Saturday, October 20, 2018
Weekly Commentary:
Moscovici and the National Team
by Doug Noland
full column at link:
My summary is below:
The Shanghai Composite
declined to 2,450
in early Friday trading,
the low since November 2014
- and down almost 26% y-t-d.
Across the globe in Europe,
Italian 10-year yields
jumped to 3.80%
in early-Friday trading,
the high going back
to January 2014.
For the week ending
October 19, 2018:
STOCKS
S&P500 about unchanged (up 3.5% year-to-date)
Dow Industrials recovered 0.4% (up 2.9%)
Dow Utilities surged 3.0% (up 3.2%).
Dow Transports slipped 0.5% (down 1.6%).
S&P 400 Midcaps were unchanged (down 1.5%)
Small cap Russell 2000 slipped 0.3% (up 0.4%)
Nasdaq100 declined 0.7% (up 11.1%).
Biotechs dipped 0.6% (up 15.7%).
With gold bullion rising $9,
the HUI gold stock index
gained 1.5%
(down 19.1%).
U.K.'s FTSE recovered 0.8% (down 8.3%).
Japan's Nikkei 225 declined 0.7% (down 1.0% y-t-d).
France's CAC40 slipped 0.2% (down 4.3%)
German DAX increased 0.3% (down 10.6%)
Spain's IBEX 35 was little changed (down 11.5%)
Italy's FTSE MIB declined 0.9% (down 12.7%).
Brazil's Bovespa gained another 1.6% (up 10.2%)
Mexico's Bolsa was unchanged (down 3.9%)
South Korea's Kospi slipped 0.3% (down 12.6%)
India's Sensex fell 1.2% (up 0.8%)
China's Shanghai dropped 2.2% (down 22.9%)
Turkey's Istanbul National 100 slipped 0.2% (down 16.4%)
Russia's MICEX fell 2.4% (up 11.1%).
US BONDS & MORTGAGES
Ten-year US Treasury bond yields
added three bps to 3.19% (up 79bps).
Tghirty-year US Treasury bond yields
rose four bps to 3.38% (up 64bps).
Benchmark Fannie Mae MBS yields
gained five bps to 4.01% (up 101bps).
Freddie Mac 30-year fixed mortgage rates
declined five bps to 4.85% (up 97bps y-o-y).
Fifteen-year rates
slipped three bps to 4.26% (up 107bps).
Five-year hybrid ARM rates
increased three bps to 4.10% (up 93bps).
Jumbo mortgage 30-yr fixed rates
down four bps to 4.84% (up 73bps).
Over the past year,
Fed Credit
contracted 6.6%.
M2 (narrow) "money" supply
gained 3.4% over the past year.
Currency Watch:
The U.S. dollar index added 0.5% to 95.713
(up 3.9% y-t-d).
Commodities Watch:
Goldman Sachs Commodities Index declined 0.9% (up 7.3% y-t-d).
Spot Gold gained 0.7% to $1,227 (down 5.8%).
Silver was little changed at $14.65 (down 14.6%).
Crude dropped $2.39 to $69.12 (up 14%).
Gasoline fell 1.7% (up 7%)
Natural Gas jumped 3.3% (up 10%).
Copper declined 1.2% (down 16%).
Wheat dipped 0.5% (up 21%).
Corn fell 1.8% (up 5%).
Spot Gold gained 0.7% to $1,227 (down 5.8%).
Silver was little changed at $14.65 (down 14.6%).
Crude dropped $2.39 to $69.12 (up 14%).
Gasoline fell 1.7% (up 7%)
Natural Gas jumped 3.3% (up 10%).
Copper declined 1.2% (down 16%).
Wheat dipped 0.5% (up 21%).
Corn fell 1.8% (up 5%).
Market Dislocation Watch:
October 18 - Financial Times (Mehreen Khan):
"Brussels responded to Italy's rule-busting budget plan in record time and it packs a punch. It took the European Commission just over 48 hours to formally warn Rome that its spending plans for 2019 represented a break with previous budget promises on a scale that was 'unprecedented in the history of the Stability and Growth Pact'. The letter was hand-delivered… to finance minister Giovanni Tria after a meeting in Rome on Thursday. The commission's rebuke is the first formal warning in a process that could end up with Italy facing financial punishment - from Brussels and the markets - if Rome's populists don't back down. Matteo Salvini and Luigi Di Maio's coalition has until noon on Monday to reply."
"Brussels responded to Italy's rule-busting budget plan in record time and it packs a punch. It took the European Commission just over 48 hours to formally warn Rome that its spending plans for 2019 represented a break with previous budget promises on a scale that was 'unprecedented in the history of the Stability and Growth Pact'. The letter was hand-delivered… to finance minister Giovanni Tria after a meeting in Rome on Thursday. The commission's rebuke is the first formal warning in a process that could end up with Italy facing financial punishment - from Brussels and the markets - if Rome's populists don't back down. Matteo Salvini and Luigi Di Maio's coalition has until noon on Monday to reply."
Trump Administration Watch:
October 12 - Wall Street Journal (Michael C. Bender, Gordon Lubold, Kate O'Keeffe and Jeremy Page):
"The Trump administration is moving deliberately to counter what the White House views as years of unbridled Chinese aggression, taking aim at military, political and economic targets in Beijing and signaling a new and potentially much colder era in U.S.-China relations. In the first 18 months of the administration, ties between the world's two biggest powers were defined by negotiations over how to restrain North Korea and ways to rebalance trade. Those high-profile endeavors masked White House preparations for a more hard-nosed stance with Beijing… Interviews with senior White House officials and others in government make clear that recent volleys in what appears a new Cold War aren't the exception to President Trump's China policy. They are exactly what the administration wants…"
"The Trump administration is moving deliberately to counter what the White House views as years of unbridled Chinese aggression, taking aim at military, political and economic targets in Beijing and signaling a new and potentially much colder era in U.S.-China relations. In the first 18 months of the administration, ties between the world's two biggest powers were defined by negotiations over how to restrain North Korea and ways to rebalance trade. Those high-profile endeavors masked White House preparations for a more hard-nosed stance with Beijing… Interviews with senior White House officials and others in government make clear that recent volleys in what appears a new Cold War aren't the exception to President Trump's China policy. They are exactly what the administration wants…"
October 15 - Bloomberg (Jennifer Epstein):
"President Donald Trump threatened to impose another round of tariffs on China and warned that Chinese meddling in U.S. politics is a 'bigger problem' than Russian involvement in the 2016 election.
Asked in an interview with CBS's '60 Minutes' whether he wants to push China's economy into a depression, Trump said 'no' before comparing the country's stock-market losses since the tariffs first launched to those in 1929, the start of the Great Depression in the U.S."
"President Donald Trump threatened to impose another round of tariffs on China and warned that Chinese meddling in U.S. politics is a 'bigger problem' than Russian involvement in the 2016 election.
Asked in an interview with CBS's '60 Minutes' whether he wants to push China's economy into a depression, Trump said 'no' before comparing the country's stock-market losses since the tariffs first launched to those in 1929, the start of the Great Depression in the U.S."
October 18 - CNBC (Fred Imbert):
"Larry Kudlow, the director of the National Economic Council, went after China… for digging in its heels in trade talks with the U.S. 'They are unfair traders. They are illegal traders. They have stolen our intellectual property,' Kudlow said at the Detroit Economic Club… 'China has not responded positively to any of our asks.' 'America has the greatest technology in the world; it is the backbone of our economy,' he said. 'China can't seem to do that, so they steal it. We can't allow that.'"
"Larry Kudlow, the director of the National Economic Council, went after China… for digging in its heels in trade talks with the U.S. 'They are unfair traders. They are illegal traders. They have stolen our intellectual property,' Kudlow said at the Detroit Economic Club… 'China has not responded positively to any of our asks.' 'America has the greatest technology in the world; it is the backbone of our economy,' he said. 'China can't seem to do that, so they steal it. We can't allow that.'"
October 17 - New York Times (Alan Rappeport and Keith Bradsher):
"Fresh off securing trade agreements with South Korea, Canada and Mexico, President Trump is embarking on a new plan: refashioning the Trans-Pacific Partnership to his liking through a flurry of bilateral trade deals. Mr. Trump, who pulled the United States out of the trade pact with 11 other countries that he has called a 'rape of our country,' is now looking to forge deeper trade ties with several of the nations in the alliance, as well as the European Union and the United Kingdom. But while the Trans-Pacific Partnership was aimed at encouraging China to make the extensive economic and structural overhauls that would someday win it a place in the trade pact, Mr. Trump views these new bilateral agreements as a way to contain Beijing's growing economic, geopolitical and territorial ambitions."
"Fresh off securing trade agreements with South Korea, Canada and Mexico, President Trump is embarking on a new plan: refashioning the Trans-Pacific Partnership to his liking through a flurry of bilateral trade deals. Mr. Trump, who pulled the United States out of the trade pact with 11 other countries that he has called a 'rape of our country,' is now looking to forge deeper trade ties with several of the nations in the alliance, as well as the European Union and the United Kingdom. But while the Trans-Pacific Partnership was aimed at encouraging China to make the extensive economic and structural overhauls that would someday win it a place in the trade pact, Mr. Trump views these new bilateral agreements as a way to contain Beijing's growing economic, geopolitical and territorial ambitions."
October 14 - Reuters (Arshad Mohammed):
"White House economic adviser Larry Kudlow… played down the U.S. stock market drop as a normal correction and said President Donald Trump had some concern the Federal Reserve may be raising interest rates too fast but respected its independence. 'I think the background is very positive for the stock market and I think, as I said, corrections come and go and people should ... stay very calm over these things, they are quite normal,' Kudlow told the 'Fox News Sunday with Chris Wallace' program…"
"White House economic adviser Larry Kudlow… played down the U.S. stock market drop as a normal correction and said President Donald Trump had some concern the Federal Reserve may be raising interest rates too fast but respected its independence. 'I think the background is very positive for the stock market and I think, as I said, corrections come and go and people should ... stay very calm over these things, they are quite normal,' Kudlow told the 'Fox News Sunday with Chris Wallace' program…"
Federal Reserve Watch:
October 17 - Reuters (Jason Lange and Pete Schroeder):
"Federal Reserve policymakers are largely united on the need to raise borrowing costs further, minutes from their most recent policy meeting show, despite U.S. President Donald Trump's view that interest rate hikes have already gone too far. Every Fed policymaker backed the central bank's September decision to raise the target policy rate to between 2% and 2.25%... Participants in the Fed's rate-setting committee also 'generally anticipated that further gradual increases' in short-term borrowing costs 'would most likely be consistent' with the kind of continued economic expansion, labor market strength, and firm inflation that most of them are anticipating…"
"Federal Reserve policymakers are largely united on the need to raise borrowing costs further, minutes from their most recent policy meeting show, despite U.S. President Donald Trump's view that interest rate hikes have already gone too far. Every Fed policymaker backed the central bank's September decision to raise the target policy rate to between 2% and 2.25%... Participants in the Fed's rate-setting committee also 'generally anticipated that further gradual increases' in short-term borrowing costs 'would most likely be consistent' with the kind of continued economic expansion, labor market strength, and firm inflation that most of them are anticipating…"
October 18 - Reuters (Jennifer Ablan):
"Goldman Sachs economists… said the firm remained 'comfortable' with its call for five more interest rate hikes - two more than priced in financial markets - through the end of 2019. In a note to clients, Goldman said it feels the Federal Reserve needs to generate a significant tightening in financial conditions to slow the economy to its potential growth pace sooner rather than later, and 'that this will require delivering significantly more hikes than priced in the curve.'"
"Goldman Sachs economists… said the firm remained 'comfortable' with its call for five more interest rate hikes - two more than priced in financial markets - through the end of 2019. In a note to clients, Goldman said it feels the Federal Reserve needs to generate a significant tightening in financial conditions to slow the economy to its potential growth pace sooner rather than later, and 'that this will require delivering significantly more hikes than priced in the curve.'"
October 17 - Bloomberg (Brian Chappatta):
"Federal Reserve officials have finally caught on to the leveraged-loan boom. In minutes of the Federal Open Market Committee's September meeting, policy makers made explicit for the first time that they're watching for any hint of risks to financial stability stemming from the more than $1 trillion market for U.S. leveraged loans. They're late to pile on. There's been no shortage of warnings from fixed-income traders and credit analysts who track investor protections."
"Federal Reserve officials have finally caught on to the leveraged-loan boom. In minutes of the Federal Open Market Committee's September meeting, policy makers made explicit for the first time that they're watching for any hint of risks to financial stability stemming from the more than $1 trillion market for U.S. leveraged loans. They're late to pile on. There's been no shortage of warnings from fixed-income traders and credit analysts who track investor protections."
U.S. Bubble Watch:
October 15 - CNBC (Jacob Pramuk):
"The U.S. federal budget deficit rose in fiscal 2018 to the highest level in six years as spending climbed… The deficit jumped to $779 billion, $113 billion or 17% higher than the previous fiscal period… It was larger than any year since 2012, when it topped $1 trillion. The budget shortfall rose to 3.9% of U.S. gross domestic product… Federal revenue rose only slightly, by $14 billion after Republicans chopped tax rates for corporations and most individuals. Outlays climbed by $127 billion, or 3.2%. A spike in defense spending, as well as increases for Medicaid, Social Security and disaster relief, contributed to the increase."
"The U.S. federal budget deficit rose in fiscal 2018 to the highest level in six years as spending climbed… The deficit jumped to $779 billion, $113 billion or 17% higher than the previous fiscal period… It was larger than any year since 2012, when it topped $1 trillion. The budget shortfall rose to 3.9% of U.S. gross domestic product… Federal revenue rose only slightly, by $14 billion after Republicans chopped tax rates for corporations and most individuals. Outlays climbed by $127 billion, or 3.2%. A spike in defense spending, as well as increases for Medicaid, Social Security and disaster relief, contributed to the increase."
October 17 - Bloomberg (Riley Griffin, Suborna Panja and Kristina D'Alessio):
"Federal student loans are the only consumer debt segment with continuous cumulative growth since the Great Recession. As the costs of tuition and borrowing continue to rise, the result is a widening default crisis… Student loans have seen almost 157% in cumulative growth over the last 11 years. By comparison, auto loan debt has grown 52% while mortgage and credit-card debt actually fell by about 1%... All told, there's a whopping $1.5 trillion in student loans out there (through the second quarter of 2018)…"
"Federal student loans are the only consumer debt segment with continuous cumulative growth since the Great Recession. As the costs of tuition and borrowing continue to rise, the result is a widening default crisis… Student loans have seen almost 157% in cumulative growth over the last 11 years. By comparison, auto loan debt has grown 52% while mortgage and credit-card debt actually fell by about 1%... All told, there's a whopping $1.5 trillion in student loans out there (through the second quarter of 2018)…"
October 18 - Bloomberg (Katia Dmitrieva):
"Multifamily housing permits -- - those for buildings with two or more units -- dropped last month to the lowest level since March 2016, government figures showed Wednesday. That follows signs of an oversupply of apartments in some U.S. markets, but higher costs are also having an impact. 'The biggest issue is construction cost and within that, labor costs. Because of that, some deals just don't pencil out,' Jeanette Rice, Americas head of multifamily research at brokerage CBRE Group Inc., said…"
"Multifamily housing permits -- - those for buildings with two or more units -- dropped last month to the lowest level since March 2016, government figures showed Wednesday. That follows signs of an oversupply of apartments in some U.S. markets, but higher costs are also having an impact. 'The biggest issue is construction cost and within that, labor costs. Because of that, some deals just don't pencil out,' Jeanette Rice, Americas head of multifamily research at brokerage CBRE Group Inc., said…"
October 15 - CNBC (Lauren Hirsch):
"Sears Holdings filed for bankruptcy protection early Monday after years of staying afloat through financial maneuvering and relying on billions of CEO Eddie Lampert's own money. Lampert, who has served as CEO for the past five years, will step down from that post… but remain chairman. The 125-year-old retailer, once the nation's largest, said… it was appointing Mohsin Meghji, managing partner of M-III Partners, as its chief restructuring officer. As part of the bankruptcy, Sears will shutter 142 stores toward the end of the year."
"Sears Holdings filed for bankruptcy protection early Monday after years of staying afloat through financial maneuvering and relying on billions of CEO Eddie Lampert's own money. Lampert, who has served as CEO for the past five years, will step down from that post… but remain chairman. The 125-year-old retailer, once the nation's largest, said… it was appointing Mohsin Meghji, managing partner of M-III Partners, as its chief restructuring officer. As part of the bankruptcy, Sears will shutter 142 stores toward the end of the year."
China Watch:
October 16 - Financial Times (Don Weinland):
"China could be facing a 'debt iceberg with titanic credit risks' following a boom in infrastructure projects by local governments around the country, S&P Global has warned. Local governments may have accrued a debt pile hidden off their balance sheet as high as Rmb30tn to Rmb40tn ($4.3tn to $5.8tn) following 'rampant' growth in borrowings, the rating agency estimated. The mounting debt in so-called local government financing vehicles, or LGFVs, hit an 'alarming' 60% of China's gross domestic product at the end of last year and was expected to lead to increasing defaults at companies connected to regional authorities… Richard Langberg, an analyst at S&P, said there are Chinese cities with 'hundreds' of the local financing vehicles across the country. While defaults at a handful of smaller LGFVs could be handled by the financial sector, 'if they start to let the bigger ones go then we are getting into uncharted territory,' he said."
"China could be facing a 'debt iceberg with titanic credit risks' following a boom in infrastructure projects by local governments around the country, S&P Global has warned. Local governments may have accrued a debt pile hidden off their balance sheet as high as Rmb30tn to Rmb40tn ($4.3tn to $5.8tn) following 'rampant' growth in borrowings, the rating agency estimated. The mounting debt in so-called local government financing vehicles, or LGFVs, hit an 'alarming' 60% of China's gross domestic product at the end of last year and was expected to lead to increasing defaults at companies connected to regional authorities… Richard Langberg, an analyst at S&P, said there are Chinese cities with 'hundreds' of the local financing vehicles across the country. While defaults at a handful of smaller LGFVs could be handled by the financial sector, 'if they start to let the bigger ones go then we are getting into uncharted territory,' he said."
October 16 - Bloomberg:
"The rout in Chinese equities is throwing the spotlight on $613 billion of shares pledged as collateral for loans. Loans extended to company founders and other major investors who pledged their shareholdings as collateral emerged as a popular financing channel in recent years. But given the losses in equities -- Shenzhen's stock benchmark is down 33% in 2018 -- there's a growing risk that brokerages will be forced to sell the shares, accelerating the downturn. At least 36 companies have seen pledged shares liquidated by brokerages since the start of June, more than triple the 10 in the first five months of the year… At least two firms announced after Monday's close that their shares were at risk of forced selling… 'There's a liquidity crisis in the stock market, and pledged shares are again starting to sound the alarm,' said Yang Hai, analyst at Kaiyuan Securities Co. 'If there are no real policies to cure the array of problems and ailments in our market, no one will be willing to take the risk.'"
"The rout in Chinese equities is throwing the spotlight on $613 billion of shares pledged as collateral for loans. Loans extended to company founders and other major investors who pledged their shareholdings as collateral emerged as a popular financing channel in recent years. But given the losses in equities -- Shenzhen's stock benchmark is down 33% in 2018 -- there's a growing risk that brokerages will be forced to sell the shares, accelerating the downturn. At least 36 companies have seen pledged shares liquidated by brokerages since the start of June, more than triple the 10 in the first five months of the year… At least two firms announced after Monday's close that their shares were at risk of forced selling… 'There's a liquidity crisis in the stock market, and pledged shares are again starting to sound the alarm,' said Yang Hai, analyst at Kaiyuan Securities Co. 'If there are no real policies to cure the array of problems and ailments in our market, no one will be willing to take the risk.'"
October 16 - Financial Times (Tom Hancock):
"A wave of protests by Chinese homeowners against falling property prices in several cities has raised fears of a downturn in the country's real estate market, adding to pressure on Beijing to stimulate the economy. Homeowners in Shanghai and other large cities took to the streets this month to demand refunds on their homes after property developers cut prices on new properties to stimulate sales. In Shanghai, dozens of angry homeowners descended on the sales office of a complex that offered 25% discounts to demand refunds, causing clashes that damaged the sales office, according to online reports that were quickly removed by censors. Similar protests have been reported in the large cities of Xiamen and Guiyang as well as several smaller cities."
"A wave of protests by Chinese homeowners against falling property prices in several cities has raised fears of a downturn in the country's real estate market, adding to pressure on Beijing to stimulate the economy. Homeowners in Shanghai and other large cities took to the streets this month to demand refunds on their homes after property developers cut prices on new properties to stimulate sales. In Shanghai, dozens of angry homeowners descended on the sales office of a complex that offered 25% discounts to demand refunds, causing clashes that damaged the sales office, according to online reports that were quickly removed by censors. Similar protests have been reported in the large cities of Xiamen and Guiyang as well as several smaller cities."
October 18 - Reuters (Kevin Yao and Elias Glenn):
"China's economic growth cooled to its weakest quarterly pace since the global financial crisis… The economy grew 6.5% in the third quarter from a year earlier, below an expected 6.6% rate, and slower than 6.7% in the second quarter… It marked the weakest year-on-year quarterly gross domestic product growth since the first quarter of 2009 at the height of the global financial crisis."
"China's economic growth cooled to its weakest quarterly pace since the global financial crisis… The economy grew 6.5% in the third quarter from a year earlier, below an expected 6.6% rate, and slower than 6.7% in the second quarter… It marked the weakest year-on-year quarterly gross domestic product growth since the first quarter of 2009 at the height of the global financial crisis."
October 18 - Bloomberg:
"With more than $600 billion of Chinese shares pledged as collateral for loans, or about 11% of the country's market capitalization, the worry is that falling stock prices will trigger a downward spiral of forced selling for margin calls. The country's top financial regulators sought to reassure investors on Friday that they're able to keep risks under control. But some stocks are more vulnerable than others. At least 144 Chinese companies have more than half their shares pledged…"
"With more than $600 billion of Chinese shares pledged as collateral for loans, or about 11% of the country's market capitalization, the worry is that falling stock prices will trigger a downward spiral of forced selling for margin calls. The country's top financial regulators sought to reassure investors on Friday that they're able to keep risks under control. But some stocks are more vulnerable than others. At least 144 Chinese companies have more than half their shares pledged…"
October 18 - Bloomberg:
"In China's manufacturing heartland around the Pearl River Delta, Donald Trump's 10% tariffs are causing little concern. The 25% duties that loom next year are another matter. Ben Yang, a furniture maker producing contemporary designs out of his facility in Dongguan -- about 30 miles from Hong Kong -- says that if those higher charges materialize from January as planned, the U.S. share of exports from his Sunrise Furniture Co. could plunge from 90% to less than a third. 'Our major rival is Vietnam and 10 percent tariffs aren't enough to make the difference,' said Yang, 48, who supplies retailers including Rooms To Go Inc. But 25% tariffs are a worry. There will definitely be a short-term impact; Americans may have to accept higher prices.'"
"In China's manufacturing heartland around the Pearl River Delta, Donald Trump's 10% tariffs are causing little concern. The 25% duties that loom next year are another matter. Ben Yang, a furniture maker producing contemporary designs out of his facility in Dongguan -- about 30 miles from Hong Kong -- says that if those higher charges materialize from January as planned, the U.S. share of exports from his Sunrise Furniture Co. could plunge from 90% to less than a third. 'Our major rival is Vietnam and 10 percent tariffs aren't enough to make the difference,' said Yang, 48, who supplies retailers including Rooms To Go Inc. But 25% tariffs are a worry. There will definitely be a short-term impact; Americans may have to accept higher prices.'"
October 16 - South China Morning Post (Orange Wang):
"China's local governments may have accumulated 40 trillion yuan (US$6 trillion) worth of 'hidden debts' that are not reflected in official figures, which is 'a debt iceberg with titanic credit risks' to the world's second biggest economy, S&P Global Ratings said… If all that off-the-books debt - mostly borrowed by local government financing vehicles, known as LGFVs - were included in China's debt figures, the ratio of all government debt to GDP could have reached 'an alarming level' of 60% in 2017, the ratings agency said… According to official figures released by the Chinese Ministry of Finance, local governments had combined outstanding debts of 17.7 trillion yuan (US$2.5 trillion) at the end of August, although Beijing has admitted the existence of 'hidden debts' and attempted to curb unauthorised borrowing by local authorities."
"China's local governments may have accumulated 40 trillion yuan (US$6 trillion) worth of 'hidden debts' that are not reflected in official figures, which is 'a debt iceberg with titanic credit risks' to the world's second biggest economy, S&P Global Ratings said… If all that off-the-books debt - mostly borrowed by local government financing vehicles, known as LGFVs - were included in China's debt figures, the ratio of all government debt to GDP could have reached 'an alarming level' of 60% in 2017, the ratings agency said… According to official figures released by the Chinese Ministry of Finance, local governments had combined outstanding debts of 17.7 trillion yuan (US$2.5 trillion) at the end of August, although Beijing has admitted the existence of 'hidden debts' and attempted to curb unauthorised borrowing by local authorities."
Italy Watch:
October 18 - Bloomberg (Viktoria Dendrinou and John Follain):
"European Union leaders voiced concerns over Italy's spending plans, putting pressure on the populist government in Rome to rethink its budget and avert a potential standoff with Brussels…. With Italian bond yields close to a four-year high, the prospects for the country's public finances have become a prime focus in the bloc. Prime Minister Mark Rutte said… he expressed Dutch 'concerns regarding Italy's budget plans for 2019' to his Italian counterpart Giuseppe Conte in a bilateral meeting ahead of the summit. Following that discussion, Conte said he wouldn't accept 'prejudices' regarding the Italian budget."
"European Union leaders voiced concerns over Italy's spending plans, putting pressure on the populist government in Rome to rethink its budget and avert a potential standoff with Brussels…. With Italian bond yields close to a four-year high, the prospects for the country's public finances have become a prime focus in the bloc. Prime Minister Mark Rutte said… he expressed Dutch 'concerns regarding Italy's budget plans for 2019' to his Italian counterpart Giuseppe Conte in a bilateral meeting ahead of the summit. Following that discussion, Conte said he wouldn't accept 'prejudices' regarding the Italian budget."
Europe Watch:
October 15 - Reuters (Joseph Nasr):
"German Chancellor Angela Merkel vowed… to restore trust in her government after her conservative allies suffered heavy losses in a regional election, which their far-right foes hailed as 'an earthquake' that would rock the ruling coalition. The Christian Social Union (CSU), the sister party of Merkel's own Christian Democrats (CDU), slumped to its worst result in almost 70 years in Sunday's election in Bavaria. The chancellor's other coalition partner, the centre-left Social Democrats (SPD), saw its support halved."
"German Chancellor Angela Merkel vowed… to restore trust in her government after her conservative allies suffered heavy losses in a regional election, which their far-right foes hailed as 'an earthquake' that would rock the ruling coalition. The Christian Social Union (CSU), the sister party of Merkel's own Christian Democrats (CDU), slumped to its worst result in almost 70 years in Sunday's election in Bavaria. The chancellor's other coalition partner, the centre-left Social Democrats (SPD), saw its support halved."
Global Bubble Watch:
October 15 - Reuters (Tom Miles):
"Global foreign direct investment (FDI) fell by 41% to $470 billion in the first six months of this year, the lowest since 2005, preliminary figures from the United Nations trade and development agency UNCTAD showed… President Donald Trump's U.S. tax reforms were the main cause of the slump, which followed a 23% fall in 2017, as American firms repatriated a net $217 billion from foreign affiliates, UNCTAD investment chief James Zhan said. 'The investment flows are more policy-driven and less economic cycle-driven,' Zhan told a news conference… 'Overall the picture is gloomy and the prospect is not so optimistic.'"
"Global foreign direct investment (FDI) fell by 41% to $470 billion in the first six months of this year, the lowest since 2005, preliminary figures from the United Nations trade and development agency UNCTAD showed… President Donald Trump's U.S. tax reforms were the main cause of the slump, which followed a 23% fall in 2017, as American firms repatriated a net $217 billion from foreign affiliates, UNCTAD investment chief James Zhan said. 'The investment flows are more policy-driven and less economic cycle-driven,' Zhan told a news conference… 'Overall the picture is gloomy and the prospect is not so optimistic.'"
Fixed Income Bubble Watch:
October 16 - CNBC (Patti Domm):
"China trimmed its holdings of U.S. Treasurys in August by about $6 billion, to the lowest level since June 2017. China's holdings of Treasury bills, notes and bonds fell to $1.165 trillion, from $1.171 trillion in July, according to U.S. Treasury data. It is the third month of decline, and well below the recent high of $1.2 trillion a year earlier."
"China trimmed its holdings of U.S. Treasurys in August by about $6 billion, to the lowest level since June 2017. China's holdings of Treasury bills, notes and bonds fell to $1.165 trillion, from $1.171 trillion in July, according to U.S. Treasury data. It is the third month of decline, and well below the recent high of $1.2 trillion a year earlier."
Leveraged Speculation Watch:
October 19 - New York Times (Matt Phillips):
"A financial assembly line that went haywire a decade ago and contributed to an economic crisis is gearing up again on Wall Street. Back then, one of the products the banks churned out - bondlike investments based on thousands of mortgages - proved far riskier than most had understood when it turned out that the borrowers couldn't pay. The banking system froze, a financial panic ensued, and the country experienced its worst recession in decades. This time around, a similar kind of investment, called C.L.O.s, are at the heart of the boom. And that's not the only parallel: The loans are being made to risky borrowers, lending standards are dropping fast, and regulators are easing the rules."
"A financial assembly line that went haywire a decade ago and contributed to an economic crisis is gearing up again on Wall Street. Back then, one of the products the banks churned out - bondlike investments based on thousands of mortgages - proved far riskier than most had understood when it turned out that the borrowers couldn't pay. The banking system froze, a financial panic ensued, and the country experienced its worst recession in decades. This time around, a similar kind of investment, called C.L.O.s, are at the heart of the boom. And that's not the only parallel: The loans are being made to risky borrowers, lending standards are dropping fast, and regulators are easing the rules."
Geopolitics Watch:
October 16 - Bloomberg (Bryce Baschuk):
"U.S. and Chinese officials clashed in Geneva on Tuesday as the world's two largest economies disagreed over how to reform the global trading system.
Deputy U.S. Trade Representative Dennis Shea said the World Trade Organization must confront China's trade abuses while rethinking its preferential rights as a developing nation. Chinese Ambassador Zhang Xiangchen countered that 'no one can be singled out' and that Beijing will not back any effort to undermine the WTO's basic principles. The dispute illustrates the difficulty China and the U.S. face in overcoming escalating tensions that have prompted Washington to impose tariffs on Chinese imports totaling $250 billion and similar retaliatory actions from Beijing…. 'Adequately responding to the challenges of non-market economies is nothing less than an existential matter for this institution,' Shea said… in comments delivered at the WTO."
"U.S. and Chinese officials clashed in Geneva on Tuesday as the world's two largest economies disagreed over how to reform the global trading system.
Deputy U.S. Trade Representative Dennis Shea said the World Trade Organization must confront China's trade abuses while rethinking its preferential rights as a developing nation. Chinese Ambassador Zhang Xiangchen countered that 'no one can be singled out' and that Beijing will not back any effort to undermine the WTO's basic principles. The dispute illustrates the difficulty China and the U.S. face in overcoming escalating tensions that have prompted Washington to impose tariffs on Chinese imports totaling $250 billion and similar retaliatory actions from Beijing…. 'Adequately responding to the challenges of non-market economies is nothing less than an existential matter for this institution,' Shea said… in comments delivered at the WTO."
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