Economic News for week ending August 31, 2018

Saturday, September 1, 2018

Weekly Commentary: 

Unassailable

by Doug Noland

full column here:

http://creditbubblebulletin.blogspot.com/2018/09/weekly-commentary-unassailable.html

My summary is below:

For the week

ending 8/31/18:

STOCKS:

S&P500 gained 0.9% 

   (up 8.5% y-t-d)

Dow Industrials added 0.7% 

   (up 5.0%)

Dow Utilities slipped 0.7% 

   (up 0.4%)

Dow Transports added 0.2% 

   (up 6.5%)

S&P 400 Midcaps rose 0.5% 

   (up 7.6%)

Small cap Russell 2000 gained 0.9% 

   (up 13.4%)

Nasdaq100 advanced 2.3% 

   (up 19.7%)

Biotechs jumped 3.6% 

   (up 26.4%). 

With bullion declining $5, 

the HUI gold stock index fell 2.4% 

   (down 25.8%).

U.K.'s FTSE fell 1.9% 

   (down 3.3% year-to-date).

Japan's Nikkei 225 gained 1.2% 

   (up 0.4% y-t-d).

France's CAC40 slipped 0.5% 

   (up 1.8%)

German DAX equities index dipped 0.2% 

   (down 4.3%)

Spain's IBEX 35 fell 2.0% 

   (down 6.4%)

Italy's FTSE MIB dropped 2.3% 

   (down 6.4%)

Brazil's Bovespa increased 0.5% 

   (up 0.4%)

Mexico's Bolsa declined 0.2% 

   (up 0.4%)

South Korea's Kospi index rose 1.3% 

   (down 5.9%)

India’s Sensex gained 1.0% 

   (up 13.5%). 

China’s Shanghai slipped 0.2% 

   (down 17.6%). 

Turkey's Istanbul National 100 rose 2.8% 

   (down 19.6%). 

Russia's MICEX jumped 2.9% 

   (up 11.2%).

US  BONDS  &  MORTGAGES:

Ten-year Treasury yields 

gained five bps to 2.86% (up 46bps). 

Long bond yields 

increased six bps to 3.02% (up 28bps). 

Benchmark Fannie Mae MBS yields 

rose five bps to 3.62 (up 62bps).

Freddie Mac 30-year fixed mortgage rates 

added a basis point to 4.52% (up 70bps y-o-y). 

Fifteen-year rates 

slipped a basis point to 3.97% (up 85bps). 

Five-year hybrid ARM rates 

rose three bps to 3.85% (up 71bps). 

Jumbo mortgage 30-yr fixed rates 

up seven bps to 4.59% (up 60bps).

Federal Reserve Credit 

over the past year, 

contracted 5.3%. 

M2 (narrow) "money" supply 

increased only  3.9%, 

over the past year. 

Currency Watch:

The U.S. dollar index 
was little changed at 95.099 

   (up 3.2% y-t-d). 

Commodities Watch:

Goldman Sachs Commodities Index jumped 2.2% 

   (up 6.1% y-t-d). 

Spot Gold slipped 0.4% to $1,201 

   (down 7.8%). 

Silver lost 2.3% to $14.557 

   (down 15.1%). 

Crude rose $1.28 to $69.80 

   (up 16%). 

Gasoline increased 1.1% 

   (up 11%)

Natural Gas was little changed 

   (down 1%)

Copper fell 1.5% 

   (down 19%)

Wheat rallied 1.7% 

   (up 28%). 

Corn added 0.6% 

   (up 4%).

Trump Administration Watch:

August 31 - Bloomberg (Jennifer Jacobs, Shawn Donnan, Andrew Mayeda and Saleha Mohsin): 

"President Donald Trump wants to move ahead with a plan to impose tariffs on $200 billion in Chinese imports as soon as a public-comment period concludes next week, according to six people familiar with the matter. Asked to confirm the plan in an interview with Bloomberg News in the Oval Office on Thursday, Trump smiled and said it was 'not totally wrong.' He also criticized management of the yuan, saying China has devalued its currency in response to a recent slowdown in economic growth."

August 30 - Bloomberg (John Micklethwait, Margaret Talev, and Jennifer Jacobs): 
"President Donald Trump said he would pull out of the World Trade Organization if it doesn't treat the U.S. better, targeting a cornerstone of the international trading system. 'If they don't shape up, I would withdraw from the WTO,' Trump said Thursday in an Oval Office interview with Bloomberg News. Trump said the agreement establishing the body 'was the single worst trade deal ever made.'"

August 26 - Bloomberg (Michael Schuman): 

"With the latest round of trade talks between the U.S. and China ending in a predictable stalemate, one thing has become clear: The Trump administration's approach to these negotiations has made it all but impossible for Chinese President Xi Jinping to make a deal. Until that changes, there's no end in sight for the tariff-for-tariff tussle between the two countries… The White House seems to misunderstand a crucial fact about modern China. As Xi has tightened his grip on power, China's economic and diplomatic initiatives have become closely associated with him personally. In foreign policy, Xi has sold himself as the champion of China's global interests and the man to stand up to the West and restore the country to its former glory. At home, Xi has promised the 'Chinese Dream,' a prosperous future with boundless new opportunities. But this carefully crafted image comes with two downsides. First, Xi must avoid any potentially humiliating setbacks on the world stage, especially any inflicted by a Western power. Second, he must keep China's economy growing, generating jobs and raising incomes."

August 27 - CNBC (Huileng Tan): 

"The U.S. and China will continue their standoff in the ongoing trade war as there is just not 'enough pain' yet for either side to back off, an expert said… 'I think we are in for a prolonged period of continuing escalating tensions,' said Deborah Elms, the executive director at the Asian Trade Centre… One problem is that 'both sides think they have the upper hand in this debate,' Elms told CNBC's 'Capital Connection.' Her comments came after the U.S. and China slapped new tariffs on each other last Thursday and their two-day meeting ended with no major breakthrough."

August 29 - Bloomberg (Toluse Olorunnipa and Jennifer Epstein): 

"President Donald Trump accused China of undermining U.S. efforts to pressure North Korea into giving up its nuclear weapons, indicating his trade war with Beijing is starting to exacerbate geopolitical tensions. 'North Korea is under tremendous pressure from China because of our major trade disputes with the Chinese Government,' Trump said in a series of tweets… 'At the same time, we also know that China is providing North Korea with considerable aid, including money, fuel, fertilizer and various other commodities. This is not helpful!' China fired back…, saying it's policies on North Korea 'are clear, consistent and stable.'"

August 27 - CNBC (Jeff Daniels): 

"With some U.S. farm products getting slammed by retaliatory tariffs, the Trump administration is prepared to start its emergency plan for agriculture right after Labor Day in a 'three-pronged approach' that will initially include about $6 billion in aid. The U.S. Department of Agriculture said… it is authorized to provide up to $12 billion in aid to the agricultural industry."

U.S. Bubble Watch:

August 28 - CNBC (Michael Sheetz): 

"Consumer confidence rose in August to its highest level since October 2000, building on July's solid result. The Conference Board's index climbed to 133.4 in August, despite expectations… that it would fall to 126.7. The measure rose slightly last month to 127.4, up from 127.1 in June… 'Expectations, which had declined in June and July, bounced back in August and continue to suggest solid economic growth for the remainder of 2018,' Lynn Franco, director of economic indicators at The Conference Board, said…"

August 26 - Financial Times (Sam Fleming): 

"Moves by US companies to shift the cost of President Donald Trump's tariffs to their customers risk complicating monetary policy decisions as the Federal Reserve seeks to keep inflation steady, the central bank's policymakers have warned. Raphael Bostic, president of the Atlanta Fed, told the Financial Times that he believed the US was at an 'inflection point', where higher tariffs on products such as steel and aluminium would start to be felt by consumers. 'An increasing number of firms are telling us that they are going to start passing the cost increases through and they will be reflected in final goods prices… Businesses have told me that they have been able to absorb a fair amount of the price increases to date but that their ability to do that is diminishing."

August 30 - Bloomberg (Xin En Lee): 

"Profits are crucial to the growth of any company, but some of the biggest names in business today have yet to make money. Publicly-listed companies like electric carmaker Tesla and music streaming firm Spotify make billions in losses. Likewise, ride-hailing firm Uberlost $4.5 billion last year, but is gearing up for a highly anticipated public listing… Investors are not put off by unprofitable companies. In fact, the proportion of companies reporting losses before going public in the United States is at its highest since the dotcom boom in 2000. Last year, 76% of the companies that listed were unprofitable in the year before their initial public offerings… That's lower than the 81% recorded in 2000, but still far higher than the four-decade average of 38%."

August 30 - Bloomberg (Andrew Galbraith): 

"Investors are stomaching the lowest premium in more than a decade for taking on more risk in the US commercial property market, as a humming American economy encourages money managers to reach for higher returns. The difference between the return on the safest slices of commercial mortgage-backed securities - a pool of mortgages bundled into a bond - and the riskier slices has dropped to its lowest level since the build-up to the financial crisis… A combination of an expanding US economy and the ongoing hunt for yield is driving investors' willingness to assume more exposure to potential losses without greater compensation. For some it is another sign that a nearly decade-old credit cycle maybe approaching a turning point."

August 30 - Reuters (Lucia Mutikani): 

"U.S. consumer spending increased solidly in July, pointing to strong economic growth early in the third quarter, while a measure of underlying inflation hit the Federal Reserve's 2% target for the third time this year. …Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.4% last month after advancing by the same margin in June… The personal consumption expenditures (PCE) price index excluding the volatile food and energy components rose 0.2% after edging up 0.1% in June. That lifted the year-on-year increase in the so-called core PCE price index to 2.0% from 1.9% in June. The core PCE index is the Fed's preferred inflation measure. It hit the U.S. central bank's 2% inflation target in March for the first time since April 2012."

August 28 - CNBC (Diana Olick): 
"Homebuyers are pulling back, and prices are finally following. Home prices are still rising, but the gains are shrinking. In June, prices nationally rose 6.2% year over year, according to the S&P CoreLogic Case-Shiller Indices. That is down from the 6.4% annual gain in May. Home prices in the nation's 10 largest housing markets rose 6% annually, down from 6.2% in the previous month. In the 20 largest markets, prices were up 6.3%, down from 6.5% in May."

August 27 - Bloomberg (Prashant Gopal): 

"Here's why the U.S. housing market is cooling: Prices are just too high. 
Starter homes are now more costly to purchase than at any time since 2008, when the last boom came to a crashing halt. In the second quarter, first-time buyers needed almost 23% of their income to afford a typical entry-level home, up from 21% a year earlier, according to an analysis by the National Association of Realtors."

August 28 - Bloomberg (Alex Tanzi): 

"Rising property values and record household wealth is allowing homeowners to use their homes as ATMs. In more than two-thirds of refinancing loans last quarter, homeowners pulled equity to finance consumer spending, property improvements and pay off other debts."

August 26 - Financial Times (Robin Wigglesworth): 

"The US student loan burden has swelled past $1.5tn despite actual lending volumes falling for more than half a decade, as struggling students fall behind on their payment plans and debt relief programmes fail to offer sufficient succour. The overall size of US student debt has grown by $500bn since the 2010-11 academic year, according to a report by S&P Global…"

China Watch:

August 30 - Bloomberg (Andrew Galbraith): 

"Twitter comments by U.S. President Donald Trump accusing China of hacking former presidential candidate Hillary Clinton's email server are an attempt to cast China as a 'scapegoat', the official China Daily said… The strongly worded editorial also took aim at Trump directly, commenting: 'To the thinking person, there are few things more disconcerting than a tweet by the U.S. president as they initially seem to accord to reality but then quickly turn into messages from some alternative universe.'"

August 26 - Reuters (Yawen Chen, Se Young Lee and Ryan Woo): 

"China's investment growth, already at record lows, may weaken even further in the future and authorities should step up fiscal and financial measures to give it a boost, the state planner said… Fixed-asset investment (FAI) in the first seven months of the year grew at the slowest pace on record since early 1996, after a long crackdown on illegal local government borrowing to finance vanity projects."

Emerging Markets Watch:

August 30 - Bloomberg (Marcus Ashworth): 

"The difficulties for emerging markets have entered a new phase. What were once clearly country-specific crises, well contained within their borders, are bleeding across the world. To stem the slide in its currency Argentina raised its key rate to a whopping 60% on Thursday, but the peso was still 30% weaker from Monday. Though Turkey is no closer to solving its many problems, it's hard to see why the lira needed to fall 4% on Thursday. Explanations that this is due to the resignation of one of the central bank's four deputy governors don't convince - he's only gone to take another government job."

August 28 - Financial Times (Colby Smith and Charles Newbery): 

"Argentina may have reluctantly fallen back into the embrace of the International Monetary Fund, but the biggest aid package in history has not managed to inoculate the country from an onslaught of market pain. Many investors felt reassured when Argentina received a $50bn credit line from the IMF in June and President Mauricio Macri followed through on mandated reforms to slash the fiscal deficit and tame inflation. Yet the recent turmoil in emerging markets has since muddied the outlook and called into question how Argentina will meet its $82bn financing needs for this year and next, while navigating a looming recession and rising consumer prices ahead of a presidential election in 2019."

Global Bubble Watch:

August 25 - Bloomberg (Satyajit Das): 

"Over the past decade, a lot of capital has flowed into emerging markets thanks in part to excessive liquidity in advanced economies. This money has often found its way into risky or suspect investment structures. Should a crisis strike… investors in these markets will be exposed to risks that they simply aren't prepared for. One problem is that investors have piled into familiar carry trades, either directly or via funds. They've purchased high-yielding emerging-market securities and then, as returns have fallen, resorted to more adventurous strategies to boost income. Japanese retail investors, for example, are exposed to funds known as double-deckers, which purchase high-yield debt, then swap the income flows from the bond into a currency with high interest rates."

Europe Watch:

August 29 - Bloomberg (Lorenzo Totaro): 

"Government representative are said to be calling on the ECB to pass a new program of bond purchases in order to shield Italy's debt from financial speculation and avoid a rating downgrade, La Stampa reports citing an unnamed official. The new QE-styled program could also have a different name if needed…"

Japan Watch:

August 29 - Bloomberg (Chikafumi Hodo): 
"Japan's benchmark bonds recorded no trades on Wednesday, less than a month after the central bank sought to enliven the world's second-biggest debt market by relaxing yield control. That's the seventh instance this year when the debt didn't change hands, though the first since July 31 when the Bank of Japan said it will allow the 10-year yield to deviate by as much as 0.2 percentage points around zero percent… While Hitoshi Suzuki, a BOJ board member, said Wednesday the central bank still needs more time to decide if the policy tweak… is sufficient, consensus has emerged among regional banks and insurance companies that more needs to be done as trading returns to abysmal levels."

Fixed Income Bubble Watch:

August 29 - CNBC (Robert Ferris): 

"Moody's downgraded Ford's credit rating to one notch above junk bond status Wednesday and warned that it could be further cut as the Detroit automaker struggles overseas and invests an estimated $11 billion on a turnaround plan. The second-largest U.S. auto manufacturer is facing weakening profit margins in North America, a retrenching business in China, and losses in South America and Europe, at least some of which could continue to worsen, Moody's said… The investments are necessary, but it will take several years before that translates to better performance, Moody's said."

Leveraged Speculation Watch:

August 29 - Bloomberg (Eric Lam and Matt Turner): 

"Short positions against the so-called FAANG group of the largest U.S. technology stocks have surged by more than 40% in the past year as investors bet against some of the biggest drivers of the global bull market. Bearish investors have shorted about $37 billion worth of stocks in the group, which comprises Facebook Inc., Apple Inc., Amazon.com Inc., Netflix Inc. and Google parent Alphabet Inc., up 42% from a year ago. Amazon leads the way with almost $10 billion in short interest… 'Tech stocks have had a large run-up in price this year,' Ihor Dusaniwsky, head of research at S3 Partners, said… 'The greater the rise, the greater the fall so they are being targeted as the stocks to short. With the bull market possibly entering the backstretch, portfolio managers are bracing for a selloff and increasing their overall market short exposure.'"

Geopolitical Watch:

August 28 - Bloomberg (Henry Meyer and Ilya Arkhipov): 

"Russia is to hold its biggest military maneuvers since the height of the Cold War next month, mobilizing about 300,000 troops and including the participation of thousands of soldiers from China, Defense Minister Sergei Shoigu said. The Vostok-2018 exercises in Russia's eastern and central military districts… from Sept. 11-15 will involve almost a third of the country's soldiers, making them the largest since 1981... Some 1,000 aircraft and both the Northern and Pacific fleets will be deployed. 'Imagine 36,000 tanks and armored personnel carriers all moving at the same time,' the defense minister said. 'This will all be tested under conditions as close as possible to war.'"

August 26 - Reuters (Hayoung Choi and Josh Smith): 

"North Korea's state-controlled newspaper… accused the United States of 'double-dealing' and 'hatching a criminal plot' against Pyongyang, after Washington abruptly canceled a visit by Secretary of State Mike Pompeo. Negotiations have been all but deadlocked since U.S. President Donald Trump's summit with North Korean leader Kim Jong Un in Singapore in June."

August 27 - Bloomberg (Tim Kelly): 

"Japan said… North Korea still posed a dire threat to its security despite a halt to ballistic missile tests and a pledge by leader Kim Jong Un to denuclearize the Korean peninsula. 'North Korea's military activities pose the most serious and pressing threat our nation has faced,' said an annual white paper published by Japan's Ministry of Defence."