Saturday, August 4, 2018
Weekly Commentary:
"Periphery to Core Crisis Dynamics"
by Doug Noland
Full column here:
The Shanghai Composite sank
another 4.6% this week,
another 4.6% this week,
increasing y-t-d losses to 17.1%.
Meanwhile, the S&P500 gained 0.6%,
boosting the S&P500's 2018 return to 7.4%.
My summary is below:
For the week
ending August 3, 2018:
STOCKS:
S&P500 gained 0.8% (up 6.2% y-t-d)
S&P500 gained 0.8% (up 6.2% y-t-d)
Dow Industrials little changed (up 3.0%)
Dow Utilities rose 1.2% (up 0.9%)
Dow Transports jumped 1.3% (up 4.6%)
S&P 400 Midcaps rose 1.3% (up 5.2%)
Small cap Russell 2000 increased 0.6% (up 9.0%)
Nasdaq100 advanced 1.4% (up 15.6%)
Biotechs added 0.5% (up 19.8%).
With bullion down $10,
the HUI gold stock index slipped 0.6%
(down 14.4%).
U.K.'s FTSE declined 0.5% (down 0.4% year-to-date).
Japan's Nikkei 225 fell 0.8% (down 1.1% y-t-d).
France's CAC40 slipped 0.6% (up 3.1%).
German DAX dropped 1.9% (down 2.3%).
Spain's IBEX 35 fell 1.3% (down 3.0%).
Italy's FTSE MIB sank 1.7% (down 1.2%).
Brazil's Bovespa jumped 1.9% (up 6.5%)
Mexico's Bolsa declined 0.7% (down 0.1%)
South Korea's Kospi slipped 0.3% (down 7.3%)
India’s Sensex added 0.6% (up 10.3%)
China’s Shanghai sank 4.6% (down 17.1%)
Turkey's Istanbul National 100 little changed (down 17.1%).
Russia's MICEX added 0.2% (up 8.9%).
BONDS & MORTGAGES
Ten-year US Treasury bond yields
slipped one basis point to 2.95% (up 54bps).
slipped one basis point to 2.95% (up 54bps).
US Treasury long bond yields
added a basis point to 3.09% (up 35bps).
added a basis point to 3.09% (up 35bps).
Benchmark Fannie Mae MBS yields
declined two bps to 3.66% (up 71bps).
declined two bps to 3.66% (up 71bps).
Freddie Mac 30-year fixed mortgage rates
rose six bps to 4.60% (up 67bps y-o-y).
Fifteen-year rates
jumped six bps to 4.08% (up 90bps).
rose six bps to 4.60% (up 67bps y-o-y).
Fifteen-year rates
jumped six bps to 4.08% (up 90bps).
Five-year hybrid ARM rates
gained six bps to 3.93% (up 78bps).
gained six bps to 3.93% (up 78bps).
Jumbo mortgage 30-yr fixed rates
up five bps to 4.63% (up 58bps).
up five bps to 4.63% (up 58bps).
Over the past year, Fed Credit contracted $194bn, or 4.4%.
M2 (narrow) "money" supply gained 3.8%, over the past year.
Currency Watch:
The U.S. dollar index added 0.6% to 95.194
(up 3.3% y-t-d).
(up 3.3% y-t-d).
Commodities Watch:
Goldman Sachs Commodities Index declined 0.6% (up 4.4% y-t-d).
Spot Gold lost 0.8% to $1,214 (down 6.9%).
Silver slipped 0.2% to $15.462 (down 9.8%).
Crude declined 20 cents to $68.49 (up 13.4%).
Gasoline dropped 4.5% (up 15%)
Natural Gas gained 2.6% (down 3%).
Copper fell 1.4% (down 16%).
Wheat surged 5.4% (up 36%).
Corn gained 2.1% (up 10%).
Trump Administration Watch:
August 1 - Bloomberg (Bob Davis and Lingling Wei):
"The U.S. turned up the heat… on China, with the Trump administration threatening to more than double proposed tariffs on imports while Congress passed a defense bill designed to restrict Beijing's economic and military activity. The moves come as Beijing and Washington have failed to ease an escalating trade dispute, prompting the administration to seek additional leverage. The administration, which has already affixed tariffs on billions of dollars in Chinese imports, said it would consider more than doubling proposed tariffs on a further $200 billion worth of Chinese goods to 25%, up from an original 10%. Meantime, the Senate approved a defense-policy bill that both tightens U.S. national-security reviews of Chinese corporate deals and revamps export controls over which U.S. technologies can be sent abroad."
"The U.S. turned up the heat… on China, with the Trump administration threatening to more than double proposed tariffs on imports while Congress passed a defense bill designed to restrict Beijing's economic and military activity. The moves come as Beijing and Washington have failed to ease an escalating trade dispute, prompting the administration to seek additional leverage. The administration, which has already affixed tariffs on billions of dollars in Chinese imports, said it would consider more than doubling proposed tariffs on a further $200 billion worth of Chinese goods to 25%, up from an original 10%. Meantime, the Senate approved a defense-policy bill that both tightens U.S. national-security reviews of Chinese corporate deals and revamps export controls over which U.S. technologies can be sent abroad."
August 1 - Wall Street Journal (Kate O'Keeffe and Siobhan Hughes):
"Congress passed a defense-policy bill that some lawmakers say is tougher on China than any in history, as a bipartisan movement to confront Beijing gathers steam. The measure, an annual policy bill that authorizes $716 billion in total defense spending for the coming fiscal year, seeks to counter a range of Chinese government policies, including increased military activity in the South China Sea, the pursuit of cutting-edge U.S. technology and the spread of Communist Party propaganda at American institutions."
"Congress passed a defense-policy bill that some lawmakers say is tougher on China than any in history, as a bipartisan movement to confront Beijing gathers steam. The measure, an annual policy bill that authorizes $716 billion in total defense spending for the coming fiscal year, seeks to counter a range of Chinese government policies, including increased military activity in the South China Sea, the pursuit of cutting-edge U.S. technology and the spread of Communist Party propaganda at American institutions."
August 1 - Wall Street Journal (Josh Zumbrun and Daniel Kruger):
"Rising federal budget deficits are boosting the U.S. Treasury's borrowing and could restrain a fast-growing economy as the cost of credit rises, too. The yield of 10-year Treasury notes climbed above 3% for the first time since June, as the Treasury Department announced it would increase auctions of U.S. debt by an additional $30 billion over the next three months… In all, the Treasury plans to borrow $329 billion from July through September-up $56 billion from the agency's April estimate-in addition to $440 billion in October through December. The figures are 63% higher than what the Treasury borrowed during the same six-month period last year."
"Rising federal budget deficits are boosting the U.S. Treasury's borrowing and could restrain a fast-growing economy as the cost of credit rises, too. The yield of 10-year Treasury notes climbed above 3% for the first time since June, as the Treasury Department announced it would increase auctions of U.S. debt by an additional $30 billion over the next three months… In all, the Treasury plans to borrow $329 billion from July through September-up $56 billion from the agency's April estimate-in addition to $440 billion in October through December. The figures are 63% higher than what the Treasury borrowed during the same six-month period last year."
July 29 - The Hill (Lloyd Green):
"When Trump is underwater in Wisconsin, Michigan, and Minnesota, it is time for Republicans to worry. The question is how large a bite does Trump extract from Republican candidates this fall. Real Clear Politics puts the Democrats lead on the generic ballot at over 7 points, while FiveThirtyEight pegs the Democrats lead a tick higher. No, those numbers do not reflect a blue wave. But at the same time, they provide Republicans with little room for error, and even less reason for comfort."
"When Trump is underwater in Wisconsin, Michigan, and Minnesota, it is time for Republicans to worry. The question is how large a bite does Trump extract from Republican candidates this fall. Real Clear Politics puts the Democrats lead on the generic ballot at over 7 points, while FiveThirtyEight pegs the Democrats lead a tick higher. No, those numbers do not reflect a blue wave. But at the same time, they provide Republicans with little room for error, and even less reason for comfort."
August 2 - Bloomberg (Ryan Beene, John Lippert and Jennifer A. Dlouhy):
"The Trump administration, taking aim at one of former President Barack Obama's signature environmental achievements, is proposing to suspend required increases in vehicle fuel economy after 2020 and unwind California's authority to limit tailpipe greenhouse gas emissions in the state. The Environmental Protection Agency and National Highway Traffic Safety Administration jointly proposed on Thursday to cap fuel economy requirements at a fleet average of 37 mpg starting in 2020. Under the Obama plan, the fleetwide fuel economy would have risen gradually to roughly 47 mpg by 2025"
"The Trump administration, taking aim at one of former President Barack Obama's signature environmental achievements, is proposing to suspend required increases in vehicle fuel economy after 2020 and unwind California's authority to limit tailpipe greenhouse gas emissions in the state. The Environmental Protection Agency and National Highway Traffic Safety Administration jointly proposed on Thursday to cap fuel economy requirements at a fleet average of 37 mpg starting in 2020. Under the Obama plan, the fleetwide fuel economy would have risen gradually to roughly 47 mpg by 2025"
U.S. Bubble Watch:
July 30 - Wall Street Journal (Sarah Krouse):
"Many cities and states can no longer afford the unsustainable retirement promises made to millions of public workers over many years. By one estimate they are short $4 trillion… Certain pension funds face the prospect of insolvency unless governments increase taxes, divert funds or persuade workers to relinquish money they are owed. It is increasingly likely that retirees, as well as new workers, will be forced to take deeper benefit cuts."
"Many cities and states can no longer afford the unsustainable retirement promises made to millions of public workers over many years. By one estimate they are short $4 trillion… Certain pension funds face the prospect of insolvency unless governments increase taxes, divert funds or persuade workers to relinquish money they are owed. It is increasingly likely that retirees, as well as new workers, will be forced to take deeper benefit cuts."
August 2 - CNBC (Fred Imbert): "Private payrolls in the U.S. increased by more than expected last month as companies get a boost from lower corporate taxes, ADP and Moody's Analytics said… . 'The job market is booming, impacted by the deficit-financed tax cuts and increases in government spending,' said Mark Zandi, chief economist of Moody's Analytics…"
August 1 - CNBC (Diana Olick):
"The long list of housing headwinds is finally taking its toll on potential buyers. Housing demand fell 9.6% in June, compared with June 2017, according… Redfin. That is the largest decline since April 2016. Red-hot home prices, rising mortgage interest rates, very few listings at the entry level and a high rate of student loan debt have weighed on buyers for a while, but a strong economy and growing employment had mitigated those factors. Now, however, a market stalemate is developing as rates and prices continue to rise, further weakening affordability."
"The long list of housing headwinds is finally taking its toll on potential buyers. Housing demand fell 9.6% in June, compared with June 2017, according… Redfin. That is the largest decline since April 2016. Red-hot home prices, rising mortgage interest rates, very few listings at the entry level and a high rate of student loan debt have weighed on buyers for a while, but a strong economy and growing employment had mitigated those factors. Now, however, a market stalemate is developing as rates and prices continue to rise, further weakening affordability."
July 31 - Reuters (Lucia Mutikani):
"U.S. consumer spending increased solidly in June as households spent more at restaurants and on accommodation, building a strong base for the economy heading into the third quarter, while inflation rose moderately… The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.4% last month. Data for May was revised up to show consumer spending advancing 0.5% instead of the previously reported 0.2% gain."
"U.S. consumer spending increased solidly in June as households spent more at restaurants and on accommodation, building a strong base for the economy heading into the third quarter, while inflation rose moderately… The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.4% last month. Data for May was revised up to show consumer spending advancing 0.5% instead of the previously reported 0.2% gain."
July 31 - Wall Street Journal (Laura Kusisto):
"Nationally, the share of young construction workers declined nearly 30% from 2005 through 2016… While there's no single reason why younger folks are losing interest in a job that is generally well-paid and doesn't require a college education, their indifference is exacerbating a labor shortage that has meant fewer homes being built and rising prices, possibly for years to come."
"Nationally, the share of young construction workers declined nearly 30% from 2005 through 2016… While there's no single reason why younger folks are losing interest in a job that is generally well-paid and doesn't require a college education, their indifference is exacerbating a labor shortage that has meant fewer homes being built and rising prices, possibly for years to come."
July 31 - Reuters (Richa Naidu and Martinne Geller):
"With toilet roll and tissues swept up in an escalating international trade row, it's not just Procter & Gamble's Charmin that's going to get the squeeze. Higher prices in the wake of possible tariffs would exacerbate what is already mounting pressure on consumer product company profits from soaring costs from pulp, a main ingredient in tissues, diapers and sanitary towels. P&G, the purveyor of Charmin toilet paper, Bounty towels and Puffs tissues, said on Tuesday that it had recently begun notifying retailers of a 5% average price increase…"
"With toilet roll and tissues swept up in an escalating international trade row, it's not just Procter & Gamble's Charmin that's going to get the squeeze. Higher prices in the wake of possible tariffs would exacerbate what is already mounting pressure on consumer product company profits from soaring costs from pulp, a main ingredient in tissues, diapers and sanitary towels. P&G, the purveyor of Charmin toilet paper, Bounty towels and Puffs tissues, said on Tuesday that it had recently begun notifying retailers of a 5% average price increase…"
July 29 - Reuters (Patrick McGroaty and Bob Tita):
"Consumers are starting to see higher prices for recreational vehicles, soda, beer and other goods that now cost more to make as a result of recent tariffs on metals and parts. When costs rise, manufacturers generally must choose whether to absorb bigger bills for aluminum, steel and imported components, or pass the increases along to customers. In recent days many manufacturers, including Coca-Cola Co. and Polaris Industries Inc., have said they plan to raise prices. U.S. steel and aluminum prices are up 33% and 11%, respectively, since the start of the year…"
"Consumers are starting to see higher prices for recreational vehicles, soda, beer and other goods that now cost more to make as a result of recent tariffs on metals and parts. When costs rise, manufacturers generally must choose whether to absorb bigger bills for aluminum, steel and imported components, or pass the increases along to customers. In recent days many manufacturers, including Coca-Cola Co. and Polaris Industries Inc., have said they plan to raise prices. U.S. steel and aluminum prices are up 33% and 11%, respectively, since the start of the year…"
July 31 - CNBC (Tae Kim):
"Morgan Stanley believes the dramatic drops in some high-flying technology stocks this month is further evidence the stock market will go lower. 'The weaker earnings beat from several Tech leaders and outright misses from Netflix and Facebook were simply additional support for our [defensive] call,' chief U.S. equity strategist Michael Wilson said… And the average investor could suffer even more this time, Wilson said. 'We think a coming correction will be biggest since February, although it could very well have more of a negative impact on the average portfolio if it is centered on Tech, Discretionary, and small caps,' the note said."
"Morgan Stanley believes the dramatic drops in some high-flying technology stocks this month is further evidence the stock market will go lower. 'The weaker earnings beat from several Tech leaders and outright misses from Netflix and Facebook were simply additional support for our [defensive] call,' chief U.S. equity strategist Michael Wilson said… And the average investor could suffer even more this time, Wilson said. 'We think a coming correction will be biggest since February, although it could very well have more of a negative impact on the average portfolio if it is centered on Tech, Discretionary, and small caps,' the note said."
July 30 - Wall Street Journal (Liz Hoffman):
"In December 2008, with the financial world in a tailspin, Goldman Sachs… issued stock options to 350 of its top executives and board members. By the time they expire later this year, these options will have earned their owners-most of whom left Goldman years ago-at least $3 billion… The windfall shows how far Wall Street firms, or at least their stock prices, have come since the crisis. Goldman is less profitable than it was a decade ago, but its share price last year surpassed the previous high set in 2006. Shares of JPMorgan… continue to hit new heights."
"In December 2008, with the financial world in a tailspin, Goldman Sachs… issued stock options to 350 of its top executives and board members. By the time they expire later this year, these options will have earned their owners-most of whom left Goldman years ago-at least $3 billion… The windfall shows how far Wall Street firms, or at least their stock prices, have come since the crisis. Goldman is less profitable than it was a decade ago, but its share price last year surpassed the previous high set in 2006. Shares of JPMorgan… continue to hit new heights."
August 1 - Bloomberg (Oshrat Carmiel and Jeremy Hill):
"In affluent enclaves in Westchester County, New Jersey and Connecticut, a federal cap on state and local property tax deductions has begun to bite hard. Longtime homeowners who dreamed of offloading their empty nests are finding their plans complicated by the tax bill, as would-be buyers hold back… The issue is especially acute in areas of Westchester, the county with the nation's highest-property taxes, where annual bills of $35,000, $50,000 and more are not uncommon."
"In affluent enclaves in Westchester County, New Jersey and Connecticut, a federal cap on state and local property tax deductions has begun to bite hard. Longtime homeowners who dreamed of offloading their empty nests are finding their plans complicated by the tax bill, as would-be buyers hold back… The issue is especially acute in areas of Westchester, the county with the nation's highest-property taxes, where annual bills of $35,000, $50,000 and more are not uncommon."
China Watch:
August 2 - CNBC (Fred Imbert):
"China is not taking the United States' latest tariff threat lightly and vows to hit back if the U.S. moves forward. 'China is fully prepared and will have to retaliate to defend the nation's dignity and the interests of the people, defend free trade and the multilateral system, and defend the common interests of all countries,' the Chinese Ministry of Commerce said in a statement… 'The carrot and stick tactic won't work.' The ministry's remarks came after President Donald Trump instructed U.S. Trade Representative Robert Lighthizer to consider raising proposed tariffs on $200 billion in Chinese goods to 25% from 10%."
"China is not taking the United States' latest tariff threat lightly and vows to hit back if the U.S. moves forward. 'China is fully prepared and will have to retaliate to defend the nation's dignity and the interests of the people, defend free trade and the multilateral system, and defend the common interests of all countries,' the Chinese Ministry of Commerce said in a statement… 'The carrot and stick tactic won't work.' The ministry's remarks came after President Donald Trump instructed U.S. Trade Representative Robert Lighthizer to consider raising proposed tariffs on $200 billion in Chinese goods to 25% from 10%."
August 1 - Financial Times (Gabriel Wildau):
"China's leadership has signalled a shift towards supporting short-term economic growth following a nearly two-year battle against excessive debt, just as a trade war with the US also threatens the economy. Communist party leaders agreed at a politburo meeting to adjusted the official monetary policy stance from 'prudent and neutral' to merely 'prudent' - a clear move towards loosening. The politburo communiqué also cited 'maintaining steady and healthy economic growth' as the number one task. Some critics warn that the country is resorting to its old playbook of debt-fuelled spending to ease a slide in growth - an approach that could worsen the long-term risks that the deleveraging campaign had sought to tame. Tuesday's politburo's declaration follows a series of new growth-supporting measures announced over the past fortnight, from tax cuts and new infrastructure spending to central-bank cash injections and a softening of regulations designed to curb shadow banking."
"China's leadership has signalled a shift towards supporting short-term economic growth following a nearly two-year battle against excessive debt, just as a trade war with the US also threatens the economy. Communist party leaders agreed at a politburo meeting to adjusted the official monetary policy stance from 'prudent and neutral' to merely 'prudent' - a clear move towards loosening. The politburo communiqué also cited 'maintaining steady and healthy economic growth' as the number one task. Some critics warn that the country is resorting to its old playbook of debt-fuelled spending to ease a slide in growth - an approach that could worsen the long-term risks that the deleveraging campaign had sought to tame. Tuesday's politburo's declaration follows a series of new growth-supporting measures announced over the past fortnight, from tax cuts and new infrastructure spending to central-bank cash injections and a softening of regulations designed to curb shadow banking."
July 29 - Bloomberg (Chris Anstey and Narae Kim):
"China used to rail against the outsize role of the U.S. dollar. But in a major turnaround, the world's second-biggest economy has started embracing the currency of its larger rival. Chinese companies and banks-and even the government-sold bonds denominated in dollars at a record pace last year, and underwriters expect that growth to continue for years. The roughly half-trillion-dollar market has two key attractions for China's borrowers. For some, it's an easier place to raise cash than at home… For others, dollars are simply easier to use to fund acquisitions and investments abroad. The upshot: There's a large and growing supply of dollar securities that offer exposure to Chinese companies for investors wary of diving into the country's increasingly accessible yuan-denominated domestic debt."
"China used to rail against the outsize role of the U.S. dollar. But in a major turnaround, the world's second-biggest economy has started embracing the currency of its larger rival. Chinese companies and banks-and even the government-sold bonds denominated in dollars at a record pace last year, and underwriters expect that growth to continue for years. The roughly half-trillion-dollar market has two key attractions for China's borrowers. For some, it's an easier place to raise cash than at home… For others, dollars are simply easier to use to fund acquisitions and investments abroad. The upshot: There's a large and growing supply of dollar securities that offer exposure to Chinese companies for investors wary of diving into the country's increasingly accessible yuan-denominated domestic debt."
August 1 - Bloomberg:
"Recent optimism in China's debt market will soon be put to the test, with investors able to demand early repayment for as much as 544.7 billion yuan ($80bn) of debt by year-end. The amount of local bonds with put options that hit trigger points in the coming five months comes to almost 1.4 times the tally from January to July… While China's credit markets are still functioning relatively smoothly -- even as corporate defaults run at a record pace -- the worry is that a swathe of repayment demands from puttable bondholders may upset that equilibrium."
"Recent optimism in China's debt market will soon be put to the test, with investors able to demand early repayment for as much as 544.7 billion yuan ($80bn) of debt by year-end. The amount of local bonds with put options that hit trigger points in the coming five months comes to almost 1.4 times the tally from January to July… While China's credit markets are still functioning relatively smoothly -- even as corporate defaults run at a record pace -- the worry is that a swathe of repayment demands from puttable bondholders may upset that equilibrium."
July 31 - New York Times (Chris Buckley):
"China's top leader, Xi Jinping, seemed indomitable when lawmakers abolished a term limit on his power early this year. But months later, China has been struck by economic headwinds, a vaccine scandal and trade battles with Washington, emboldening critics in Beijing who are questioning Mr. Xi's sweeping control. Censorship and punishment have muted dissent in China since Mr. Xi came to power. So Xu Zhangrun, a law professor at Tsinghua University in Beijing, took a big risk last week when he delivered the fiercest denunciation yet from a Chinese academic of Mr. Xi's hard-line policies, revival of Communist orthodoxies and adulatory propaganda image. 'People nationwide, including the entire bureaucratic elite, feel once more lost in uncertainty about the direction of the country and about their own personal security, and the rising anxiety has spread into a degree of panic throughout society,' Professor Xu wrote…"
"China's top leader, Xi Jinping, seemed indomitable when lawmakers abolished a term limit on his power early this year. But months later, China has been struck by economic headwinds, a vaccine scandal and trade battles with Washington, emboldening critics in Beijing who are questioning Mr. Xi's sweeping control. Censorship and punishment have muted dissent in China since Mr. Xi came to power. So Xu Zhangrun, a law professor at Tsinghua University in Beijing, took a big risk last week when he delivered the fiercest denunciation yet from a Chinese academic of Mr. Xi's hard-line policies, revival of Communist orthodoxies and adulatory propaganda image. 'People nationwide, including the entire bureaucratic elite, feel once more lost in uncertainty about the direction of the country and about their own personal security, and the rising anxiety has spread into a degree of panic throughout society,' Professor Xu wrote…"
Emerging Markets Watch:
July 30 - Bloomberg (Natasha Doff):
"Credit issued to developing-economy borrowers excluding banks has surged to $3.7 trillion by the end of March, fueled by a 16 percent year-on-year rise in new debt supply, the Bank for International Settlements said on Monday. Close to $500 billion comes from China, by far the biggest single issuer, with African and Middle Eastern nations also rapidly increasing their borrowing. The latest numbers underscore the relentless boom in the dollar credit cycle, even as investors fret over rising borrowing costs and an upswing in the U.S. currency. The premium money managers demand to hold developing-economy dollar bonds over Treasuries rose to the widest since 2016 last month before easing in recent weeks."
"Credit issued to developing-economy borrowers excluding banks has surged to $3.7 trillion by the end of March, fueled by a 16 percent year-on-year rise in new debt supply, the Bank for International Settlements said on Monday. Close to $500 billion comes from China, by far the biggest single issuer, with African and Middle Eastern nations also rapidly increasing their borrowing. The latest numbers underscore the relentless boom in the dollar credit cycle, even as investors fret over rising borrowing costs and an upswing in the U.S. currency. The premium money managers demand to hold developing-economy dollar bonds over Treasuries rose to the widest since 2016 last month before easing in recent weeks."
July 29 - Financial Times (Kiran Stacey and Farhan Bokhari):
"Pakistan is drawing up plans to seek its largest ever bailout from the IMF, with senior finance officials set to present the option to Imran Khan soon after he takes office. Any loan from the IMF, which officials believe is necessary to resolve the country's escalating foreign reserves crisis, would see the fund impose restrictions on public spending. Such limits would make it difficult for Pakistan's charismatic new leader to fulfil some of his election promises such as building an 'Islamic welfare state'."
"Pakistan is drawing up plans to seek its largest ever bailout from the IMF, with senior finance officials set to present the option to Imran Khan soon after he takes office. Any loan from the IMF, which officials believe is necessary to resolve the country's escalating foreign reserves crisis, would see the fund impose restrictions on public spending. Such limits would make it difficult for Pakistan's charismatic new leader to fulfil some of his election promises such as building an 'Islamic welfare state'."
Global Bubble Watch:
July 31 - Bloomberg (Chikako Mogi):
"The day after Haruhiko Kuroda pledged to allow greater swings in Japan's giant bond market while pushing back against rapid increases, traders are putting him to the test. Moves in 10-year government debt futures were so extreme on Wednesday -- a drop of as much as 0.5%, the most in almost two years -- that they triggered an emergency margin call from the clearing house. In the cash market, the yield on benchmark securities rose 6 bps to an 18-month high of 0.12%."
"The day after Haruhiko Kuroda pledged to allow greater swings in Japan's giant bond market while pushing back against rapid increases, traders are putting him to the test. Moves in 10-year government debt futures were so extreme on Wednesday -- a drop of as much as 0.5%, the most in almost two years -- that they triggered an emergency margin call from the clearing house. In the cash market, the yield on benchmark securities rose 6 bps to an 18-month high of 0.12%."
July 31 - Bloomberg (Emily Cadman):
"Australia's property slump deepened in July, with housing prices falling the most in almost seven years. National dwelling values dropped 0.6% last month -- the biggest fall since September 2011 -- as declines in Sydney and Melbourne accelerated, according to CoreLogic… Prices have now fallen for 10 straight months due to a combination of lending curbs, stretched affordability and reduced investor demand."
"Australia's property slump deepened in July, with housing prices falling the most in almost seven years. National dwelling values dropped 0.6% last month -- the biggest fall since September 2011 -- as declines in Sydney and Melbourne accelerated, according to CoreLogic… Prices have now fallen for 10 straight months due to a combination of lending curbs, stretched affordability and reduced investor demand."
July 30 - Reuters (Wayne Cole):
"Growth in Australian home loans for investment hit record lows in June as tighter lending standards and hikes in some mortgage rates sucked the life out of the buy-to-let sector, piling further pressure on house prices."
"Growth in Australian home loans for investment hit record lows in June as tighter lending standards and hikes in some mortgage rates sucked the life out of the buy-to-let sector, piling further pressure on house prices."
Europe Watch:
July 31 - Reuters (Kevin Costelloe and Alessandro Speciale):
"Italy's economic growth slowed to the weakest pace in almost two years, possibly spelling trouble for the populist government's costly projects. Gross domestic product expanded 0.2% in the three months through June, down from 0.3% in the first quarter…"
"Italy's economic growth slowed to the weakest pace in almost two years, possibly spelling trouble for the populist government's costly projects. Gross domestic product expanded 0.2% in the three months through June, down from 0.3% in the first quarter…"
July 29 - Reuters (Madeline Chambers):
"Support for German Chancellor Angela Merkel's conservative bloc, trying to move beyond a bitter dispute over migrant policy that threatened the coalition, has fallen to its lowest level since 2006, a poll showed on Sunday."
"Support for German Chancellor Angela Merkel's conservative bloc, trying to move beyond a bitter dispute over migrant policy that threatened the coalition, has fallen to its lowest level since 2006, a poll showed on Sunday."
Japan Watch:
July 31 - Bloomberg (Enda Curran):
"The BOJ on Tuesday made adjustments to two pillars of its policy that could be interpreted as steps toward normalization: It said it would let the 10-year yield rise just a bit higher, to 0.2% from 0.1%, and it cut in half the amount of bank reserves that would face its negative rate of minus 0.1%. On the other hand, it also introduced 'forward guidance,' pledging to keep short- and long-term rates at extremely low levels for an 'extended period of time,' though that's not dramatically different from its long-running pledge… to continue its stimulus program 'as long as it is necessary.'"
"The BOJ on Tuesday made adjustments to two pillars of its policy that could be interpreted as steps toward normalization: It said it would let the 10-year yield rise just a bit higher, to 0.2% from 0.1%, and it cut in half the amount of bank reserves that would face its negative rate of minus 0.1%. On the other hand, it also introduced 'forward guidance,' pledging to keep short- and long-term rates at extremely low levels for an 'extended period of time,' though that's not dramatically different from its long-running pledge… to continue its stimulus program 'as long as it is necessary.'"
Fixed Income Bubble Watch:
July 30 - Reuters:
"The U.S. Treasury Department on Monday sold $51 billion in three-month debt at interest rate of 2.000 percent, the most it paid dealers and investors at a three-month bill auction in more than a decade…"
"The U.S. Treasury Department on Monday sold $51 billion in three-month debt at interest rate of 2.000 percent, the most it paid dealers and investors at a three-month bill auction in more than a decade…"
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