Sunday, September 16, 2018
Just the Facts:
by Doug Noland
the full column is here:
My summary is below:
For the week ending September 15:
STOCKS:
S&P500 gained 1.2% (up 8.7% year-to-date)
Dow Industrials added 0.9% (up 5.8%)
Dow Utilities increased 0.4% (up 1.9%)
Dow Transports jumped 2.0% (up 9.0%)
S&P 400 Midcaps gained 1.0% (up 7.7%)
Small cap Russell 2000 rose 0.5% (up 12.1%)
Nasdaq100 advanced 1.6% (up 18.0%)
Biotechs were about unchanged (up 21.7%).
While bullion slipped $3,
the HUI gold stock stock index
recovered 0.9%
(down 28.5%).
U.K.'s FTSE increased 0.4% (down 5.0% y-t-d).
Japan's Nikkei 225 surged 3.5% (up 1.4%).
France's CAC40 gained 1.9% (up 0.8%).
The German DAX rose 1.4% (down 6.1%).
Spain's IBEX 35 rallied 2.1% (down 6.8%).
Italy's FTSE MIB rose 2.1% (down 4.4%).
Brazil's Bovespa fell 1.3% (down 1.3%)
Mexico's Bolsa gained 1.3% (up 0.5%).
South Korea's Kospi jumped 1.6% (down 6.0%).
India's Sensex declined 0.8% (up 11.8%).
China's Shanghai fell 0.8% (down 18.9% y-t-d).
Turkey's Istanbul National 100 rallied 1.6% (down 17.8%).
Russia's MICEX recovered 1.7% (up 11.9%).
US BONDS & MORTGAGES
Ten-year Treasury yields
rose six bps to 3.00%
(up 59bps).
Long bond yields
added three bps to 3.13%
(up 39bps).
Benchmark Fannie Mae MBS yields
gained six bps to 3.77%
(up 77bps).
Freddie Mac 30-year fixed mortgage rates
jumped six bps to 4.60%
(up 61bps y-o-y).
Fifteen-year rates
rose seven bps to 4.06%
(up 62bps).
Five-year hybrid ARM rates
were unchanged at 3.93%
(up 46bps).
Jumbo mortgage 30-yr fixed rates
up seven bps to 4.66%
(up 51bps).
Federal Reserve Credit
over the past year,
contracted 5.6%.
M2 money supply
gained 4.1%,
over the past year.
Currency Watch:
The Chinese renminbi
declined 0.35% versus the dollar
this week
(down 5.25% y-t-d).
Commodities Watch:
Goldman Sachs Commodities Index gained 0.7% (up 5.0% y-t-d).
Spot Gold slipped 0.2% to $1,194 (down 8.4%).
Silver slipped 0.2% to $14.142 (down 17.5%).
Crude rallied $1.24 to $68.99 (up 14%).
Gasoline was little changed (up 10%)
Natural Gas slipped 0.3% (down 6%).
Copper increased 0.9% (down 20%).
Wheat was about unchanged (up 20%).
Corn fell 4.2% (unchanged).
Trump Administration Watch:
September 14 - Reuters (Jeff Mason):
"U.S. President Donald Trump
has directed aides to
proceed with tariffs on
about another $200 billion
of Chinese goods,
despite Treasury Secretary Steven Mnuchin's attempts to restart trade talks with China, a source familiar with the matter said on Friday. The timing for activating the additional tariffs was unclear."
September 7 - Bloomberg (Zainab Fattah):
"China's trade surplus
with the United States
widened to a record in August
even as the country's
export growth slowed slightly…
The politically sensitive surplus hit $31.05 billion in August, up from $28.09 billion in July, customs data showed on Saturday, surpassing the previous record set in June. Over the first eight months of the year, China's surplus with its largest export market has risen nearly 15%..."
September 10 - Bloomberg (Jennifer Epstein and Shannon Pettypiece):
"President Donald Trump made a sweeping decision in August 2017 that could have rocked the global economy: the U.S. would pull out of Nafta, the World Trade Organization, and its trade deal with South Korea. Alarmed, Trump's top staffers scrambled to stop him, according to Bob Woodward's new book, 'Fear.'."
Federal Reserve Watch:
September 13 - Reuters (Lucia Mutikani):
"The number of Americans
filing for unemployment aid
dropped last week
to near a 49-year low.
'With labor market conditions tight, wage growth accelerating and input prices being pushed up by capacity constraints and recently imposed tariffs, there is plenty of upward pressure on prices,' said Paul Ashworth, chief U.S. economist at Capital Economics…"
September 13 - Reuters:
"When unemployment falls as low as it is currently, Boston Federal Reserve bank President Eric Rosengren said in a new paper released Thursday as part of a review of Fed policy, recession has inevitably followed, with the central bank showing no success in fine-tuning the economy to a stable rest at full employment."
U.S. Bubble Watch:
September 11 - MarketWatch (Steve Goldstein):
"The U.S. budget deficit in August
was $211 billion, nearly double
the gap during the year-ago month,
the Congressional Budget Office estimated… Adjusted for shifts in the timing of payments that otherwise would have occurred on a weekend of holiday, the deficit would have grown by 19%... What happened: Excluding timing shifts, outlays grew 8%, as the net interest on public debt jumped 25%, defense spending jumped 10%, outlays for Social Security grew 5%, and outlays for Medicare benefits rose 7%... Receipts fell by 3%, with corporate taxes dropping by $5 billion, while revenue from income and payroll taxes rose marginally."
September 11 - CNBC (John Melloy):
"U.S. small business optimism
surged to a record in August
as the tax cuts and deregulation efforts
of President Donald Trump
and the Republican-led Congress
led to more sales, hiring and investment,
according to a survey by the National Federation of Independent Business. The NFIB Small Business Optimism Index jumped to 108.8 last month, the highest level ever recorded in the survey's 45-year history and above the previous record of 108 in 1983… The August figure was up from a 107.9 reading in July."
September 13 - Wall Street Journal (Janet Adamy and Paul Overberg):
"American incomes rose
and poverty declined
for the third consecutive year
in 2017,
according to census figures
… that suggest more Americans
are benefiting from
the robust economy.
The new data… show that median household income increased to $61,372 last year, up 1.8% when adjusted for inflation. There were 39.7 million people in poverty last year, and that rate dropped 0.4 percentage point to its lowest level since 2006. The number of people working full time year round increased by 2.4 million in 2017. Incomes have grown 10.4% in the past three years, and last year's figure was the highest on record."
September 11 - Reuters (Lucia Mutikani):
"U.S. job openings surged
to a record high in July
and more Americans
voluntarily quit their jobs,
pointing to sustained
labor market strength
and confidence that could soon
spur faster wage growth.
The Labor Department's monthly Job Openings and Labor Turnover Survey, or JOLTS… also suggested a further tightening in labor market conditions, with employers appearing to increasingly have trouble finding suitable workers."
September 11 - Wall Street Journal (Bob Tita):
"Workers at two of the biggest U.S. steelmakers are demanding higher compensation as tariffs on foreign metal push prices and profits to their highest point in years in a buoyant economy. Leaders for some 30,000 members of the United Steelworkers union say United States Steet Corp. and ArcelorMittal SA aren't passing those benefits to their workers, who have gone without raises in recent years even as wages have started to climb more broadly."
September 13 - Reuters (Michelle Conlin and Robin Respaut):
"As of June 30,
nearly one in 10
American homes
with mortgages
were 'seriously' underwater
, according to… ATTOM Data Solutions, meaning that their market values were at least 25% lower than the balance remaining on their mortgages. It is an improvement from 2012, when… severe negative equity topped out at 29%, or 12.8 million homes. Still, it is double the rate considered healthy by real estate analysts. 'These are the housing markets that the recovery forgot,' said Daren Blomquist, a senior vice president at ATTOM."
China Watch:
September 14 - Bloomberg:
"Chinese state media warned
the nation shouldn't expect
a quick resolution of its trade dispute
with the U.S., as there have been
no signs that President Donald Trump
has changed his thinking.
While it is good to talk, China should be aware that there may not be a deal anytime soon, according to an editorial published… in Global Times, a tabloid run by the official People's Daily. The newspaper said Washington is still taking a tough attitude. The U.S. will only engage in serious discussions if it believes additional tariffs won't bring more benefits, or if public opinion in the U.S. harms Trump's approval rating… Trump tweeting that he isn't under pressure to make a deal with China has stoked concern that the U.S. president isn't serious about a possible new round of trade talks between the two nations. China's commerce ministry said… it welcomed a U.S. offer of talks and that both sides were working on the details. The U.S. proposal to talk could be 'deceptive,' warned the China Daily…"
September 15 - Bloomberg:
"China's economic momentum
weakened again in August,
presenting its policy makers
with a test of nerve
as they prepare for
a potential new round
of trade talks
with their U.S. counterparts.
Fixed-asset investment growth in the first eight months slowed to the lowest pace since at least 1999 and infrastructure investment rose just 4.2%, the weakest expansion since the data series started in 2014… A slowing economy gives China a weaker hand ahead of possible new trade talks the two sides are discussing, adding to the risk of a deeper slowdown should U.S. President Donald Trump pull the trigger on tariffs on an additional $200 billion of Chinese goods… Investment rose 5.3% year-on-year in the first eight months, compared with an estimated 5.6%... August industrial production expanded 6.1%, meeting estimates. Retail sales expanded 9% last month from a year earlier, accelerating from an 8.8% pace in July."
September 14 - Wall Street Journal (Stephen Wilmot):
"Car sales in China have shifted into reverse, ... Most major car makers have done very well in China… Nissan and Volkswagen get nearly a quarter of their pretax profit from those businesses, and General Motors isn't far behind. What the car companies don't tell investors is how much they earn from exports, royalties and parts sales in China, which can be significant and aren't fully disclosed…
After years of rapid growth,
the Chinese market
is far larger than its counterparts
in the West, with more than
24 million cars sold last year
compared with roughly 17 million
in the U.S. and 15 million
in the European Union.
But sales fell 7% in August
compared with a year earlier…"
Emerging Markets Watch:
September 14 - Bloomberg (Andrey Biryukov, Anna Andrianova and Olga Tanas): "Russia's central bank
unexpectedly raised interest rates
for the first time since 2014,
following its counterparts
across emerging economies
as inflation risks mount
with a slumping currency
and threats of U.S. sanctions.
Policy makers said they'll 'consider the necessity of further increases' after lifting their benchmark to 7.5%, a level last seen in March, from 7.25%... Governor Elvira Nabiullina… said easing may not resume for more than a year. 'The quick monetary-policy response will limit the growth of inflationary risks in the future and create the conditions for easing policy by the end of 2019 or the first half of 2020,' Nabiullina told reporters… Further tightening isn't inevitable, but it can't be ruled out, she said."
September 11 - New York Times (Matt Phillips):
"The sharp sell-off
of emerging market currencies,
stocks and bonds seems to stand
in stark contrast to the United States,
where a nearly decade-long bull market
continues amid buoyant economic conditions.
Higher interest rates in the United States and a stronger dollar rebalance the risks and rewards for investors the world over, and act as a kind of financial magnet, pulling them out of riskier investments. When we've seen this before - in the Mexican peso crisis of 1994, the Thai baht collapse of 1997 and the Russian default of 1998 - investors had to contend with spillover of trouble from one country to others, dragging down economic growth or causing market stress."
September 11 - Financial Times (James Politi and Sam Fleming):
"Christine Lagarde has warned
that the escalating US-China trade war
could deliver a 'shock' to
already struggling emerging markets,
raising the prospect
that a crisis ripping through
Argentina and Turkey
could spread across
the developing world.
The IMF managing director told the Financial Times that her staff does not yet see 'contagion' spreading to multiple countries beyond those currently fighting investor flight. But she warned that 'these things could change rapidly' and cited the 'uncertainty [and] lack of confidence already produced by the threats against trade, even before it materialises', as one of the main dangers facing the developing world."
September 13 - Wall Street Journal (David Gauthier-Villars and Jon Sindreu): "Turkey's central bank
sharply raised interest rates
-defying President Recep
Tayyip Erdogan's demand
to cut them-in an attempt to counter
the country's economic problems
and reverse growing investor aversion
to emerging-market economies.
The central bank increased its main interest rate to 24% from 17.75%..., citing concerns over price stability and saying it would maintain a tight monetary-policy stance until the inflation outlook improves significantly. The turmoil in Turkey has rattled global markets in recent weeks and comes at a precarious time for developing economies around the world, just as investors have started to cast doubt on how long the current period of synchronized global growth can last."
Global Bubble Watch:
September 11 - Bloomberg (Satyajit Das):
"Slowing global trade is evidence
of how emerging-market stresses
are being transmitted
to advanced economies.
The real concern of contagion remains financial linkages, though. Since 2009, non-resident gross flows into EM financial assets - loans, debt and equity securities - have averaged around $1 trillion annually, although the figure has been volatile. Total outstanding exposure, which remains opaque, may be around 50% of GDP in advanced economies. The main driver has been accommodative monetary policy of developed-world central banks and the lure of higher returns. Despite reductions, bank cross-border lending constitutes around half of the exposure. U.K., European, Japanese and Chinese banks are particularly vulnerable… Spanish banks have substantial amounts at risk in Turkey and South America. China's risks via loans to EM borrowers as part of the Belt and Road initiative are also significant. Investors make up the bulk of the remaining exposure."
Fixed Income Bubble Watch:
September 14 - CNBC (Thomas Franck and Alexandra Gibbs):
"The yield on the benchmark
10-year Treasury note
topped 3% on Friday
for the first time since Aug. 2.
Yields have been steadily rising
since the start of September
as expectations for economic growth
creep higher.
Traders pointed to a revision in the retail sales figures out on Friday as the reason for the latest push higher in rates."
Geopolitical Watch:
September 10 - Financial Times (Henry Foy):
"Hundreds of Russian and Chinese
tanks, attack helicopters, fighter jets
and thousands of soldiers
will this week fight side by side
in the biggest war games
in Russia since 1981,
in a show of strength and friendship
between Asia's two largest military powers.
Russia's biggest military exercise since the cold war, and its first to be conducted with a country not from the former Soviet bloc, is the strongest sign yet of the deepening strategic bond between Moscow and Beijing… Involving 300,000 troops and close to 40,000 vehicles, the seven-day 'Vostok' war games will coincide with talks between Vladimir Putin and Xi Jinping in Vladivostok…, amid a concerted effort by Russia to pivot east and embrace its powerful neighbour."
September 10 - Bloomberg (Zainab Fattah):
"The U.S. Navy
is conducting exercises
this month to ensure its readiness
to guarantee freedom of movement
through Persian Gulf and Red Sea
waterways amid escalating threats
from Iran to disrupt shipping
across important choke points.
The exercises, with regional and global allies, are part of the U.S. 5th Fleet Theater Counter Mine and Maritime Security Exercise…"
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