Saturday, September 29, 2018
Weekly Commentary:
Portending an Interesting Q4
by Doug Noland
full column is here:
My summary is below:
S&P500 returned 7.7% for the quarter,
lagging the Nasdaq100's 8.6%.
The Nasdaq Telecom index jumped 11.7%,
and the Biotechs (BTK) surged 13.2%.
The NYSE Healthcare Index gained 12.7%.
The Dow Transports rose 10.0%,
with the DJIA up 9.0%.
For the Week
ending September 28:
Stocks:
S&P500 slipped 0.5% (up 9.0% y-t-d)
Dow Industrials declined 1.1% (up 7.0%).
Dow Utilities fell 0.8% (down 0.4%).
Dow Transports declined 1.3% (up 7.2%)
S&P 400 Midcaps fell 1.1% (up 6.3%)
Small cap Russell 2000 lost 0.9% (up 10.5%)
Nasdaq100 advanced 1.3% (up 19.2%)
Biotechs surged another 3.4% (up 27.4%).
With bullion down $7,
the HUI gold stock index fell 1.3%
(down 26.6%)
U.K.'s FTSE increased 0.3% (down 2.3%).
Japan's Nikkei 225 rose 1.0% (up 6.0% y-t-d).
France's CAC40 little changed (up 3.4%).
German DAX fell 1.5% (down 5.2%).
Spain's IBEX 35 dropped 2.1% (down 6.5%).
Italy's FTSE MIB sank 3.8% (down 5.2%)
Brazil's Bovespa little changed (up 3.8%)
Mexico's Bolsa increased 0.3% (up 0.3%)
South Korea's Kospi gained 0.2% (down 5.0%)
India's Sensex dropped 1.7% (up 6.4%)
China's Shanghai rose 0.9% (down 14.7%)
Turkey's Istanbul National 100 index jumped 2.0% (down 13.3%).
Russia's MICEX rose 2.0% (up 17.3%).
German DAX fell 1.5% (down 5.2%).
Spain's IBEX 35 dropped 2.1% (down 6.5%).
Italy's FTSE MIB sank 3.8% (down 5.2%)
Brazil's Bovespa little changed (up 3.8%)
Mexico's Bolsa increased 0.3% (up 0.3%)
South Korea's Kospi gained 0.2% (down 5.0%)
India's Sensex dropped 1.7% (up 6.4%)
China's Shanghai rose 0.9% (down 14.7%)
Turkey's Istanbul National 100 index jumped 2.0% (down 13.3%).
Russia's MICEX rose 2.0% (up 17.3%).
US Bonds & Mortgage Rates
Ten-year Treasury yields
unchanged at 3.06% (up 66bps).
unchanged at 3.06% (up 66bps).
Long bond yields
added a basis point to 3.21% (up 47bps).
added a basis point to 3.21% (up 47bps).
Benchmark Fannie Mae MBS yields
slipped a basis point to 3.81% (up 82bps).
slipped a basis point to 3.81% (up 82bps).
Freddie Mac 30-year fixed mortgage rates
rose seven bps to 4.72% (up 73bps y-o-y).
rose seven bps to 4.72% (up 73bps y-o-y).
Fifteen-year rates
gained five bps to 4.16% (up 72bps).
gained five bps to 4.16% (up 72bps).
Five-year hybrid ARM rates
increased five bps to 3.97% (up 50bps).
increased five bps to 3.97% (up 50bps).
Jumbo mortgage 30-yr fixed rates
down two bps to 4.81% (up 66bps).
down two bps to 4.81% (up 66bps).
Over the past year,
Fed Credit contracted 5.9%.
M2 (narrow) money
gained 4.0%, over the past year.
Currency Watch:
The U.S. dollar index
rallied 1.0% to 95.132 (up 3.3% y-t-d).
rallied 1.0% to 95.132 (up 3.3% y-t-d).
Commodities Watch:
Goldman Sachs Commodities Index jumped 2.6% (up 9.9% y-t-d).
Spot Gold slipped 0.5% to $1,193 (down 8.5%).
Silver rallied 2.5% to $14.712 (down 14.2%).
Crude surged another $2.47 to $73.25 (up 21%).
Gasoline jumped 3.4% (up 16%)
Natural Gas gained 1.0% (up 2%).
Copper fell 1.8% (down 15%).
Wheat dropped 2.4% (up 19%).
Corn slipped 0.3% (up 2%).
Trump Administration Watch:
September 23 - CNBC (Javier E. David):
"President Donald Trump ordered a new raft of surcharges on around $200 billion worth of Chinese goods last week, with China retaliating with $60 billion in U.S. goods. Last year, the world's largest economy absorbed more than $500 billion worth of goods from China…
'Following President Trump's threat of further escalation, we now think the probability that all imports from China will ultimately be subject to tariffs has risen to 60%,' the bank's analysts wrote…"
"President Donald Trump ordered a new raft of surcharges on around $200 billion worth of Chinese goods last week, with China retaliating with $60 billion in U.S. goods. Last year, the world's largest economy absorbed more than $500 billion worth of goods from China…
'Following President Trump's threat of further escalation, we now think the probability that all imports from China will ultimately be subject to tariffs has risen to 60%,' the bank's analysts wrote…"
September 23 - New York Times (Cecilia Kang):
"President Trump says his trade war with China will protect America's dominance and derail Beijing's plan for technological and economic supremacy. But as the fight kicks into high gear this week, American tech and telecom companies are warning that the industry's growing reliance on products made and assembled in China means they are more likely to be casualties, not victors,
in the skirmish. Mr. Trump's next round of tariffs on $200 billion worth of Chinese goods goes into effect on Monday, hitting thousands of consumer products from handbags to refrigerators to bicycles. The tariffs will also hit the tech and telecom companies that provide much of the gear that powers the internet, mobile networks, data storage and other technology. United States customs will begin collecting a tax on circuit boards, semiconductors, cell tower radios, modems and other products made and assembled in China and exported into America. Those tariffs, Intel warned in a letter last month, are 'a game changer for the American consumer.'"
"President Trump says his trade war with China will protect America's dominance and derail Beijing's plan for technological and economic supremacy. But as the fight kicks into high gear this week, American tech and telecom companies are warning that the industry's growing reliance on products made and assembled in China means they are more likely to be casualties, not victors,
in the skirmish. Mr. Trump's next round of tariffs on $200 billion worth of Chinese goods goes into effect on Monday, hitting thousands of consumer products from handbags to refrigerators to bicycles. The tariffs will also hit the tech and telecom companies that provide much of the gear that powers the internet, mobile networks, data storage and other technology. United States customs will begin collecting a tax on circuit boards, semiconductors, cell tower radios, modems and other products made and assembled in China and exported into America. Those tariffs, Intel warned in a letter last month, are 'a game changer for the American consumer.'"
September 25 - Reuters (David Lawder):
"U.S. President Donald Trump's top trade official said… that changing China's economic policies to become more market-oriented 'is not going to be easy' even with tariffs now in place on $250 billion worth of Chinese goods. U.S. Trade Representative Robert Lighthizer, in rare public remarks at the Concordia Summit,
said 'endless dialogues' with the Chinese government over decades had 'failed miserably' in changing Beijing's policies, so the Trump administration decided to try direct pressure with tariffs… Lighthizer repeated his views that China's intellectual property practices and non-market industrial subsidies that have resulted in excess production capacity would put the future of the U.S. economy and its high-technology industries at risk. 'We changed the paradigm, we have tariffs in place, and the president is not going let this go long, where you take intellectual property where you have a forced transfer of intellectual property, where you treat American companies and farmers and ranchers poorly,' he added."
"U.S. President Donald Trump's top trade official said… that changing China's economic policies to become more market-oriented 'is not going to be easy' even with tariffs now in place on $250 billion worth of Chinese goods. U.S. Trade Representative Robert Lighthizer, in rare public remarks at the Concordia Summit,
said 'endless dialogues' with the Chinese government over decades had 'failed miserably' in changing Beijing's policies, so the Trump administration decided to try direct pressure with tariffs… Lighthizer repeated his views that China's intellectual property practices and non-market industrial subsidies that have resulted in excess production capacity would put the future of the U.S. economy and its high-technology industries at risk. 'We changed the paradigm, we have tariffs in place, and the president is not going let this go long, where you take intellectual property where you have a forced transfer of intellectual property, where you treat American companies and farmers and ranchers poorly,' he added."
September 22 - Reuters (Christopher Bing):
"The White House has drafted an executive order that would push federal antitrust and law enforcement agencies to probe the business practices of social media and other internet companies,
according to Bloomberg. It is unclear whether the order will be signed by President Donald Trump. The order has yet to be reviewed by other government agencies and remains in its preliminary stages…"
"The White House has drafted an executive order that would push federal antitrust and law enforcement agencies to probe the business practices of social media and other internet companies,
according to Bloomberg. It is unclear whether the order will be signed by President Donald Trump. The order has yet to be reviewed by other government agencies and remains in its preliminary stages…"
Federal Reserve Watch:
September 26 - Bloomberg (Christopher Condon and Craig Torres):
"Federal Reserve officials raised interest rates and cemented expectations for another hike this year as they reaffirmed that a strong U.S. economy will probably warrant further gradual increases well into 2019.
The quarter-point hike boosted the benchmark federal funds rate to a target range of 2% to 2.25%. The move reflected an upbeat assessment of the economy that was identical to the central bank's last policy statement eight weeks ago… 'This gradual return to normal is helping to sustain this strong economy,' Chairman Jerome Powell told reporters Wednesday following a two-day meeting of the Federal Open market Committee…"
"Federal Reserve officials raised interest rates and cemented expectations for another hike this year as they reaffirmed that a strong U.S. economy will probably warrant further gradual increases well into 2019.
The quarter-point hike boosted the benchmark federal funds rate to a target range of 2% to 2.25%. The move reflected an upbeat assessment of the economy that was identical to the central bank's last policy statement eight weeks ago… 'This gradual return to normal is helping to sustain this strong economy,' Chairman Jerome Powell told reporters Wednesday following a two-day meeting of the Federal Open market Committee…"
September 25 - New York Times (Binyamin Appelbaum):
"One of the most perplexing questions about the nation's economic recovery is why a tight labor market has not translated into faster wage growth. Part of the answer appears to be that American workers are receiving a growing share of compensation in the form of benefits rather than wages.
The average worker received 32% of total compensation in benefits including bonuses, paid leave and company contributions to insurance and retirement plans in the second quarter of 2018. That was up from 27% in 2000… The rising cost of health insurance accounts for only about one-third of the trend. And the data do not include the increased prevalence of non-monetary benefits like flexible hours or working from home, or perks like gyms and 'summer Fridays.'"
"One of the most perplexing questions about the nation's economic recovery is why a tight labor market has not translated into faster wage growth. Part of the answer appears to be that American workers are receiving a growing share of compensation in the form of benefits rather than wages.
The average worker received 32% of total compensation in benefits including bonuses, paid leave and company contributions to insurance and retirement plans in the second quarter of 2018. That was up from 27% in 2000… The rising cost of health insurance accounts for only about one-third of the trend. And the data do not include the increased prevalence of non-monetary benefits like flexible hours or working from home, or perks like gyms and 'summer Fridays.'"
U.S. Bubble Watch:
September 25 - New York Times (Nelson D. Schwartz):
"The federal government could soon pay more in interest on its debt than it spends on the military, Medicaid or children's programs.
The run-up in borrowing costs is a one-two punch brought on by the need to finance a fast-growing budget deficit, worsened by tax cuts and steadily rising interest rates that will make the debt more expensive. With less money coming in and more going toward interest, political leaders will find it harder to address pressing needs like fixing crumbling roads and bridges or to make emergency moves like pulling the economy out of future recessions. Within a decade, more than $900 billion in interest payments will be due annually…
Already the fastest-growing major government expense, the cost of interest is on track to hit $390 billion next year, nearly 50% more than in 2017, according to the Congressional Budget Office."
"The federal government could soon pay more in interest on its debt than it spends on the military, Medicaid or children's programs.
The run-up in borrowing costs is a one-two punch brought on by the need to finance a fast-growing budget deficit, worsened by tax cuts and steadily rising interest rates that will make the debt more expensive. With less money coming in and more going toward interest, political leaders will find it harder to address pressing needs like fixing crumbling roads and bridges or to make emergency moves like pulling the economy out of future recessions. Within a decade, more than $900 billion in interest payments will be due annually…
Already the fastest-growing major government expense, the cost of interest is on track to hit $390 billion next year, nearly 50% more than in 2017, according to the Congressional Budget Office."
September 25 - Reuters (Lucia Mutikani):
"U.S. consumer confidence surged to an 18-year high in September as households grew more upbeat about the labor market,
pointing to sustained strength in the economy despite an increasingly bitter trade dispute between the United States and China… The Conference Board said its consumer confidence index increased to a reading of 138.4 this month from an upwardly revised 134.7 in August. That was the best reading since September 2000 and the index is not too far from an all-time high of 144.7 reached that year."
"U.S. consumer confidence surged to an 18-year high in September as households grew more upbeat about the labor market,
pointing to sustained strength in the economy despite an increasingly bitter trade dispute between the United States and China… The Conference Board said its consumer confidence index increased to a reading of 138.4 this month from an upwardly revised 134.7 in August. That was the best reading since September 2000 and the index is not too far from an all-time high of 144.7 reached that year."
September 27 - Reuters (Lucia Mutikani):
"The goods trade deficit widened sharply, prompting some economists to significantly lower their economic growth estimates for the third quarter…
The goods trade deficit rose $3.8 billion to $75.8 billion in August. Exports of goods fell 1.6% to $137.9 billion, weighed down by a 9.5% plunge in shipments of food, feeds and beverages."
"The goods trade deficit widened sharply, prompting some economists to significantly lower their economic growth estimates for the third quarter…
The goods trade deficit rose $3.8 billion to $75.8 billion in August. Exports of goods fell 1.6% to $137.9 billion, weighed down by a 9.5% plunge in shipments of food, feeds and beverages."
September 27 - Reuters (Nick Carey):
"U.S. auto sales in September likely fell 6% from the same month last year
as dealerships felt the mixed impact of hurricanes both this year and in 2017, industry consultants J.D. Power and LMC Automotive said…"
"U.S. auto sales in September likely fell 6% from the same month last year
as dealerships felt the mixed impact of hurricanes both this year and in 2017, industry consultants J.D. Power and LMC Automotive said…"
September 23 - Wall Street Journal (Michael Rapoport and Theo Francis): "Last December's tax overhaul is boosting corporate profits in more ways than one. The legislation lowered companies' tax bills, improving their earnings. But the change has also helped them fund record stock buybacks-a move that makes their results appear even better, by boosting the per-share earnings they highlight for investors.
S&P 500 companies bought back a record $189 billion of their own shares in the first quarter, and a similar number-if not more-is expected for the second quarter, according to S&P Dow Jones Indices. By contrast, S&P 500 buybacks totaled no more than $137 billion in any of the six quarters before the tax overhaul."
S&P 500 companies bought back a record $189 billion of their own shares in the first quarter, and a similar number-if not more-is expected for the second quarter, according to S&P Dow Jones Indices. By contrast, S&P 500 buybacks totaled no more than $137 billion in any of the six quarters before the tax overhaul."
September 26 - CNBC (Jeff Cox):
"After consecutive quarters of near-record profit growth, companies are starting to lower expectations. With third-quarter earnings right around the corner, S&P 500 companies are cutting their outlooks at levels not seen since the first quarter of 2016, when corporate America was in a profits recession.
In all, 98 companies have offered guidance - 74 have provided a negative outlook, meaning they expect earnings to come in below Wall Street estimates, while just 24 have been positive, according to FactSet."
"After consecutive quarters of near-record profit growth, companies are starting to lower expectations. With third-quarter earnings right around the corner, S&P 500 companies are cutting their outlooks at levels not seen since the first quarter of 2016, when corporate America was in a profits recession.
In all, 98 companies have offered guidance - 74 have provided a negative outlook, meaning they expect earnings to come in below Wall Street estimates, while just 24 have been positive, according to FactSet."
September 21 - Wall Street Journal (Leslie Scism and Erin Ailworth): "After a week of heavy rains and record flooding, initial estimates for the damage that Florence wrought on the Carolinas rank the storm among history's top hurricanes… Moody's Analytics… estimated the economic cost of Florence to be between $38 billion and $50 billion including damage to property, vehicle losses, and lost output. At the upper end of that range, Florence would rank seventh among the biggest storms, just after Hurricane Andrew in 1992…"
China Watch:
September 24 - Reuters (Yawen Chen and Ben Blanchard):
"A senior Chinese official said… it is difficult to proceed with trade talks with the United States while Washington is putting 'a knife to China's neck', a day after both sides heaped fresh tariffs on each other's goods. When the talks can restart would depend on the 'will' of the United States, Vice Commerce Minister Wang Shouwen said… 'Now that the United States has adopted such a huge trade restriction measure ... how can the negotiations proceed? It's not an equal negotiation,' Wang said, stressing the United States has abandoned its mutual understanding with China."
"A senior Chinese official said… it is difficult to proceed with trade talks with the United States while Washington is putting 'a knife to China's neck', a day after both sides heaped fresh tariffs on each other's goods. When the talks can restart would depend on the 'will' of the United States, Vice Commerce Minister Wang Shouwen said… 'Now that the United States has adopted such a huge trade restriction measure ... how can the negotiations proceed? It's not an equal negotiation,' Wang said, stressing the United States has abandoned its mutual understanding with China."
September 26 - Financial Times (Gabriel Wildau and Edward White):
"China's household debt reached a record high last year, adding to worries the burden of debt services could weigh on long-term consumer spending and drag on growth in the world's second-largest economy. The country's ratio of household debt to gross domestic product hit an all-time high of 49.1% in 2017, marking an increase of nearly 20 percentage points over the past five years, German insurer Allianz said in its latest global wealth report. 'This amounts to an increase of 30 percentage points in just 10 years - no other country saw its private debt burden rising so fast,' Allianz said, with the caveat that 'China needed to catch up to some extent, as Chinese private households only obtained access to bank loans in 2003'."
"China's household debt reached a record high last year, adding to worries the burden of debt services could weigh on long-term consumer spending and drag on growth in the world's second-largest economy. The country's ratio of household debt to gross domestic product hit an all-time high of 49.1% in 2017, marking an increase of nearly 20 percentage points over the past five years, German insurer Allianz said in its latest global wealth report. 'This amounts to an increase of 30 percentage points in just 10 years - no other country saw its private debt burden rising so fast,' Allianz said, with the caveat that 'China needed to catch up to some extent, as Chinese private households only obtained access to bank loans in 2003'."
September 26 - Wall Street Journal (Lingling Wei and Bob Davis):
"DuPont Co. suspected its onetime partner in China was getting hold of its prized chemical technology, and spent more than a year fighting in arbitration trying to make it stop.
Then, 20 investigators from China's antitrust authority showed up. For four days this past December, they fanned out through DuPont's Shanghai offices, demanding passwords to the company's world-wide research network… Investigators printed documents, seized computers and intimidated employees, accompanying some to the bathroom. Beijing leans on an array of levers to pry technology from American companies-sometimes coercively so, say businesses and the U.S. government. Interviews with dozens of corporate and government officials on both sides of the Pacific, and a review of regulatory and other documents, reveal how systemic and methodical Beijing's extraction of technology has become-and how unfair Chinese officials consider the complaints."
"DuPont Co. suspected its onetime partner in China was getting hold of its prized chemical technology, and spent more than a year fighting in arbitration trying to make it stop.
Then, 20 investigators from China's antitrust authority showed up. For four days this past December, they fanned out through DuPont's Shanghai offices, demanding passwords to the company's world-wide research network… Investigators printed documents, seized computers and intimidated employees, accompanying some to the bathroom. Beijing leans on an array of levers to pry technology from American companies-sometimes coercively so, say businesses and the U.S. government. Interviews with dozens of corporate and government officials on both sides of the Pacific, and a review of regulatory and other documents, reveal how systemic and methodical Beijing's extraction of technology has become-and how unfair Chinese officials consider the complaints."
Europe Watch:
September 27 - Bloomberg:
"German inflation unexpectedly accelerated to a four-month high,
suggesting the rate in the euro area will rise further above the European Central Bank's goal. Consumer prices rose an annual 2.2% in September, exceeding the median estimate in a Bloomberg survey and the 1.9% reached in August."
"German inflation unexpectedly accelerated to a four-month high,
suggesting the rate in the euro area will rise further above the European Central Bank's goal. Consumer prices rose an annual 2.2% in September, exceeding the median estimate in a Bloomberg survey and the 1.9% reached in August."
Global Bubble Watch:
September 23 - Reuters (Saikat Chatterjee):
"International debt issuance has soared in recent years as financing conditions improve, with dollar-denominated bonds beating bank debt as the most popular funding tool a decade after the global financial crisis… International credit, defined as bank loans and debt securities like bonds, has soared to 38% of the global economy in the first quarter of 2018, compared with 33% three years ago, according to a quarterly report by the Bank of International Settlements… Dollar lending to non-bank emerging markets have more than doubled to around $3.7 trillion since the 2008 crisis. A similar amount has been borrowed through currency swaps, according to the BIS."
"International debt issuance has soared in recent years as financing conditions improve, with dollar-denominated bonds beating bank debt as the most popular funding tool a decade after the global financial crisis… International credit, defined as bank loans and debt securities like bonds, has soared to 38% of the global economy in the first quarter of 2018, compared with 33% three years ago, according to a quarterly report by the Bank of International Settlements… Dollar lending to non-bank emerging markets have more than doubled to around $3.7 trillion since the 2008 crisis. A similar amount has been borrowed through currency swaps, according to the BIS."
Fixed Income Bubble Watch:
September 24 - Reuters (Kate Duguid):
"The $37 billion in new supply of 2-year Treasury notes on Monday were sold at the highest yield at auction since June 2008 to the weakest demand since December 2008. Demand was lackluster despite low prices, notching the yield on the 2-year note up to 2.817% on Monday after the Treasury Department sale. The high yield at auction was 2.829%, the highest since June 2008 at 2.922%..."
"The $37 billion in new supply of 2-year Treasury notes on Monday were sold at the highest yield at auction since June 2008 to the weakest demand since December 2008. Demand was lackluster despite low prices, notching the yield on the 2-year note up to 2.817% on Monday after the Treasury Department sale. The high yield at auction was 2.829%, the highest since June 2008 at 2.922%..."
Geopolitics Watch:
September 26 - Reuters (Idrees Ali):
"The U.S. military flew B-52 bombers in the vicinity of the South China Sea this week, U.S. officials told Reuters, a move that is likely to cause anger in Beijing amid heightened tensions between the two countries."
"The U.S. military flew B-52 bombers in the vicinity of the South China Sea this week, U.S. officials told Reuters, a move that is likely to cause anger in Beijing amid heightened tensions between the two countries."
September 25 - Wall Street Journal (Nancy A. Youssef and Gordon Lubold):
"The Chinese government denied a U.S. Navy ship permission for a port visit to Hong Kong in October, U.S. military officials said, a decision issued as Beijing also canceled a high-level naval meeting in the U.S. The rebuffs come as tensions build between the two countries over a range of military and economic differences. Last week, the State Department imposed sanctions on a Chinese military agency for buying Russia's SU-35 combat aircraft and S-400 surface-to-air missile system, leading China to formally complain to the U.S. ambassador and acting defense attaché."
"The Chinese government denied a U.S. Navy ship permission for a port visit to Hong Kong in October, U.S. military officials said, a decision issued as Beijing also canceled a high-level naval meeting in the U.S. The rebuffs come as tensions build between the two countries over a range of military and economic differences. Last week, the State Department imposed sanctions on a Chinese military agency for buying Russia's SU-35 combat aircraft and S-400 surface-to-air missile system, leading China to formally complain to the U.S. ambassador and acting defense attaché."
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