Saturday, March 30, 2019
Weekly Commentary:
Everything Rally
by Doug Noland
Full column here:
My quick summary is below:
For the week ending
March 29, 2019:
S&P500 gained 1.2% (up 13.1% y-t-d)
Dow Industrials rose 1.7% (up 11.2%)
Dow Utilities slipped 0.5% (up 10.5%)
Dow Transports jumped 3.5% (up 13.5%)
S&P 400 Midcaps rose 2.2% (up 14.0%)
Small cap Russell 2000 gained 2.2% (up 14.2%)
Nasdaq100 increased 0.7% (up 16.6%)
Biotechs surged 3.6% (up 21.5%).
With bullion dropping $21,
the HUI gold stock index fell 1.8% (up 5.8%).
U.K.'s FTSE rose 1.0% (up 8.2% y-t-d).
Japan's Nikkei 225 declined 1.9% (up 6.0% y-t-d).
France's CAC40 rose 1.5% (up 13.1%).
German DAX rallied 1.4% (up 9.2%)
Spain's IBEX 35 increased 0.4% (up 8.2%)
Italy's FTSE MIB gained 1.0% (up 16.2%)
Brazil's Bovespa rose 1.8% (up 4.8%),
Mexico's Bolsa gained 2.3% (up 3.9%)
South Korea's Kospi index fell 2.1% (up 4.9%)
India's Sensex increased 1.3% (up 7.2%)
China's Shanghai Exchange slipped 0.4% (up 23.9%)
Turkey's Istanbul National 100 sank 6.1% (up 2.8%).
Russia's MICEX added 0.2% (up 5.4%).
US BONDS & MORTGAGES:
Ten-year Treasury yields declined four bps to 2.41% (down 28bps).
Long bond yields fell six bps to 2.81% (down 20bps).
Benchmark Fannie Mae MBS yields added a basis point to 3.11% (down 39bps).
Freddie Mac 30-year fixed mortgage rates sank 22 bps to a 14-month low 4.06% (down 38bps y-o-y).
Fifteen-year rates fell 14 bps to 3.57% (down 33bps).
Five-year hybrid ARM rates declined nine bps to 3.75% (up 9bps).
Jumbo mortgage 30-yr fixed rates down 13 bps to a 14-month low 4.16% (down 33bps).
Federal Reserve Credit
over the past year,
contracted 10.0%.
M2 (narrow) "money" supply
gained 4.1%, over the past year.
Currency Watch:
The U.S. dollar index gained 0.7% to 97.284 (up 1.1% y-t-d).
Commodities Watch:
Bloomberg Commodities Index increased 0.8% this week (up 5.3% y-t-d).
Spot Gold fell 1.6% to $1,292 (up 0.8%).
Silver dropped 1.9% to $15.11 (down 2.8%).
Crude gained $1.10 to $60.14 (up 32%).
Gasoline fell 2.3% (up 42%)
Natural Gas sank 3.8% (down 10%).
Copper jumped 3.3% (up 12%).
Wheat declined 1.8% (down 9%).
Corn sank 4.6% (down 5%).
Market Instability Watch:
March 25 – Bloomberg (Cecile Gutscher):
“The stockpile of global bonds with below-zero yields just hit $10 trillion -- intensifying the conundrum for investors hungry for returns while fretting the brewing economic slowdown. A Bloomberg index tracking negative-yielding debt has reached the highest level since September 2017 as 10-year bunds trade in negative territory and the U.S. yield curve flashes recession warnings.”
March 27 – Bloomberg (John Ainger):
“Germany’s bond market just flashed another warning sign that Europe’s biggest economy is going the way of Japan. Ten-year bond yields dropped below those of the Asian nation’s for the first time since 2016 after European Central Bank President Mario Draghi said risks for the euro area remain tilted to the downside. A wave of risk-off sentiment is spreading through global markets, adding to a rally in German bonds this year amid a deteriorating outlook for the euro area.”
March 27 – Financial Times (Claire Jones and Adam Samson):
“Germany has sold 10-year debt with a negative yield for the first time since the autumn of 2016, amid fears of a worsening global economic outlook… Demand is so high for haven assets that Berlin on Wednesday sold €2.4bn in 10-year paper with an average yield of minus 0.05%, according to the German Finance Agency. The agency said it received 2.6 times more bids for the debt than it accepted.”
Trump Administration Watch:
March 27 – Bloomberg:
“Even as the U.S. and China near a deal on trade, the Trump administration is becoming increasingly assertive in challenging Beijing on its geopolitical red lines. Since Sunday alone, the U.S. has sailed a warship through the Taiwan Strait, released a report criticizing travel restrictions in Tibet and hosted Uighur exiles at the State Department. The moves -- all of them defying China’s warnings against meddling in what it views as its internal affairs -- came ahead the arrival of Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer in Beijing for trade talks. All three visits by U.S. trade delegations since President Donald Trump and Chinese counterpart Xi Jinping declared their Dec. 1 tariff truce have been presaged by U.S. naval patrols through territory claimed by Beijing.”
March 27 – Reuters (Steve Holland and Lesley Wroughton):
“U.S. President Donald Trump… called on Russia to pull its troops from Venezuela and said that ‘all options’ were open to make that happen. The arrival of two Russian air force planes outside Caracas on Saturday believed to be carrying nearly 100 Russian special forces and cybersecurity personnel has escalated the political crisis in Venezuela. Russia and China have backed President Nicolas Maduro, while the United States and most other Western countries support opposition leader Juan Guaido. In January, Guaido invoked the constitution to assume Venezuela’s interim presidency, arguing that Maduro’s 2018 re-election was illegitimate. ‘Russia has to get out,’ Trump told reporters in the Oval Office, where he met with Guaido’s wife, Fabiana Rosales.”
March 27 – Reuters (Trevor Hunnicutt and Ann Saphir):
“President Donald Trump’s expected nominee for the Federal Reserve Board of Governors, Stephen Moore, said the U.S. central bank should immediately cut interest rates by half a percentage point, according to an interview with the New York Times… Moore, a conservative economic commentator and a fellow at the Heritage Foundation, told the Times he is not a ‘sycophant for Trump’ or ‘a dove’ on monetary policy, a reference to Fed officials who favor an easier policy that supports economic growth.”
U.S. Bubble Watch:
March 27 – Reuters (Lucia Mutikani):
“The U.S. current account deficit increased more than expected in the fourth quarter amid declining exports, pushing the overall shortfall in 2018 to its highest level in 10 years, and U.S. companies repatriated a record amount of foreign earnings last year following the Republican tax overhaul. …The current account deficit… rose 6.1% to $134.4 billion. The quarterly current account gap was the largest since the fourth quarter of 2008… The deficit increased 8.8% in 2018 to $488.5 billion, the highest level since 2008. For all of 2018, the current account deficit averaged 2.4% of GDP, the biggest share since 2012, from 2.3% in 2017.”
March 29 – Reuters:
“Sales of new U.S. single-family homes increased to an 11-month high in February and sales for January were revised higher, suggesting that lower mortgage rates were starting to lift the struggling housing market. …New home sales rose 4.9% to a seasonally adjusted annual rate of 667,000 units last month, the highest level since March 2018. January’s sales pace was revised up to 636,000 units from the previously reported 607,000 units… New home sales in the South, which accounts for the bulk of transactions, rose 1.8% in February to their highest level since July 2007… At February’s sales pace it would take 6.1 months to clear the supply of houses on the market, down from 6.5 months in January.”
March 27 – Reuters (Lucia Mutikani):
“The U.S. trade deficit dropped more than expected in January likely as China boosted purchases of soybeans, leading to a rebound in exports after three straight monthly declines. The Commerce Department said on Wednesday the trade deficit declined 14.6%, the largest decline since March 2018, to $51.1 billion also as softening domestic demand and lower oil prices curbed the import bill.”
March 25 – Wall Street Journal (Ben Eisen):
“The federal agency that insures mortgages for first-time home buyers is tightening its standards, concerned it is allowing too many risky loans to be extended. The Federal Housing Administration told lenders this month it would begin flagging more loans as high risk. Those mortgages, many of which are extended to borrowers with low credit scores and high loan payments relative to their incomes, will now go through a more rigorous manual underwriting process… The FHA’s decision to tighten underwriting standards could mean fewer first-time home buyers are able to get mortgages. Roughly 40,000 to 50,000 loans a year likely would be affected, or about 4% to 5% of the FHA-insured mortgages originated annually in recent years…”
March 26 – CNBC (Diana Olick):
“Home prices are rising, but the gains are shrinking, since fewer buyers are able to afford the homes available for sale. Nationally, prices rose 4.3% annually in January, down from the 4.6% gain in December, according to the S&P CoreLogic Case-Shiller price index. The 10-city composite rose 3.2%, down from 3.7% in the previous month. The 20-city composite gained 3.6% year over year, down from 4.1% in December. The last time it advanced this slowly was April 2015. ‘In 16 of the 20 cities tracked, price gains were smaller in January 2019 than in January 2018,’ said David Blitzer, managing director… at S&P Dow Jones Indices. ‘Only Phoenix saw any appreciable acceleration. Some cities where prices surged in 2017-2018 now face much smaller increases.’”
March 26 – CNBC (Robert Ferris):
“U.S. auto sales are falling as vehicle prices climb, indicating that buyers at the lower end are getting squeezed out of the new car market… First-quarter auto sales are expected to drop by nearly 2.5% from a year earlier, to 4 million units, according to J.D. Power and LMC Automotive. Retail sales, which exclude sales to rental car companies and other commercial businesses, are expected to drop by about 5% to 2.9 million units. It’s the first time first-quarter retail sales are projected to fall short of 3 million units in six years…”
March 26 – Bloomberg (Ben Steverman):
“The bad news is that almost half of Americans approaching retirement have nothing saved in a 401(k) or other individual account. The good news is that the new estimate, from the U.S. Government Accountability Office, is slightly better than a few years earlier. Of those 55 and older, 48% had nothing put away in a 401(k)-style defined contribution plan or an individual retirement account, according to a GAO estimate for 2016… That’s an improvement from the 52% without retirement money in 2013.”
China Watch:
March 26 – Reuters (Stella Qiu, Ryan Woo and Min Zhang):
“China’s industrial firms posted their worst slump in profits since late 2011 in the first two months of this year…, as increasing strains on the economy in the face of slowing demand at home and abroad took a toll on businesses… Profits notched up by China’s industrial firms in January-February slumped 14.0% year-on-year to 708.01 billion yuan ($105.50bn)… It marked the biggest contraction since Reuters began keeping records in October 2011.”
March 24 – Bloomberg:
“China has embraced the idea of defaults imposing some discipline on debtors in its bond market. And some of the most troubled debtors are local governments’ financing vehicles. So an LGFV default has long seemed on the cards. But it just isn’t happening. Moody’s… thought the first one might come in 2017. Almost two years later, there have been some close calls -- including with a late payment by a unit owned by Qinghai province on a dollar bond last month that caused ripples through the investment community -- but no default. What it suggests is China’s leadership isn’t prepared for a borrower with a regional authority’s imprimatur to renege on its principal, triggering higher borrowing costs across a swathe of the world’s third-largest bond market.”
Brexit Watch:
March 24 – Financial Times (Wolfgang Münchau):
“Forecasting Brexit is still the same old mug’s game it always was. But the probability of a no-deal Brexit has risen dramatically since last week’s summit of European leaders. That scenario can be avoided, for now, if Theresa May were to be ousted as prime minister. The EU would always accept a request for a further delay in such a situation. But it would still insist Britain organise European Parliament elections on May 23 — the UK cannot be allowed to undermine the legitimacy of the European Parliament while it is negotiating its way out. And a new leader would face the same problems in finding a way out of the current impasse. The EU will not renegotiate Mrs May’s withdrawal agreement.”
Europe Watch:
March 24 – Reuters (Joseph Nasr):
“The risk of Britain leaving the European Union without a deal is the biggest risk facing the slowing euro zone economy in the short term, Finnish central bank chief Olli Rehn told Germany’s Die Welt newspaper… ‘In the short term Brexit is surely the biggest threat,’ said Rehn, who sits on the European Central Bank’s rate-setting Governing Council. ‘Financial markets seem to be too relaxed and appear to underestimate the risk.’ He said the ECB had made arrangements with the Bank of England to blunt turbulence in the case of a disorderly Brexit.”
March 28 – Financial Times (Valentina Romei):
“Lending to eurozone businesses gathered speed in February, the largest increase in the annual rate in more than two years, but remained weak in peripheral member states… In February, adjusted lending growth to non-financial companies rose 3.7% compared with the same month last year, picking up the pace since the previous month’s 3.4%...”
Emerging Markets Watch:
March 28 – Financial Times (Laura Pitel and Adam Samson):
“Turkey has burnt through around a third of its foreign reserves this month in an effort to prop up the faltering lira ahead of local elections this weekend, spooking investors and sending the currency sliding on Thursday… When converted into dollars, the fall in the first three weeks of March was roughly $10bn, or 29%, leaving the reserves at about $24.7bn…”
March 27 – Bloomberg (Raymond Colitt and Simone Preissler Iglesias):
“Three months into Brazilian President Jair Bolsonaro’s term, voters, investors and some supporters are starting to doubt if he can deliver on pledges to kick-start the economy and crack down on crime. At times, his government even looks like it could fall apart. The 64-year-old former Army captain has plummeted in opinion polls and antagonized key allies, while his cabinet is plagued by intrigue and infighting. Meanwhile, support for a pension overhaul looks more uncertain than ever, raising the risk of further debt increases and sovereign credit rating downgrades.”
Global Bubble Watch:
March 25 – Financial Times (Leslie Hook):
“Global carbon dioxide emissions rose to their highest levels last year after a surge in energy demand stoked by a strong economy and extreme weather, according to the world’s energy watchdog. The… International Energy Agency said energy demand rose 2.3% last year — its fastest rate since 2010 — and that the growth was met mainly by fossil fuels. That pushed global emissions of carbon dioxide to a record high of 33bn tonnes in 2018, up 1.7% from the previous year. Fatih Birol, the head of the IEA, said the rise in energy demand was ‘exceptional’ and a ‘surprise for many’, moving the world further away from its climate goals.”
Japan Watch:
March 25 – Reuters (Leika Kihara):
“Bank of Japan policymakers debated the feasibility of ramping up monetary stimulus at their rate review this month as heightening overseas risks weighed on the country’s fragile economy, a summary of opinions of the meeting showed on Tuesday.”
Fixed-Income Bubble Watch:
March 25 - Bloomberg (Finbarr Flynn):
“Leveraged loans are suffering a ‘slow bleed’ and are the weakest link in U.S. credit markets, says UBS Group AG, adding to an expanding list of warnings. ‘We are growing more concerned over the deterioration in loan fundamentals, which is broad-based and appears less related to trade and more to fading cyclical momentum and a hangover from an M&A-driven debt boom,’ UBS credit strategists led by Matthew Mish wrote…”
Geopolitical Watch:
March 28 – Reuters (Tom Balmforth and Maxim Rodionov):
“Russia said on Thursday it had sent ‘specialists’ to Venezuela under a military cooperation deal but said they posed no threat to regional stability, brushing aside a call from U.S. President Donald Trump to remove all military personnel from the country.”
March 26 – AFP:
“Secretary of State Mike Pompeo warned Russia Monday the United States will not ‘stand idly by’ as Moscow inserts military personnel into Venezuela to support the regime of President Nicolas Maduro. In a phone call with Foreign Minister Sergei Lavrov, Pompeo denounced the growing Russian military reinforcements as prolonging the political crisis in the South American country. Pompeo told Lavrov ‘the United States and regional countries will not stand idly by as Russia exacerbates tensions in Venezuela,’… ‘The continued insertion of Russian military personnel to support the illegitimate regime of Nicolas Maduro in Venezuela risks prolonging the suffering of the Venezuelan people who overwhelmingly support interim President Juan Guaido,’ he said.”
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