Saturday, August 25, 2018
Weekly Commentary:
Powell, Greenspan
and Whatever it Takes
by Doug Noland
Full column here:
My summary is below:
For the week ending
August 24, 2017:
STOCKS:
S&P500 gained 0.9% (up 7.5% year-to-date)
Dow Industrials added 0.5% (up 4.3%)
Dow Utilities declined 1.6% (up 1.1%)
Dow Transports gained 0.5% (up 6.3%)
S&P 400 Midcaps jumped 1.2% (up 7.1%)
Small cap Russell 2000 surged 1.9% (up 12.4%)
Nasdaq100 advanced 1.5% (up 17.0%).
Biotechs rose 1.4% (up 21.9%).
With bullion gaining $21,
the HUI gold stock index recovered 3.1%
(down 23.7%).
U.K.'s FTSE increased 0.3% (down 1.4% year-to-date).
Japan's Nikkei 225 rallied 1.5% (down 0.7%).
France's CAC40 jumped 1.6% (up 2.3%)
German DAX rose 1.5% (down 4.0%).
Spain's IBEX 35 jumped 1.8% (down 4.5%).
Italy's FTSE MIB rallied 1.6% (down 5.1%)
Brazil's Bovespa index increased 0.3% (down 0.2%)
Mexico's Bolsa jumped 2.8% (up 0.6%)
South Korea's Kospi ralllied 2.1% (down 7.1%)
India’s Sensex gained 0.8% (up 12.3%)
China’s Shanghai recovered 2.3% (down 17.5%)
Turkey's Istanbul National 100 gained 1.6% (down 21.8%)
Russia's MICEX rose 1.1% (up 8.1%).
US BONDS
& MORTGAGES:
Ten-year Treasury yields
declined five bps to 2.81% (up 40bps).
Long bond yields
dropped six bps to 2.96% (up 22bps).
Benchmark Fannie Mae MBS yields
declined three bps to 3.57% (up 57bps).
Freddie Mac 30-year fixed mortgage rates
dipped two bps to 4.51% (up 65bps y-o-y).
Fifteen-year rates
declined three bps to 3.98% (up 82bps).
Five-year hybrid ARM rates
dropped five bps to 3.82% (up 65bps).
Jumbo mortgage 30-yr fixed rates
unchanged at 4.52% (up 49bps).
Over the past year, Fed Credit contracted 4.8%,
and M2 (narrow) money supply gained 4.1%.
Currency Watch:
The U.S. dollar index fell 1.0% to 95.163
(up 3.3% y-t-d).
The Chinese renminbi rallied 0.98% versus the dollar this week
(down 4.46% y-t-d).
Commodities Watch:
Goldman Sachs Commodities Index rallied 2.2% (up 3.8% y-t-d).
Spot Gold jumped 1.8% to $1,206 (down 7.5%).
Silver gained 0.8% to $14.895 (down 13.1%).
Crude recovered $2.60 to $68.52 (up 13%).
Gasoline surged 5.0% (up 16%)
Natural Gas declined 1.1% (down 1%).
Copper rallied 2.5% (down 18%).
Wheat sank 7.5% (up 26%).
Corn fell 4.2% (up 3%).
Trump Administration Watch:
August 23 - CNBC (John Melloy):
"President Donald Trump
said the stock market
would plummet
if he were to be
removed from office.
'If I ever got impeached, I think the market would crash. I think everybody would be very poor,' the president said in a Fox News interview… 'Because without this thinking, you would see numbers that you wouldn't believe in reverse,' Trump said, pointing at his head. 'I got rid of regulations. The tax cut was a tremendous thing.' The stock market has had little reaction so far to Trump's renewed legal troubles this week with two former advisors now guilty of criminal acts and one implicating him directly."
"President Donald Trump
said the stock market
would plummet
if he were to be
removed from office.
'If I ever got impeached, I think the market would crash. I think everybody would be very poor,' the president said in a Fox News interview… 'Because without this thinking, you would see numbers that you wouldn't believe in reverse,' Trump said, pointing at his head. 'I got rid of regulations. The tax cut was a tremendous thing.' The stock market has had little reaction so far to Trump's renewed legal troubles this week with two former advisors now guilty of criminal acts and one implicating him directly."
August 21 - CNBC (Mike Calia):
"President Donald Trump
said Tuesday night
that the U.S. would slap
a 25% tariff on cars
coming from the
European Union.
The president's statement came hours after The Wall Street Journal reported that Commerce Secretary Wilbur Ross said he had postponed an August timeline to publish a report on auto tariffs. 'We're going to put a 25% tax on every car that comes into the United States from the European Union,' Trump said at a campaign rally…"
"President Donald Trump
said Tuesday night
that the U.S. would slap
a 25% tariff on cars
coming from the
European Union.
The president's statement came hours after The Wall Street Journal reported that Commerce Secretary Wilbur Ross said he had postponed an August timeline to publish a report on auto tariffs. 'We're going to put a 25% tax on every car that comes into the United States from the European Union,' Trump said at a campaign rally…"
August 22 - Reuters (Michael Martina and David Lawder):
"The United States and China
escalated their acrimonious trade war
on Thursday, implementing punitive
25% tariffs on $16 billion worth
of each other's goods,
even as mid-level officials from both sides resumed talks in Washington. The world's two largest economies have now slapped tit-for-tat tariffs on a combined $100 billion of products since early July, with more in the pipeline, adding to risks to global economic growth. China's Commerce Ministry said Washington was 'remaining obstinate'…"
"The United States and China
escalated their acrimonious trade war
on Thursday, implementing punitive
25% tariffs on $16 billion worth
of each other's goods,
even as mid-level officials from both sides resumed talks in Washington. The world's two largest economies have now slapped tit-for-tat tariffs on a combined $100 billion of products since early July, with more in the pipeline, adding to risks to global economic growth. China's Commerce Ministry said Washington was 'remaining obstinate'…"
August 20 - Reuters (Jeff Mason and Steve Holland):
"U.S. President Donald Trump
said on Monday he was
'not thrilled' with
the Federal Reserve
under his own appointee,
Chairman Jerome Powell,
for raising interest rates
and said the U.S. central bank should do more to help him to boost the economy… American presidents have rarely criticized the Fed in recent decades because its independence has been seen as important for economic stability. Trump has departed from this past practice and said he would not shy from future criticism should the Fed keep lifting rates."
"U.S. President Donald Trump
said on Monday he was
'not thrilled' with
the Federal Reserve
under his own appointee,
Chairman Jerome Powell,
for raising interest rates
and said the U.S. central bank should do more to help him to boost the economy… American presidents have rarely criticized the Fed in recent decades because its independence has been seen as important for economic stability. Trump has departed from this past practice and said he would not shy from future criticism should the Fed keep lifting rates."
U.S. Bubble Watch:
August 19 - Financial Times (Andrew Edgecliffe-Johnson):
"Blue-chip US companies
are confident they can pass
on rising costs to their customers
and protect record profit margins
as inflationary pressure
is offset by buoyant business
and consumer sentiment.
Cost inflation has been a recurring theme of US second-quarter earnings announcements from companies in industries as diverse as retail and industrial equipment. Executives have pointed to a combination of higher freight and labour costs with increased prices for raw materials, some of which has been driven by the Trump administration's tariffs on imported steel and aluminium, and by other countries' retaliatory tariffs on US goods. "
"Blue-chip US companies
are confident they can pass
on rising costs to their customers
and protect record profit margins
as inflationary pressure
is offset by buoyant business
and consumer sentiment.
Cost inflation has been a recurring theme of US second-quarter earnings announcements from companies in industries as diverse as retail and industrial equipment. Executives have pointed to a combination of higher freight and labour costs with increased prices for raw materials, some of which has been driven by the Trump administration's tariffs on imported steel and aluminium, and by other countries' retaliatory tariffs on US goods. "
August 22 - Bloomberg Businessweek (Steve Matthews, Matthew Boesler and Jeanna Smialek):
"America's labor market is a jigsaw puzzle whose pieces don't quite fit together. Unemployment has plummeted to 3.9%, the lowest level since the early 2000s. Earnings calls are replete with chief executive officers bemoaning employee shortages. Small businesses are also feeling the pinch.
In a July survey by
the National Federation
of Independent Business,
37% of owners reported
at least one vacancy,
and more than half said
there were few or
no qualified candidates
for the job."
"America's labor market is a jigsaw puzzle whose pieces don't quite fit together. Unemployment has plummeted to 3.9%, the lowest level since the early 2000s. Earnings calls are replete with chief executive officers bemoaning employee shortages. Small businesses are also feeling the pinch.
In a July survey by
the National Federation
of Independent Business,
37% of owners reported
at least one vacancy,
and more than half said
there were few or
no qualified candidates
for the job."
August 22 - Reuters (Jason Lange):
"U.S. existing home sales
fell for a fourth straight month
in July
as a shortage of properties on the market pushed up house prices, likely sidelining some potential buyers. …Existing home sales fell 0.7% to a seasonally adjusted annual rate of 5.34 million units last month… Existing home sales, which make up about 90% of U.S. home sales, fell 1.5% from a year ago in July. Sales have been stymied by an acute shortages of homes on the market for several months, although… inventory showed signs of stabilizing last month. There were 1.92 million homes on the market in July, unchanged from a year earlier. It was the first month in three years in which inventory did not fall on a year-on-year basis…"
"U.S. existing home sales
fell for a fourth straight month
in July
as a shortage of properties on the market pushed up house prices, likely sidelining some potential buyers. …Existing home sales fell 0.7% to a seasonally adjusted annual rate of 5.34 million units last month… Existing home sales, which make up about 90% of U.S. home sales, fell 1.5% from a year ago in July. Sales have been stymied by an acute shortages of homes on the market for several months, although… inventory showed signs of stabilizing last month. There were 1.92 million homes on the market in July, unchanged from a year earlier. It was the first month in three years in which inventory did not fall on a year-on-year basis…"
August 23 - Reuters:
"Sales of new U.S.
single-family homes
unexpectedly fell in July
to a nine-month low
in a sign the housing market was cooling and could give less support to the overall economy. …New home sales decreased 1.7% to a seasonally adjusted annual rate of 627,000 units last month, the lowest level since October 2017. June's sales pace was revised up to 638,000 units from the previously reported 631,000 units."
"Sales of new U.S.
single-family homes
unexpectedly fell in July
to a nine-month low
in a sign the housing market was cooling and could give less support to the overall economy. …New home sales decreased 1.7% to a seasonally adjusted annual rate of 627,000 units last month, the lowest level since October 2017. June's sales pace was revised up to 638,000 units from the previously reported 631,000 units."
August 23 - Wall Street Journal (Heather Gillers):
"Chicago tried to lower
its pension deficit
with budget cuts,
benefit reductions
and tax increases.
Now the third-largest
U.S. city is considering
a controversial new fix:
more debt.
Finance Chief Carole Brown said she would decide in the next week whether to endorse a $10 billion taxable bond offering that would be used to help close Chicago's $28 billion pension funding gap. If the proposal is accepted by Mayor Rahm Emanuel and approved by the City Council, it would become the biggest pension obligation bond ever issued by a U.S. city. The bet is that Chicago can earn more investing the proceeds than it paid to issue the new debt, setting an example for other large governments wrestling with sizable pension deficits."
"Chicago tried to lower
its pension deficit
with budget cuts,
benefit reductions
and tax increases.
Now the third-largest
U.S. city is considering
a controversial new fix:
more debt.
Finance Chief Carole Brown said she would decide in the next week whether to endorse a $10 billion taxable bond offering that would be used to help close Chicago's $28 billion pension funding gap. If the proposal is accepted by Mayor Rahm Emanuel and approved by the City Council, it would become the biggest pension obligation bond ever issued by a U.S. city. The bet is that Chicago can earn more investing the proceeds than it paid to issue the new debt, setting an example for other large governments wrestling with sizable pension deficits."
August 23 - Bloomberg (John Gittelsohn):
"Fewer stock pickers are beating their indexes,
with value managers among the worst performers.
Just 36% of actively managed
stock funds topped indexes
in the year through June,
down from 43% in 2017,
according to a Morningstar Inc. report. Pickers of value stocks saw their success rates drop as much as 27 percentage points compared with the prior year."
"Fewer stock pickers are beating their indexes,
with value managers among the worst performers.
Just 36% of actively managed
stock funds topped indexes
in the year through June,
down from 43% in 2017,
according to a Morningstar Inc. report. Pickers of value stocks saw their success rates drop as much as 27 percentage points compared with the prior year."
August 20 - Wall Street Journal (Josh Barbanel):
"Sales of the most expensive
New York apartments
fell sharply in the
first half of the year,
but many sellers have adjusted by cutting asking prices to make deals, brokers said. Overall sales of apartments priced at $5 million or more fell by 31% during the first half of the year, compared with the same period in 2017, according to a luxury market report by Stribling."
"Sales of the most expensive
New York apartments
fell sharply in the
first half of the year,
but many sellers have adjusted by cutting asking prices to make deals, brokers said. Overall sales of apartments priced at $5 million or more fell by 31% during the first half of the year, compared with the same period in 2017, according to a luxury market report by Stribling."
China Watch:
August 23 - Bloomberg (Lianting Tu, Narae Kim and Carrie Hong):
"China's town builders may have gotten some respite after the government took steps to ensure adequate funding for them, but their weaker peers may still suffer, analysts say. That's because these
local government financing vehicles
now need to repay the pile of debt
that was sold over the last few years
to support economic growth.
Domestic maturities
average 340 billion yuan ($49bn)
each quarter through to the
April-June period of 2019
… That's 40% higher
than the average in 2017.
The maturities will peak in the first quarter next year, the data show."
"China's town builders may have gotten some respite after the government took steps to ensure adequate funding for them, but their weaker peers may still suffer, analysts say. That's because these
local government financing vehicles
now need to repay the pile of debt
that was sold over the last few years
to support economic growth.
Domestic maturities
average 340 billion yuan ($49bn)
each quarter through to the
April-June period of 2019
… That's 40% higher
than the average in 2017.
The maturities will peak in the first quarter next year, the data show."
August 23 - Reuters (Hallie Gu and Josephine Mason):
"China's grain imports
plunged in July
after Beijing imposed
hefty tariffs on shipments
from the United States
as part of its trade conflict and as rising international prices curbed buying… China brought in 220,000 tonnes of sorghum in July, down 62.5% from 588,364 tonnes a year ago…"
"China's grain imports
plunged in July
after Beijing imposed
hefty tariffs on shipments
from the United States
as part of its trade conflict and as rising international prices curbed buying… China brought in 220,000 tonnes of sorghum in July, down 62.5% from 588,364 tonnes a year ago…"
August 20 - Reuters (Chen Aizhu and Florence Tan):
"Chinese buyers of Iranian oil
are starting to shift their cargoes
to vessels owned by National
Iranian Tanker Co. for nearly all
of their imports
to keep supply flowing
amid the re-imposition
of economic sanctions
by the United States.
The shift demonstrates that China, Iran's biggest oil customer, wants to keep buying Iranian crude despite the sanctions, which were put back after the United States withdrew in May from a 2015 agreement to halt Iran's nuclear program. The United States is trying to halt Iranian oil exports…"
"Chinese buyers of Iranian oil
are starting to shift their cargoes
to vessels owned by National
Iranian Tanker Co. for nearly all
of their imports
to keep supply flowing
amid the re-imposition
of economic sanctions
by the United States.
The shift demonstrates that China, Iran's biggest oil customer, wants to keep buying Iranian crude despite the sanctions, which were put back after the United States withdrew in May from a 2015 agreement to halt Iran's nuclear program. The United States is trying to halt Iranian oil exports…"
August 21 - Wall Street Journal (Shen Hong):
"Chinese banks are
taking on new risks
as they scramble
to lure savers,
turning a previously obscure line of business into a $1 trillion industry. The explosion marks the latest effort by lenders to circumvent Beijing's campaign against financial risk, and to head off rising competition from the lightly regulated shadow-banking sector and upstart high-tech rivals… It also reflects an old struggle in a country where banks can't freely set their own interest rates.
Structured deposits
offer higher returns
than regular savings accounts
and are tied to bets on assets
from currencies to gold.
They have been around
for years, but the
sums outstanding
have soared recently.
In July they stood
at a record 9.71
trillion yuan ($1.42 trillion),
up 52% in a year…
Banks aren't competing only with one another for funds, which they need to extend more loans; savers also are switching to more attractive options, such as high-yielding wealth-management products, and to money-market funds…"
"Chinese banks are
taking on new risks
as they scramble
to lure savers,
turning a previously obscure line of business into a $1 trillion industry. The explosion marks the latest effort by lenders to circumvent Beijing's campaign against financial risk, and to head off rising competition from the lightly regulated shadow-banking sector and upstart high-tech rivals… It also reflects an old struggle in a country where banks can't freely set their own interest rates.
Structured deposits
offer higher returns
than regular savings accounts
and are tied to bets on assets
from currencies to gold.
They have been around
for years, but the
sums outstanding
have soared recently.
In July they stood
at a record 9.71
trillion yuan ($1.42 trillion),
up 52% in a year…
Banks aren't competing only with one another for funds, which they need to extend more loans; savers also are switching to more attractive options, such as high-yielding wealth-management products, and to money-market funds…"
August 20 - Financial Times (Sherry Fei Ju and Hudson Lockett):
"Monthly rent in Beijing
has risen by about
a quarter in 2018,
according to a research report that has stoked criticism from many of the millions of tenants who live in China's capital. A research report issued by property search engine Zhuge showed rental costs up 25.6%
year on year at the end of July,
with some areas seeing
a rise of nearly 40%, says the report."
"Monthly rent in Beijing
has risen by about
a quarter in 2018,
according to a research report that has stoked criticism from many of the millions of tenants who live in China's capital. A research report issued by property search engine Zhuge showed rental costs up 25.6%
year on year at the end of July,
with some areas seeing
a rise of nearly 40%, says the report."
Emerging Markets Watch:
August 21 - Bloomberg (Eduardo Thomson and Fabiola Zerpa):
"Venezuelan President
Nicolas Maduro
carried out one of
the greatest
currency devaluations
in history
over the weekend
-- a 95% plunge
that will test the capacity of an already beleaguered population to stomach even more pain. One likely outcome is that inflation, which already was forecast to reach 1 million percent this year, will get fresh fuel from the measures. Prices are currently rising at an annualized rate of 108,000%, according to Bloomberg's Café con Leche index. A massive exodus of Venezuelans fleeing the crisis to neighboring countries will likely increase and with it, tensions and restrictions like the ones seen over the past few days."
"Venezuelan President
Nicolas Maduro
carried out one of
the greatest
currency devaluations
in history
over the weekend
-- a 95% plunge
that will test the capacity of an already beleaguered population to stomach even more pain. One likely outcome is that inflation, which already was forecast to reach 1 million percent this year, will get fresh fuel from the measures. Prices are currently rising at an annualized rate of 108,000%, according to Bloomberg's Café con Leche index. A massive exodus of Venezuelans fleeing the crisis to neighboring countries will likely increase and with it, tensions and restrictions like the ones seen over the past few days."
Global Bubble Watch:
August 20 - Bloomberg (Nisha Gopalan):
"Doors are slamming shut in the developed world not just to Chinese investment in technology but potentially to a wave of acquisitions with a tech element, as diverse as smart heaters and robotic lawnmowers.
President Donald Trump
last week signed an update
to legislation for the
Committee on Foreign Investment
in the U.S. that broadened
the inter-agency vetting
committee group's scope
to encompass even minority
and passive investments
in three areas:
critical technology,
infrastructure, and
businesses that handle
personal data.
This tightening of the rules has been happening for some time, but it's now explicit… China's challenges aren't limited to a more protectionist U.S., or to similar stances in Australia and Canada. Europe, the favored destination of late, is getting a lot tougher."
"Doors are slamming shut in the developed world not just to Chinese investment in technology but potentially to a wave of acquisitions with a tech element, as diverse as smart heaters and robotic lawnmowers.
President Donald Trump
last week signed an update
to legislation for the
Committee on Foreign Investment
in the U.S. that broadened
the inter-agency vetting
committee group's scope
to encompass even minority
and passive investments
in three areas:
critical technology,
infrastructure, and
businesses that handle
personal data.
This tightening of the rules has been happening for some time, but it's now explicit… China's challenges aren't limited to a more protectionist U.S., or to similar stances in Australia and Canada. Europe, the favored destination of late, is getting a lot tougher."
August 21 - Bloomberg (Shuli Ren):
"Distressed economies from Argentina and Venezuela to Turkey and Pakistan look to Beijing for a lifeline that would be less onerous than an International Monetary Fund bailout.
In the last decade,
China made more than
$62 billion of loans
to Venezuela,
where hyperinflation
prompted the government
to devalue the bolivar
by 95% at the weekend…
China has also signed currency swaps with 32 counterparties since 2009. While mainly aimed at facilitating trade in the yuan, these arrangements also served to boost foreign-exchange reserves at troubled partners."
"Distressed economies from Argentina and Venezuela to Turkey and Pakistan look to Beijing for a lifeline that would be less onerous than an International Monetary Fund bailout.
In the last decade,
China made more than
$62 billion of loans
to Venezuela,
where hyperinflation
prompted the government
to devalue the bolivar
by 95% at the weekend…
China has also signed currency swaps with 32 counterparties since 2009. While mainly aimed at facilitating trade in the yuan, these arrangements also served to boost foreign-exchange reserves at troubled partners."
August 20 - New York Times (Hannah Beech):
"In the world's most vital
maritime choke point,
through which much
of Asian trade passes,
a Chinese power company
is investing in
a deepwater port
large enough to host
an aircraft carrier.
Another state-owned Chinese company is revamping a harbor along the fiercely contested South China Sea. Nearby, a rail network mostly financed by a Chinese government bank is being built to speed Chinese goods along a new Silk Road. And a Chinese developer is creating four artificial islands that could become home to nearly three-quarters of a million people… Each of these projects is being built in Malaysia, a Southeast Asian democracy at the heart of China's effort to gain global influence. But where Malaysia once led the pack in courting Chinese investment, it is now on the front edge of a new phenomenon: a push back against Beijing as nations fear becoming overly indebted for projects that are neither viable nor necessary - except in their strategic value to China or use in propping up friendly strongmen."
"In the world's most vital
maritime choke point,
through which much
of Asian trade passes,
a Chinese power company
is investing in
a deepwater port
large enough to host
an aircraft carrier.
Another state-owned Chinese company is revamping a harbor along the fiercely contested South China Sea. Nearby, a rail network mostly financed by a Chinese government bank is being built to speed Chinese goods along a new Silk Road. And a Chinese developer is creating four artificial islands that could become home to nearly three-quarters of a million people… Each of these projects is being built in Malaysia, a Southeast Asian democracy at the heart of China's effort to gain global influence. But where Malaysia once led the pack in courting Chinese investment, it is now on the front edge of a new phenomenon: a push back against Beijing as nations fear becoming overly indebted for projects that are neither viable nor necessary - except in their strategic value to China or use in propping up friendly strongmen."
August 22 - Wall Street Journal (Suryatapa Bhattacharya and Saumya Vaishampayan):
"Turkey's financial trouble
has claimed some
distant victims:
small investors in Japan,
who have dabbled in
emerging-market assets
to escape super low
domestic returns.
The upset illustrates the appetite for risk among an army of punters often dubbed 'Mrs. Watanabe,' after the stereotypical Japanese homemaker. Last year, Deutsche Bank researchers said these buyers had fueled a rally in bitcoin and made up half of global foreign-exchange trading using borrowed money. Individuals have snapped up Uridashi, high-yielding bonds marketed to households that are frequently denominated in foreign currencies like the lira, Brazilian real and South African rand."
"Turkey's financial trouble
has claimed some
distant victims:
small investors in Japan,
who have dabbled in
emerging-market assets
to escape super low
domestic returns.
The upset illustrates the appetite for risk among an army of punters often dubbed 'Mrs. Watanabe,' after the stereotypical Japanese homemaker. Last year, Deutsche Bank researchers said these buyers had fueled a rally in bitcoin and made up half of global foreign-exchange trading using borrowed money. Individuals have snapped up Uridashi, high-yielding bonds marketed to households that are frequently denominated in foreign currencies like the lira, Brazilian real and South African rand."
Europe Watch:
August 19 - Euromoney (Jeremy Weltman):
"With a viscous cycle
of rising trade protectionism
and inflation slowing
economic growth,
a gross debt burden
totaling 130% of GDP
and a populist-left government
planning to increase
budget spending,
a recipe is forming
for financial distress,
especially if factoring in
[Italy's] fragile banking system.
Bank stability is one of five economic risk factors included in Euromoney's country risk survey, and it remains a concern for Europe generally, according to analysts, despite stronger economies, and tighter capitalization and liquidity requirements since the global financial crisis: Italy remains the biggest concern of all, from a systemic risk perspective, with a high level of non-performing loans and rating decisions due over the next few weeks."
"With a viscous cycle
of rising trade protectionism
and inflation slowing
economic growth,
a gross debt burden
totaling 130% of GDP
and a populist-left government
planning to increase
budget spending,
a recipe is forming
for financial distress,
especially if factoring in
[Italy's] fragile banking system.
Bank stability is one of five economic risk factors included in Euromoney's country risk survey, and it remains a concern for Europe generally, according to analysts, despite stronger economies, and tighter capitalization and liquidity requirements since the global financial crisis: Italy remains the biggest concern of all, from a systemic risk perspective, with a high level of non-performing loans and rating decisions due over the next few weeks."
Fixed Income Bubble Watch:
August 22 - Bloomberg (Liz Capo McCormick):
"Moody's…
last week published
an in-depth look at
U.S. leveraged loans.
And it seems the more
the analysts dug in,
the more alarmed they became.
Yes, the nearly $1.4 trillion market can take comfort in a low 3.4% default rate that Moody's projects will only get lower, most likely dropping to 2.2% over the next year. But that's largely where the good news ends. In its report, the credit-rating firm is emphatic that when the credit cycle takes a turn for the worse, leveraged-loan investors will be in for a rude awakening, even compared with the financial crisis. The loans have become popular in recent years because they carry floating interest rates, which better shield buyers from losses as the Federal Reserve tightens monetary policy. They've also been promoted as a safer alternative to high-yield bonds because they're usually backed by collateral. It's all led to an explosion in popularity, particularly through collateralized loan obligations…"
"Moody's…
last week published
an in-depth look at
U.S. leveraged loans.
And it seems the more
the analysts dug in,
the more alarmed they became.
Yes, the nearly $1.4 trillion market can take comfort in a low 3.4% default rate that Moody's projects will only get lower, most likely dropping to 2.2% over the next year. But that's largely where the good news ends. In its report, the credit-rating firm is emphatic that when the credit cycle takes a turn for the worse, leveraged-loan investors will be in for a rude awakening, even compared with the financial crisis. The loans have become popular in recent years because they carry floating interest rates, which better shield buyers from losses as the Federal Reserve tightens monetary policy. They've also been promoted as a safer alternative to high-yield bonds because they're usually backed by collateral. It's all led to an explosion in popularity, particularly through collateralized loan obligations…"
August 23 - Reuters:
"The U.S.
Treasury Department
on Thursday
sold $14 billion
of five-year
Treasury Inflation
Protected Securities
at a yield of 0.724%,
the highest yield
since October 2009…"
"The U.S.
Treasury Department
on Thursday
sold $14 billion
of five-year
Treasury Inflation
Protected Securities
at a yield of 0.724%,
the highest yield
since October 2009…"
Geopolitical Watch:
August 21 - Newsweek (Tom O'Connor):
"Germany has joined
European allies France
and U.K. along with Russia
and China in backing
the 2015 nuclear accord
that President Donald Trump
withdrew from in May,
triggering new U.S. sanctions
on nations doing business with Iran.
In an op-ed… by Germany's Handelsblatt business newspaper, German Foreign Minister Heiko Maas hailed the strong post-World War II ties traditionally enjoyed by Washington and Berlin, but he warned, 'Where the U.S. crosses red lines, we as Europeans must counterbalance-as hard as that is.' 'It is therefore essential that we strengthen European autonomy by setting up payment channels independent of the U.S.A., creating a European Monetary Fund and building an independent Swift system,' Maas wrote."
"Germany has joined
European allies France
and U.K. along with Russia
and China in backing
the 2015 nuclear accord
that President Donald Trump
withdrew from in May,
triggering new U.S. sanctions
on nations doing business with Iran.
In an op-ed… by Germany's Handelsblatt business newspaper, German Foreign Minister Heiko Maas hailed the strong post-World War II ties traditionally enjoyed by Washington and Berlin, but he warned, 'Where the U.S. crosses red lines, we as Europeans must counterbalance-as hard as that is.' 'It is therefore essential that we strengthen European autonomy by setting up payment channels independent of the U.S.A., creating a European Monetary Fund and building an independent Swift system,' Maas wrote."
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