Saturday, May 11, 2019
Weekly Commentary:
Deal or No Deal
by Doug Noland
full column here:
Below is my summary
of things that interested me
For the week ending
May 11, 2019:
GLOBAL STOCKS:
S&P500 dropped 2.1% (up 14.9% y-t-d)
Dow Industrials fell 2.1% (up 11.2%)
Dow Utilities declined 0.9% (up 10.0%).
Dow Transports sank 3.3% (up 15.6%).
S&P 400 Midcaps fell 2.4% (up 16.3%)
Small cap Russell 2000 dropped 2.5% (up 16.6%).
Nasdaq100 slumped 3.3% (up 19.9%).
Biotechs slid 4.5% (up 8.0%).
Though gold bullion rallied $7,
the HUI gold stock index dropped 3.4%
(down 8.0%).
U.K.'s FTSE dropped 2.4% (up 7.1% y-t-d).
Japan's Nikkei sank 4.1% (up 6.6%).
France's CAC40 lost 4.0% (up 12.6%)
German DAX slumped 2.8% (up 14.2%)
Spain's IBEX 35 dropped 3.1% (up 6.8%)
Italy's FTSE MIB sank 4.1% (up 13.9%)
Brazil's Bovespa declined 1.8% (up 3.6%),
Mexico's Bolsa fell 2.0% (up 4.2%)
South Korea's Kospi sank 4.0% (up 3.3%)
India's Sensex fell 3.9% (up 3.9%)
China's Shanghai tumbled 4.5% (up 17.9%)
Turkey's Istanbul National 100 slid 5.8% (down 3.0%).
Russia's MICEX fell 2.6% (up 6.1%).
US BONDS:
Ten-year Treasury yields declined six bps to 2.47% (down 22bps).
Treasury Long bond yields dipped three bps to 2.89% (down 13bps).
Fannie Mae MBS yields declined three bps to 3.23% (down 27bps).
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
fell four bps to 4.10% (down 45bps y-o-y).
fell four bps to 4.10% (down 45bps y-o-y).
Fifteen-year rates
declined three bps to 3.57% (down 44bps).
declined three bps to 3.57% (down 44bps).
Five-year hybrid ARM rates
dropped five bps to 3.63% (down 14bps).
dropped five bps to 3.63% (down 14bps).
Jumbo mortgage 30-yr fixed rates
up a basis point to 4.23% (down 44bps).
up a basis point to 4.23% (down 44bps).
Federal Reserve Credit
over the past year,
contracted 10.8%.
The above words are typed large, and in red,
because they are negative, and important
M2 (narrow) "money" supply
rose 4.2%, over the past year.
Currency Watch:
The U.S. dollar index slipped 0.2% to 97.33 (up 1.2% y-t-d).
Commodities Watch
Bloomberg Commodities Index fell 1.5% this week (up 2.2% y-t-d).
Spot Gold increased 0.5% to $1,286 (up 0.3%).
Silver lost 1.3% to $14.79 (down 4.8%).
WTI crude slipped 28 cents to $61.66 (up 36%).
Gasoline declined 1.8% (up 50%)
Natural Gas gained 2.0% (down 11%).
Copper fell 1.6% (up 6%).
Wheat dropped 3.0% (down 16%).
Corn sank 5.1% (down 6%).
Market Instability Watch:
May 8 – Reuters (Jeff Mason and David Alexander):
“President Donald Trump said… that China ‘broke the deal’ in trade talks with Washington and would face stiff tariffs if no agreement is reached.
‘You see the tariffs we’re doing?’ Trump told a rally with supporters in Florida. ‘Because they broke the deal. ... They broke the deal. So they’re flying in. The vice premier tomorrow is flying in, but they broke the deal. They can’t do that. So they’ll be paying. If we don’t make the deal, nothing wrong with taking in more than $100 billion a year.’”
‘You see the tariffs we’re doing?’ Trump told a rally with supporters in Florida. ‘Because they broke the deal. ... They broke the deal. So they’re flying in. The vice premier tomorrow is flying in, but they broke the deal. They can’t do that. So they’ll be paying. If we don’t make the deal, nothing wrong with taking in more than $100 billion a year.’”
May 8 – Bloomberg (Elizabeth Stanton and Chris Anstey):
“The U.S. Treasury… saw the weakest demand for its benchmark 10-year note in a decade, illustrating the diminishing appetite among some investors to accept current yields.
Bids for the $27 billion of notes exceeded the offering by 2.17 times, the lowest since 2009… Foreign investors, led by China and Japan, have accounted for a smaller and smaller share of American government debt outstanding.”
Bids for the $27 billion of notes exceeded the offering by 2.17 times, the lowest since 2009… Foreign investors, led by China and Japan, have accounted for a smaller and smaller share of American government debt outstanding.”
Trump Administration Watch:
May 5 – Bloomberg (Joanna Ossinger and Michael Patterson):
“ ‘For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars...’ ‘...of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!’”
May 9 – Wall Street Journal (Lingling Wei in Beijing and Bob Davis):
“The new hard line taken by China in trade talks—surprising the White House and threatening to derail negotiations—came after Beijing interpreted recent statements and actions by President Trump as a sign the U.S. was ready to make concessions, said people familiar with the thinking of the Chinese side.
High-level negotiations are scheduled to resume Thursday in Washington, but the expectations and the stakes have changed significantly. A week ago, the assumption was that negotiators would be closing the deal. Now, they are trying to keep it from collapsing. In the current negotiations, the U.S. thought China agreed to detail the laws it would change to implement the trade deal under negotiation. Beijing said it had no intention of doing so, triggering Mr. Trump’s threat Sunday to escalate tariffs and bringing the dispute into the open. The hardened battle lines were prompted by Beijing’s decision to take a more aggressive stance in negotiations, according to the people following the talks. They said Beijing was emboldened by the perception that the U.S. was ready to compromise.”
High-level negotiations are scheduled to resume Thursday in Washington, but the expectations and the stakes have changed significantly. A week ago, the assumption was that negotiators would be closing the deal. Now, they are trying to keep it from collapsing. In the current negotiations, the U.S. thought China agreed to detail the laws it would change to implement the trade deal under negotiation. Beijing said it had no intention of doing so, triggering Mr. Trump’s threat Sunday to escalate tariffs and bringing the dispute into the open. The hardened battle lines were prompted by Beijing’s decision to take a more aggressive stance in negotiations, according to the people following the talks. They said Beijing was emboldened by the perception that the U.S. was ready to compromise.”
May 6 – Wall Street Journal (Gordon Lubold and Michael R. Gordon):
“U.S. intelligence showed that Iran has made plans to target U.S. forces in Iraq and elsewhere in the Middle East, triggering a decision to reinforce the American military presence in the region in an effort to deter any possible moves by Tehran, U.S. officials said…
The escalation in tensions came as European diplomats said… that Iran appeared poised to breach portions of the 2015 international nuclear pact that restricted Tehran’s nuclear program in exchange for relief from economic sanctions. That followed a rocket barrage fired into Israel by an Iranian-backed militia in Gaza over the weekend.”
The escalation in tensions came as European diplomats said… that Iran appeared poised to breach portions of the 2015 international nuclear pact that restricted Tehran’s nuclear program in exchange for relief from economic sanctions. That followed a rocket barrage fired into Israel by an Iranian-backed militia in Gaza over the weekend.”
May 9 – National Post:
“The Trump administration says it has seized a North Korean cargo ship that U.S. officials say was used to transport coal in violation of international sanctions…
The announcement was made at a time of tension between the two countries. It came hours after North Korea fired two suspected short-range missiles, its second weapons launch in five days.”
The announcement was made at a time of tension between the two countries. It came hours after North Korea fired two suspected short-range missiles, its second weapons launch in five days.”
May 5 – Reuters (Tuvan Gumrukcu):
“Turkey will never bow to U.S. sanctions over its agreement to purchase Russian S-400 surface-to-air missile defense systems, Vice President Fuat Oktay said… regarding a deal that has strained ties between the NATO allies.
Washington says the systems are not compatible with NATO equipment and may compromise its Lockheed Martin F-35 fighter jets. It has warned of possible U.S. sanctions if Ankara pushes on with the Russian deal.”
Washington says the systems are not compatible with NATO equipment and may compromise its Lockheed Martin F-35 fighter jets. It has warned of possible U.S. sanctions if Ankara pushes on with the Russian deal.”
May 5 – Reuters (David Ljunggren):
“Canada is leaning on the United States to help settle a dispute with China, which has started to block imports of vital Canadian commodities amid a dispute over a detained Huawei executive.
In a sign of increasing frustration at what it sees as a lackluster U.S. response, Prime Minister Justin Trudeau’s government is signaling it could withhold cooperation on major issues. China has upped the pressure on Canada in recent weeks over the arrest of Huawei Technologies Co Ltd Chief Financial Officer Meng Wanzhou…”
In a sign of increasing frustration at what it sees as a lackluster U.S. response, Prime Minister Justin Trudeau’s government is signaling it could withhold cooperation on major issues. China has upped the pressure on Canada in recent weeks over the arrest of Huawei Technologies Co Ltd Chief Financial Officer Meng Wanzhou…”
U.S. Bubble Watch:
May 10 – Wall Street Journal (Kate Davidson):
“The U.S. budget gap widened 38% in the first seven months of the fiscal year as federal spending outpaced tax collections.
The government ran a $531 billion deficit from October through April, the Treasury Department said Friday, compared with $385 billion during the same period a year earlier, a 38% increase. Federal outlays rose 8%, to nearly $2.6 trillion, while revenues increased 2%, to $2.04 trillion—a record for the seven-month period.”
The government ran a $531 billion deficit from October through April, the Treasury Department said Friday, compared with $385 billion during the same period a year earlier, a 38% increase. Federal outlays rose 8%, to nearly $2.6 trillion, while revenues increased 2%, to $2.04 trillion—a record for the seven-month period.”
May 9 – CNBC (Thomas Franck):
“The U.S. goods and services deficit with its global trading partners widened slightly in March as demand for foreign goods buoyed imports…
The trade deficit rose 1.5% from February to a seasonally adjusted $50 billion in March… Though the trade deficit widened in March, it remains below the recent December high. The trade gap ballooned to $59.9 billion at the end of 2018, which was the largest gap in 10 years. On a year-to-date basis, the goods and services deficit decreased $5.8 billion, or 3.7%, from a year earlier…”
The trade deficit rose 1.5% from February to a seasonally adjusted $50 billion in March… Though the trade deficit widened in March, it remains below the recent December high. The trade gap ballooned to $59.9 billion at the end of 2018, which was the largest gap in 10 years. On a year-to-date basis, the goods and services deficit decreased $5.8 billion, or 3.7%, from a year earlier…”
May 6 – New York Times (Jeanna Smialek):
“Companies with large amounts of debt are borrowing more money at a breakneck pace, prompting the Federal Reserve to flag the trend as one potential risk in the financial system. Loans to companies with large amounts of outstanding debt — known as leveraged lending — grew by 20% in 2018 to $1.1 trillion,
according to the Fed’s twice-annual Financial Stability Report. The share of new, large loans going to the comparatively risky borrowers now exceeds peak levels reached previously in 2007 and 2014… Risks associated with leveraged loans have ‘intensified, as a greater proportion are to borrowers with lower credit ratings and already high levels of debt… Any weakening of economic activity could boost default rates and lead to credit-related contractions to employment and investment among these businesses.’”
according to the Fed’s twice-annual Financial Stability Report. The share of new, large loans going to the comparatively risky borrowers now exceeds peak levels reached previously in 2007 and 2014… Risks associated with leveraged loans have ‘intensified, as a greater proportion are to borrowers with lower credit ratings and already high levels of debt… Any weakening of economic activity could boost default rates and lead to credit-related contractions to employment and investment among these businesses.’”
May 7 – CNBC (Diana Olick):
“Home prices are less heated this spring, but the largest metropolitan markets are still overpriced. About 40% of the nation's top 50 markets… were overvalued in March, according to… CoreLogic,
which defines an overvalued market as one in which prices are at least 10% higher than the long-term, sustainable level. In those markets, 16% were undervalued and 44% were at value... On a national level, home prices rose 3.7% annually in March…, less than the 4% annual increase in February.”
which defines an overvalued market as one in which prices are at least 10% higher than the long-term, sustainable level. In those markets, 16% were undervalued and 44% were at value... On a national level, home prices rose 3.7% annually in March…, less than the 4% annual increase in February.”
May 7 – Associated Press (Christopher Rugaber):
“U.S. employers advertised almost 7.5 million jobs at the end of March, a solid figure that signals hiring will likely remain strong in the months ahead.
…Job openings rose 4.8% from the previous month, while the number of people quitting their jobs slipped. There are now 1.2 million more open jobs than there are unemployed Americans, a dynamic that suggests businesses will have to keep raising pay to attract and retain the workers they need. The figures underscore the ongoing strong demand for labor that exists among U.S. companies, as the recovery nears the end of its 10th year.”
…Job openings rose 4.8% from the previous month, while the number of people quitting their jobs slipped. There are now 1.2 million more open jobs than there are unemployed Americans, a dynamic that suggests businesses will have to keep raising pay to attract and retain the workers they need. The figures underscore the ongoing strong demand for labor that exists among U.S. companies, as the recovery nears the end of its 10th year.”
May 7 – Reuters (Jason Lange):
“U.S. banks tightened standards on commercial real estate loans and on credit card borrowing during the first quarter, according to a survey of bank officers…
The U.S. Federal Reserve’s quarterly survey of senior loan officers also showed banks were taking steps to curb potential losses from loans to firms that are exposed to the risks of economic trouble in Asia and Europe, the Fed said… ‘A moderate net fraction of banks reported that they expect the quality of loans to exposed firms to deteriorate,’ the Fed said.”
The U.S. Federal Reserve’s quarterly survey of senior loan officers also showed banks were taking steps to curb potential losses from loans to firms that are exposed to the risks of economic trouble in Asia and Europe, the Fed said… ‘A moderate net fraction of banks reported that they expect the quality of loans to exposed firms to deteriorate,’ the Fed said.”
May 7 – Reuters (Joe Rennison):
“Interest-only mortgages are surging in popularity with commercial landlords across the US, fueling fears of a return to crisis-era loose lending and a spike in defaults if the economy takes a dip.
Interest-only mortgages accounted for 77% of the loans backing $16.5bn of new commercial mortgage-backed securities in the US during the first quarter, according to… Trepp, up from 68% a year earlier. Combined with partial interest-only loans, which allow borrowers to pay just the interest for an initial period, the total reached 89% of the loans backing all new CMBS in the first three months of the year. It is the highest level since 2009, and in line with levels seen in the build-up to the 2008 financial crisis, when banks such as Washington Mutual and Wachovia… made aggressive but ill-fated moves into the commercial property market.”
Interest-only mortgages accounted for 77% of the loans backing $16.5bn of new commercial mortgage-backed securities in the US during the first quarter, according to… Trepp, up from 68% a year earlier. Combined with partial interest-only loans, which allow borrowers to pay just the interest for an initial period, the total reached 89% of the loans backing all new CMBS in the first three months of the year. It is the highest level since 2009, and in line with levels seen in the build-up to the 2008 financial crisis, when banks such as Washington Mutual and Wachovia… made aggressive but ill-fated moves into the commercial property market.”
May 7 – Bloomberg (Emily Wilkins):
“Student loans, already a hardship for many young borrowers, now are projected to be a burden for another class of people: U.S. taxpayers.
The federal student loan program will cost the federal government $31 billion over the next decade, according to recent estimates from the nonpartisan Congressional Budget Office. That’s a shift from past CBO forecasts that the government would profit from the program.”
The federal student loan program will cost the federal government $31 billion over the next decade, according to recent estimates from the nonpartisan Congressional Budget Office. That’s a shift from past CBO forecasts that the government would profit from the program.”
China Watch:
What went wrong?
From the Wall Street Journal (Lingling Wei and Bob Davis):
“The new hard line taken by China in trade talks—surprising the White House and threatening to derail negotiations—came after Beijing interpreted recent statements and actions by President Trump as a sign the U.S. was ready to make concessions, said people familiar with the thinking of the Chinese side.”
“…The U.S. thought China agreed to detail the laws it would change to implement the trade deal under negotiation. Beijing said it had no intention of doing so… The hardened battle lines were prompted by Beijing’s decision to take a more aggressive stance in negotiations… They said Beijing was emboldened by the perception that the U.S. was ready to compromise. In particular…, Mr. Trump’s hectoring of… Chairman Jerome Powell to cut interest rates was seen in Beijing as evidence that the president thought the U.S. economy was more fragile than he claimed.”
In the most comprehensive and insightful article
on the subject I’ve read so far, a Reuters team
(David Lawder, Jeff Masson, Michael Martin,
Chris Prentice, Dan Burns, Jing Xu
and Ben Blanchard) presented compelling analysis:
“The diplomatic cable from Beijing arrived in Washington late on Friday night, with systematic edits to a nearly 150-page draft trade agreement that would blow up months of negotiations between the world’s two largest economies, according to three U.S. government sources and three private sector sources briefed on the talks. The document was riddled with reversals by China that undermined core U.S. demands, the sources told Reuters. In each of the seven chapters of the draft trade deal, China had deleted its commitments to change laws to resolve core complaints that caused the United States to launch a trade war: Theft of U.S. intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.”
Why would Beijing return a 150-page draft with “systematic edits” that they surely knew would risk blowing up months of negotiations?
“Liu last week told Lighthizer and Mnuchin that they needed to trust China to fulfill its pledges through administrative and regulatory changes… Both Mnuchin and Lighthizer considered that unacceptable, given China’s history of failing to fulfill reform pledges.”
“Liu last week told Lighthizer and Mnuchin that they needed to trust China to fulfill its pledges through administrative and regulatory changes… Both Mnuchin and Lighthizer considered that unacceptable, given China’s history of failing to fulfill reform pledges.”
The U.S. was demanding that China change existing laws to incorporate trade concessions along with agreeing to “an enforcement regime more like those used for punitive economic sanctions – such as those imposed on North Korea or Iran – than a typical trade deal.”
China views U.S. demands to change laws as an infringement of national sovereignty. And I can imagine Chinese officials have utter disdain for a U.S.-dictated “enforcement regime.”
May 10 – Bloomberg (Shawn Donnan, Saleha Mohsin and Ye Xie):
“President Donald Trump’s administration told China it has a month to seal a trade deal or face tariffs on all its exports to the U.S., even as both sides sought to avoid a public breakdown in negotiations despite a developing stalemate.
The threat was made during talks in Washington on Friday, hours after Trump upped the ante by imposing a second round of punitive duties on $200 billion in Chinese goods. The talks are under close scrutiny across global financial markets, and U.S. stocks turned positive after negotiators on both sides said the session had gone fairly well. In a series of tweets that cheered markets further, Trump… declared that the talks with China had been ‘candid and constructive.’ ‘The relationship between President Xi and myself remains a very strong one, and conversations into the future will continue,’ he said. Further talks are possible, but there’s no immediate plan for the next round, according to a person familiar with the negotiations.”
The threat was made during talks in Washington on Friday, hours after Trump upped the ante by imposing a second round of punitive duties on $200 billion in Chinese goods. The talks are under close scrutiny across global financial markets, and U.S. stocks turned positive after negotiators on both sides said the session had gone fairly well. In a series of tweets that cheered markets further, Trump… declared that the talks with China had been ‘candid and constructive.’ ‘The relationship between President Xi and myself remains a very strong one, and conversations into the future will continue,’ he said. Further talks are possible, but there’s no immediate plan for the next round, according to a person familiar with the negotiations.”
May 8 – Bloomberg:
“An unexpected fall in China’s exports and an equally unforeseen rise in imports show that the world’s second-largest economy continues a tentative recovery while global demand weakens and trade tensions re-escalate. Exports dropped 2.7% in April versus a forecast 3% increase, while imports expanded by 4% compared to a projected slip… Those misses highlight that the global slowdown is weighing down on China’s growth, instead of the other way around, at least for now. Months of policy stimulus has fueled a pickup in the Asian economy, although the re-escalating trade threats may throttle those green shoots.”
May 7 – Bloomberg:
“This year is shaping up to be the biggest by far for defaults in China’s $13 trillion bond market, highlighting the widening fallout from the government’s campaign to rein in leverage.
Companies defaulted on 39.2 billion yuan ($5.8bn) of domestic bonds in the first four months of the year, some 3.4 times the total for the same period of 2018… The pace is also more than triple that of 2016, when defaults were more concentrated in the first half of the year, unlike 2018. The trend is clear: unless something changes, 2019 will be the new high. China continues to press banks to extend credit to the private sector, and small and medium-sized companies especially… But President Xi Jinping’s team has also focused on shrinking the shadow-banking system, where credit decisions were made with less regulatory oversight and where it was easier to build up unsustainable leverage.”
Companies defaulted on 39.2 billion yuan ($5.8bn) of domestic bonds in the first four months of the year, some 3.4 times the total for the same period of 2018… The pace is also more than triple that of 2016, when defaults were more concentrated in the first half of the year, unlike 2018. The trend is clear: unless something changes, 2019 will be the new high. China continues to press banks to extend credit to the private sector, and small and medium-sized companies especially… But President Xi Jinping’s team has also focused on shrinking the shadow-banking system, where credit decisions were made with less regulatory oversight and where it was easier to build up unsustainable leverage.”
May 5 – Bloomberg:
“China decided to cut the amount of cash some banks must hold as reserves, and timed its announcement of the decision to help shore up domestic markets as uncertainties in the trade talks with the U.S. re-emerged. The required reserve ratio for rural commercial lenders serving companies in the county where the bank operates or with less than 10 billion yuan ($1.5bn) of assets will be lowered to 8%, taking effect on May 15… The unusual timing of the announcement, as markets were opening, appeared to be in response to an escalation of the trade war by U.S. President Donald Trump.”
May 5 – Reuters (Ryan Woo):
“Activity in China’s services sector further improved in April, with export sales rising at a record pace, a private business survey showed on Monday, although the longer-term outlook for new orders stayed subdued due to global economic uncertainties.
The Caixin/Markit services purchasing managers’ index (PMI) climbed to 54.5, the highest since January 2018 and slightly up from 54.4 in March… Export orders increased the most since the survey began measuring this in September 2014.”
The Caixin/Markit services purchasing managers’ index (PMI) climbed to 54.5, the highest since January 2018 and slightly up from 54.4 in March… Export orders increased the most since the survey began measuring this in September 2014.”
Europe Watch:
May 7 – CNBC (Silvia Amaro):
“The EU has cut growth forecasts for Germany for the second time this year, as trade tensions and a Chinese slowdown weigh on the traditional economic powerhouse of the region.
Germany is only expected to grow at a rate of 0.5% this year... It will be the second-worst economy across the EU in terms of growth, with only Italy looking more downbeat. It comes after the institution lowered Germany's growth expectations from 1.8% to 1.1% in February.”
Germany is only expected to grow at a rate of 0.5% this year... It will be the second-worst economy across the EU in terms of growth, with only Italy looking more downbeat. It comes after the institution lowered Germany's growth expectations from 1.8% to 1.1% in February.”
May 7 – Financial Times (Mehreen Khan and Jim Brunsden):
“Italy’s budget deficit is set to breach EU rules by a wide margin next year, according to forecasts from the European Commission that raise the prospect of a renewed clash over economic policies between Brussels and Rome’s anti-establishment government.
The Italian deficit is expected to balloon to 3.5% of gross domestic product in 2020, up from an already higher than expected 2.5% this year. The deterioration is set to be driven by a slowing Italian economy, Rome’s plans to implement expensive policies including a citizens’ income and its intention to repeal a landmark pension reform.”
The Italian deficit is expected to balloon to 3.5% of gross domestic product in 2020, up from an already higher than expected 2.5% this year. The deterioration is set to be driven by a slowing Italian economy, Rome’s plans to implement expensive policies including a citizens’ income and its intention to repeal a landmark pension reform.”
May 7 – Reuters (Francesco Guarascio):
“Italy’s huge debt is expected to grow further this year and next as the country’s growth remains sluggish, the European Commission said…
in quarterly economic forecasts that could reignite a dispute over Rome’s budget. Brussels cut its already gloomy outlook of Italy’s economy, which it now says is set to grow by 0.1% this year instead of the 0.2% it predicted in February. The country grew by 0.9% last year… With no policy changes by the eurosceptic Italian administration, Italy’s debt would grow to 133.7% of gross domestic product (GDP) this year, and peak at 135.2% in 2020…”
in quarterly economic forecasts that could reignite a dispute over Rome’s budget. Brussels cut its already gloomy outlook of Italy’s economy, which it now says is set to grow by 0.1% this year instead of the 0.2% it predicted in February. The country grew by 0.9% last year… With no policy changes by the eurosceptic Italian administration, Italy’s debt would grow to 133.7% of gross domestic product (GDP) this year, and peak at 135.2% in 2020…”
Global Bubble Watch:
May 8 – Financial Times (Delphine Strauss):
“Growth in global commerce has slowed sharply since the US-China trade dispute escalated in mid-2018, and an array of economic indicators suggest that the year-long row is having an increasing effect on the global economy.
Negotiators from the world’s two largest economies are preparing to meet in Washington on Thursday in an effort to resolve an eleventh-hour impasse in their trade deal talks. Evidence is accumulating that the tariffs which now affect more than 50% of bilateral trade between the US and China are curbing global commerce, driving up prices for American consumers and holding back business investment as companies seek to restructure their supply chains.”
Negotiators from the world’s two largest economies are preparing to meet in Washington on Thursday in an effort to resolve an eleventh-hour impasse in their trade deal talks. Evidence is accumulating that the tariffs which now affect more than 50% of bilateral trade between the US and China are curbing global commerce, driving up prices for American consumers and holding back business investment as companies seek to restructure their supply chains.”
May 7 – Bloomberg (Michelle Jamrisko):
“Some developing economies from Thailand to Dubai and Brazil are facing double-digit real estate sales declines on the back of weakening domestic growth. Developed countries already have shown some of the pain -- including Australia, the U.K., Switzerland and Singapore -- and made all the more worrisome as borrowing costs remain relatively low.
‘There are different factors driving the various markets; real estate tends to be to a large extent a localized market’ said Todd Schubert, head of fixed-income research at Bank of Singapore Ltd. ‘However, the one over-riding theme is decelerating economic growth momentum, which is continuing to be a headwind for all markets and preventing a recovery in markets, such as Dubai, which have faced multi-year downturns.’”
‘There are different factors driving the various markets; real estate tends to be to a large extent a localized market’ said Todd Schubert, head of fixed-income research at Bank of Singapore Ltd. ‘However, the one over-riding theme is decelerating economic growth momentum, which is continuing to be a headwind for all markets and preventing a recovery in markets, such as Dubai, which have faced multi-year downturns.’”
Fixed-Income Bubble Watch:
May 7 – CNBC (Kate Rooney):
“U.S. debt has climbed to an alarming level, according to DoubleLine CEO Jeffrey Gundlach. ‘People are starting to realize that the deficit and debt are totally out of control,’ Gundlach said…
Gundlach said the ‘main reason’ the yield curve between 3-year and 5-year Treasury notes is steepening is the ballooning deficit. Last year, U.S. national debt increased by more than 6% of GDP, he said… Gundlach… also flagged trouble in the corporate bond market, which got ‘dragged down’ in the ‘economic mess that we're in.’ ‘The corporate bond market is so much worse today than it was in 2006,’ he said.”
Gundlach said the ‘main reason’ the yield curve between 3-year and 5-year Treasury notes is steepening is the ballooning deficit. Last year, U.S. national debt increased by more than 6% of GDP, he said… Gundlach… also flagged trouble in the corporate bond market, which got ‘dragged down’ in the ‘economic mess that we're in.’ ‘The corporate bond market is so much worse today than it was in 2006,’ he said.”
Geopolitical Watch:
May 8 – Financial Times (David Gardner):
“The US decision to send a military task force to the Middle East was described… by John Bolton, national security adviser to President Donald Trump, as a ‘clear and unmistakable warning to the Iranian regime’ that any attack on the US or its allies would be met with ‘unrelenting force’…
The USS Abraham Lincoln aircraft carrier strike group, to which Mr Bolton referred, set out for the Mediterranean and the Gulf more than a month ago, as part of a scheduled rotation. Mr Bolton is a warmonger. Nevertheless, the bellicose tone towards Iran of Trump administration hawks such as Mr Bolton and Mike Pompeo, secretary of state, are part of a pushback against the Islamic Republic that probably increases the risk of war.”
The USS Abraham Lincoln aircraft carrier strike group, to which Mr Bolton referred, set out for the Mediterranean and the Gulf more than a month ago, as part of a scheduled rotation. Mr Bolton is a warmonger. Nevertheless, the bellicose tone towards Iran of Trump administration hawks such as Mr Bolton and Mike Pompeo, secretary of state, are part of a pushback against the Islamic Republic that probably increases the risk of war.”
May 8 – CNN (James Griffiths, Joshua Berlinger and Sheena McKenzie):
“Iran announced… it was partially withdrawing from a landmark nuclear deal, marking a serious escalation in Tehran's faceoff with the United States.
President Hassan Rouhani said in a televised speech that Iran would reduce its ‘commitments’ to the Joint Comprehensive Plan of Action, or JCPOA, but would not fully withdraw, amid heightened pressure from the US in recent weeks.”
President Hassan Rouhani said in a televised speech that Iran would reduce its ‘commitments’ to the Joint Comprehensive Plan of Action, or JCPOA, but would not fully withdraw, amid heightened pressure from the US in recent weeks.”
May 7 – Reuters (Idrees Ali):
“The U.S. military said two of its warships sailed near islands claimed by China in the South China Sea…, a move that angered Beijing at a time of tense ties between the world’s two biggest economies.
The busy waterway is one of a growing number of flashpoints in the U.S.-China relationship, which also include a trade war, U.S. sanctions and Taiwan.”
The busy waterway is one of a growing number of flashpoints in the U.S.-China relationship, which also include a trade war, U.S. sanctions and Taiwan.”
May 9 – Reuters (Tim Kelly):
“In fresh show of naval force in the contested South China Sea, a U.S. guided missile destroyer conducted drills with a Japanese aircraft carrier, two Indian naval ships and a Philippine patrol vessel in the waterway claimed by China, the U.S. Navy said…
While similar exercises have been held in the South China Sea in the past, the combined display by four countries represents a fresh challenge to Beijing as U.S. President Donald Trump threatens to hike tariffs on $200 billion worth of Chinese goods. ‘Professional engagements with our allies, partners and friends in the region are opportunities to build upon our existing, strong relationships,’ Commander Andrew J. Klug, the captain of the U.S. destroyer, the USS William P. Lawrence, said…”
While similar exercises have been held in the South China Sea in the past, the combined display by four countries represents a fresh challenge to Beijing as U.S. President Donald Trump threatens to hike tariffs on $200 billion worth of Chinese goods. ‘Professional engagements with our allies, partners and friends in the region are opportunities to build upon our existing, strong relationships,’ Commander Andrew J. Klug, the captain of the U.S. destroyer, the USS William P. Lawrence, said…”
May 8 – Reuters (Angus Berwick and Mayela Armas):
“Venezuelan intelligence agents detained opposition leader Juan Guaido’s congressional deputy…, using a tow truck to drag his vehicle away with him inside, prompting the U.S. government to warn of ‘consequences’ if he was not released.”
May 7 – Reuters (Ece Toksabay and Jonathan Spicer):
“Turkish authorities… scrapped the result of a vote for Istanbul mayor lost by President Tayyip Erdogan’s candidate, responding to calls by his AK Party for a re-run,
in a move that hit the lira and drew opposition accusations of ‘dictatorship’… Turkey’s main opposition Republican People’s Party (CHP), which narrowly won the mayor’s office in the country’s largest city, called the ruling a ‘plain dictatorship.’”
in a move that hit the lira and drew opposition accusations of ‘dictatorship’… Turkey’s main opposition Republican People’s Party (CHP), which narrowly won the mayor’s office in the country’s largest city, called the ruling a ‘plain dictatorship.’”
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