Saturday, January 12, 2019
Market Commentary:
Issues 2019
by Doug Noland
full column here:
My summary is below:
For the week ending
January 11, 2019:
STOCKS
S&P500 up 2.5% (up 3.6% year-to-date)
Dow Industrials up 2.4% (up 2.9%)
Dow Utilities up 0.6% (up 0.3%)
Dow Transports up 4.3% (up 5.0%)
S&P 400 Midcaps up 4.7% (up 5.0%)
Small cap Russell 2000 up 4.8% (up 7.3%)
Nasdaq100 up 2.8% (up 4.3%)
Biotechs up 8.1% (up 12.8%)
While gold bullion added $2,
the HUI gold stock index fell 1.8%
(down 0.7%).
U.K.'s FTSE rose 1.2% (up 2.8% y-t-d).
Japan's Nikkei 225 surged 4.1% (up 1.7% y-t-d).
France's CAC40 increased 0.9% (up 1.1% y-t-d)
German DAX rose 1.1% (up 3.1%)
Spain's IBEX 35 jumped 1.6% (up 3.9%)
Italy's FTSE MIB rose 2.4% (up 5.3%)
Brazil's Bovespa gained 2.0% (up 6.6%)
Mexico's Bolsa jumped 2.6% (up 4.6%)
South Korea's Kospi rallied 3.2% (up 1.7%)
India's Sensex increased 0.9% (down 0.2%)
China's Shanghai rallied 1.5% (up 2.4%)
Turkey's Istanbul National 100 jumped 3.2% (up 0.5%)
Russia's MICEX rose 1.6% (up 3.6%).
US BONDS & MORTGAGES:
Ten-year Treasury yields
gained three bps to 2.70% (up 2bps).
Treasury thirty-year bond yields
rose five bps to 3.03% (up 2bps).
Benchmark Fannie Mae MBS yields
increased two bps to 3.48% (down 2bps).
Freddie Mac 30-year fixed mortgage rates
declined six bps
to a near nine-month low 4.45%
(up 46bps y-o-y).
Fifteen-year rates
dropped 10 bps to 3.89% (up 45bps).
Five-year hybrid ARM rates
sank 15 bps to 3.83% (up 37bps).
Jumbo mortgage 30-yr fixed rates
up three bps to 4.41% (up 8bps).
Over the past year,
Fed Credit contracted 8.8%.
M2 (narrow) "money" supply
gained 5.1%, over the past year.
Currency Watch:
The U.S. dollar index
declined 0.5% to 95.67 (down 0.5% y-t-d)
Commodities Watch:
Goldman Sachs Commodities Index surged 4.2% (up 7.6% y-t-d).
Spot Gold added $2 to $1,288 (up 0.4%).
Silver slipped 0.8% to $15.656 (up 0.7%).
Crude surged $3.63 to $51.59 (up 14%).
Gasoline rose 3.9% (up 8%)
Natural Gas gained 1.8% (up 5%)
Copper increased 0.5% (up 1%)
Wheat added 0.5% (up 3%)
Corn declined 1.2% (up 1%).
Market Dislocation Watch:
January 6 – Wall Street Journal (Ira Iosebashvili):
“Uneven economic data and volatility in stocks have accelerated a surge into assets perceived as relatively safe…Gold prices have strengthened around 7% in that period and stand near their highest level in about half a year…”
January 10 – Wall Street Journal (Daniel Kruger and Sam Goldfarb):
“No U.S. company rated below investment grade has issued bonds since November—the longest stretch without a high-yield sale in more than two decades… December was the first month since 2008 without a junk-bond sale, according to Dealogic. Thursday is on pace to mark 41 days without a deal, the longest stretch in data going back to 1995. Volatility in financial markets, uncertainty about the economy and the recent drop in oil prices are discouraging riskier companies from issuing debt and investors from buying it, analysts say. Slack investor demand recently lifted the premium, or spread, that companies with junk credit ratings have to pay over risk-free government debt to the highest level in more than two years.”
Trump Administration Watch:
January 8 – Bloomberg (Jenny Leonard, Jennifer Jacobs, Saleha Mohsin, and Shawn Donnan):
“President Donald Trump is increasingly eager to strike a deal with China soon in an effort to perk up financial markets that have slumped on concerns over the trade war, according to people familiar with internal White House deliberations. Talks between mid-level U.S. and Chinese officials in Beijing concluded on Wednesday, and a Chinese foreign ministry spokesman said a positive result from the meetings will be good for the global economy. The negotiations had been extended for a day, which added to optimism fueled by tweets from Trump that the two sides are making progress toward an agreement.”
January 10 – Wall Street Journal (Rebecca Ballhaus, Kristina Peterson and Natalie Andrews):
“As negotiations to end a partial government shutdown broke down Wednesday, White House officials said an increasingly likely option is for President Trump to declare a national emergency over border security and try to use Pentagon funds to pay for construction of a wall or other barrier on the U.S.-Mexico border. If the White House goes that route, House Democrats, who now hold a majority in the chamber, have vowed to immediately challenge it in court. The stakes in the showdown over border-wall funding heightened Wednesday after discussions at the White House between the president and congressional leaders collapsed when Mr. Trump walked out.”
January 9 – CNBC (Emmie Martin): “The partial government shutdown, which began Dec. 22, has now stretched well into the new year. President Donald Trump said Friday that it would continue for ‘months or even years’ until he receives the requested $5 billion in funding for a border wall. The shutdown has left approximately 800,000 federal workers in financial limbo. Around 420,000 ‘essential’ employees are working without pay, while another 380,000 have been ordered to stay home…
Government workers are far from alone in feeling stressed about not getting paid. Nearly 80% of American workers (78%) say they’re living paycheck to paycheck, according to a 2017 report by… CareerBuilder.”
January 7 – CNBC (Matthew J. Belvedere):
“Commerce Secretary Wilbur Ross told CNBC… that U.S. tariffs are hurting China’s economy and Beijing’s ability to create jobs to stave off domestic disorder.
The economic slowdown in China is a ‘big problem in their context of having a very big need to create millions of millions of jobs to hold down social unrest coming out of the little villages,’ Ross said… He argued that Chinese workers going to cities for jobs are finding none and returning home. ‘That creates a real social problem,’ he said. ‘That’s a very disgruntled group of people.’”
U.S. Bubble Watch:
January 8 – New York Times (Jim Tankersley):
“The federal budget deficit continued to rise in the first quarter of fiscal 2019 and is on pace to top $1 trillion for the year, as President Trump’s signature tax cuts continue to reduce corporate tax revenue… The monthly numbers from the Congressional Budget Office also show an increase in spending on federal debt as rising interest rates drive up the cost of the government’s borrowing. The widening deficit comes despite a booming economy and a low unemployment rate… Federal spending outpaced revenue by $317 billion over the first three months of the fiscal year, which began in October… That was 41% higher than the same period a year ago, or 17% after factoring in payment shifts that made the fiscal 2018 first-quarter deficit appear smaller than it actually was… Corporate tax receipts fell by $9 billion for the quarter, or 15%. Individual receipts fell by $17 billion, or 4%. Interest costs on the debt rose by $16 billion for the quarter, or 19%. Interest costs for December were up 47% from the same month in 2017.”
January 9 – CNBC (Sam Meredith):
“The U.S. is in danger of losing its triple-A sovereign credit rating later this year, Fitch said…, warning an ongoing government shutdown could soon start to impact its ability to pass a budget. A stalemate between President Donald Trump and congressional Democrats over a spending package to fund nine government agencies entered its 19th day on Wednesday. It comes at a time when lawmakers are deeply divided over the president’s demand for money for a border wall. ‘I think people are looking at the CBO (Congressional Budget Office) numbers. If people take the time to look at that you can see debt levels moving higher, you can see the interest burden in the U.S. government moving decidedly higher over the next decade,” James McCormack, Fitch’s global head of sovereign ratings told CNBC’s “Squawk Box Europe”… ‘There needs to be some kind of fiscal adjustment to offset that or the deficit itself moves higher and you’re essentially borrowing money to pay interest on the debt. So there is a meaningful fiscal deterioration there, going on the United States,’ he added.”
January 7 – Reuters (Richard Leong and Lucia Mutikani):
“U.S. services sector activity slowed to a five-month low in December, but remained above a level consistent with solid economic growth in the fourth quarter. The Institute for Supply Management said… its non-manufacturing activity index fell to 57.6 last month, the lowest reading since July, from 60.7 in November.”
January 7 – CNBC (Diana Olick):
" The share of Americans who think it is a good time to buy a home just dropped sharply, according to a December survey from… Fannie Mae. Higher mortgage rates and increased home prices are likely to blame. Homes are simply very expensive right now, in relation to income, and there are still very few entry-level homes for sale… ‘Consumer attitudes regarding whether it’s a good time to buy a home worsened significantly in the last month, as well as from a year ago, to a survey low,’ said Doug Duncan, senior vice president and chief economist at Fannie Mae.”
January 6 – Reuters (Heather Somerville):
“New Trump administration policies aimed at curbing China’s access to American innovation have all but halted Chinese investment in U.S. technology startups, as both investors and startup founders abandon deals amid scrutiny from Washington. Chinese venture funding in U.S. startups crested to a record $3 billion last year, according to… Rhodium Group… Since then, Chinese venture funding in U.S. startups has slowed to a trickle, Reuters interviews with more than 35 industry players show.”
Global Bubble Watch:
January 7 – Financial Times (Lena Komileva):
“If 2018 was the first year that tested the resilience of global markets to a switch from quantitative easing to quantitative tightening, the results did not inspire confidence. Investors began the year unprepared for the renewed volatility that came as the Federal Reserve rolled back more of its insurance liquidity. The fact a strong US jobs market and historically low policy rates could not prevent US stocks having their worst December since 1931 confirmed that a decade of repressing volatility had left the market with a weak immune system. The central issue facing markets now is where the new clearing level for risk lies. Has recent turbulence reset market fundamentals to more sustainable levels, or does it portend greater pain to come?”
January 9 – Bloomberg:
“The growth engine for the world’s car industry has been thrown into reverse, with China recording the first annual slump in auto sales in more than two decades -- though progress in trade talks with the U.S. and planned government incentives offer a ray of optimism. Sales in the world’s biggest market fell 6% to 22.7 million units last year…”
January 8 – Bloomberg (Sam Kim):
“Samsung Electronics Co.’s quarterly profit and revenue missed estimates on sputtering demand for memory chips during the last three months of 2018, the same period when Apple Inc. saw anemic sales in China. The… company’s operating income fell to 10.8 trillion won ($9.6bn) in the quarter… falling short of the 13.8 trillion-won average of analysts’ estimates…”
January 8 – CNBC (Stephanie Landsman):
“Stephen Roach, one of Wall Street’s leading authorities on Asia, believes multinational corporations are largely underestimating the impact of the U.S.-China trade war on their bottom lines. According to Roach, the first indication came last week… ‘Apple is probably the canary in the coal mine… There’s likely to be more to come.’ Roach, who was Morgan Stanley Asia chairman for five years, sees the trade conflict with China as the biggest threat to the U.S. economy and markets… ‘To think that what affects the Chinese has no bearing whatsoever on an otherwise resilient U.S. economy I think, is ludicrous,’ he said. ‘This is a two-way relationship. The U.S. depends heavily on China. It’s our third largest and most rapidly growing export market over the last 10 years.’”
Europe Watch:
January 8 – Reuters (Michael Nienaber):
“German industrial output unexpectedly fell in November for the third consecutive month, adding to signs that companies in Europe’s largest economy are shifting into a lower gear… Industrial output fell by 1.9% on the month in November… coming in way below the 0.3% increase that had been forecast. The output figure for October was revised down to a fall of 0.8% from a previously reported drop of 0.5%.”
Fixed-Income Bubble Watch:
January 9 – Bloomberg (Katherine Greifeld):
“As the U.S. government kicks off its debt sales this year, here’s one potentially worrisome sign for traders to keep in mind: the steep decline in demand at its bond auctions. Of the $2.4 trillion of notes and bonds the Treasury Department offered last year, investors submitted bids for just 2.6 times that amount…
That’s less than any year since 2008. The bid-to-cover ratio, as it’s known, fell even as benchmark Treasury yields soared to multi-year highs in October, before falling back to their lows last month.”
January 7 – Reuters (Ismail Shakil and Arundhati Sarkar):
“PG&E Corp’s shares fell 14% on Tuesday, after S&P Global stripped the California power company of its investment-grade credit rating in the face of massive claims stemming from deadly wildfires.
The utility, whose roughly $18 billion in bonds fell on Monday due to bankruptcy fears, has come under severe pressure since a fatal Camp fire in November compounded its woes. It currently faces billions of dollars in liabilities related to wildfires in 2017 and 2018.”
Geopolitical Watch:
January 5 – Financial Times (Edward White):
“Taiwan’s president Tsai Ing-wen has made a fresh call for international support in the face of aggressive signals from China.
Ms Tsai, in a rare briefing with foreign media, said given the ‘worst-case scenario of China using force’, Taiwan was speeding up development of its military and signalled hope for more foreign assistance. ‘We are working hard to do everything to help ourselves to improve our defence capabilities but at the same time we still hope other countries that attach great importance to democracy and value Taiwan will be able to work together with us,’ Ms Tsai said.”
January 8 – Financial Times (Laura Pitel and Aime Williams):
“Donald Trump’s top security aide was snubbed by Turkey’s president…, striking a blow to Washington’s efforts to contain the fallout from a plan to withdraw US troops from Syria. John Bolton, the White House national security adviser, had hoped to meet Recep Tayyip Erdogan on his two-day visit to Ankara as part of a rearguard effort to reassure US allies and secure the safety of Kurdish forces in Syria following last month’s abrupt announcement on the departure of the troops. Instead, he found himself on the receiving end of a blistering attack by Mr Erdogan, who accused him of making a ‘serious mistake’ in asking Turkey not to attack Kurdish militants…”
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