Economic News for the week ending May 3, 2019

Saturday, May 4, 2019

Weekly Commentary: 

Transitory Histrionics

by Doug Noland

full column here:

http://creditbubblebulletin.blogspot.com/2019/05/weekly-commentary-transitory-histrionics.html

My summary of portions

that interest me, is below:

For the week ending

May 3, 2019:

GLOBAL  STOCKS:

S&P500 added 0.2% (up 17.5% y-t-d)

Dow Industrials little changed (up 13.6%)

Dow Utilities increased 0.3% (up 11.0%)

Dow Transports gained 0.7% (up 19.5%)

S&P 400 Midcaps increased 0.4% (up 19.1%)

Small cap Russell 2000 jumped 1.4% (up 19.7%).

Nasdaq100 added 0.2% (up 23.9%)

Biotechs increased 0.2% (up 13.1%). 

With gold bullion declining $7,

the HUI gold stock index 

sank 4.7% (down 4.7%).

 U.K.'s FTSE declined 0.6% (up 9.7% y-t-d).

Japan's Nikkei did not trade because of holidays (up 11.2% y-t-d). 

France's CAC40 dipped 0.4% (up 17.3%). 

German DAX gained 0.8% (up 17.6%). 

Spain's IBEX 35 fell 1.0% (up 10.2%). 

Italy's FTSE MIB little changed (up 18.8%). 

Brazil's Bovespa slipped 0.2% (up 5.5%)

Mexico's Bolsa dropped 1.6% (up 6.3%). 

South Korea's Kospi rallied 0.8% (up 7.6%). 

India's Sensex declined 0.3% (up 8.0%). 

China's Shanghai dipped 0.3% (up 23.4%). 

Turkey's Borsa National 100 fell 0.9% (up 2.9%). 

Russia's MICEX gained 0.7% (up 8.9%).

US  BONDS  &  MORTGAGES:

BONDS:

Ten-year Treasury yields 

gained three bps to 2.53% (down 16bps). 

Treasury long bond yields 

were unchanged at 2.92% (down 10bps). 

Benchmark Fannie Mae MBS yields 

added two bps to 3.26% (down 24bps).

MORTGAGES:

Freddie Mac 30-year fixed mortgage rates 

declined six bps to 4.14% (down 41bps y-o-y). 

Fifteen-year rates 

fell four bps to 3.60% (down 43bps). 

Five-year hybrid ARM rates 

sank nine bps to 3.68% (down 1bp). 

Jumbo mortgage 30-yr fixed rates 

down three bps to 4.22% (down 43bps).

FEDERAL RESERVE:

Fed Credit over 

the past year, 

contracted 10.5%. 

M2 (narrow) "money" supply

  rose 3.7%, over the past year. 

Currency Watch:

The U.S. dollar index declined 0.5% to 97.52 (up 1.4% y-t-d). 

Commodities Watch:

Bloomberg Commodities Index 

declined 1.1% this week (up 3.7% y-t-d). 

Spot Gold slipped 0.6% to $1,279 (down 0.3%). 

Silver declined 0.7% to $14.978 (down 3.6%). 

WTI crude dropped $1.36 to $61.94 (up 36%). 

Gasoline sank 3.5% (up 53%)

Natural Gas declined 0.5% (down 13%). 

Copper dropped 2.6% (up 7%). 

Wheat declined 1.0% (down 13%). 

Corn jumped 2.6% (down 1%).

Market Instability Watch:

April 30 – Financial Times (Joe Rennison): 

“ There has been a rush to sell derivatives tied to the Vix index, Wall Street’s ‘fear gauge’, expecting it to stay low. Large speculators, mostly thought to be hedge funds, were net short 178,000 Vix futures contracts last week, the biggest bet on record… It marks a stark shift in sentiment from the end of the year, when the data showed that the same group of investors had bought a net 30,000 contracts, suggesting an expectation that the market decline in the final months of the year would continue.”

May 1 – Reuters (Jason Lange): 

“The U.S. government will have to stop borrowing money between July and December if Washington doesn’t agree to raise a legal restriction on public debt, the Treasury Department said… Hitting that so-called ‘debt ceiling’ could trigger a U.S. default on its debt and an immediate recession, a risk that has become a regular facet of U.S. politics over the last decade. The current debt limit was set in March. Treasury has been able to continue borrowing from investors by using accounting measures such as limiting government payments to public sector retirement funds.”

Trump Administration Watch:

April 30 – CNBC (Jeff Cox):

 “President Donald Trump, in his most brazen attack yet on the Federal Reserve, called for the central bank on Tuesday to cut interest rates by 1 percentage point and to implement more money-printing quantitative easing. In a two-part tweet, the president unfavorably compared the Fed to its China counterpart and said if monetary policy in the U.S. was looser, the economy would ‘go up like a rocket.’”

April 30 – Wall Street Journal (Editorial Board): 

“Democrats in Congress visited the White House on Tuesday, and they emerged to say that they and President Trump had agreed to spend $2 trillion on public works. When it comes to spending more money, Washington can always find common ground. ‘We agreed on a number, which was very, very good—$2 trillion,’ said Senate Minority Leader Chuck Schumer. ‘Originally we had started a little lower. Even the President was eager to push it up to $2 trillion.’ Given Mr. Trump’s fondness for big, round numbers, who can doubt it? The question is who is going to pay for all this? The annual federal budget deficit is already nearing $1 trillion.”

April 28 – Wall Street Journal (William Mauldin):

 “President Trump’s push to revamp North America’s trade rules is hitting a roadblock in Washington as Democrats and labor groups demand changes, dimming its chances of passage before next year’s presidential election. As Congress returns from recess this week with a full plate of priorities, House Speaker Nancy Pelosi (D., Calif.) and other prominent Democrats have signaled they won’t allow a vote on the administration’s new agreement with Canada and Mexico without certain changes.”

U.S. Bubble Watch:

May 3 – Associated Press (Christopher Rugaber):

 “U.S. employers added a robust 263,000 jobs in April, suggesting that businesses have shrugged off earlier concerns that the economy might slow this year and now anticipate strong customer demand. 
The unemployment rate fell to a five-decade low of 3.6% from 3.8%, though that drop reflected a rise in the number of people who stopped looking for work. Average hourly pay rose 3.2% from 12 months earlier, a healthy increase that matched the increase in March.”

April 29 – Reuters (Lucia Mutikani):

 “U.S. consumer spending increased by the most in more than 9-1/2 years in March as households stepped up purchases of motor vehicles, but price pressures remained muted, with a key inflation measure posting its smallest annual gain in 14 months. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged 0.9%. That was the biggest rise since August 2009 and was also driven by increased healthcare expenditures. Spending rose 0.1% in February.”

May 3 – Bloomberg (Katia Dmitrieva):

 “America’s merchandise-trade deficit widened in March for the first time in three months as an increase in imports exceeded the rise in exports. The goods-trade gap grew to $71.4 billion from $70.9 billion in February… Goods imports increased by $2 billion to $211.7 billion in March from the previous month, while exports climbed by $1.4 billion to $140.3 billion…”

May 1 – Reuters (Lucia Mutikani): 

“U.S. manufacturing activity slowed to a 2-1/2-year low in April amid a sharp drop in new orders while construction spending unexpectedly fell in March, suggesting economic growth was moderating after surging in the first quarter… The ISM said its index of national factory activity fell to 52.8 in April, the lowest reading since October 2016, from 55.3 in March.”

April 30 – CNBC (Diana Olick): 

“National home prices rose 4% in February from a year earlier, according to… the S&P CoreLogic Case-Shiller home price index. That is down from a 4.2% annual gain in January. The 10-City Composite rose 2.6% annually, down from 3.1% in the previous month. The 20-City Composite posted a 3% year-over-year gain, down from 3.5% in January. Markets still gaining big: Las Vegas, Phoenix and Tampa, Florida, saw the highest year-over-year gains among the 20 cities. Las Vegas prices were up 9.7%, followed by Phoenix with a 6.7% increase, and Tampa with a 5.4% increase.”

May 2 – Wall Street Journal (David Harrison): 

“The federal debt will grow to 92% of gross domestic product in 2029 from 78% in 2019, the largest projected share since 1947… CBO estimates that the average interest rate on the government’s debt will go from 2.3% last year to 3.5% in 2029. Annual deficits will average around 4.3% of the economy between 2020 and 2029…, well above the 2.9% average that prevailed between 1969 and 2018.”

May 1 – CNBC (Diana Olick): 

“The nation’s priciest properties are in far less demand this year, and that is taking a toll on their values. Sales of homes listed at $2 million and above fell 16% in the first quarter, the sharpest annual decline since 2010, according to Redfin… This as the supply of those homes rose 14%, marking four straight quarters of annual increases in inventory. The average price of a ‘luxury’ home, which Redfin defines as the top 5% in each of the 1,000 cities it tracks, fell 1.6% to $1.55 million. Nonluxury homes saw their average price rise 2.7% annually to $300,000.”

April 29 – CNBC (Diana Olick):

 “The median price of a San Francisco Bay Area home sold last month fell slightly compared with the prior-year period, marking the first annual drop since the bottom of the last housing crash, seven years ago, according to CoreLogic. In March, the median price was $830,000, down 0.1% compared with March 2018. The decline came as price gains had been shrinking for several months. Before last month, the median sale price had risen annually for 83 consecutive months since April 2012. Both May and June 2018 had the highest ever median sale price: $875,000.”

May 2 – Reuters (Lucia Mutikani): 

“U.S. worker productivity increased at its fastest pace in more than four years in the first quarter, depressing labor costs and suggesting inflation could remain benign for a while. …Nonfarm productivity, which measures hourly output per worker, increased at a 3.6% annualized rate in the last quarter. That was the strongest pace since the third quarter of 2014.”

China Watch:

April 30 – Bloomberg: 

“A huge tumble in government bonds, the worst rout in months for stocks and a weakening yuan -- April was a month of selling in China’s markets. There was no place to hide as the risk-on rally that had added some $2.5 trillion to the world’s top-performing equities started to lose steam. The Shanghai Composite Index is down for the month amid record foreign selling and small caps just entered a correction. China’s sovereign debt is heading for its worst monthly drop in more than eight years, while the yuan slid the most since October.”

April 29 – Reuters: 

“Growth in China’s services industry slowed in April…, adding to uncertainty over demand in the world’s second-largest economy. The official non-manufacturing Purchasing Managers’ Index (PMI) fell to 54.3 in April from 54.8 in March, but stayed well above the 50-point mark that separates growth from contraction. Services account for more than half of China’s economy, and rising wages have increased Chinese consumers’ spending power.”

April 30 – Reuters (Stella Qiu and Ryan Woo): 

“Factory activity in China expanded for a second straight month in April but at a much slower pace than expected…, suggesting the economy is still struggling for traction despite a flurry of support measures… The official Purchasing Managers’ Index (PMI) for manufacturing fell to 50.1 in April from March’s reading of 50.5, which was the first expansion in four months…”

April 27 – Reuters (Ben Blanchard): 

“President Xi Jinping… hailed deals worth more than $64 billion signed during China’s Belt and Road Initiative (BRI) this week as he sought to reassure skeptics the project will deliver sustainable growth for all involved. Xi said market principles will apply in all Belt and Road cooperation projects and that his signature initiative to recreate the old Silk Road joining China with Asia and Europe will deliver green and high-quality development. ‘More and more friends and partners will join in Belt and Road cooperation,’ he said in his closing remarks. ‘The cooperation will enjoy higher quality and brighter prospects.’”

April 29 – Reuters (Ben Blanchard): 

“President Xi Jinping appealed to China’s youth… to love the country and dedicate themselves to the Communist Party, warning on the centenary of student-led protests there was no place for those who ignored the country’s needs… Speaking to officials and youth delegates at the Great Hall of the People, Xi said China’s young should be grateful to the party, the country, the society and the people. ‘Tell every Chinese person that patriotism is one’s duty, is an obligation,’ Xi said…‘For Chinese youth of the new era, ardently loving the motherland is the foundation of building the body and of talent,’ he added.”

Europe Watch:

April 29 – Bloomberg (William Horobin): 

“Economic confidence in the euro area dropped for a 10th month in April to the lowest in more than two years… The European Commission’s monthly survey showed an industrial morass is increasingly entrenched as companies continue to struggle with the global slowdown and homegrown difficulties, notably the upheaval in Germany’s car industry.”

Brexit Watch:

April 28 – Financial Times (Claire Jones):

 “Brexit is likely to threaten the pound’s status as a global reserve currency according to a survey of central bank money managers who say Britain’s departure from the EU will alter their views on sterling. The pound’s history as one of the most important global currencies has meant central banks have long held assets denominated in pounds that can be sold quickly to help curb swings in their own currency’s exchange rates. But a poll by Central Banking Publications, a trade journal, suggests its status will be endangered by Brexit, with three-quarters of reserve managers predicting that central banks will collectively alter — and in all likelihood cut — their sterling holdings.”

Global Bubble Watch:

April 29 – Wall Street Journal (Daniel Kruger): 

“A growing number of investors are paying governments in Europe for the privilege of holding their bonds. The amount of negative-yielding government bonds outstanding through 2049 has risen 20% this year to about $10 trillion, the highest level since 2016… The expanding pool of such bonds—which guarantee that a buyer will receive less in repayment and periodic interest than the buyer paid—highlights how expectations for growth in much of the developed world have deteriorated. Government debt sold by countries including Germany, Ireland and Sweden are among those with negative yields.”

April 30 – Reuters (David Ljunggren):

 “The Canadian economy unexpectedly shrank by 0.1% in February, pulled down in part by weakness in the mining sector and bad weather that hurt rail transport… Analysts in a Reuters poll had expected no change from January, when the economy grew by 0.3%.”

Japan Watch:

April 28 – Bloomberg (Paul Panckhurst): 

“A record 8.46 million Japanese homes are sitting vacant as builders keep adding stock in a country where the population is shrinking. The number jumped by 260,000 in a twice-a-decade survey released by the government on Friday, reaching 13.6% of housing, the Nikkei Asian Review reported.”

Fixed-Income Bubble Watch:

May 2 – Financial Times (Robin Wigglesworth): 

“Mark Twain once said that the key to good health was to ‘eat what you don’t want, drink what you don’t like, and do what you’d rather not’. After a long post-crisis debt binge, some US companies are now reluctantly eyeing a stricter diet. All-time highs in stock prices suggest investors are relaxed about the new regime. But for how much longer? Companies in the S&P 500 handed shareholders a record-breaking $1.25tn through dividends and stock buybacks in 2018, lifting the post-crisis handout to almost $8tn… That is nearly equal to the current value of all the gold ever mined. Much of the largesse has been financed by roaring earnings. But US companies have also increased their debt — by $2.5tn over the past five years alone — lifting their net debt to earnings ratio to its highest since 2002, according to Bank of America.”

May 3 – Bloomberg (Molly Smith and Dana Hull): 

“Tesla Inc. raised $2.35 billion through debt and stock offerings that expanded from the company’s initial plans, helping to put some near-term liquidity fears to rest. 
The electric-car maker raised $750 million selling common stock and $1.6 billion from convertible bonds, up from originally offering $650 million and $1.35 billion. The capital raise sparked a relief rally in both Tesla’s stock and bonds, which had reflected investor worry over whether the company can be sustainably profitable.”

May 3 – Financial Times (Joe Rennison):

 “Investors are flocking back to a complex debt derivatives product blamed for amplifying losses in the financial crisis, reckoning that the securities are safer now that they are no longer backed by subprime mortgages. The vehicles, known as ‘synthetic’ CDOs, short for collateralised debt obligations, bundle together derivatives whose returns depend on the performance of bonds, loans and other debts — providing hedge funds and other investors another way to bet on the creditworthiness of corporate America. In contrast to standard CDOs, which bundle the bonds and loans themselves, synthetic CDOs proved especially destabilising during the crisis because they allowed multiple bets on the same subprime mortgages.”

Geopolitical Watch:

April 29 – Reuters (Niklas Pollard): 

“Global military expenditure reached its highest level last year since the end of the Cold War, fueled by increased spending in the United States and China, the world’s two biggest economies, a leading defense think-tank said… In its annual report, the Stockholm International Peace Research Institute (SIPRI) said overall global military spending in 2018 hit $1.82 trillion, up 2.6% on the previous year. That is the highest figure since 1988, when such data first became available…”

April 30 – Bloomberg (Saleha Mohsin and Andrew Mayeda): 

“It was a ploy that from its outset felt like a long shot. Before dawn Tuesday, Juan Guaido, flanked by his political mentor Leopoldo Lopez and a handful of soldiers who had broken ranks, issued a message to Venezuela and the world: The time to topple Nicolas Maduro’s authoritarian regime was right now. By Wednesday morning, with Maduro still firmly in control of the military command, Lopez had sought refuge at the Spanish embassy and the streets of the capital were quiet, long empty of the protesters who had heeded Guaido’s call to join what he called Operation Liberty.”

April 28 – Reuters (Idrees Ali): 

“The U.S. military said it sent two Navy warships through the Taiwan Strait on Sunday as the Pentagon increases the frequency of movement through the strategic waterway despite opposition from China. The voyage risks further raising tensions with China but will likely be viewed by self-ruled Taiwan as a sign of support from the Trump administration amid growing friction between Taipei and Beijing. Taiwan is one of a growing number of flashpoints in the U.S.-China relationship, which also include a trade war, U.S. sanctions and China’s increasingly muscular military posture in the South China Sea, where the United States also conducts freedom-of-navigation patrols.”

April 28 – Bloomberg (Linly Lin): 

“The head of the U.S. Navy warned China that its coast guard and maritime militia will be treated in the same way as the nation’s navy in the South China Sea, the Financial Times reported… China is increasingly relying on non-naval ships to assert its claims in the region, blurring the line between its military and coast guard, which has complicated U.S. efforts in the past few years, according to the report. China considers at least 80% of the South China Sea to be its sovereign territory, a claim disputed by other regional powers. Admiral John Richardson told the FT that he has ‘made it very clear that the U.S. Navy will not be coerced and will continue to conduct routine and lawful operations around the world.’”

April 29 – Reuters (Ulf Laessing and Ahmed Elumami): 

“An armed group attacked Libya’s largest oilfield on Monday, but was repelled after clashes with its protection force, while fighting escalated in eastern commander Khalifa Haftar’s effort to capture the capital Tripoli.”