Economic News for the week ending February 22, 2019

Saturday, February 23, 2019

Weekly Commentary: 

Dudley on Debt and MMT

by Doug Noland

full column here:

http://creditbubblebulletin.blogspot.com/2019/02/weekly-commentary-dudley-on-debt-and-mmt.html

My summary follows:

For the week ending

February 22, 2019:

GLOBAL  STOCKS

S&P500 rose 0.6% (up 11.4% y-t-d)

Dow Industrials added 0.6% (up 11.6%)

Dow Utilities jumped 2.8% (up 8.3%)

Dow Transports added 0.2% (up 15.5%)

S&P 400 Midcaps gained 1.0% (up 16.3%)

Small cap Russell 2000 jumped 1.3% (up 17.9%)

Nasdaq100 increased 0.5% (up 12.0%)

Biotechs declined 1.4% (up 16.8%)

With bullion adding $7, 

the HUI gold stock index 

surged 3.9% (up 8.6%)

U.K.'s FTSE declined 0.8% (up 6.7% y-t-d).

Japan's Nikkei 225 jumped 2.5% (up 7.0% y-t-d) 

France's CAC40 gained 1.2% (up 10.3%)

German DAX rose 1.4% (up 8.5%)

Spain's IBEX 35 increased 0.9% (up 7.8%)

Italy's FTSE MIB added 0.2% (up 10.6%)

Brazil's Bovespa added 0.4% (up 11.4%)

Mexico's Bolsa jumped 1.7% (up 5.0%)

South Korea's Kospi gained 1.6% (up 9.3%)

India's Sensex added 0.2% (down 0.5%)

China's Shanghai surged 4.5% (up 12.4%)

Turkey's Istanbul National 100 increased 0.5% (up 13.1%)

Russia's MICEX was little changed (up 5.5%).

US  BONDS  &  MORTGAGE RATES

US Ten-year Treasury yields
dipped a basis point to 2.65% (down 3bps). 

US Treasury long bond yields 

increased two bps to 3.01% (unchanged). 

Benchmark Fannie Mae MBS yields 

fell four bps to 3.40% (down 9bps).

Freddie Mac 30-year fixed mortgage rates 

declined two bps to a one-year low 4.35% 

bbb(down 5bps y-o-y). 

Fifteen-year rates fell three bps to 3.78% 

   (down 7bps). 

Five-year hybrid ARM rates 

dropped four bps to 3.84%

    (up 19bps). 

Jumbo mortgage 30-yr fixed rates 

down seven bps to 4.35% 

   (down 1bps).

Federal Reserve Credit 

over the past year, 

contracted 9.5%

M2 (narrow) "money" supply gained 4.6%, over the past year. 

Currency Watch:

The U.S. dollar index declined 0.4% to 96.507 

   (up 0.3% y-t-d). 

Commodities Watch:

Goldman Sachs Commodities Index 

gained 1.4% (up 14.7% y-t-d). 

Spot Gold added 0.5% to $1,328 (up 3.6%). 

Silver jumped 1.7% to $16.012 (up 3.0%)

Crude rose another $1.67 to $57.26 (up 26%)

Gasoline gained 2.4% (up 24%)

Natural Gas rose 3.5% (down 8%)

Copper surged 5.3% (up 12%)

Wheat fell 3.0% (down 2%)

Corn increased 0.5% (up 3%).

Market Dislocation Watch:

February 18 – Wall Street Journal (Daniel Kruger): 

“Investors around the globe are effectively paying governments to hold more than $11 trillion of their bonds, a fresh sign of ebbing economic confidence in Europe and Japan. Negative-yielding government bonds outstanding through mid-January have risen 21% since October, reversing a steady decline that took place over the course of 2017 and much of last year, according to… Bank of America Merrill Lynch.”

Trump Administration Watch:

February 18 – Reuters (Jeff Mason and David Lawder): 

“Tariffs on $200 billion worth of Chinese imports are scheduled to rise to 25% from 10% by March 1 if the world’s two largest economies do not settle their trade dispute, but Trump has suggested several times that he would be open to postponing the deadline. ‘They are very complex talks. They’re going very well,’ Trump told reporters... ‘I can’t tell you exactly about timing, but the date is not a magical date. A lot of things can happen.’”

February 18 – Reuters (Steve Holland): 

“U.S. President Donald Trump… warned members of Venezuela’s military who remain loyal to socialist President Nicolas Maduro that they are risking their future and their lives and urged them to allow humanitarian aid into the country. Speaking to a cheering crowd mostly of Venezuelan and Cuban immigrants in Miami, Trump said if the Venezuelan military continues supporting Maduro, ‘you will find no safe harbor, no easy exit and no way out. You’ll lose everything.’”

February 18 – Reuters: 

“U.S. President Donald Trump has promised European Commission President Jean-Claude Juncker that he will not impose additional import tariffs on European cars for the time being, Juncker was quoted… as saying… A confidential U.S. Commerce Department report sent to Trump over the weekend is widely expected to clear the way for him to threaten tariffs of up to 25% on imported autos and auto parts by designating the imports a national security threat. ‘Trump gave me his word that there won't be any car tariffs for the time being. I view this commitment as something you can rely on,’ Juncker told the German daily Stuttgarter Zeitung…”

U.S. Bubble Watch:

February 21 – Reuters (Lucia Mutikani): 

“New orders for key U.S.-made capital goods unexpectedly fell in December amid declining demand for machinery and primary metals, pointing to a further slowdown in business spending on equipment that could crimp economic growth. The moderation in business investment was also underscored by another report… showing a measure of factory activity in the mid-Atlantic region contracted in February for the first time since May 2016… Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.7%. Data for November was revised down to show these so-called core capital goods orders falling 1.0%...”

February 21 – Bloomberg (Jeff Kearns and Katia Dmitrieva):

“Sales of previously owned U.S. homes fell to the weakest pace since November 2015, indicating that the housing market remained in a slowdown despite a drop in mortgage rates. Contract closings decreased 1.2% in January from the prior month to an annual rate of 4.94 million…, below economists’ estimates for 5 million. The median sales price rose 2.8% from a year ago, the smallest increase since February 2012, while the inventory of available homes saw a sixth straight increase.”

February 19 – Financial Times (John Plender): 

“What is unusual at present is that the exposure of US household balance sheets to the stock market is running at record levels. This is an under-acknowledged part of the explanation for the recent weakening of economic data and especially the spectacular decline in retail sales. As TS Lombard, a research firm, points out, share prices are not the only determinant of spending but they count more than they used to because equities make up a bigger percentage of household net worth than real estate for only the third time since the end of the second world war. An important difference in the current cycle compared with the previous two occasions is that so much of the increase in ownership reflects net purchases as opposed to simply being the passive result of a valuation uplift in a strong bull market.”

February 16 – Bloomberg (Alexandre Tanzi): 

“Student-loan delinquencies surged last year, hitting consecutive records of $166.3 billion in the third quarter and $166.4 billion in the fourth. Bloomberg calculated the dollar amounts from the Federal Reserve Bank of New York’s quarterly household-debt report… That percentage has remained around 11% since mid-2012, but the total increased to a record $1.46 trillion by December 2018, and unpaid student debt also rose to the highest ever.”

February 18 – Reuters (Ishita Chigilli Palli): 

“U.S. discount retailer Payless ShoeSource Inc on Monday filed for voluntary Chapter 11 bankruptcy protection for the second time, along with its North American subsidiaries, and said it would wind down all North American stores by the end of May. The retailer will close about 2,500 stores in North America starting from the end of March and wind down its e-commerce operations.”

China Watch:

February 18 – Associated Press (Joe McDonald): 
“China’s government… accused the United States of trying to block its industrial development after Vice President Mike Pence said Chinese equipment poses a threat to countries that are rolling out next-generation mobile communications… The U.S. government is trying to ‘fabricate an excuse for suppressing the legitimate development’ of Chinese enterprises, said a foreign ministry spokesman, Geng Shuang. He accused the United States of using ‘political means’ to interfere in economic activity, ‘which is hypocritical, immoral and unfair bullying.’”

February 21 – Financial Times (Gabriel Wildau): 

“A rare public spat has erupted between Chinese premier Li Keqiang and the central bank after he expressed concern about record credit expansion in January, a result of monetary stimulus intended to support flagging economic growth. Since assuming the premiership in 2013 alongside President Xi Jinping, Mr Li has been a consistent critic of the large-scale stimulus that their predecessors launched in response to the 2008 financial crisis, which economists said led to wasteful investment and a dangerous increase in debt. Analysts said Mr Li’s latest comments reflected concern his credibility would suffer if the government was seen as backsliding on its commitment to avoid heavy-handed stimulus.”

February 18 – Associated Press (Joe McDonald):
“China’s auto sales fell for an eighth month in January, extending a painful decline for the biggest global market 
as demand cooled amid a slowing economy and tariffs standoff with the U.S. Purchases of sedans, SUVs and minivans fell 15% from a year earlier to just over 2 million vehicles, according… the China Association of Automobile Manufacturers. Cooling growth and trade tensions with Washington are prompting jittery buyers to put off purchases.”

February 19 – Financial Times (David Bond): 

“Chinese hackers have increased attacks on global telecoms companies in the past year, suggesting an escalation in Beijing’s cyber espionage operations as the US pushes allies to block Huawei from future 5G networks. According to… CrowdStrike, the… cyber security company that first attributed the 2016 hack on the US Democratic National Committee to Russia, 2018 saw an overall increase in Chinese cyber attacks, especially against US targets. The company said the increase was explained by growing tensions over trade between Washington and Beijing but added that the specific targeting of telecoms companies worldwide pointed to a wider surge in spying by Chinese state-backed cyber warriors.”

February 16 – Reuters (Eric Lam): 

“The trade war between the U.S. and China and slowing retail sales dragged Hong Kong’s economic growth down at the end of last year, with exports showing almost ‘zero growth.’ Gross domestic product in the fourth quarter was ‘less than 1.5%,’ according to… Financial Secretary Paul Chan. The ‘significant slowdown’ was well below the 2.9% seen in the previous three months.”

Brexit Watch:

February 20 – Reuters (Richard Leong): 

“Fitch Ratings said… it may downgrade the United Kingdom’s ‘AA’ debt rating based on growing uncertainty about the negotiations between Britain and the European Union over the nation’s departure from the economic bloc next month.”

Emeging Markets Watch:

February 20 – Financial Times (Joseph Cotterill): 

“South Africa has unveiled the largest bailout in the country’s history for Eskom, the struggling state power monopoly, whose financial troubles have pushed it to the brink of collapse and caused rolling national blackouts. The government will inject R69bn ($4.8bn) over three years to stabilise Eskom’s $30bn debt as it attempts a turnround, …South Africa’s finance minister, said… The risk of a collapse at Eskom is a serious threat to South Africa’s already stretched public finances as its debt is mostly state-guaranteed. Without a plan to control Eskom’s rising costs, a bailout could also imperil the country’s last remaining investment-grade credit rating, with Moody’s.”

February 20 – Bloomberg (Michael Cohen and Gordon Bell): 

“The sorry state of South Africa’s state power utility starkly illustrates just how far the country slipped during former President Jacob Zuma’s scandal-marred rule and the enormity of the task of rebuilding the nation’s stricken finances. From the heady days of the 2000s, when growth topped 5% a year, the economy has struggled through two recessions, and debt ratios have tripled. There have been almost daily revelations of state corruption, the nation's final investment-grade rating is hanging by a thread and budget surpluses have turned to ever-widening shortfalls.”

February 19 – Bloomberg (Subhadip Sircar): 

“India is struggling to sell its bonds at recent auctions, and that’s even before Prime Minister Narendra Modi embarks upon a record borrowing program. Underwriters rescued a longer-tenor bond sale on Friday following poor buying support that’s seen the bid-to-cover ratio -- a gauge of demand -- drift lower in the last two auctions from levels seen in January. Concerns about an over-supply of longer maturity bonds have increased after the government on Feb. 1 said it plans to borrow almost $100 billion for the year starting April 1”

Global Bubble Watch:

February 16 – Bloomberg (Marc Champion): 

“If China and the U.S. are in the midst of a divorce, Europeans look increasingly like the children. That was the impression given by a series of back-to-back appearances on Saturday, from U.S. Vice President Mike Pence, Chinese politburo member Yang Jiechi, Russian Foreign Minister Sergei Lavrov and German Chancellor Angela Merkel. The speeches put growing great power rivalries on display, but with Europe more the object of a custody battle than a participant. Speaking at the annual Munich Security Conference, Yang looked like he was trying to drive a wedge between the U.S. and its European Union allies… He spent much of his speech extolling the virtues of cooperation, international organizations and free trade, popular in Europe, and attacked the dangers of ‘protectionism,’ as well as ‘hegemony and power politics.’ The U.S. wasn’t named, but the target was clear.”

February 19 – Reuters (Tom Miles): 

“A quarterly leading indicator of world merchandise trade slumped to its lowest reading in nine years…, which should put policymakers on guard for a sharper slowdown if trade tensions continue, the World Trade Organization said… The WTO’s quarterly outlook indicator, a composite of seven drivers of trade, showed a reading of 96.3, the weakest since March 2010 and down from 98.6 in November. A reading below 100 signals below-trend growth in trade.”

February 18 – Bloomberg (Daniel Moss): 

“The Reserve Bank of Australia's board spent a chunk of its interest-rate meeting this month digesting a paper on the housing slump and what it foretells for that famous 27-year growth streak. Consideration of the paper, revealed in minutes of the RBA's Feb. 5 conclave…, may explain a lot… But few things are of as much interest for the local economy or dominate public airwaves like the housing industry. It's a national obsession…. Prices are down from their 2017 peaks in Sydney and Melbourne by 12% and 9%... In the minutes, the RBA called drops in Perth and Darwin ‘significant.’ The word ‘housing’ appears in the minutes more than 30 times, about three times as many as the word ‘China’…”

Europe Watch:

February 19 – Reuters (Sara Rossi and Emilio Parodi): “Italy’s tax police have carried out a seizure order for more than 700 million euros ($794 million) as part of a probe targeting the country’s top four banks over alleged fraudulent diamond sales, two sources close to the matter said…”

Japan Watch:

February 20 – Reuters (Balazs Koranyi and Tom Sims):
“Japan’s exports posted their biggest decline in more than two years as China-bound shipments tumbled, fuelling concerns about slowing global demand as the business mood sours and orders for the country’s machinery goods fell sharply. …Japan’s exports fell 8.4% year-on-year in January, a bigger decline than the 5.5% fall expected… It was the sharpest annual decline since October 2016…”

February 17 – Reuters (Stanley White):

 “Overseas orders for Japanese machinery posted their biggest tumble in more than a decade in December, as trade frictions dented global supply chain demand and manufacturers predicted further declines in orders this quarter. …Core machinery orders, considered a leading indicator of capital expenditure, fell 0.1% month-on-month in December… Highlighting bigger concerns about the external environment, however, was a 21.9% month-on-month slump in orders from overseas, the biggest fall since November 2007.”

Fixed-Income Bubble Watch:

February 17 – Financial Times (Joe Rennison): 
“Companies across America are turning to the secured bond market for funding, as the Federal Reserve’s decision to hit the pause button on further interest rate rises has reduced the appeal of previously red-hot loans. Already indebted or lowly rated companies were heavy users of the loan market for much of last year, as investors flocked to financial products whose returns rose in tandem with rising interest rates. However, the prospect that US rate increases have peaked weakens the allure of loans… Instead, investors are putting more money into corporate bonds, which typically offer fixed returns that are more attractive in a world in which rates are likely to flatline — or even fall — over the next year.”

Geopolitical Watch:

February 21 – Reuters (Andrew Osborn): 

“President Vladimir Putin has said that Russia is militarily ready for a Cuban Missile-style crisis if the United States wanted one, and that his country currently has the edge when it comes to a first nuclear strike. 
The Cuban Missile Crisis erupted in 1962 when Moscow responded to a U.S. missile deployment in Turkey by sending ballistic missiles to Cuba, sparking a standoff that brought the world to the brink of nuclear war. More than five decades on, tensions are rising again over Russian fears that the United States might deploy intermediate-range nuclear missiles in Europe, as a landmark Cold War-era arms-control treaty unravels.”

February 19 – Wall Street Journal (Bojan Pancevski and Sara Germano): 

“The German government is leaning toward letting Huawei Technologies Co. participate in building the nation’s high-speed internet infrastructure, several German officials said, the latest sign of ambivalence among U.S. allies over Washington’s push to ostracize the Chinese tech giant as a national security risk. A small group of ministries reached a preliminary agreement two weeks ago that still needs formal approval by the full cabinet and parliament, officials said.”