 1.4%).
Italy's FTSE MIB rallied 1.4% (up 0.3%)
Brazil's Bovespa jumped 3.1% (down 1.8%)
Mexico's Bolsa rose 2.8% (down 0.8%).
South Korea's Kospi fell 2.3% (down 7.9%).
India’s Sensex increased 0.7% (up 4.7%).
China’s Shanghai sank 3.5% (down 16.9%).
Turkey's Istanbul National 100 rose 2.3% (down 14.4%).
Russia's MICEX jumped 2.2% (up 11.2%).
US Freddie Mac 30-year fixed mortgage rates
declined three bps to 4.52%
(up 56bps y-o-y).
Fifteen-year rates fell five bps to 3.99%
(up 77bps).
Five-year hybrid ARM rates sank 13 bps to 3.74%
(up 53bps).
Jumbo mortgage 30-yr fixed rates down two bps to 4.58%
(up 48bps).
M2 (narrow) "money" supply expanded $14.9bn last week to a record $14.133 TN. "Narrow money" gained $584bn, or 4.3%, over the past year.
Currency Watch:
The U.S. dollar index declined 0.6% to 93.963 (up 2.0% y-t-d).
Commodities Watch:
Goldman Sachs Commodities Index slipped 0.2% (up 8.7% y-t-d).
Spot Gold recovered 0.2% to $1,255 (down 3.7%).
Silver slipped 0.6% to $16.069 (down 6.3%).
Crude declined 45 cents to $73.80 (up 22%).
Gasoline fell 1.9% (up 17%)
Natural Gas dropped 2.1% (down 3%).
Copper sank 4.7% (down 14%).
Wheat rallied 2.8% (up 21%).
Corn added 0.5% (up 6%).
Trump Administration Watch:
July 5 - CNBC (Chloe Aiello):
"President Donald Trump said on Thursday tariffs on $34 billion worth of Chinese goods will kick-in at 12:01 a.m. EST on Friday morning. Another $16 billion are expected to go into effect in two weeks, he said. Aboard Air Force One on his way to a rally in Montana, Trump told reporters he would also consider imposing additional tariffs on $500 billion in Chinese goods, should Beijing retaliate. First '34, and then you have another 16 in two weeks and then as you know we have 200 billion in abeyance and then after the 200 billion we have 300 billion in abeyance. Ok? So we have 50 plus 200 plus almost 300,' Trump said."
"President Donald Trump said on Thursday tariffs on $34 billion worth of Chinese goods will kick-in at 12:01 a.m. EST on Friday morning. Another $16 billion are expected to go into effect in two weeks, he said. Aboard Air Force One on his way to a rally in Montana, Trump told reporters he would also consider imposing additional tariffs on $500 billion in Chinese goods, should Beijing retaliate. First '34, and then you have another 16 in two weeks and then as you know we have 200 billion in abeyance and then after the 200 billion we have 300 billion in abeyance. Ok? So we have 50 plus 200 plus almost 300,' Trump said."
July 2 - CNBC (Silvia Amaro):
"The United States could get a new round of retaliatory tariffs worth as much as $300 billion, if it moves ahead with new duties on European cars, the Financial Times reported. In a written statement to the U.S. Department of Commerce, seen by the news publication, the EU set out clear plans to respond to potential U.S. duties on European cars. …European leaders are getting more convinced that President Donald Trump will put new tariffs on European cars."
"The United States could get a new round of retaliatory tariffs worth as much as $300 billion, if it moves ahead with new duties on European cars, the Financial Times reported. In a written statement to the U.S. Department of Commerce, seen by the news publication, the EU set out clear plans to respond to potential U.S. duties on European cars. …European leaders are getting more convinced that President Donald Trump will put new tariffs on European cars."
July 1 - CNBC (Fred Imbert):
"President Donald Trump said… he wants to wait until after the midterm elections to move forward on a new NAFTA deal with Mexico and Canada, with the parties locked in tough negotiations. The Congressional midterms are scheduled for Nov. 6, with Democrats poised to gain seats in the House, and possibly retake a majority. Separately, trade tensions between the three NAFTA principals have increased recently, with the U.S. slapped import tariffs on Mexican and Canadian steel and aluminum imports."
"President Donald Trump said… he wants to wait until after the midterm elections to move forward on a new NAFTA deal with Mexico and Canada, with the parties locked in tough negotiations. The Congressional midterms are scheduled for Nov. 6, with Democrats poised to gain seats in the House, and possibly retake a majority. Separately, trade tensions between the three NAFTA principals have increased recently, with the U.S. slapped import tariffs on Mexican and Canadian steel and aluminum imports."
U.S. Bubble Watch:
July 5 - Financial Times (Jason Cummins):
"In his June press conference, chairman Jay Powell said the Fed would raise interest rates until 'we get a sense that the economy is reacting badly'. The latest numbers suggest the US economy is doing anything but reacting badly. The unemployment rate declined to 3.75%, a 48-year low... Consumer prices rose 2.3% in May from a year earlier. Excluding volatile food and energy categories, core personal consumption expenditures inflation moved up to 2%, matching the Fed's target for the first time in more than six years. Despite downside risks from trade tension, these trends look set to continue. Monetary policy is still expansionary on top of the sizeable fiscal expansion that will build in the coming years. The labour market is poised to get tighter and put continued upward pressure on inflation."
"In his June press conference, chairman Jay Powell said the Fed would raise interest rates until 'we get a sense that the economy is reacting badly'. The latest numbers suggest the US economy is doing anything but reacting badly. The unemployment rate declined to 3.75%, a 48-year low... Consumer prices rose 2.3% in May from a year earlier. Excluding volatile food and energy categories, core personal consumption expenditures inflation moved up to 2%, matching the Fed's target for the first time in more than six years. Despite downside risks from trade tension, these trends look set to continue. Monetary policy is still expansionary on top of the sizeable fiscal expansion that will build in the coming years. The labour market is poised to get tighter and put continued upward pressure on inflation."
July 3 - CNBC (Diana Olick):
"It is a seller's market, undeniably. The supply of homes for sale is low, demand is high, and now prices are heating up even more. But sellers today see more reasons to stay put than to profit. Home prices jumped 7.1% annually in May, according to… CoreLogic. That's the biggest jump in four years. Annual price gains had been shrinking slightly, as mortgage rates rose… They are, however, exacerbating the already critical supply shortage. 'During the first quarter, we found that about 50% of all existing homeowners had a mortgage rate of 3.75% or less,' said Frank Nothaft, chief economist for CoreLogic. "May's mortgage rates averaged a seven-year high of 4.6%, with an increasing number of homeowners keeping the low-rate loans they currently have, rather than sell and buy another home that would carry a higher interest rate."
"It is a seller's market, undeniably. The supply of homes for sale is low, demand is high, and now prices are heating up even more. But sellers today see more reasons to stay put than to profit. Home prices jumped 7.1% annually in May, according to… CoreLogic. That's the biggest jump in four years. Annual price gains had been shrinking slightly, as mortgage rates rose… They are, however, exacerbating the already critical supply shortage. 'During the first quarter, we found that about 50% of all existing homeowners had a mortgage rate of 3.75% or less,' said Frank Nothaft, chief economist for CoreLogic. "May's mortgage rates averaged a seven-year high of 4.6%, with an increasing number of homeowners keeping the low-rate loans they currently have, rather than sell and buy another home that would carry a higher interest rate."
July 3 - CNBC (Robert Frank):
"Manhattan real estate had its worst second quarter since the financial crisis, with prices and sales dropping and inventory rising… Total sales in Manhattan fell 17% in the second quarter from a year ago, according to… Douglas Elliman and Miller Samuel Real Estate Appraisers and Consultants. The average sales price fell 5% to $2.1 million. Brokers blamed the decline partly on bad weather… But analysts say the market is facing bigger pressures, from a huge pipeline of new condos to a dwindling number foreigner buyers, volatile stock markets and new tax changes that make New York less attractive."
"Manhattan real estate had its worst second quarter since the financial crisis, with prices and sales dropping and inventory rising… Total sales in Manhattan fell 17% in the second quarter from a year ago, according to… Douglas Elliman and Miller Samuel Real Estate Appraisers and Consultants. The average sales price fell 5% to $2.1 million. Brokers blamed the decline partly on bad weather… But analysts say the market is facing bigger pressures, from a huge pipeline of new condos to a dwindling number foreigner buyers, volatile stock markets and new tax changes that make New York less attractive."
China Watch:
July 5 - Bloomberg (Brian Bremner):
"Chinese President Xi Jinping has an ambitious master plan for his country's transformation into a wealthy, technology-driven global economic power. And U.S. companies need not apply. That's why the current trade rumble between the U.S. and China… is far more than just a spat over market restrictions, intellectual property rights and the epic U.S. deficit. On a deeper level, the standoff reflects an escalating economic and military rivalry between a status quo power and one of the most remarkable growth miracles in history. It's a clash between two divergent systems, (one state-directed, the other market-driven) with markedly divergent world views and national aspirations. That strategic tension seems likely to intensify, regardless of how the current brinkmanship over tariffs plays out."
"Chinese President Xi Jinping has an ambitious master plan for his country's transformation into a wealthy, technology-driven global economic power. And U.S. companies need not apply. That's why the current trade rumble between the U.S. and China… is far more than just a spat over market restrictions, intellectual property rights and the epic U.S. deficit. On a deeper level, the standoff reflects an escalating economic and military rivalry between a status quo power and one of the most remarkable growth miracles in history. It's a clash between two divergent systems, (one state-directed, the other market-driven) with markedly divergent world views and national aspirations. That strategic tension seems likely to intensify, regardless of how the current brinkmanship over tariffs plays out."
July 3 - Bloomberg:
"China is zooming to a record year of corporate-bond defaults, with the 2018 total already more than three-quarters of the previous high even before an expected economic slowdown bites. Chinese companies have reneged on about 16.5 billion yuan ($2.5bn) of public bond payments so far this year, compared with the high of 20.7 billion yuan seen in all of 2016… Strains are set to get worse if the trends of credit-rating companies are anything to go by -- agencies including Dagong Global Rating Co. have been downgrading firms by an unprecedented margin. 'Corporate profits have worsened this year and are unlikely to improve against the backdrop of an economic slowdown,' Li Shi, general manager of the rating and bond-research department at China Chengxin International Credit Rating Co. 'Refinancing will continue to be tough as long as the crackdown on shadow banking continues.'"
"China is zooming to a record year of corporate-bond defaults, with the 2018 total already more than three-quarters of the previous high even before an expected economic slowdown bites. Chinese companies have reneged on about 16.5 billion yuan ($2.5bn) of public bond payments so far this year, compared with the high of 20.7 billion yuan seen in all of 2016… Strains are set to get worse if the trends of credit-rating companies are anything to go by -- agencies including Dagong Global Rating Co. have been downgrading firms by an unprecedented margin. 'Corporate profits have worsened this year and are unlikely to improve against the backdrop of an economic slowdown,' Li Shi, general manager of the rating and bond-research department at China Chengxin International Credit Rating Co. 'Refinancing will continue to be tough as long as the crackdown on shadow banking continues.'"
July 4 - Bloomberg:
"Signs of pressure on China's property market are deepening, with a report saying that soured loans from the industry could put 'significant stress' on banks and a state researcher warning of accumulating risks in a sector that underpins the economy. The value of bad loans from the real estate industry will increase by at least 20% this year, China Orient Asset Management Co. said… The property market will see an 'increasing correction' under heavier restrictions, leading to a rise in the non-performing loan ratio for the sector to about 1.5%, according to the survey. The report added to a chorus of warnings on the dangers mounting in the property market…"
"Signs of pressure on China's property market are deepening, with a report saying that soured loans from the industry could put 'significant stress' on banks and a state researcher warning of accumulating risks in a sector that underpins the economy. The value of bad loans from the real estate industry will increase by at least 20% this year, China Orient Asset Management Co. said… The property market will see an 'increasing correction' under heavier restrictions, leading to a rise in the non-performing loan ratio for the sector to about 1.5%, according to the survey. The report added to a chorus of warnings on the dangers mounting in the property market…"
July 5 - Bloomberg:
"Chinese brokerages are sitting on more than $240 billion of loans that grow riskier by the day as the country's equity market tumbles. Extended to company founders and other major investors who pledged their shareholdings as collateral, the loans amount to 103% of Chinese brokerages' net capital, up from 16% in 2013, according to Morgan Stanley. Losses on the debt could wipe out 11% of the industry's net capital, analysts at the U.S. bank wrote… While the loans looked like safe bets as Chinese stocks marched higher over the past two years, a $2 trillion selloff since late January is rapidly eroding the value of brokerages' collateral."
"Chinese brokerages are sitting on more than $240 billion of loans that grow riskier by the day as the country's equity market tumbles. Extended to company founders and other major investors who pledged their shareholdings as collateral, the loans amount to 103% of Chinese brokerages' net capital, up from 16% in 2013, according to Morgan Stanley. Losses on the debt could wipe out 11% of the industry's net capital, analysts at the U.S. bank wrote… While the loans looked like safe bets as Chinese stocks marched higher over the past two years, a $2 trillion selloff since late January is rapidly eroding the value of brokerages' collateral."
Emerging Markets Watch:
July 3 - Bloomberg (Lyubov Pronina):
"The wheels have come off emerging-market international bond sales. June issuance slumped by two-thirds versus a year earlier, capping a nine percent first-half decline in volume to $332.8 billion, according to Bloomberg data covering dollar and euro debt sales by government and companies from developing nations. The pace is unlikely to pick up in the rest of the year, according to bankers and investors… Issuance has cratered since April, the busiest month this year, with volume halving in May and again in June…"
"The wheels have come off emerging-market international bond sales. June issuance slumped by two-thirds versus a year earlier, capping a nine percent first-half decline in volume to $332.8 billion, according to Bloomberg data covering dollar and euro debt sales by government and companies from developing nations. The pace is unlikely to pick up in the rest of the year, according to bankers and investors… Issuance has cratered since April, the busiest month this year, with volume halving in May and again in June…"
July 2 - Bloomberg (Vivianne Rodrigues and Ben Holland):
"Another election, another populist victory - but voters in Mexico yesterday went in a different direction than Europe and the U.S., choosing their first left-wing president in the nation's modern history. Andres Manuel Lopez Obrador, a 64-year-old firebrand… rode a wave of public anger over crime, corruption and poverty to deliver a crushing blow to the business-friendly parties in power for decades. While AMLO, as he is known, vowed to respect oil contracts and central bank autonomy, his procession to victory alarmed investors. Some fear his policies may spark the kind of collapse in the $1.2 trillion economy - and the region's second-largest crude producer - seen in Venezuela, Argentina and Brazil in recent years."
"Another election, another populist victory - but voters in Mexico yesterday went in a different direction than Europe and the U.S., choosing their first left-wing president in the nation's modern history. Andres Manuel Lopez Obrador, a 64-year-old firebrand… rode a wave of public anger over crime, corruption and poverty to deliver a crushing blow to the business-friendly parties in power for decades. While AMLO, as he is known, vowed to respect oil contracts and central bank autonomy, his procession to victory alarmed investors. Some fear his policies may spark the kind of collapse in the $1.2 trillion economy - and the region's second-largest crude producer - seen in Venezuela, Argentina and Brazil in recent years."
July 4 - Bloomberg (Henry Hoenig):
"China may be the world's factory floor, but South Korea is the top supplier of the semiconductors that go into our laptops and cars and whatever else needs one. Now, the link between them is set to cause South Korea some pain. A global boom in demand for semiconductors has driven recent growth in Asia's exports. But the chip sector's outsize role in South Korea's exports and economic growth can cut both ways, leaving the country among the most exposed to U.S. tariffs on Chinese imports."
"China may be the world's factory floor, but South Korea is the top supplier of the semiconductors that go into our laptops and cars and whatever else needs one. Now, the link between them is set to cause South Korea some pain. A global boom in demand for semiconductors has driven recent growth in Asia's exports. But the chip sector's outsize role in South Korea's exports and economic growth can cut both ways, leaving the country among the most exposed to U.S. tariffs on Chinese imports."
July 3 - CNBC (Saheli Roy Choudhury):
"India's banking sector crisis has left most state lenders hamstrung with mounting levels of bad loans, investigations into fraud and restricted growth opportunities. Amid that storm, private banks are set to emerge as winners. India's public-sector financial institutions control about 70% of all banking assets in the country, but they have the highest exposure to soured loans amounting to as much as $150 billion. In fact, the 21 state-owned banks had stressed loans of about 8.26 trillion rupees ($120bn) as of Dec. 31… Private sector lenders, meanwhile, reportedly had a bad loan pile of just about 1.1 trillion rupees."
"India's banking sector crisis has left most state lenders hamstrung with mounting levels of bad loans, investigations into fraud and restricted growth opportunities. Amid that storm, private banks are set to emerge as winners. India's public-sector financial institutions control about 70% of all banking assets in the country, but they have the highest exposure to soured loans amounting to as much as $150 billion. In fact, the 21 state-owned banks had stressed loans of about 8.26 trillion rupees ($120bn) as of Dec. 31… Private sector lenders, meanwhile, reportedly had a bad loan pile of just about 1.1 trillion rupees."
Global Bubble Watch:
July 3 - Bloomberg (Sony Kapoor):
"There is a record level of indebtedness in the global economy. It is not just the amount of public and private debt which is worrying, but also the deterioration in average quality. There is now $63 trillion of sovereign debt outstanding, with total debt at $237 trillion, a full $70 trillion above pre-Lehman levels. There are only 11 sovereigns and only two U.S. firms left with a AAA rating… The 2007 U.S. deficit at $161 billion or 1.1% of GDP pales in comparison to this year's projection of $804 billion. America's public debt-to-GDP ratio has risen to over 105% of GDP from around 65% of GDP in 2008… In the euro zone too debt is now 20% higher, rising 60% in Spain; and Italy's public debt, already high in 2008, has now breached 130% of GDP, a full 30% higher than its 2008 level… Second, with quantitative easing having left central banks with a record $15 trillion of assets on their balance sheets, and interest rates still close to record lows, there is limited room for a robust monetary policy response to another shock… Third, the political center, which was strong in 2008, has frayed considerably in almost all major economies. Populism of both the far right and far left variety is rising… Fourth is the collapse of trust and weakening in the international order."
"There is a record level of indebtedness in the global economy. It is not just the amount of public and private debt which is worrying, but also the deterioration in average quality. There is now $63 trillion of sovereign debt outstanding, with total debt at $237 trillion, a full $70 trillion above pre-Lehman levels. There are only 11 sovereigns and only two U.S. firms left with a AAA rating… The 2007 U.S. deficit at $161 billion or 1.1% of GDP pales in comparison to this year's projection of $804 billion. America's public debt-to-GDP ratio has risen to over 105% of GDP from around 65% of GDP in 2008… In the euro zone too debt is now 20% higher, rising 60% in Spain; and Italy's public debt, already high in 2008, has now breached 130% of GDP, a full 30% higher than its 2008 level… Second, with quantitative easing having left central banks with a record $15 trillion of assets on their balance sheets, and interest rates still close to record lows, there is limited room for a robust monetary policy response to another shock… Third, the political center, which was strong in 2008, has frayed considerably in almost all major economies. Populism of both the far right and far left variety is rising… Fourth is the collapse of trust and weakening in the international order."
July 4 - Reuters (Tom Miles):
"Trade barriers being erected by major economies could jeopardize the global economic recovery and their effects are already starting to show, the World Trade Organization said… in a report on trade restrictions among G20 nations. 'This continued escalation poses a serious threat to growth and recovery in all countries, and we are beginning to see this reflected in some forward-looking indicators,' WTO Director General Roberto Azevedo said…"
"Trade barriers being erected by major economies could jeopardize the global economic recovery and their effects are already starting to show, the World Trade Organization said… in a report on trade restrictions among G20 nations. 'This continued escalation poses a serious threat to growth and recovery in all countries, and we are beginning to see this reflected in some forward-looking indicators,' WTO Director General Roberto Azevedo said…"
July 4 - Wall Street Journal (Manju Dalal):
"Plunging bond prices in an obscure corner of the Asian credit markets are starting to worry investors. In recent weeks, yields on more than a dozen U.S. dollar bonds issued by Chinese local governments have surged as their prices dropped sharply on concerns of potential defaults. The issuers are known as local government financing vehicles, which in recent years took advantage of hospitable market conditions and bond investors' thirst for yield to raise money to fund things like roads, ports, factories and railway projects. There are around 90 such financing vehicles with more than $40 billion in U.S. dollar debt outstanding, roughly half of which comes due in 2019 or 2020, according to ANZ Research."
"Plunging bond prices in an obscure corner of the Asian credit markets are starting to worry investors. In recent weeks, yields on more than a dozen U.S. dollar bonds issued by Chinese local governments have surged as their prices dropped sharply on concerns of potential defaults. The issuers are known as local government financing vehicles, which in recent years took advantage of hospitable market conditions and bond investors' thirst for yield to raise money to fund things like roads, ports, factories and railway projects. There are around 90 such financing vehicles with more than $40 billion in U.S. dollar debt outstanding, roughly half of which comes due in 2019 or 2020, according to ANZ Research."
July 2 - Bloomberg (Emily Cadman):
"Australian housing prices fell for a ninth straight month in June as tighter credit rules weigh on buyers. Property values fell 0.2% nationally last month, to be 1.3% lower than their September peak, according to CoreLogic… The decline was led by the biggest cities, with prices falling 0.3% in Sydney and 0.4% in Melbourne. Under pressure from regulators, banks have been cutting back on riskier loans such as interest-only mortgages, and getting tougher on expense and income verification."
"Australian housing prices fell for a ninth straight month in June as tighter credit rules weigh on buyers. Property values fell 0.2% nationally last month, to be 1.3% lower than their September peak, according to CoreLogic… The decline was led by the biggest cities, with prices falling 0.3% in Sydney and 0.4% in Melbourne. Under pressure from regulators, banks have been cutting back on riskier loans such as interest-only mortgages, and getting tougher on expense and income verification."
Europe Watch:
July 2 - Reuters (Thomas Escritt and Madeline Chambers):
"German Chancellor Angela Merkel's conservatives settled a row over migration that threatened to topple her fragile governing coalition… after talks with her rebellious interior minister led him to drop his threat to resign. Emerging after five hours of talks, Horst Seehofer, leader of Bavaria's Christian Social Union (CSU), told reporters he would remain in his post after a deal with Merkel's Christian Democrats (CDU) that he said would stem illegal immigration."
"German Chancellor Angela Merkel's conservatives settled a row over migration that threatened to topple her fragile governing coalition… after talks with her rebellious interior minister led him to drop his threat to resign. Emerging after five hours of talks, Horst Seehofer, leader of Bavaria's Christian Social Union (CSU), told reporters he would remain in his post after a deal with Merkel's Christian Democrats (CDU) that he said would stem illegal immigration."
July 5 - Reuters (Joseph Nasr and Thomas Escritt):
"German Chancellor Angela Merkel said… she would back a lowering of EU tariffs on U.S. car imports, responding to an offer from Washington to abandon threats to impose levies on European cars in return for concessions. Merkel said any such measures would require the European Union to also lower tariffs on cars imported from countries other than the United States, otherwise the plan would not be conform to World Trade Organization rules."
"German Chancellor Angela Merkel said… she would back a lowering of EU tariffs on U.S. car imports, responding to an offer from Washington to abandon threats to impose levies on European cars in return for concessions. Merkel said any such measures would require the European Union to also lower tariffs on cars imported from countries other than the United States, otherwise the plan would not be conform to World Trade Organization rules."
June 30 - Financial Times (Wolfgang Münchau):
"Trade tariffs for European cars will probably happen. The EU is paying a price for its over-dependence on the US as an absorber of export surpluses and for external security. But the threat posed by Mr Salvini may be more potent if not quite so direct. Since he agreed to join a coalition with the Five Star Movement, he made two politically cunning decisions: the first was to suspend the talk about an Italian euro exit. The second is to use his role as interior minister as a bully pulpit with terrifying success."
"Trade tariffs for European cars will probably happen. The EU is paying a price for its over-dependence on the US as an absorber of export surpluses and for external security. But the threat posed by Mr Salvini may be more potent if not quite so direct. Since he agreed to join a coalition with the Five Star Movement, he made two politically cunning decisions: the first was to suspend the talk about an Italian euro exit. The second is to use his role as interior minister as a bully pulpit with terrifying success."
Fixed Income Bubble Watch:
July 3 - Bloomberg (Shelly Hagan):
"The U.S. corporate bond market is bracing for a flood of supply from mergers and acquisitions in the second half of the year. Borrowers will have to pay up after a first-half deluge helped wreck spreads. Sales of investment-grade bonds tied to M&A surged by 50% to $154 billion in the first half compared with the same period last year, driven by a slew of deals… That pickup in supply helped push spreads in the secondary market to the highest level in a year and a half. The trend could continue for the next six months. There's more than $1 trillion in pending M&A deals…"
"The U.S. corporate bond market is bracing for a flood of supply from mergers and acquisitions in the second half of the year. Borrowers will have to pay up after a first-half deluge helped wreck spreads. Sales of investment-grade bonds tied to M&A surged by 50% to $154 billion in the first half compared with the same period last year, driven by a slew of deals… That pickup in supply helped push spreads in the secondary market to the highest level in a year and a half. The trend could continue for the next six months. There's more than $1 trillion in pending M&A deals…"
Geopolitical Watch:
July 1 - Wall Street Journal (Jonathan Cheng):
"North Korea is completing a major expansion of a key missile-manufacturing plant, said researchers who have examined new satellite imagery of the site, the latest sign Pyongyang is pushing ahead with weapons programs even as the U.S. pressures it to abandon them. The facility makes solid-fuel ballistic missiles-which would be able to strike U.S. military installations in Asia with a nuclear weapon with little warning-as well as re-entry vehicles for warheads that Pyongyang might use on longer-range missiles…"
"North Korea is completing a major expansion of a key missile-manufacturing plant, said researchers who have examined new satellite imagery of the site, the latest sign Pyongyang is pushing ahead with weapons programs even as the U.S. pressures it to abandon them. The facility makes solid-fuel ballistic missiles-which would be able to strike U.S. military installations in Asia with a nuclear weapon with little warning-as well as re-entry vehicles for warheads that Pyongyang might use on longer-range missiles…"
July 5 - Reuters (Bozorgmehr Sharafedin):
"The U.S. Navy stands ready to ensure free navigation and the flow of commerce, the U.S. military's Central Command said on Thursday, as Iran's Revolutionary Guards warned they would block oil shipments through the Strait of Hormuz if necessary… Rouhani and some senior military commanders have threatened in recent days to disrupt oil shipments from the Gulf countries if Washington tries to strangle Tehran's exports."
"The U.S. Navy stands ready to ensure free navigation and the flow of commerce, the U.S. military's Central Command said on Thursday, as Iran's Revolutionary Guards warned they would block oil shipments through the Strait of Hormuz if necessary… Rouhani and some senior military commanders have threatened in recent days to disrupt oil shipments from the Gulf countries if Washington tries to strangle Tehran's exports."
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