Saturday, February 16, 2019
Weekly Commentary:
No Holds Barred
by Doug Noland
full column here:
My summary follows:
For the week ending
February 15, 2019:
S&P500 rose 2.5% (up 10.7% year-to-date)
Dow Industrials jumped 3.1% (up 11.0%)
Dow Utilities slipped 0.1% (up 5.3%)
Dow Transports surged 3.8% (up 15.2%)
S&P 400 Midcaps jumped 3.3% (up 15.1%)
Small cap Russell 2000 surged 4.2% (up 16.4%)
Nasdaq100 advanced 2.1% (up 11.5%)
Biotechs surged 4.4% (up 18.5%).
Though bullion added $7,
the HUI gold stock index
declined 0.6%
(up 4.6%)
U.K.'s FTSE jumped 2.3% (up 7.6% y-t-d).
Japan's Nikkei 225 rallied 2.8% (up 4.4% y-t-d).
France's CAC40 surged 3.9% (up 8.9%).
The German DAX recovered 3.6% (up 7.0%).
Spain's IBEX 35 rose 3.0% (up 6.8%).
Italy's FTSE MIB surged 4.4% (up 10.3%)
Brazil's Bovespa gained 2.3% (up 11.0%)
Mexico's Bolsa slipped 0.4% (up 3.2%).
South Korea's Kospi increased 0.9% (up 7.6%).
India's Sensex dropped 2.0% (down 0.7%).
China's Shanghai jumped 2.5% (up 7.6%).
Turkey's Istanbul National 100 added 0.3% (up 12.5%).
Russia's MICEX dipped 0.5% (up 5.6%).
US BONDS & MORTGAGES
Ten-year Treasury yields bps to 2.6% (down bps).
Long bond yields bps to 2.9% (down bps).
Benchmark Fannie Mae MBS yields bps to 3.4% (down bps).
Freddie Mac 30-year fixed mortgage rates
declined four bps to a one-year low 4.37% (down 1bp y-o-y).
declined four bps to a one-year low 4.37% (down 1bp y-o-y).
Fifteen-year rates dipped three bps to 3.81% (down 3bps).
Five-year hybrid ARM rates fell three bps to 3.88% (up 25bps).
Jumbo mortgage 30-yr fixed rates up one basis point to 4.42% (down 13bps).
Over the past year,
Fed Credit
contracted 9.0%.
M2 (narrow) "money" supply
gained 4.5%, over the past year.
Currency Watch:
The U.S. dollar index increased 0.3% to 96.904 (up 0.8% y-t-d).
Commodities Watch:
Goldman Sachs Commodities Index jumped 3.8% (up 13.1% y-t-d).
Spot Gold added 0.5% to $1,322 (up 3.0%).
Silver slipped 0.4% to $15.743 (up 1.3%).
Crude surged $2.87 to $55.59 (up 22%).
Gasoline jumped 8.7% (up 21%)
Natural Gas gained 1.6% (down 11%).
Copper declined 0.4% (up 6%).
Wheat dropped 2.0% (up 1%).
Corn rose 2.3% (up 2%).
Spot Gold added 0.5% to $1,322 (up 3.0%).
Silver slipped 0.4% to $15.743 (up 1.3%).
Crude surged $2.87 to $55.59 (up 22%).
Gasoline jumped 8.7% (up 21%)
Natural Gas gained 1.6% (down 11%).
Copper declined 0.4% (up 6%).
Wheat dropped 2.0% (up 1%).
Corn rose 2.3% (up 2%).
Trump Administration Watch:
February 15 – Bloomberg (Justin Sink and Margaret Talev):
“President Donald Trump said… he’ll declare a national emergency on the U.S. southern border in a bid to unlock more money to build his proposed wall, a day after agreeing to sign legislation providing about $1.4 billion for the controversial project. In unscripted remarks Friday morning, Trump depicted the declaration as ordinary but also said he expected it to be challenged in court. He predicted he’d eventually prevail, but conceded: ‘I didn’t need to do this.’ ‘I just want to get it done faster,’ he said of the wall. Combined with spending legislation Trump also intends to sign Friday or Saturday, the move will free up about $8 billion for the wall…”
“President Donald Trump said… he’ll declare a national emergency on the U.S. southern border in a bid to unlock more money to build his proposed wall, a day after agreeing to sign legislation providing about $1.4 billion for the controversial project. In unscripted remarks Friday morning, Trump depicted the declaration as ordinary but also said he expected it to be challenged in court. He predicted he’d eventually prevail, but conceded: ‘I didn’t need to do this.’ ‘I just want to get it done faster,’ he said of the wall. Combined with spending legislation Trump also intends to sign Friday or Saturday, the move will free up about $8 billion for the wall…”
February 12 – New York Times (Keith Bradsher):
“When China joined the World Trade Organization, the global fraternity of cross-border commerce, it promised to open itself up to foreigners in lucrative businesses like banking, telecommunications and electronic-payment processing. More than 17 years later, China’s telecommunications industry remains firmly under government control. Only recently did China say it would allow foreign companies to own their own bank businesses here. And after nearly two decades of legal fights, China is still reviewing the applications of Visa and Mastercard to get into the country’s payment-processing market. The broken promises hang over Robert Lighthizer, the United States trade representative, and Treasury Secretary Steven Mnuchin as they arrive in Beijing for two days of talks to end a trade war between the United States and China.”
“When China joined the World Trade Organization, the global fraternity of cross-border commerce, it promised to open itself up to foreigners in lucrative businesses like banking, telecommunications and electronic-payment processing. More than 17 years later, China’s telecommunications industry remains firmly under government control. Only recently did China say it would allow foreign companies to own their own bank businesses here. And after nearly two decades of legal fights, China is still reviewing the applications of Visa and Mastercard to get into the country’s payment-processing market. The broken promises hang over Robert Lighthizer, the United States trade representative, and Treasury Secretary Steven Mnuchin as they arrive in Beijing for two days of talks to end a trade war between the United States and China.”
U.S. Bubble Watch:
February 12 – Reuters (Jonathan Spicer):
“Some red flags emerged for the U.S. economy late last year as credit card inquiries fell, student-loan delinquencies remained high and riskier borrowers drove home automobiles, according to a report that could signal a downturn is on the horizon. The U.S. household debt and credit report… by the Federal Reserve Bank of New York, showed that the overall debt shouldered by Americans edged up to a record $13.5 trillion in the fourth quarter of 2018. It has risen consistently since 2013, when debt bottomed out after the last recession. While mortgage debt, by far the largest slice, slipped for the first time in two years, other forms of borrowing rose including that of credit cards, which at $870 billion matched its pre-crisis peak in 2008.”
“Some red flags emerged for the U.S. economy late last year as credit card inquiries fell, student-loan delinquencies remained high and riskier borrowers drove home automobiles, according to a report that could signal a downturn is on the horizon. The U.S. household debt and credit report… by the Federal Reserve Bank of New York, showed that the overall debt shouldered by Americans edged up to a record $13.5 trillion in the fourth quarter of 2018. It has risen consistently since 2013, when debt bottomed out after the last recession. While mortgage debt, by far the largest slice, slipped for the first time in two years, other forms of borrowing rose including that of credit cards, which at $870 billion matched its pre-crisis peak in 2008.”
February 12 – Washington Post (Heather Long):
“A record 7 million Americans are 90 days or more behind on their auto loan payments, the Federal Reserve Bank of New York reported…, even more than during the wake of the financial crisis era. Economists warn this is a red flag. Despite the strong economy and low unemployment rate, many Americans are struggling to pay their bills. ‘The substantial and growing number of distressed borrowers suggests that not all Americans have benefited from the strong labor market,’ economists at the New York Fed wrote… A car loan is typically the first payment people make because a vehicle is critical to getting to work, and someone can live in a car if all else fails. When car loan delinquencies rise, it is a sign of significant duress among low-income and working-class Americans.”
“A record 7 million Americans are 90 days or more behind on their auto loan payments, the Federal Reserve Bank of New York reported…, even more than during the wake of the financial crisis era. Economists warn this is a red flag. Despite the strong economy and low unemployment rate, many Americans are struggling to pay their bills. ‘The substantial and growing number of distressed borrowers suggests that not all Americans have benefited from the strong labor market,’ economists at the New York Fed wrote… A car loan is typically the first payment people make because a vehicle is critical to getting to work, and someone can live in a car if all else fails. When car loan delinquencies rise, it is a sign of significant duress among low-income and working-class Americans.”
February 13 – Bloomberg (Katia Dmitrieva):
“The U.S. budget deficit widened to $319 billion in the first three months of the government’s fiscal year as spending increased and revenue was little changed… The shortfall grew by 42% between the October to December period, compared with the same three months the previous year… Receipts climbed by 0.2% to $771.2 billion, while spending was up 9.6% to $1.1 trillion.”
“The U.S. budget deficit widened to $319 billion in the first three months of the government’s fiscal year as spending increased and revenue was little changed… The shortfall grew by 42% between the October to December period, compared with the same three months the previous year… Receipts climbed by 0.2% to $771.2 billion, while spending was up 9.6% to $1.1 trillion.”
February 13 – Wall Street Journal (Kate Davidson):
“Federal tax revenue declined 0.4% in 2018, the first full calendar year under the new tax law, despite robust economic growth and the lowest unemployment rate in nearly five decades. …Federal revenue totaled $3.33 trillion last year, while federal spending totaled $4.2 trillion, a 4.4% increase from the previous year. That pushed the U.S. budget gap up to $873 billion for the 12 months that ended in December, compared with $680.8 billion during the same period a year earlier—a 28.2% increase. Last year was the highest deficit for a calendar year since 2012.”
“Federal tax revenue declined 0.4% in 2018, the first full calendar year under the new tax law, despite robust economic growth and the lowest unemployment rate in nearly five decades. …Federal revenue totaled $3.33 trillion last year, while federal spending totaled $4.2 trillion, a 4.4% increase from the previous year. That pushed the U.S. budget gap up to $873 billion for the 12 months that ended in December, compared with $680.8 billion during the same period a year earlier—a 28.2% increase. Last year was the highest deficit for a calendar year since 2012.”
February 8 – Washington Post (Christopher Ingraham):
“The 400 richest Americans – the top 0.00025% of the population – have tripled their share of the nation’s wealth since the early 1980s, according to a new working paper on wealth inequality by University of California at Berkeley economist Gabriel Zucman. Those 400 Americans own more of the country’s riches than the 150 million adults in the bottom 60% of the wealth distribution, who saw their share of the nation’s wealth fall from 5.7% in 1987 to 2.1% in 2014… Overall, Zucman finds that ‘U.S. wealth concentration seems to have returned to levels last seen during the Roaring Twenties.’”
“The 400 richest Americans – the top 0.00025% of the population – have tripled their share of the nation’s wealth since the early 1980s, according to a new working paper on wealth inequality by University of California at Berkeley economist Gabriel Zucman. Those 400 Americans own more of the country’s riches than the 150 million adults in the bottom 60% of the wealth distribution, who saw their share of the nation’s wealth fall from 5.7% in 1987 to 2.1% in 2014… Overall, Zucman finds that ‘U.S. wealth concentration seems to have returned to levels last seen during the Roaring Twenties.’”
February 14 – Reuters:
“U.S. retail sales recorded their biggest drop in more than nine years in December as receipts fell across the board, suggesting a sharp slowdown in economic activity at the end of 2018. …Retail sales tumbled 1.2%, the largest decline since September 2009 when the economy was emerging from recession… Economists polled by Reuters had forecast retail sales increasing 0.2% in December. Retail sales in December rose 2.3% from a year ago.”
“U.S. retail sales recorded their biggest drop in more than nine years in December as receipts fell across the board, suggesting a sharp slowdown in economic activity at the end of 2018. …Retail sales tumbled 1.2%, the largest decline since September 2009 when the economy was emerging from recession… Economists polled by Reuters had forecast retail sales increasing 0.2% in December. Retail sales in December rose 2.3% from a year ago.”
February 12 – Reuters (Lucia Mutikani):
“U.S. small business optimism tumbled last month to its lowest level since President Donald Trump’s election more than two years ago amid growing uncertainty over the economic outlook. The National Federation of Independent Business said… its Small Business Optimism Index dropped 3.2 points to 101.2 in January, the weakest reading since November 2016.”
“U.S. small business optimism tumbled last month to its lowest level since President Donald Trump’s election more than two years ago amid growing uncertainty over the economic outlook. The National Federation of Independent Business said… its Small Business Optimism Index dropped 3.2 points to 101.2 in January, the weakest reading since November 2016.”
February 10 – Wall Street Journal (Aisha Al-Muslim):
“Makers of household staples from diapers to toilet paper are set to raise prices again this year after already hiking prices in 2018, hoping to offset higher commodity costs and boost profits. Church & Dwight Co. recently increased prices for about one-third of its products, including Arm & Hammer cat litter and baking soda, and some OxiClean cleaning products. ‘The good news is that competitors are raising [prices] in those categories as we speak,’ Church & Dwight Chief Executive Matthew Farrell said…”
“Makers of household staples from diapers to toilet paper are set to raise prices again this year after already hiking prices in 2018, hoping to offset higher commodity costs and boost profits. Church & Dwight Co. recently increased prices for about one-third of its products, including Arm & Hammer cat litter and baking soda, and some OxiClean cleaning products. ‘The good news is that competitors are raising [prices] in those categories as we speak,’ Church & Dwight Chief Executive Matthew Farrell said…”
February 15 – Reuters (Josephine Mason and Helen Reid):
“Analysts on average expect the S&P 500’s first-quarter earnings per share to drop 0.3% year-on-year, according to I/B/E/S Refinitiv data. That’s a big drop from the 8.2% rise expected as recently as October and would mark the first contraction in U.S. company earnings in three years. Analysts have also made deep cuts to forecasts for the rest of the year.”
“Analysts on average expect the S&P 500’s first-quarter earnings per share to drop 0.3% year-on-year, according to I/B/E/S Refinitiv data. That’s a big drop from the 8.2% rise expected as recently as October and would mark the first contraction in U.S. company earnings in three years. Analysts have also made deep cuts to forecasts for the rest of the year.”
February 12 – Reuters (Trevor Hunnicutt):
“California Governor Gavin Newsom said… the state will dramatically scale back a planned $77.3 billion high-speed rail project that has faced cost hikes, delays and management concerns, but will finish a smaller section of the line. ‘Let’s be real. The current project, as planned, would cost too much and respectfully take too long. There’s been too little oversight and not enough transparency,’ Newsom said… Newsom said the state will complete a 119-mile (191 km) high-speed rail link between Merced and Bakersfield in the state’s Central Valley. In March 2018, the state forecast the costs had jumped by $13 billion to $77 billion and warned that the costs could be as much as $98.1 billion.”
“California Governor Gavin Newsom said… the state will dramatically scale back a planned $77.3 billion high-speed rail project that has faced cost hikes, delays and management concerns, but will finish a smaller section of the line. ‘Let’s be real. The current project, as planned, would cost too much and respectfully take too long. There’s been too little oversight and not enough transparency,’ Newsom said… Newsom said the state will complete a 119-mile (191 km) high-speed rail link between Merced and Bakersfield in the state’s Central Valley. In March 2018, the state forecast the costs had jumped by $13 billion to $77 billion and warned that the costs could be as much as $98.1 billion.”
February 14 – Associated Press:
“U.S. long-term mortgage rates fell this week to a 12-month low, an enticement for prospective homebuyers in the upcoming season. Mortgage buyer Freddie Mac said… the average rate on the benchmark 30-year, fixed-rate mortgage declined to 4.37% from 4.41% last week. The key 30-year home borrowing rate averaged 4.38% a year ago.”
“U.S. long-term mortgage rates fell this week to a 12-month low, an enticement for prospective homebuyers in the upcoming season. Mortgage buyer Freddie Mac said… the average rate on the benchmark 30-year, fixed-rate mortgage declined to 4.37% from 4.41% last week. The key 30-year home borrowing rate averaged 4.38% a year ago.”
China Watch:
February 15 – Reuters (Kevin Yao and Judy Hua):
“China’s banks made the most new loans on record in January - totaling 3.23 trillion yuan ($477bn) - as policymakers try to jumpstart sluggish investment and prevent a sharper slowdown in the world’s second-largest economy. Chinese banks tend to front-load loans early in the year to get higher-quality customers and win market share. But they have also faced months of pressure from regulators to step up lending, particularly to cash-starved smaller firms. Net new yuan lending last month was far more than expected and eclipsed the last high of 2.9 trillion yuan in January 2018. Analysts… had predicted new loans of 2.8 trillion yuan, more than double the level seen in December.”
“China’s banks made the most new loans on record in January - totaling 3.23 trillion yuan ($477bn) - as policymakers try to jumpstart sluggish investment and prevent a sharper slowdown in the world’s second-largest economy. Chinese banks tend to front-load loans early in the year to get higher-quality customers and win market share. But they have also faced months of pressure from regulators to step up lending, particularly to cash-starved smaller firms. Net new yuan lending last month was far more than expected and eclipsed the last high of 2.9 trillion yuan in January 2018. Analysts… had predicted new loans of 2.8 trillion yuan, more than double the level seen in December.”
China's January new bank loans were 11.4% higher than the previous record from January 2018 – and 15% above estimates. Bank Loans expanded an imprudent $821 billion over the past three months alone, a full 20% above the comparable period from one year ago. Total Bank Loans expanded 13.4% over the past year; 28% in two years; 45% in three years; 91% in five years; and an incredible 323% during the past decade.
February 13 – CNBC (Huileng Tan):
“China… reported exports and imports data for January that easily topped expectations. That better-than-expected news comes as Beijing's trade dispute with the U.S. and other factors lead investors to worry that China's economy — long an engine of global growth — may be facing a sharp slowdown. Those concerns were compounded last month when China's customs data showed exports and imports both fell surprisingly in December… Dollar-denominated exports for the month rose 9.1% from a year ago… China's exports in January were expected to have contracted 3.2% from a year earlier… January dollar-denominated imports, meanwhile, fell 1.5% on-year, which was far better than expectations of a 10% decline from a year earlier…”
“China… reported exports and imports data for January that easily topped expectations. That better-than-expected news comes as Beijing's trade dispute with the U.S. and other factors lead investors to worry that China's economy — long an engine of global growth — may be facing a sharp slowdown. Those concerns were compounded last month when China's customs data showed exports and imports both fell surprisingly in December… Dollar-denominated exports for the month rose 9.1% from a year ago… China's exports in January were expected to have contracted 3.2% from a year earlier… January dollar-denominated imports, meanwhile, fell 1.5% on-year, which was far better than expectations of a 10% decline from a year earlier…”
February 11 – Bloomberg:
“Two large Chinese borrowers missed payment deadlines this month, underscoring the risks piling up in a credit market that’s witnessing the most company failures on record. China Minsheng Investment Group Corp., a private investment group with interests in renewable energy and real estate, hasn’t returned money to bondholders that it had pledged to repay on Feb. 1… And Wintime Energy Co., which defaulted last year, didn’t honor part of a restructured debt repayment plan last week… The developments are significant because both companies were big borrowers, and their problems accessing financing suggest that government efforts to smooth over cracks in the $11 trillion bond market aren’t benefiting all firms. If China Minsheng ends up defaulting, it may rank alongside Wintime Energy as one of China’s biggest failures, with 232 billion yuan ($34.3bn) of debt as of June 30…”
“Two large Chinese borrowers missed payment deadlines this month, underscoring the risks piling up in a credit market that’s witnessing the most company failures on record. China Minsheng Investment Group Corp., a private investment group with interests in renewable energy and real estate, hasn’t returned money to bondholders that it had pledged to repay on Feb. 1… And Wintime Energy Co., which defaulted last year, didn’t honor part of a restructured debt repayment plan last week… The developments are significant because both companies were big borrowers, and their problems accessing financing suggest that government efforts to smooth over cracks in the $11 trillion bond market aren’t benefiting all firms. If China Minsheng ends up defaulting, it may rank alongside Wintime Energy as one of China’s biggest failures, with 232 billion yuan ($34.3bn) of debt as of June 30…”
February 11 – Financial Times (Tom Hancock):
“Chinese consumer spending growth over the lunar new year slowed compared with last year in the latest sign that shoppers were feeling the effects of China’s decelerating economy. Chinese people spent Rmb1.01tn ($149bn) on restaurants and shopping over the week-long new year holiday — a peak period for retail, dining and movie watching… That was an increase of 8.5% from last year, a sharp drop from 2018’s year-on-year growth of 10.2% and the slowest rate of growth since such data were first tracked, in 2005.”
“Chinese consumer spending growth over the lunar new year slowed compared with last year in the latest sign that shoppers were feeling the effects of China’s decelerating economy. Chinese people spent Rmb1.01tn ($149bn) on restaurants and shopping over the week-long new year holiday — a peak period for retail, dining and movie watching… That was an increase of 8.5% from last year, a sharp drop from 2018’s year-on-year growth of 10.2% and the slowest rate of growth since such data were first tracked, in 2005.”
February 11 – Reuters (David Stanway):
“Air pollution in 39 major northern Chinese cities rose 16% on the year in January…, with surging industrial activity making it increasingly unlikely they will meet their winter emissions targets. Average concentrations of small, hazardous particles known as PM2.5 in two major northern Chinese emissions control zones climbed 16% from a year earlier to 114 micrograms per cubic meter…”
“Air pollution in 39 major northern Chinese cities rose 16% on the year in January…, with surging industrial activity making it increasingly unlikely they will meet their winter emissions targets. Average concentrations of small, hazardous particles known as PM2.5 in two major northern Chinese emissions control zones climbed 16% from a year earlier to 114 micrograms per cubic meter…”
Brexit Watch:
February 12 – Bloomberg (Tim Ross and Ian Wishart):
“Theresa May and the European Union are heading for a high-stakes, last-minute gamble that will decide whether the U.K. leaves the bloc with or without a deal, people familiar with both sides said. On March 21 -- just a week before Britain is due to exit the EU -- the prime minister will have the chance to win a late concession from European leaders at a summit in Brussels, the people said. The bloc is unlikely to offer sweeteners much sooner in case the U.K. side asks for even more, according to one of the individuals, who asked not to be named.”
“Theresa May and the European Union are heading for a high-stakes, last-minute gamble that will decide whether the U.K. leaves the bloc with or without a deal, people familiar with both sides said. On March 21 -- just a week before Britain is due to exit the EU -- the prime minister will have the chance to win a late concession from European leaders at a summit in Brussels, the people said. The bloc is unlikely to offer sweeteners much sooner in case the U.K. side asks for even more, according to one of the individuals, who asked not to be named.”
Global Bubble Watch:
February 11 – Financial Times (Simon Mundy and Kathrin Hille):
“Crowned with a soaring blue archway, the four-lane China-Maldives Friendship Bridge loops over 2km of the Indian Ocean to connect the Maldivian capital with its international airport and the fast-growing artificial island of Hulhumale. Opened last year, the bridge was the flagship project in a surge of Chinese investment into the Maldives under former president Abdulla Yameen, who left office in November after a shock election defeat… But while China has portrayed its Maldivian projects as an example of how its Belt and Road Initiative can drive development in smaller countries, the new government in Male is taking a darker view. It claims that Mr Yameen’s administration saddled the country with vast debts — owed principally to China — through inflated investment contracts which involved personal gain for corrupt Maldivian officials.”
“Crowned with a soaring blue archway, the four-lane China-Maldives Friendship Bridge loops over 2km of the Indian Ocean to connect the Maldivian capital with its international airport and the fast-growing artificial island of Hulhumale. Opened last year, the bridge was the flagship project in a surge of Chinese investment into the Maldives under former president Abdulla Yameen, who left office in November after a shock election defeat… But while China has portrayed its Maldivian projects as an example of how its Belt and Road Initiative can drive development in smaller countries, the new government in Male is taking a darker view. It claims that Mr Yameen’s administration saddled the country with vast debts — owed principally to China — through inflated investment contracts which involved personal gain for corrupt Maldivian officials.”
February 11 – Bloomberg:
“Apple Inc.’s Chinese smartphone shipments plummeted an estimated 20% in 2018’s final quarter, underscoring the scale of the iPhone maker’s retreat in the world’s largest mobile device arena against local rivals like Huawei Technologies Co. The domestic market contracted 9.7% in the quarter, but Apple declined at about twice that pace, research firm IDC said…”
“Apple Inc.’s Chinese smartphone shipments plummeted an estimated 20% in 2018’s final quarter, underscoring the scale of the iPhone maker’s retreat in the world’s largest mobile device arena against local rivals like Huawei Technologies Co. The domestic market contracted 9.7% in the quarter, but Apple declined at about twice that pace, research firm IDC said…”
Europe Watch:
February 13 – Bloomberg (Jana Randow):
“Euro-area industrial production fell more than twice as much as forecast in December, raising further questions over the state of the bloc’s economy. The 0.9% drop -- more than twice the 0.4% forecast -- was driven by declines in capital and non-durable consumer goods production. From a year earlier, output plunged the most since 2009, when the economy was dealing with the fallout from the financial crisis.”
“Euro-area industrial production fell more than twice as much as forecast in December, raising further questions over the state of the bloc’s economy. The 0.9% drop -- more than twice the 0.4% forecast -- was driven by declines in capital and non-durable consumer goods production. From a year earlier, output plunged the most since 2009, when the economy was dealing with the fallout from the financial crisis.”
February 13 – Reuters (Paul Carrel):
“Germany’s economy stalled in the final quarter of last year, just skirting recession as fallout from global trade disputes and Brexit put the brakes on a decade of expansion amid signs that exports will stay subdued for the time being. Gross domestic product in Europe’s biggest economy was unchanged for the quarter…”
“Germany’s economy stalled in the final quarter of last year, just skirting recession as fallout from global trade disputes and Brexit put the brakes on a decade of expansion amid signs that exports will stay subdued for the time being. Gross domestic product in Europe’s biggest economy was unchanged for the quarter…”
Japan Watch:
February 10 – Financial Times (Kana Inagaki and Leo Lewis):
“Japan Inc’s third-quarter profits fell at the sharpest rate since the 2011 Fukushima earthquake and tsunami as companies faced an abrupt slowdown in China’s economy owing to the US trade dispute. Following years of robust growth under Prime Minister Shinzo Abe’s pro-business economic policies, Japanese companies were also hit by global growth fears that have also affected technology giants such as Apple and Intel. A series of downgrades in annual profit forecasts by Nidec, Panasonic, Fanuc and other manufacturers were accompanied by warnings about the lack of clarity about when a recovery would happen.”
“Japan Inc’s third-quarter profits fell at the sharpest rate since the 2011 Fukushima earthquake and tsunami as companies faced an abrupt slowdown in China’s economy owing to the US trade dispute. Following years of robust growth under Prime Minister Shinzo Abe’s pro-business economic policies, Japanese companies were also hit by global growth fears that have also affected technology giants such as Apple and Intel. A series of downgrades in annual profit forecasts by Nidec, Panasonic, Fanuc and other manufacturers were accompanied by warnings about the lack of clarity about when a recovery would happen.”
Fixed-Income Bubble Watch:
February 11 – Financial Times (Megan Greene and Dwight Scott):
“Leveraged loans have more than doubled since 2010 to more than $1trillion at the end of 2018. Highly leveraged loan deals (when debt is more than five times earnings before interest, tax, depreciation and amortisation) account for about half of new US corporate debt. That growth is partly a result of securitisation. Roughly half of investor demand today comes from packaging loans into collateralised loan obligations, or CLOs, and slicing them into different tranches of risk. Rising demand has shifted the balance of power from investors to borrowers… According to Moody’s, about 25% of the leveraged loan market was considered ‘covenant-lite’ before the global financial crisis. Now that figure is 80%.”
“Leveraged loans have more than doubled since 2010 to more than $1trillion at the end of 2018. Highly leveraged loan deals (when debt is more than five times earnings before interest, tax, depreciation and amortisation) account for about half of new US corporate debt. That growth is partly a result of securitisation. Roughly half of investor demand today comes from packaging loans into collateralised loan obligations, or CLOs, and slicing them into different tranches of risk. Rising demand has shifted the balance of power from investors to borrowers… According to Moody’s, about 25% of the leveraged loan market was considered ‘covenant-lite’ before the global financial crisis. Now that figure is 80%.”
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