Economic News for the week ending December 28, 2018

Saturday, December 29, 2018

Weekly Commentary: 

Thoughts on Liquidity

by Doug Noland

full column here:

http://creditbubblebulletin.blogspot.com/2018/12/weekly-commentary-thoughts-on-liquidity.html

My summary follows:

For the week ending 

December 28, 2018:

STOCKS:

S&P500 rallied 2.9% (down 7.0% y-t-d)

Dow Industrials gained 2.7% (down 6.7%)

Dow Utilities fell 1.8% (down 0.3%)

Dow Transports rose 2.6% (down 14.2%)

S&P 400 Midcaps increased 2.2% (down 13.4%)

Small cap Russell 2000 jumped 3.5% (down 12.9%)

Nasdaq100 recovered 3.9% (down 1.7%)

Biotechs jumped 4.7% (down 2.3%). 

With bullion jumping $25, 

the HUI gold stock index 

increased 1.1% 

    (down 17.8%).

U.K.'s FTSE increased 0.2% (down 12.4%).

Japan's Nikkei 225 declined 0.8% (down 12.1% y-t-d).

France's CAC40 slipped 0.3% (down 11.9%)

German DAX declined 0.7% (down 18.3%). 

Spain's IBEX 35 fell 0.7% (down 15.4%). 

Italy's FTSE MIB index slipped 0.4% (down 16.1%)

Brazil's Bovespa jumped 2.6% (up 15.0%)

Mexico's Bolsa little changed (down 16.0%). 

South Korea's Kospi declined 1.0% (down 17.3%).

India's Sensex gained 0.9% (up 5.9%). 

China's Shanghai declined 0.9% (down 24.6%). 

Turkey's Istanbul National 100 fell 1.6% (down 21.6%). 

Russia's MICEX increased 0.5% (up 11.8%).

US  BONDS

& MORTGAGES:

Ten-year Treasury yields fell seven bps to 2.72% (up 31bps). 

Long bond yields slipped a basis point to 3.02% (up 28bps). 

Benchmark Fannie Mae MBS yields dropped nine bps to 3.53% (up 53bps).

Freddie Mac 30-year fixed mortgage rates 

fell seven bps to a four-month low 4.55% 

   (up 56bps y-o-y). 

Fifteen-year rates declined six bps to 4.01% (up 57bps). 

Five-year hybrid ARM rates added two bps to 4.00% (up 53bps). 

Jumbo mortgage 30-yr fixed rates 

down four bps to a ten-month low 4.42% 

   (up 27bps).

Federal Reserve Credit

Over the past year,

contracted 8.5%. 

M2 (narrow) "money" supply 

gained 4.1%, over the past year. 

Currency Watch:

The U.S. dollar index declined 0.6% to 96.402 (up 4.6% y-t-d). 

Commodities Watch:

Goldman Sachs Commodities Index declined 1.4% (down 15.2% y-t-d).

Spot Gold jumped $25 to $1,281 (down 1.7%). 

Silver surged 5.0% to $15.436 (down 10%). 

Crude slipped 26 cents to $45.33 (down 25%). 

Gasoline recovered 0.6% (down 26%)

Natural Gas sank 13.4% (up 12%). 

Copper increased 0.3% (down 19%). 

Wheat declined 0.5% (up 20%). 

Corn fell 0.8% (up 7%).

Market Dislocation Watch:

December 25 – Wall Street Journal (Gregory Zuckerman, Rachael Levy, Nick Timiraos and Gunjan Banerji): 

“Behind the broad, swift market slide of 2018 is an underlying new reality: Roughly 85% of all trading is on autopilot—controlled by machines, models, or passive investing formulas, creating an unprecedented trading herd that moves in unison and is blazingly fast. That market has grown up during the long bull run, and hasn’t until now been seriously tested by a prolonged downturn… Today, quantitative hedge funds, or those that rely on computer models rather than research and intuition, account for 28.7% of trading in the stock market, according to data from Tabb Group--a share that’s more than doubled since 2013… Add to that passive funds, index investors, high-frequency traders, market makers, and others who aren’t buying because they have a fundamental view of a company’s prospects, and you get to around 85% of trading volume, according to Marko Kolanovic of JP Morgan . ‘Electronic traders are wreaking havoc in the markets,’ says Leon Cooperman… [from] Omega Advisors. Behind the models employed by quants are algorithms, or investment recipes, that automatically buy and sell based on pre-set inputs… ‘The speed and magnitude of the move probably are being exacerbated by the machines and model-driven trading,’ says Neal Berger, who runs Eagle’s View Asset Management… ‘Human beings tend not to react this fast and violently.’”

December 26 – Reuters (Lewis Krauskopf): 

“The Dow Jones Industrial Average surged more than 1,000 points for the first time on Wednesday, leading a broad Wall Street rebound after a report that holiday sales were the strongest in years helped mollify concerns about the health of the economy. Following Wall Street’s worst-ever Christmas Eve drop in the previous session, the advance was also fueled by investors’ reversing bets against a wide range of stocks. By the close, the Dow, S&P 500 and Nasdaq had notched their largest daily percentage gains in nearly a decade… The Dow Jones Industrial Average rose 1,086.25 points, or 4.98%, to 22,878.45, the S&P 500 gained 116.6 points, or 4.96%, to 2,467.7, and the Nasdaq Composite added 361.44 points, or 5.84%, to 6,554.36.”

Trump Administration Watch:

December 26 – Associated Press: 

“President Donald Trump says parts of the government will stay shut as long as Democrats refuse to build more barriers on the U.S.-Mexico border, seemingly dashing hope for a Christmas miracle that would soon allow several departments to reopen and employees to return to work. Asked when the government would reopen, Trump said: ‘I can’t tell you when the government’s going to be open. I can tell you it’s not going to be open until we have a wall or fence, whatever they’d like to call it.’ ‘I’ll call it whatever they want but it’s all the same thing,’ he said…”

December 26 – Reuters (Eric Beech): 

“A U.S. trade team will travel to Beijing the week of Jan. 7 to hold talks with Chinese officials, Bloomberg reported… The delegation will be led by Deputy U.S. Trade Representative Jeffrey Gerrish and will include David Malpass, Treasury under secretary for international affairs, Bloomberg said.”

December 21 – Reuters (Makina Brice and Jason Lange): 

“The United States and China might not reach a trade deal at the close of a 90-day negotiating window unless Beijing can agree to a profound overhaul of its economic policies, White House trade adviser Peter Navarro said. In an interview with Japanese business daily Nikkei published on Friday, Navarro said it would be ‘difficult’ to strike a deal without China being ready for a full overhaul of its policies for trade and industry.”

December 26 – Reuters (David Shepardson and Diane Bartz): 

“President Donald Trump is considering an executive order in the new year to declare a national emergency that would bar U.S. companies from using telecommunications equipment made by 
China’s Huawei and ZTE, three sources familiar with the situation told Reuters. It would be the latest step by the Trump administration to cut Huawei Technologies and ZTE… out of the U.S. market. The United States alleges that the two companies work at the behest of the Chinese government and that their equipment could be used to spy on Americans.”

U.S. Bubble Watch:

December 25 – Wall Street Journal (Sarah Nassauer): 

“Shoppers delivered the strongest holiday sales increase for U.S. retailers in six years… Total U.S. retail sales, excluding automobiles, rose 5.1% between Nov. 1 and Dec. 24 from a year earlier, according to Mastercard SpendingPulse, which tracks both online and in-store spending with all forms of payment. Overall, U.S. consumers spent over $850 billion this holiday season, according to Mastercard.”

December 26 – Bloomberg (Molly Schuetz): 

“Amazon.com Inc. reported a record-breaking holiday season as shoppers loaded their online baskets with items from Echo speakers to Calvin Klein clothes, suggesting consumer optimism isn’t being deterred by a tumbling stock market. The internet retailer said ‘tens of millions of people worldwide’ signed up for its Prime service… In the U.S. alone, more than 1 billion items were shipped for free using Prime…”

December 26 – Bloomberg (Jeff Kearns): 

“The Federal Reserve Bank of Richmond’s manufacturing gauge fell by a record 
as shipments and new orders weakened, the fourth district bank factory index to drop this month and the latest evidence that President Donald Trump’s trade war is becoming a greater headwind for U.S. producers.”

December 26 – Bloomberg (James Tarmy): 

“Ten people (or companies, or people masquerading as companies) spent a combined half-billion dollars on their Manhattan apartments this year. Impressive as it might seem, the numbers are down significantly from the previous three years. The highest point in the market, which this year was represented by a $73.8 million duplex penthouse in a new tower designed by Robert Stern, was down 26% from the 2014 high. (That year a penthouse on 57th street with views of Central Park sold for just over $100 million.) Moreover, in the last 12 months, eight out of the top 10 sales were heavily discounted—one apartment at 157 West 57th street took a $17 million price cut before it found a buyer.”

China Watch:

December 26 – Bloomberg: 

“China enters trade talks said to begin early next month in Beijing having made concerted efforts to end the standoff with the U.S., and also unsure it’s done enough. Since Presidents Xi Jinping and Donald Trump came to a temporary truce almost a month ago, China’s removed a retaliatory duty on U.S. automobiles and is drafting a law to prevent forced technology transfers. It’s also slashed import tariffs on more than 700 products and began buying U.S. crude oil, liquefied natural gas and soybeans again. Officials have been in constant contact with the U.S. to try to determine what else is needed to move things forward in January… It appears to Chinese officials that the U.S. itself isn’t clear on what it wants, said the people…”

December 24 – Reuters: 

“Business confidence among entrepreneurs in China worsened in the fourth quarter compared with the previous one, and was at the lowest since the second quarter of 2017, according to a survey by the People’s Bank of China… The entrepreneurs’ confidence index dropped to 67.8% in the fourth quarter, 3.4 percentage points lower than in the third quarter… A separate PBOC survey of urban households showed a decline in the number of respondents believing housing prices will continue to rise in the next quarter.”

December 26 – Reuters (Stella Qiu, Min Zhang and Ryan Woo): 

“Earnings at China’s industrial firms in November dropped for the first time in nearly three years, as slackening external and domestic demand left businesses facing more strain in 2019 in a sign of rising risks to the world’s second-largest economy. The gloomy data points to a further loss of economic momentum as a trade dispute with the United States piles pressure on China’s vast manufacturing sector and as firms, bracing for a tough year ahead, shelve their investment plans, executives say.”

Global Bubble Watch:

December 25 – Wall Street Journal (Trefor Moss): 

“A downturn in China’s car market has wrong-footed some of the world’s biggest auto makers, saddling them with factories they no longer need and that are costly to retool. Ford Motor Co., Peugeot SA and Hyundai Motor Co. especially mistimed recent expansions, opening new plants just as the seemingly unstoppable growth of China’s auto market went into reverse… At a Ford plant, workers’ shifts have been reduced to a few days a month… Now these auto makers face a painful dilemma: Abandon those big investments, or invest even more to turn around dying plants at an uncertain time in a crucial market. ‘Looking back, it wasn’t the right choice’ to build new factories, said Paul Gong, an auto analyst at UBS Group AG . ‘No one was willing to predict that they might ever lose market share in China.’”

Geopolitical Watch:

December 26 – Associated Press (Vladimir Isachenkov): 

“Russian President Vladimir Putin oversaw a test… of a new hypersonic glide vehicle, declaring that the weapon is impossible to intercept and will ensure Russia's security for decades to come. Speaking to Russia's top military brass after watching the live feed of the launch of the Avangard vehicle from the Defense Ministry's control room, Putin said the successful test was a ‘great success’ and an ‘excellent New Year's gift to the nation.’ The test comes amid bitter tensions in Russia-U.S. relations, which have sunk to their lowest level since the Cold War times…”

December 26 – Bloomberg (Henry Meyer and Stepan Kravchenko): 

“Russia warned the U.S. against any effort to influence the royal succession in Saudi Arabia, offering its support to embattled Saudi Crown Prince Mohammed bin Salman, who’s under continuing pressure over the killing of a government critic. President Vladimir Putin’s envoy to the Middle East said Prince Mohammed has every right to inherit the throne when the ailing 82-year-old King Salman dies. ‘Of course we are against interference. The Saudi people and leadership must decide such questions themselves,’ Mikhail Bogdanov… ‘The King made a decision and I can’t even imagine on what grounds someone in America will interfere in such an issue and think about who should rule Saudi Arabia, now or in the future. This is a Saudi matter.’”