Saturday, December 15, 2018
Weekly Commentary:
The Perils of Inflationism
by Doug Noland
Full column here:
My summary is below:
For the week ending
December 14, 2018:
US & FOREIGN
STOCK INDICES:
S&P500 declined 1.3% (down 2.8% year-to-date)
Dow Industrials fell 1.2% (down 2.5%)
Dow Utilities added 0.5% (up 6.1%)
Dow Transports sank 4.4% (down 10.3%)
S&P 400 Midcaps fell 2.7% (down 8.8%)
Small cap Russell 2000 dropped 2.6% (down 8.1%)
Nasdaq100 slipped 0.3% (up 3.1%)
Biotechs declined 1.0% (up 4.8%).
With bullion down $10,
the HUI gold stock index
dipped 0.8%
(down 20.6%).
dipped 0.8%
(down 20.6%).
U.K.'s FTSE recovered 1.0% (down 11.0%).
Japan's Nikkei 225 declined 1.4% (down 6.1% y-t-d).
France's CAC40 gained 0.8% (down 8.6%)
German DAX increased 0.7% (down 15.9%)
Spain's IBEX 35 rose 0.8% (down 11.5%).
Italy's FTSE MIB rallied 0.9% (down 13.5%)
Brazil's Bovespa slipped 0.8% (up 14.5%)
Mexico's Bolsa declined 1.3% (down 16.3%)
South Korea's Kospi dipped 0.3% (down 16.1%)
India's Sensex gained 0.8% (up 5.6%)
China's Shanghai declined 0.5% (down 21.6%).
Turkey's Istanbul National 100 dropped 3.4% (down 21.5%)
Russia's MICEX fell 2.7% (up 12.1%)
US BOND YIELDS
& MORTGAGE RATES
US Ten-year Treasury bond yields
gained four bps to 2.89% (up 49bps).
US Treasury Thirty-year bond yields
were unchanged at 3.14% (up 40bps).
Benchmark Fannie Mae MBS yields
rose four bps to 3.75% (up 76bps).
gained four bps to 2.89% (up 49bps).
US Treasury Thirty-year bond yields
were unchanged at 3.14% (up 40bps).
Benchmark Fannie Mae MBS yields
rose four bps to 3.75% (up 76bps).
Freddie Mac 30-year fixed mortgage rates
dropped 12 bps to a four-month low 4.63%
(up 70bps y-o-y).
Fifteen-year rates sank 14 bps to 4.07%
(up 71bps).
Five-year hybrid ARM rates
slipped three bps to 4.04%
(up 68bps).
Jumbo mortgage 30-yr fixed rates
down four bps to 4.56%
(up 41bps).
dropped 12 bps to a four-month low 4.63%
(up 70bps y-o-y).
Fifteen-year rates sank 14 bps to 4.07%
(up 71bps).
Five-year hybrid ARM rates
slipped three bps to 4.04%
(up 68bps).
Jumbo mortgage 30-yr fixed rates
down four bps to 4.56%
(up 41bps).
Over the past year,
Fed Credit contracted 8.0%.
Fed Credit contracted 8.0%.
M2 (narrow) "money" supply
gained 4.2%, over the past year.
gained 4.2%, over the past year.
Currency Watch:
The U.S. dollar index gained 1.0% to 97.443 (up 5.8% y-t-d).
Commodities Watch:
December 10 – Financial Times (Henry Sanderson):
“China’s imports of key commodities from copper to iron ore and soyabeans fell in November, in the latest sign of a slowdown in the world’s second-largest economy… China’s imports of soybeans fell to their lowest level in two years, down 38% from a year earlier, following China’s impositions of tariffs on US imports in June… The lower copper imports point to a more worrying trend and reflect the slowdown in key consumer sectors in China such as air conditioning, housing and autos, according to analysts at Citi. China’s imports of copper fell by 3% from a year earlier in November, data released on Monday show. Copper prices have fallen 15% this year…”
“China’s imports of key commodities from copper to iron ore and soyabeans fell in November, in the latest sign of a slowdown in the world’s second-largest economy… China’s imports of soybeans fell to their lowest level in two years, down 38% from a year earlier, following China’s impositions of tariffs on US imports in June… The lower copper imports point to a more worrying trend and reflect the slowdown in key consumer sectors in China such as air conditioning, housing and autos, according to analysts at Citi. China’s imports of copper fell by 3% from a year earlier in November, data released on Monday show. Copper prices have fallen 15% this year…”
Goldman Sachs Commodities Index dropped 2.4% (down 8.2% y-t-d).
Spot Gold slipped $9.90 to $1,238 (down 5.0%).
Silver declined 0.4% to $14.637 (down 14.6%).
Crude dropped another $1.41 to $51.20 (down 15%).
Gasoline fell 3.5% (down 20%),
Natural Gas sank 14.7% (up 30%).
Copper was little changed (down 16%).
Wheat slipped 0.2% (up 24%).
Corn declined 0.2% (up 10%).
Spot Gold slipped $9.90 to $1,238 (down 5.0%).
Silver declined 0.4% to $14.637 (down 14.6%).
Crude dropped another $1.41 to $51.20 (down 15%).
Gasoline fell 3.5% (down 20%),
Natural Gas sank 14.7% (up 30%).
Copper was little changed (down 16%).
Wheat slipped 0.2% (up 24%).
Corn declined 0.2% (up 10%).
Market Dislocation Watch:
December 11 – Wall Street Journal (Gunjan Banerji and Telis Demos):
“Wild trading is straining the plumbing that powers global markets. In November, natural-gas futures surged 18% in one day, the biggest jump in more than a decade, only to plunge nearly 17% the following day. That caused some contracts tied to the fuel to breach central clearinghouse margin limits. And that was just one instance in one market of such breaches. At least 49 times this year, major derivatives contracts globally—including on U.S. Treasurys and the S&P 500—have seen price moves that exceeded margin limits, according to… JPMorgan… These breaches essentially mean that the amount of money traders put up to cover potential losses on trades was insufficient, one of several incidents putting a spotlight on how prepared clearinghouses are for the return of volatility.”
“Wild trading is straining the plumbing that powers global markets. In November, natural-gas futures surged 18% in one day, the biggest jump in more than a decade, only to plunge nearly 17% the following day. That caused some contracts tied to the fuel to breach central clearinghouse margin limits. And that was just one instance in one market of such breaches. At least 49 times this year, major derivatives contracts globally—including on U.S. Treasurys and the S&P 500—have seen price moves that exceeded margin limits, according to… JPMorgan… These breaches essentially mean that the amount of money traders put up to cover potential losses on trades was insufficient, one of several incidents putting a spotlight on how prepared clearinghouses are for the return of volatility.”
Trump Administration Watch:
December 9 – Reuters (Howard Schneider and Ben Blanchard):
“Unless U.S.-China trade talks wrap up successfully by March 1, new tariffs will be imposed, U.S. Trade Representative Robert Lighthizer said on Sunday, clarifying there is a ‘hard deadline’ after a week of seeming confusion among President Donald Trump and his advisers. ‘As far as I am concerned it is a hard deadline. When I talk to the president of the United States he is not talking about going beyond March,” Lighthizer said… ‘The way this is set up is that at the end of 90 days, these tariffs will be raised…’”
“Unless U.S.-China trade talks wrap up successfully by March 1, new tariffs will be imposed, U.S. Trade Representative Robert Lighthizer said on Sunday, clarifying there is a ‘hard deadline’ after a week of seeming confusion among President Donald Trump and his advisers. ‘As far as I am concerned it is a hard deadline. When I talk to the president of the United States he is not talking about going beyond March,” Lighthizer said… ‘The way this is set up is that at the end of 90 days, these tariffs will be raised…’”
December 11 – Reuters (Deirdre Bosa, Kate Fazzini and Sara Salinas):
“A Vancouver judge set a $10 million CAD bail ($7.5 million) for Huawei Chief Financial Officer Meng Wanzhou Tuesday, capping a week of increasing trade tensions and strong market reactions around the dispute between the Department of Justice and one of China’s largest hardware companies. The United States had asked the Vancouver court to deny bail for Meng, whose father is a billionaire and a founder of Huawei, calling her a flight risk. Canada has been expected to extradite Meng to the United States over charges that the company improperly took payments from Iran in violation of sanctions against the country.”
“A Vancouver judge set a $10 million CAD bail ($7.5 million) for Huawei Chief Financial Officer Meng Wanzhou Tuesday, capping a week of increasing trade tensions and strong market reactions around the dispute between the Department of Justice and one of China’s largest hardware companies. The United States had asked the Vancouver court to deny bail for Meng, whose father is a billionaire and a founder of Huawei, calling her a flight risk. Canada has been expected to extradite Meng to the United States over charges that the company improperly took payments from Iran in violation of sanctions against the country.”
December 11 – Reuters (Jeff Mason and Steve Holland):
“U.S. President Donald Trump said… he would intervene in the Justice Department’s case against a top executive at China’s Huawei Technologies if it would serve national security interests or help close a trade deal with China… When asked if he would intervene with the Justice Department in her case, Trump said…: ‘Whatever’s good for this country, I would do.’ ‘If I think it’s good for what will be certainly the largest trade deal ever made – which is a very important thing – what’s good for national security – I would certainly intervene if I thought it was necessary,’ Trump said.”
“U.S. President Donald Trump said… he would intervene in the Justice Department’s case against a top executive at China’s Huawei Technologies if it would serve national security interests or help close a trade deal with China… When asked if he would intervene with the Justice Department in her case, Trump said…: ‘Whatever’s good for this country, I would do.’ ‘If I think it’s good for what will be certainly the largest trade deal ever made – which is a very important thing – what’s good for national security – I would certainly intervene if I thought it was necessary,’ Trump said.”
December 11 – CBS News (Kathryn Watson):
“An Oval Office meeting between President Trump and Democratic leaders Sen. Chuck Schumer and Rep. Nancy Pelosi spiraled out of control over funding for the border wall…, devolving into what Schumer called a Trump ‘temper tantrum.’ With a potential government shutdown looming less than two weeks away, Pelosi, the presumptive soon-to-be speaker of the House, told Mr. Trump, ‘you will not win’ on the border wall. The president demanded border wall funding — and said he's not afraid the shut down the government over it. In fact, he said, he's proud to do so, and will take credit for it. ‘I am proud to shut down the government for border security, Chuck,’ the president said. ‘So I will take the mantle. I will be the one to shut it down. I’m not gonna blame you for it. The last time you shut it down it didn't work. I will take the mantle of shutting down. And I’m gonna shut it down for border security.’”
“An Oval Office meeting between President Trump and Democratic leaders Sen. Chuck Schumer and Rep. Nancy Pelosi spiraled out of control over funding for the border wall…, devolving into what Schumer called a Trump ‘temper tantrum.’ With a potential government shutdown looming less than two weeks away, Pelosi, the presumptive soon-to-be speaker of the House, told Mr. Trump, ‘you will not win’ on the border wall. The president demanded border wall funding — and said he's not afraid the shut down the government over it. In fact, he said, he's proud to do so, and will take credit for it. ‘I am proud to shut down the government for border security, Chuck,’ the president said. ‘So I will take the mantle. I will be the one to shut it down. I’m not gonna blame you for it. The last time you shut it down it didn't work. I will take the mantle of shutting down. And I’m gonna shut it down for border security.’”
December 12 – Financial Times (Nic Fildes and Louise Lucas):
“Huawei -- The rise of the Chinese company to become the world’s biggest supplier of telecoms equipment has given China a huge boost over the US in the race to introduce and develop 5G, the next generation of mobile communications, the memo complained. ‘We are losing,’ it said. ‘Whoever leads in technology and market share for 5G deployment will have a tremendous advantage towards [ . . .] commanding the heights of the information domain.’ Eleven months on, those fears have mushroomed into open conflict between Washington and Beijing, with American officials pushing allied countries to ban Huawei from building their 5G networks, citing concerns over security and the company’s unclear links to the Chinese state.”
“Huawei -- The rise of the Chinese company to become the world’s biggest supplier of telecoms equipment has given China a huge boost over the US in the race to introduce and develop 5G, the next generation of mobile communications, the memo complained. ‘We are losing,’ it said. ‘Whoever leads in technology and market share for 5G deployment will have a tremendous advantage towards [ . . .] commanding the heights of the information domain.’ Eleven months on, those fears have mushroomed into open conflict between Washington and Beijing, with American officials pushing allied countries to ban Huawei from building their 5G networks, citing concerns over security and the company’s unclear links to the Chinese state.”
December 9 – Financial Times (Emily Feng):
“The arrest of Meng Wanzhou, the daughter of the founder of Huawei, in Vancouver this month raises the chance that the telecoms equipment maker could become a new victim in the trade war between the US and China. This year, China’s other big telecoms equipment company, ZTE, took a big hit when the US banned American companies from doing business with it, severely restricting its supply chain. Huawei would be less vulnerable if it faced a similar restriction, but its continued reliance on US-made components, especially in semiconductor chips, means such an export ban would be a big setback for Huawei’s ambitions to be a global leader in the next generation of 5G mobile communication.”
“The arrest of Meng Wanzhou, the daughter of the founder of Huawei, in Vancouver this month raises the chance that the telecoms equipment maker could become a new victim in the trade war between the US and China. This year, China’s other big telecoms equipment company, ZTE, took a big hit when the US banned American companies from doing business with it, severely restricting its supply chain. Huawei would be less vulnerable if it faced a similar restriction, but its continued reliance on US-made components, especially in semiconductor chips, means such an export ban would be a big setback for Huawei’s ambitions to be a global leader in the next generation of 5G mobile communication.”
December 9 – Wall Street Journal (Dan Strumpf):
“American companies have been crucial in helping Huawei Technologies Co. become the world’s dominant telecommunications player. Silicon Valley giants from Intel Corp. to Broadcom Inc. and Qualcomm Inc. are top suppliers of Huawei, which buys their components to make equipment such as base stations and routers and Huawei mobile phones. By one estimate, Huawei will buy up to $10 billion of components from American companies this year—roughly the value of China’s automobile imports from the U.S. Qualcomm and Intel are also working with Huawei on its development of next-generation 5G technologies, a field in which the Chinese company’s aim to be a global leader has alarmed some in Washington.”
“American companies have been crucial in helping Huawei Technologies Co. become the world’s dominant telecommunications player. Silicon Valley giants from Intel Corp. to Broadcom Inc. and Qualcomm Inc. are top suppliers of Huawei, which buys their components to make equipment such as base stations and routers and Huawei mobile phones. By one estimate, Huawei will buy up to $10 billion of components from American companies this year—roughly the value of China’s automobile imports from the U.S. Qualcomm and Intel are also working with Huawei on its development of next-generation 5G technologies, a field in which the Chinese company’s aim to be a global leader has alarmed some in Washington.”
U.S. Bubble Watch:
December 11 – The Hill (Niv Elis):
“The country’s budget deficit in the first two months of fiscal 2019, which began Oct. 1, was 50% higher than in the same period the previous year, according to the Congressional Budget Office (CBO), though the figure was inflated by timing. In October and November, the federal government spent $303 billion more than it took in, compared to $202 billion in the same period of fiscal 2018… Tax revenues were just 3 percentage points higher than the previous year, largely because of the GOP tax law, while spending surged 18%.”
“The country’s budget deficit in the first two months of fiscal 2019, which began Oct. 1, was 50% higher than in the same period the previous year, according to the Congressional Budget Office (CBO), though the figure was inflated by timing. In October and November, the federal government spent $303 billion more than it took in, compared to $202 billion in the same period of fiscal 2018… Tax revenues were just 3 percentage points higher than the previous year, largely because of the GOP tax law, while spending surged 18%.”
December 12 – Bloomberg (Alexandre Tanzi):
“Total public debt outstanding has jumped by $1.36 trillion, or 6.6%, since the start of 2018, and by $1.9 trillion since President Donald Trump took office… If this year’s growth rate is sustained through the end of the year, it would be the biggest jump in percentage terms since the last year of President Barack Obama’s first term, at a time when the economy needed fiscal stimulus in the aftermath of the financial crisis. As of Monday, the nation’s debt stood at a record $21.9 trillion. The borrowing is needed to cover a budget deficit that expanded by an estimated $779 billion in Trump’s first full fiscal year as president, the widest fiscal gap in six years. By the end of Trump’s first term, the debt is expected to rise by $4.4 trillion despite historically low unemployment, and relatively low interest rates and robust growth.”
“Total public debt outstanding has jumped by $1.36 trillion, or 6.6%, since the start of 2018, and by $1.9 trillion since President Donald Trump took office… If this year’s growth rate is sustained through the end of the year, it would be the biggest jump in percentage terms since the last year of President Barack Obama’s first term, at a time when the economy needed fiscal stimulus in the aftermath of the financial crisis. As of Monday, the nation’s debt stood at a record $21.9 trillion. The borrowing is needed to cover a budget deficit that expanded by an estimated $779 billion in Trump’s first full fiscal year as president, the widest fiscal gap in six years. By the end of Trump’s first term, the debt is expected to rise by $4.4 trillion despite historically low unemployment, and relatively low interest rates and robust growth.”
December 11 – Reuters (Lucia Mutikani):
“U.S. producer prices unexpectedly rose in November as increases in the costs for services offset a sharp decline for energy products, but the overall momentum in wholesale inflation appears to be slowing… The Labor Department… producer price index for final demand edged up 0.1% last month after jumping 0.6% in October. In the 12 months through November, the PPI rose 2.5%, slowing from October’s 2.9% surge.”
“U.S. producer prices unexpectedly rose in November as increases in the costs for services offset a sharp decline for energy products, but the overall momentum in wholesale inflation appears to be slowing… The Labor Department… producer price index for final demand edged up 0.1% last month after jumping 0.6% in October. In the 12 months through November, the PPI rose 2.5%, slowing from October’s 2.9% surge.”
December 10 – CNBC (Diana Olick):
“The average homeowner with a mortgage saw a gain of $12,400 in home equity between the third quarter of last year and this year, according to CoreLogic. That includes price appreciation and paying down the mortgage. That is down from $16,000 in annual gains in the second quarter, and the smallest gain in two years. States in the West did see bigger gains: Home equity increased by $36,500 in California and by $32,600 in Nevada. Home equity actually fell in North Dakota, Louisiana and Connecticut.”
“The average homeowner with a mortgage saw a gain of $12,400 in home equity between the third quarter of last year and this year, according to CoreLogic. That includes price appreciation and paying down the mortgage. That is down from $16,000 in annual gains in the second quarter, and the smallest gain in two years. States in the West did see bigger gains: Home equity increased by $36,500 in California and by $32,600 in Nevada. Home equity actually fell in North Dakota, Louisiana and Connecticut.”
December 9 – Wall Street Journal (Ben Eisen):
“The pace of real-estate speculation is slowing, a sign of the darkening outlook in the U.S. housing market. Small-time investors who flooded into real estate in the past decade to take advantage of low borrowing costs and rising home values are starting to cut back. The moves indicate that the market’s short-term risk-takers see limited upside—and possible turbulence—ahead. The number of new home loans issued with terms of three years or less, typically used by investors looking to make a quick profit, dropped by 11% in the July-to-September period from a year earlier. It was the smallest amount since the second quarter of 2015, according to Attom Data Solutions…”
“The pace of real-estate speculation is slowing, a sign of the darkening outlook in the U.S. housing market. Small-time investors who flooded into real estate in the past decade to take advantage of low borrowing costs and rising home values are starting to cut back. The moves indicate that the market’s short-term risk-takers see limited upside—and possible turbulence—ahead. The number of new home loans issued with terms of three years or less, typically used by investors looking to make a quick profit, dropped by 11% in the July-to-September period from a year earlier. It was the smallest amount since the second quarter of 2015, according to Attom Data Solutions…”
December 12 – Reuters (Lucia Mutikani):
“U.S. consumer prices were unchanged in November, held back by a sharp decline in the price of gasoline, but underlying inflation pressures remained firm amid rising rents and healthcare costs… November’s flat reading in the Consumer Price Index… followed a 0.3% increase in October. In the 12 months through November, the CPI rose 2.2%, the smallest gain since February, after advancing 2.5% in October. Excluding the volatile food and energy components, the CPI climbed 0.2%... That lifted the year-on-year increase in the so-called core CPI to 2.2% from 2.1% in October.”
“U.S. consumer prices were unchanged in November, held back by a sharp decline in the price of gasoline, but underlying inflation pressures remained firm amid rising rents and healthcare costs… November’s flat reading in the Consumer Price Index… followed a 0.3% increase in October. In the 12 months through November, the CPI rose 2.2%, the smallest gain since February, after advancing 2.5% in October. Excluding the volatile food and energy components, the CPI climbed 0.2%... That lifted the year-on-year increase in the so-called core CPI to 2.2% from 2.1% in October.”
December 13 – Wall Street Journal (Katherine Blunt and Rebecca Smith):
“Already paying some of the highest electricity prices in the country, customers of California’s largest utility, PG&E Corp., could soon face massive rate hikes due to the state’s catastrophic wildfires. While the exact scope of PG&E’s fire-related liability remains uncertain, the utility potentially faces tens of billions of dollars in claims. That would amount to an average power-bill increase of as much as 17% if the full total were passed on to ratepayers, according to one analyst’s estimate. That burden is more likely to be spread between shareholders and ratepayers, but could weigh on the economy of a state that already has high living costs.”
“Already paying some of the highest electricity prices in the country, customers of California’s largest utility, PG&E Corp., could soon face massive rate hikes due to the state’s catastrophic wildfires. While the exact scope of PG&E’s fire-related liability remains uncertain, the utility potentially faces tens of billions of dollars in claims. That would amount to an average power-bill increase of as much as 17% if the full total were passed on to ratepayers, according to one analyst’s estimate. That burden is more likely to be spread between shareholders and ratepayers, but could weigh on the economy of a state that already has high living costs.”
China Watch:
December 11 – Wall Street Journal (Bob Davis and Lingling Wei):
“Beijing sought to ease tensions with Washington as its top trade negotiator told U.S. officials that China was planning to reduce auto tariffs and boost purchases of soybeans and other crops, according to people in both capitals… The two sides held a teleconference involving Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He, the first session since the two sides had reached a 90-day trade truce… The… talks came amid rising U.S. demands on its economic rival, including calls for China to protect U.S. intellectual property, and to end pressure on U.S. firms to hand over valuable technology to their U.S. partners.”
“Beijing sought to ease tensions with Washington as its top trade negotiator told U.S. officials that China was planning to reduce auto tariffs and boost purchases of soybeans and other crops, according to people in both capitals… The two sides held a teleconference involving Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He, the first session since the two sides had reached a 90-day trade truce… The… talks came amid rising U.S. demands on its economic rival, including calls for China to protect U.S. intellectual property, and to end pressure on U.S. firms to hand over valuable technology to their U.S. partners.”
December 12 – Wall Street Journal (Lingling Wei and Bob Davis):
“China plans to replace an industrial policy savaged by the Trump administration as protectionist with a new program promising greater access for foreign companies, people briefed on the matter said, in a move to resolve trade tensions with the U.S. China’s top planning agency and senior policy advisers are drafting the replacement for Made in China 2025—President Xi Jinping’s blueprint to make the country a leader in high-tech industries including robotics, information and clean-energy cars. The revised plan would play down China’s bid to dominate manufacturing and be more open to participation by foreign companies…”
“China plans to replace an industrial policy savaged by the Trump administration as protectionist with a new program promising greater access for foreign companies, people briefed on the matter said, in a move to resolve trade tensions with the U.S. China’s top planning agency and senior policy advisers are drafting the replacement for Made in China 2025—President Xi Jinping’s blueprint to make the country a leader in high-tech industries including robotics, information and clean-energy cars. The revised plan would play down China’s bid to dominate manufacturing and be more open to participation by foreign companies…”
December 9 – Financial Times (Tom Hancock, Kathrin Hille and Demetri Sevastopulo): “China has summoned the US ambassador in Beijing to demand the cancellation of an arrest warrant for Meng Wanzhou, chief financial officer of Chinese telecoms company Huawei, in the latest sign that her detention is souring relations between the two powers. Beijing also threatened Canada with ‘serious consequences’ following the arrest of Ms Meng in Vancouver, highlighting how the stand-off is spilling over into other countries’ relations with China.”
December 12 – Bloomberg (Gregor Stuart Hunter):
“Default risk for Chinese companies has climbed to the highest in 13 years as Beijing seeks to rein in its post-crisis construction boom, according to Moody’s Analytics. The research group’s measure of expected default frequency has risen above early-warning levels for about 25% of corporate borrowers. Moody’s Analytics… uses the gauge to isolate companies and sectors that merit further investigation for financial distress. ‘This share has been rising steadily for the past two years and now sits near the highs last seen in 2005,’ Glenn Levine, a senior research analyst, wrote… China has already seen a record pace of bond defaults this year, a consequence in part of policy makers’ efforts to reduce leverage in the financial system.”
“Default risk for Chinese companies has climbed to the highest in 13 years as Beijing seeks to rein in its post-crisis construction boom, according to Moody’s Analytics. The research group’s measure of expected default frequency has risen above early-warning levels for about 25% of corporate borrowers. Moody’s Analytics… uses the gauge to isolate companies and sectors that merit further investigation for financial distress. ‘This share has been rising steadily for the past two years and now sits near the highs last seen in 2005,’ Glenn Levine, a senior research analyst, wrote… China has already seen a record pace of bond defaults this year, a consequence in part of policy makers’ efforts to reduce leverage in the financial system.”
December 13 – Bloomberg:
“The Chinese government’s ‘Made in China 2025’ plan was introduced as a blueprint for transforming the country into an advanced manufacturing economy.
It’s come to represent what international competitors, notably the U.S. under President Donald Trump, dislike about how China plays in the global marketplace. Tariffs imposed by Trump took aim at many of the industries highlighted in the plan… The plan, released in 2015, identified 10 industries in which China aspired to become globally competitive by 2025 and globally dominant during this century. Those industries: robotics, new-energy vehicles, biotechnology, aerospace, high-end shipping, advanced rail equipment, electric power equipment, agricultural machinery, new materials (such as those used in screens and solar cells) and new generation information technology and software…”
“The Chinese government’s ‘Made in China 2025’ plan was introduced as a blueprint for transforming the country into an advanced manufacturing economy.
It’s come to represent what international competitors, notably the U.S. under President Donald Trump, dislike about how China plays in the global marketplace. Tariffs imposed by Trump took aim at many of the industries highlighted in the plan… The plan, released in 2015, identified 10 industries in which China aspired to become globally competitive by 2025 and globally dominant during this century. Those industries: robotics, new-energy vehicles, biotechnology, aerospace, high-end shipping, advanced rail equipment, electric power equipment, agricultural machinery, new materials (such as those used in screens and solar cells) and new generation information technology and software…”
December 8 – Reuters:
“China’s trade surplus with the United States widened to $35.55 billion in November, compared with $31.78 billion in October… For January-November, China’s trade surplus with the United States was $293.52 billion, compared with about $251.26 billion in the same period last year.”
“China’s trade surplus with the United States widened to $35.55 billion in November, compared with $31.78 billion in October… For January-November, China’s trade surplus with the United States was $293.52 billion, compared with about $251.26 billion in the same period last year.”
December 8 – Reuters (Lusha Zhang, Stella Qiu and Ryan Woo):
“China reported far weaker than expected November exports and imports, showing slower global and domestic demand… November exports only rose 5.4% from a year earlier…, the weakest performance since a 3% contraction in March, and well short of the 10% forecast…”
“China reported far weaker than expected November exports and imports, showing slower global and domestic demand… November exports only rose 5.4% from a year earlier…, the weakest performance since a 3% contraction in March, and well short of the 10% forecast…”
December 10 – Bloomberg:
“Factory inflation and the consumer price index slowed, while import growth slumped… The producer price index climbed 2.7% in November from a year earlier, the slowest pace in more than two years. The consumer price index rose 2.2%, slower than estimated… Exports in dollar terms rose 5.4% in November, the customs administration said Saturday, missing estimates. Imports grew 3%, widening China’s trade surplus to $44.7 billion from $34.8 billion. That was the highest this year.”
“Factory inflation and the consumer price index slowed, while import growth slumped… The producer price index climbed 2.7% in November from a year earlier, the slowest pace in more than two years. The consumer price index rose 2.2%, slower than estimated… Exports in dollar terms rose 5.4% in November, the customs administration said Saturday, missing estimates. Imports grew 3%, widening China’s trade surplus to $44.7 billion from $34.8 billion. That was the highest this year.”
Brexit Watch:
December 12 – CNBC (Holly Ellyatt):
“U.K. Prime Minister Theresa May has won a crucial vote of confidence in her leadership on Wednesday evening. May won the leadership challenge by 200 votes to 117 votes against her in the ballot of Conservative members of parliament (MPs).”
“U.K. Prime Minister Theresa May has won a crucial vote of confidence in her leadership on Wednesday evening. May won the leadership challenge by 200 votes to 117 votes against her in the ballot of Conservative members of parliament (MPs).”
Emerging Markets Watch:
December 10 – Financial Times (Steven Bernard and Amy Kazmin):
“Arvind Kumar, a chest surgeon at New Delhi’s Sir Ganga Ram Hospital, has a ringside view of the toll that northern India’s deteriorating air quality is taking on its residents. When he started practising 30 years ago, some 80 to 90% of his lung cancer patients were smokers, mostly men, aged typically in their 50s or 60s. But in the past six years, half of Dr Kumar’s lung cancer patients have been non-smokers, about 40% of them women. Patients are younger too, with 8% in their 30s and 40s. To Dr Kumar, the dramatic shift in the profiles of lung cancer patients has a clear cause: air fouled by dirty diesel exhaust fumes, construction dust, rising industrial emissions and crop burning… Even in teenage lungs, Dr Kumar sees black deposits that would have been almost unthinkable 30 years ago.”
“Arvind Kumar, a chest surgeon at New Delhi’s Sir Ganga Ram Hospital, has a ringside view of the toll that northern India’s deteriorating air quality is taking on its residents. When he started practising 30 years ago, some 80 to 90% of his lung cancer patients were smokers, mostly men, aged typically in their 50s or 60s. But in the past six years, half of Dr Kumar’s lung cancer patients have been non-smokers, about 40% of them women. Patients are younger too, with 8% in their 30s and 40s. To Dr Kumar, the dramatic shift in the profiles of lung cancer patients has a clear cause: air fouled by dirty diesel exhaust fumes, construction dust, rising industrial emissions and crop burning… Even in teenage lungs, Dr Kumar sees black deposits that would have been almost unthinkable 30 years ago.”
Europe Watch:
December 11 – Reuters (Abhinav Ramnarayan):
“President Emmanuel Macron announced spending measures after weeks of violent protests.
Macron announced wage rises for the poorest workers and tax cuts for pensioners late on Monday, which are expected to increase public spending by 8-10 billion euros.”
“President Emmanuel Macron announced spending measures after weeks of violent protests.
Macron announced wage rises for the poorest workers and tax cuts for pensioners late on Monday, which are expected to increase public spending by 8-10 billion euros.”
December 9 – Reuters (Ardee Napolitano):
“The ‘yellow vest’ protest movement will have a severe impact on the French economy, Finance Minister Bruno Le Maire said… ‘We must expect a new slowdown of economic growth at year-end due to the ‘yellow vest’ protests,’ Le Maire told Reuters television as he visited shops and restaurants that had been vandalized on Saturday.”
“The ‘yellow vest’ protest movement will have a severe impact on the French economy, Finance Minister Bruno Le Maire said… ‘We must expect a new slowdown of economic growth at year-end due to the ‘yellow vest’ protests,’ Le Maire told Reuters television as he visited shops and restaurants that had been vandalized on Saturday.”
Italy Watch:
December 11 – Reuters (Giuseppe Fonte):
“Italy’s coalition parties are resisting any major reduction to next year’s deficit target, complicating efforts to avoid EU disciplinary action over the 2019 budget, a government source said… The European Commission has rejected Rome’s budget, which predicts the deficit will rise to 2.4% of gross domestic product in 2019 from 1.8% this year, saying it will not cut Italy’s large public debt as the rules require.”
“Italy’s coalition parties are resisting any major reduction to next year’s deficit target, complicating efforts to avoid EU disciplinary action over the 2019 budget, a government source said… The European Commission has rejected Rome’s budget, which predicts the deficit will rise to 2.4% of gross domestic product in 2019 from 1.8% this year, saying it will not cut Italy’s large public debt as the rules require.”
Japan Watch:
December 9 – Reuters (Tetsushi Kajimoto):
“The Japanese economy contracted the most in over four years in the third quarter as companies slashed spending, threatening to chill the investment outlook in 2019 as the export-reliant nation grapples with slowing global growth and trade frictions. The slump in the world’s third-biggest economy adds to signs elsewhere in Asia and Europe of weakening momentum, with recent data in China and Australia showing a slowdown in growth and stoking concerns about the wider impact of the Sino-U.S trade war. Japan’s gross domestic product shrank at an annualized rate of 2.5% in the July-September quarter - the worst downturn since the second quarter of 2014 - from 2.8% growth in the second quarter…”
“The Japanese economy contracted the most in over four years in the third quarter as companies slashed spending, threatening to chill the investment outlook in 2019 as the export-reliant nation grapples with slowing global growth and trade frictions. The slump in the world’s third-biggest economy adds to signs elsewhere in Asia and Europe of weakening momentum, with recent data in China and Australia showing a slowdown in growth and stoking concerns about the wider impact of the Sino-U.S trade war. Japan’s gross domestic product shrank at an annualized rate of 2.5% in the July-September quarter - the worst downturn since the second quarter of 2014 - from 2.8% growth in the second quarter…”
Global Bubble Watch
December 12 – Reuters (Fergal Smith):
“Canadian home prices fell in November for the second consecutive month as declines were seen across much of the country… The Teranet-National Bank Composite House Price Index, which measures changes for repeat sales of single-family homes, showed prices fell 0.3% in November from October… On a year-over-year basis, the index climbed 3.1%...”
“Canadian home prices fell in November for the second consecutive month as declines were seen across much of the country… The Teranet-National Bank Composite House Price Index, which measures changes for repeat sales of single-family homes, showed prices fell 0.3% in November from October… On a year-over-year basis, the index climbed 3.1%...”
Fixed Income Bubble Watch:
December 9 – Financial Times (Adam Samson):
“In the US, about a quarter of junk-rated issuers are now rated at B minus or lower, up from 17% four years ago and the highest level since 2009, according to data from S&P… In another sign of the potential cracks in the credit market, Cantor Fitzgerald, the investment bank, has said a third of the US investment grade market has leverage ratios, a measure of a company’s ability to pay its debt, that would otherwise be considered as high yield. ‘Leverage in corporate credit markets overall has increased to an extreme level since the Great Recession,’ said Peter Cecchini, chief market strategist at Cantor.”
“In the US, about a quarter of junk-rated issuers are now rated at B minus or lower, up from 17% four years ago and the highest level since 2009, according to data from S&P… In another sign of the potential cracks in the credit market, Cantor Fitzgerald, the investment bank, has said a third of the US investment grade market has leverage ratios, a measure of a company’s ability to pay its debt, that would otherwise be considered as high yield. ‘Leverage in corporate credit markets overall has increased to an extreme level since the Great Recession,’ said Peter Cecchini, chief market strategist at Cantor.”
December 11 – Wall Street Journal (Sam Goldfarb):
“Speculative-grade loans, a rare bright spot in the fixed-income world for most of the year, have hit a rough patch, posing challenges for businesses that have relied on the market. Investors have pulled $5.4 billion from loan-focused mutual funds since mid-October, including $4.1 billion in the past three weeks alone, according to… Lipper. That’s quite the turnaround: Investors had poured nearly $12 billion into loan-focused mutual funds in the year up to mid-October, even as they withdrew more than $22 billion from high-yield bond funds…”
“Speculative-grade loans, a rare bright spot in the fixed-income world for most of the year, have hit a rough patch, posing challenges for businesses that have relied on the market. Investors have pulled $5.4 billion from loan-focused mutual funds since mid-October, including $4.1 billion in the past three weeks alone, according to… Lipper. That’s quite the turnaround: Investors had poured nearly $12 billion into loan-focused mutual funds in the year up to mid-October, even as they withdrew more than $22 billion from high-yield bond funds…”
December 12 – Reuters (Kristen Haunss):
“Issuance of US Collateralized Loan Obligations (CLOs) has set a new annual record, even as spreads on the funds’ most senior tranches widen and regulatory scrutiny of their underlying assets increase. There has been US$124.6bn of US CLOs raised this year through December 7, topping the previous record of US$123.6bn set in 2014, according to LPC Collateral data. Another US$149.6bn of deals have been refinanced, reset or reissued in 2018.”
“Issuance of US Collateralized Loan Obligations (CLOs) has set a new annual record, even as spreads on the funds’ most senior tranches widen and regulatory scrutiny of their underlying assets increase. There has been US$124.6bn of US CLOs raised this year through December 7, topping the previous record of US$123.6bn set in 2014, according to LPC Collateral data. Another US$149.6bn of deals have been refinanced, reset or reissued in 2018.”
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.