Economic News for the week ending April 12, 2019

Saturday, April 13, 2019

Weekly Commentary: 

"The Perils of Stop and Go"

by Doug Noland

Full column here:

http://creditbubblebulletin.blogspot.com/2019/04/weekly-commentary-perils-of-stop-and-go.html

My summary is below:

For the week 
ending

April 12, 2019 

April 10 – Financial Times (Valentina Romei): 

“The middle classes in developed nations are under pressure from stagnant income growth, rising lifestyle costs and unstable jobs, and this risks fuelling political instability, a new report by the OECD has warned. 

The OECD club of 36 rich nations said middle-income workers had seen their standard of living stagnate over the past decade, while higher-income households had continued to accumulate income and wealth. The costs of housing and education were rising faster than inflation and middle-income jobs faced an increasing threat from automation, the OECD said. The squeezing of middle incomes was fertile ground for political instability as it pushed voters towards anti-establishment and protectionist policies, according to Gabriela Ramos, OECD chief of staff.”

April 9 – Wall Street Journal (Heather Gillers): 

“Pressures are plaguing public retirement systems around the country (in spite of) the longest bull market in U.S. history has failed to solve many of them. There is a simple reason why pensions are in such rough shape: The amount owed to retirees is accelerating faster than assets on hand to pay those future obligations. Liabilities of major U.S. public pensions are up 64% since 2007 while assets are up 30%...”

GLOBAL  STOCKS:

S&P500 increased 0.5% (up 16.0% y-t-d)

Dow Industrials little changed (up 13.2%)

Dow Utilities added 0.2% (up 10.6%)

Dow Transports rose 1.7% (up 19.0%)

S&P 400 Midcaps gained 0.8% (up 18.2%)

Small cap Russell 2000 added 0.1% (up 17.5%)

Nasdaq100 advanced 0.7% (up 20.5%)

Biotechs dropped 4.4% (up 19.2%). 

With bullion down $1.40, 
the HUI gold stock index fell 1.7% (up 4.8%).

U.K.'s FTSE little changed (up 10.5% y-t-d).

Japan's Nikkei 225 added 0.3% (up 9.3%).  

France's CAC40 increased 0.5% (up 16.3%)

 German DAX about unchanged (up 13.6%)

Spain's IBEX 35 declined 0.4% (up 10.9%)

Italy's FTSE MIB rose 0.5% (up 19.3%)

Brazil's Bovespa sank 4.4% (up 2.0%)

Mexico's Bolsa declined 0.7% (up 7.3%)

South Korea's Kospi gained 1.1% (up 9.4%)

India's Sensex dipped 0.2% (up 7.5%)

China's Shanghai fell 1.8% (up 27.9%)

Turkey's Istanbul National 100 dropped 2.8% (up 5.2%). 

Russia's MICEX gained 0.7% (up 8.0%).

US  BONDS  &  MORTGAGES:

Ten-year Treasury yields rose seven bps to 2.57% (down 12bps). 

Long bond yields rose seven bps to 2.98% (down 4bps). 

Benchmark Fannie Mae MBS yields jumped 11 bps to 3.28% (down 22bps).

Freddie Mac 30-year fixed mortgage rates rose four bps to 4.12% (down 30bps y-o-y). 

Fifteen-year rates gained four bps to 3.60% (down 27bps). 

Five-year hybrid ARM rates jumped 14 bps to 3.80% (up 19bps). 

Jumbo mortgage 30-yr fixed rates down five bps to 4.25% (down 26bps).

Federal Reserve Credit 

over the past year, 

contracted 10.3%. 

M2 (narrow) "money" supply 

rose 4.3% over the past year. 

Currency Watch:

The U.S. dollar index declined 0.6% to 96.849 (up 0.7% y-t-d). 

Commodities Watch:

Bloomberg Commodities Index added 0.4% this week (up 7.4% y-t-d). 

Spot Gold was little changed at $1,290 (up 0.6%). 

Silver declined 0.8% to $14.963 (down 3.7%). 

Crude rose another 81 cents to $63.89 (up 41%). 

Gasoline jumped 3.5% (up 54%)

Natural Gas slipped 0.2% (down 10%). 

Copper gained 1.8% (up 12%). 

Wheat increased 0.2% (down 7%). 

Corn gained 1.9% (down 2%).

Trump Administration Watch:

April 9 – CNBC (Steve Liesman): 

“A lot of market commentary sees tariffs and the trade war as temporary events. 
A U.S.-China trade deal, the thinking goes, will sound the ‘all clear’ signal for markets and the economy. But there are indications that we may be in for a longer, more protracted set of trade battles: a Forever Trade War that could last the balance of the Trump administration.”

April 9 – Bloomberg (Shawn Donnan): 

“President Donald Trump is sending a clear message to the economic policy makers gathering in Washington for the IMF and World Bank’s spring meetings: My trade wars aren’t finished yet and a weakening global economy will just have to deal with it. With his latest threat to impose tariffs on $11 billion in imports from the European Union -- from helicopters to Roquefort cheese -- the U.S. president offered a vivid reminder that, even as he moves toward a deal with China to end their tariff wars, he has other relationships he’s eager to rewrite.”

April 9 – Reuters (Susan Heavey): 

“U.S. President Donald Trump said… the United States would impose tariffs on $11 billion of products from the European Union, a day after U.S. trade officials proposed a list of EU products to target as part of an ongoing aircraft dispute. ‘The World Trade Organization finds that the European Union subsidies to Airbus has adversely impacted the United States, which will now put Tariffs on $11 Billion of EU products! The EU has taken advantage of the U.S. on trade for many years. It will soon stop!’ Trump said in a post on Twitter.”

April 7 – Reuters (Dave Graham and David Ljunggren): 

“More than six months after the United States, Mexico and Canada agreed a new deal to govern more than $1 trillion in regional trade, the chances of the countries ratifying the pact this year are receding. The three countries struck the United States-Mexico-Canada agreement (USMCA) on Sept. 30, ending a year of difficult negotiations… But the deal has not ended trade tensions in North America. If ratification is delayed much longer, it could become hostage to electoral politics.”

April 5 – Financial Times (Sam Fleming): 

“Donald Trump stoked fears that the Federal Reserve’s independence is under threat as he stepped up his demands for easier monetary policy a day after advocating the appointment of a second political loyalist to the central bank. The president told reporters… the Fed should embark on ‘quantitative easing’ instead of continuing to pare its holdings of bonds bought during its crisis-era stimulus programme, saying it would turn the economy into ‘a rocket ship’. The comments, which he made despite strong jobs data, came amid barrage of criticism from economists over Mr Trump’s decision to propose Herman Cain, a former Republican presidential contender and vocal backer of the president, to be a governor of the Fed’s powerful board. “

April 7 – Wall Street Journal (Kate Davidson): 

“Lawmakers agreed to cap spending in 2011 as part of a bruising fight over raising the debt limit, but they have struck three separate deals since then—in 2013, 2015 and 2018—to ease those caps and increase spending. The latest two-year deal, which boosted funding nearly $300 billion above the caps, expires in October. If Congress doesn’t reach another deal by then, the spending limits known as the sequester would kick back in, reducing discretionary spending by $125 billion, or 10%, from 2019 levels.”

U.S. Bubble Watch:

April 10 – Associated Press (Josh Boak):

 “The federal government reported a $146.9 billion deficit in March, causing annual debt to rise 15% for the first half of the budget year compared to the same period in 2018. …The fiscal year deficit has so far totaled $691 billion, up from nearly $600 billion in 2018. The Treasury Department expects that the deficit will exceed $1 trillion when the fiscal year ends in September. Tax receipts are running slightly higher than a year ago as more Americans are working and paying taxes. But the tax cuts signed into law by President Donald Trump in 2017 have meant that the $10 billion increase in receipts has failed to keep pace with a roughly $100 billion increase in government expenditures.”

April 10 – Reuters (Lucia Mutikani): 

“U.S. consumer prices increased by the most in 14 months in March, but the underlying inflation trend remained benign against the backdrop of slowing domestic and global economic growth… [The] Consumer Price Index rose 0.4%, boosted by increases in the costs of food, gasoline and rents… In the 12 months through March, the CPI increased 1.9%... In the 12 months through March, the core CPI increased 2.0%, the smallest advance since February 2018.”

April 11 – Reuters (Lucia Mutikani): 

“U.S. producer prices increased by the most in five months in March, but underlying wholesale inflation was tame. The… producer price index for final demand rose 0.6% last month, lifted by a surge in the cost of gasoline… In the 12 months through March, the PPI rose 2.2% after advancing 1.9% in February.”

April 9 – Wall Street Journal (Laura Kusisto): 

“House flipping is back to nearly the same level it was around the 2006 peak of the housing boom, when it became a symbol of the rampant speculation that soared before the bubble burst. But a new analysis from CoreLogic Inc. suggests most of the current flips are less risky than those more than a decade ago… Some 10.6% of homes sold in the U.S. in the fourth quarter of 2018 were flips, defined as having been owned for less than two years… That is near the level of the first quarter of 2006, when 11.3% of homes sold were flips, and the highest fourth-quarter level in the two decades since CoreLogic started tracking the data.”

April 9 – CNBC (Lauren Thomas): 

“Clothing retailers, consumer electronics companies and home furnishing businesses will need to close more stores across the U.S. as e-commerce sales proliferate, according to UBS. …The investment firm said ‘store rationalization needs to accelerate meaningfully as online penetration continues to rise.’ Assuming online sales’ share of total retail sales in the U.S. grows to 25% by 2026, from 16% today, roughly 75,000 more retail doors, excluding restaurants, need to close, analysts Jay Sole and Michael Lasser said. That means for every 1% increase in online penetration, roughly 8,000 to 8,500 stores need to close.”

April 7 – Reuters (Jarrett Renshaw and Stephanie Kelly):

 “The March floods that punished the U.S. Midwest have trapped barrels of ethanol in the country’s interior, causing shortages of the biofuel and helping to boost gasoline prices in the western United States. The historic floods have dealt a series of blows to large swaths of an ethanol industry that was already struggling with high inventories and sluggish domestic demand growth. The ethanol shortages are one factor pushing gasoline prices in Southern California, including Los Angeles, to the highest in the country, and they could top $4 a gallon for the first time since 2014…”

April 7 – Bloomberg (Adam Tempkin): 

“Consumer credit scores have been artificially inflated over the past decade and are masking the real danger the riskiest borrowers pose to hundreds of billions of dollars of debt. That’s the alarm bell being rung by analysts and economists at both Goldman Sachs.... and Moody’s… who say the steady rise of credit scores as the economy expanded over the past decade has led to ‘grade inflation.’ This means debtors are riskier than their scores indicate because the metrics don’t account for the robust economy, skewing perception of borrowers’ ability to pay bills on time. When a slowdown comes, there could be a much bigger fallout than expected for lenders and investors. There are around 15 million more consumers with credit scores above 740 today than there were in 2006, and about 15 million fewer consumers with scores below 660, according to Moody’s.”

April 10 – Financial Times (Kate Youde): 

“Sales of apartments in Manhattan were down 11% in the first quarter of this year, according to residential real estate broker Stribling & Associates. Reporting on the market slowdown, which came amid a flurry of new developments, the FT suggested the city’s new mansion tax — which introduces a one-time levy on purchases of apartments in New York City that sell for at least $1m — could slow the market further.”

China Watch:

April 11 – Bloomberg: 

“China’s consumer prices surged on the back of temporary food supply factors, while factory inflation provided further evidence of a nascent economic recovery. Consumer inflation accelerated to 2.3% in March from a year earlier, up from 1.5% in February and posting the biggest jump in more than a year. The surge was mostly led by rising vegetable and pork prices, which drove the CPI up by more than half a percentage point…”

April 9 – Bloomberg: 

“China’s property market is showing signs of green shoots again with home sales posting a robust recovery in March. After contracting in the first two months of 2019… the project sales of nine major developers rose 20% in March from a year earlier. Aiding the recovery has been stimulus from Beijing, which has helped stabilize the economy and re-ignite home buyers’ enthusiasm. Economists expect the central bank will cut reserve requirements at least three more times this year to funnel cash into a slowing economy. Additional so-called stealth easing measures that make it easier to buy property in China have also improved sentiment.”

April 10 – Bloomberg: 

“Pressure is building for China’s bondholders to forgo their right to be repaid early as more companies show signs of strain amid a record amount of puttable debt this year. Pang Da Automobile Trade Co., a Chinese car dealer, sought to delay a put date on a bond for the second time in February. Jewelry maker Harbin Churin Group Jointstock Co. couldn’t make a put option payment that came due late February, while Guangdong Homa Appliances Co. extended an early payment date by a month… Such cases are adding to concerns that the wave of early note redemptions will spur more defaults in China and keep credit stress elevated. A record 1.1 trillion yuan ($164bn) of bonds have put options exercisable from now until the end of 2019…”

April 9 – New York Times (Cao Li): 

“China is planning new steps that could put a stop to making Bitcoin there, a move that could cut off one of the world’s largest sources of the popular but unstable cryptocurrency. The National Development and Reform Commission, China’s top economic planning body, this week added cryptocurrency mining to a list of about 450 industries that it proposes to eliminate. If the move is approved, local governments in China will be prohibited from supporting makers of Bitcoin and other digital currencies through subsidies or other benefits.”

Brexit Watch:

April 11 – Reuters (Elizabeth Piper, Gabriela Baczynska and Philip Blenkinsop): “European Union leaders gave Britain six more months to leave the bloc, more than Prime Minister Theresa May says she needs but less than many in the bloc wanted, thanks to fierce resistance from France.”

Europe Watch:

April 9 – Financial Times (Valentina Romei):

 “Demand for loans among eurozone businesses was flat since the beginning of 2019 despite record-low interest rates, increasing pressure on the European Central Bank to take further action to bolster the bloc’s economy. Data from the ECB… indicated the expansion in loan requests that began in mid-2015 had ended, with the percentage of banks reporting an increase in demand for loans to businesses in the previous quarter falling to 0%. This was down from 9% at the end of last year and double digit percentages over most of the previous three years…”

April 9 – Bloomberg (Lorenzo Totaro and Chiara Albanese): 

“The Italian government confirmed its gloomy outlook for the economy…, following a day of arguments, accusations and finger-pointing between the warring sides of the country’s populist coalition. After a meeting in Rome, the Cabinet cut its target for growth this year to just 0.2%. That figure, down from 1% previously, includes the estimated impact of measures the government has already agreed on to implement to help the economy. Expansion this year would be 0.1% without the steps.”

Emerging Markets Watch:

April 8 – Wall Street Journal (Ira Iosebashvili): 

“A cautious shift from the world’s central banks is sending investors hunting for big paydays in emerging-market currencies, despite concerns that global growth may continue to slow. Many are employing a strategy known as the carry trade, where an investor borrows in a low-yielding currency to roll the funds into a higher-yielding emerging-market asset, such as local bonds, and pockets the difference. Emerging markets are popular targets for carry traders because they often offer yields that are much higher than those found in developed countries. For example, Turkey’s 3-month deposit rate… stood at 28% on Friday, while Russia’s was at 7.9%... An investor borrowing in dollars and buying Turkish assets hopes to collect a yield of more than 25% over three months, without accounting for moves in the underlying currencies and transaction costs.”

April 7 – Bloomberg (Anurag Joshi and Ronojoy Mazumdar): 

“India’s cash crunch is taking its toll on the health of companies and risks inflicting further financial damage, after the credit profile of local firms deteriorated at the fastest pace in six years. There were two issuer rating downgrades for every upgrade in the first three months of 2019, the worst ratio for any first quarter since at least 2013… Lower ratings force borrowers to pay more for money in debt markets. The Reserve Bank of India on Thursday cut interest rates for a second time this year, citing economic headwinds.”

Global Bubble Watch:

April 9 – CNBC (Fred Imbert): 

“The International Monetary Fund again reduced its global economic growth forecast for 2019…, citing risks like increasing trade tensions and tighter monetary policy by the Federal Reserve. The fund said it expects the world economy to grow by 3.3% this year. That’s down from its previous outlook of 3.5%, which was also a downgrade. The IMF added that it expects the economy to expand by 3.6% in 2020, however… ‘The balance of risks remains skewed to the downside,’ the IMF said. ‘Failure to resolve differences and a resulting increase in tariff barriers above and beyond what is incorporated into the forecast would lead to higher costs of imported intermediate and capital goods and higher final goods prices for consumers.’”

April 10 – Financial Times (Chris Giles): 

“High corporate debt is present across nearly three quarters of the global economy, threatening to amplify any economic downturn and put financial stability in peril, the IMF said… The fund said that the world should be able to deal with a moderate economic slowdown without a financial crisis, but companies’ borrowing levels made it vulnerable to anything more serious. Countries representing 70% of global GDP have elevated levels of corporate debt, according to new research by the fund… Levels of borrowing are continuing to rise even as profitability is falling, the fund said, highlighting the US and China, the world’s two largest economies, as particularly vulnerable.”

Japan Watch:

April 10 – Bloomberg (Isabel Reynolds and Emi Nobuhiro): 

“A former adviser to George Soros known for his criticism of Bank of Japan Governor Haruhiko Kuroda says Japan’s reflationary policy amounts to Modern Monetary Theory and will prove to be a big mistake. The comments from Takeshi Fujimaki come just days after Prime Minister Shinzo Abe, Finance Minister Taro Aso and Kuroda all denied that Japan is experimenting with the theory… ‘MMT is ‘ridiculous’ and ‘voodoo economics,’ Fujimaki, a lawmaker with the small opposition Japan Innovation Party, said…, adding that it was ‘absolutely no different’ from what Japan is doing. Fujimaki said that Japan’s current policy trajectory would eventually lead to a financial collapse, proving the theory wrong.”

Geopolitical Watch:

April 9 – Bloomberg (Ditas B Lopez): 

“The U.S. sent a fighter-jet-carrying warship to join drills near the disputed Scarborough Shoal for the first time, sending a pointed message to China as tensions simmer over territorial claims in the region. The USS Wasp… joined the annual Exercise Balikatan with the Philippines this month. A ship matching the USS Wasp’s description was spotted in waters ‘near the Scarborough Shoal,’ a feature occupied by China since a tense standoff in seven years ago, the Philippines’ ABS-CBN News reported…”

April 10 – Reuters (Joyce Lee): 

“North Korean leader Kim Jong Un said his country needs to deliver a ‘telling blow’ to those imposing sanctions by ensuring its economy is more self-reliant, state media Korean Central News Agency (KCNA) said…”

April 8 – Reuters (Lesley Wroughton and Parisa Hafezi):

 “President Donald Trump said… he would name Iran’s elite Islamic Revolutionary Guard Corps a terrorist organization, in an unprecedented step that drew Iranian condemnation and raised concerns about retaliatory attacks on U.S. forces. The action by Trump, who has taken a hard line toward Iran by withdrawing from the 2015 Iran nuclear deal and re-imposing broad economic sanctions, marks the first time the United States has formally labeled another nation’s military a terrorist group.”

April 9 – Reuters (Ahmed Elumami): 

“Eastern forces and troops loyal to the Tripoli government battled on the outskirts of Libya’s capital on Wednesday as thousands of residents fled from the fighting. The Libyan National Army (LNA) forces of eastern commander Khalifa Haftar held positions in the suburbs about 7 miles south of the center. Steel containers and pickups with mounted machine-guns blocked their way into the city.”