Economic News for the Week ending June 21, 2019

Saturday June 22, 2019

'Weekly Commentary: 

Rejoicing Central Banker Capitulation

by Doug Noland

full Noland column here:

http://creditbubblebulletin.blogspot.com/2019/06/weekly-commentary-rejoicing-central.html

Below is a summary 

of the Noland material

that interests me:

For the week ending 

June 21, 2019:

GLOBAL  STOCKS:

S&P500 rose 2.2% (up 17.7% y-t-d)

Dow Industrials gained 2.4% (up 14.5%)

Dow Utilities added 1.1% (up 16.0%)

Dow Transports added 0.5% (up 12.9%).

S&P 400 Midcaps rose 1.5% (up 15.9%)

Small cap Russell 2000 jumped 1.8% (up 14.9%). 

Nasdaq100 advanced 3.3% (up 22.1%)

Biotechs surged 5.9% (up 12.9%). 

With gold bullion surging $58, 

the HUI gold index jumped 9.4% 

    (up 12.9%)

U.K.'s FTSE increased 0.8% (up 10.1% y-t-d).

Japan's Nikkei added 0.7% (up 6.2% y-t-d). 

France's CAC40 surged 3.0% (up 16.9%)

German DAX rose 2.0% (up 16.9%)

Spain's IBEX 35 increased 0.4% (up 8.0%)

Italy's FTSE MIB jumped 3.8% (up 16.7%)

Brazil's Bovespa surged 4.1% (up 12.1%)

Mexico's Bolsa gained 0.9% (up 4.5%). 

South Korea's Kospi increased 1.4% (up 4.1%). 

India's Sensex declined 0.7% (up 8.7%). 

China's Shanghai jumped 4.2% (up 20.4%). 

Turkey's Istanbul National 100 3.6% (up 3.0%). 

Russia's MICEX increased 0.8% (up 16.5%).

US  BONDS
Ten-year Treasury yields 

slipped two bps to 2.06% 

   (down 63bps). 

Long bond yields 

were unchanged at 2.58% 

   (down 43bps). 

Benchmark Fannie Mae MBS yields
dropped 14 bps to 2.73% 

   (down 76bps).

US  MORTGAGE  RATES:

Freddie Mac 30-year 

fixed mortgage rates 

increased two bps to 3.84% 

    (down 73bps y-o-y). 

Fifteen-year rates 

slipped a basis point to 3.25% 

   (down 79bps). 

Five-year hybrid ARM rates 

declined three bps to 3.48% 

   (down 35bps). 

Jumbo mortgage 30-yr fixed rates 

down five bps to 4.12% 

   (down 49bps).

FEDERAL  RESERVE  BANK:

Federal Reserve Credit

over the past year,

contracted 11.0%. 

M2 (narrow) "money" supply 

grew 4.5% over the past year. 

Currency Watch:

The U.S. dollar index 

declined 1.4% to 96.22 

   (unchanged y-t-d). 

Commodities Watch:

Bloomberg Commodities Index 

   gained 1.3% this week 

     (up 2.4% y-t-d). 

Spot Gold surged 4.3% to $1,400

     (up 9.1%). 

Silver recovered 3.8% to $15.37 

    (down 1.1%). 

WTI crude rallied $4.92 to $57.43 

    (up 27%). 

Gasoline surged 7.2% 

    (up 40%)

Natural Gas sank 8.4% 

    (down 26%). 

Copper rallied 2.8% (

    up 3%). 

Wheat declined 1.4% 

    (up 6%). 

Corn was little changed 

    (up 21%).

Trump Administration Watch:

June 18 – Reuters (Jeff Mason): 

“China and the United States are rekindling trade talks ahead of a meeting next week between Presidents Donald Trump and Xi Jinping, cheering financial markets on hopes that an escalating trade war between the two countries would abate. Trump said on Tuesday that teams from the two sides would begin preparations for the leaders to sit down at the G20 summit in Osaka. China, which previously declined to say whether the two leaders would meet, confirmed the get-together. ‘Had a very good telephone conversation with President Xi of China. We will be having an extended meeting next week at the G-20 in Japan. Our respective teams will begin talks prior to our meeting,’ Trump said… on Twitter.”

June 17 – CNBC (Elliot Smith): 

“President Donald Trump is ready to proceed with tariffs on the remaining $300 billion in Chinese goods in the absence of a trade deal, according to U.S. Commerce Secretary Wilbur Ross. …Ross said enforcement would be the most important element of any potential deal between the world’s two largest economies. ‘We will eventually make a deal, but if we don’t, the president is perfectly happy with continuing the tariff movements that we’ve already announced, as well as imposing the new ones that he has temporarily suspended,’ Ross said.”

June 17 – Associated Press (Nasser Karimi and Jon Gambrell):

“Iran will surpass the uranium-stockpile limit set by its nuclear deal in the next 10 days, an official said Monday, raising pressure on Europeans trying to save the accord a year after the U.S. withdrawal lit the fuse for the heightened tensions now between Tehran and Washington. Hours later, the two countries seemed locked in a standoff when the Pentagon announced it was sending about 1,000 additional American troops to the Middle East to bolster security in the region in the face of what U.S. officials said was a growing threat from Iran.”

June 17 – Reuters (David Lawder): 

“A wide range of U.S. companies told a hearing in Washington… that they have few alternatives other than China for producing clothing, electronics and other consumer goods as the Trump administration prepares new tariffs on remaining U.S.-China trade. Sourcing from other countries will raise costs, in many cases more than the 25% tariffs, some witnesses told a panel of officials…”

June 15 – Reuters (Nidhi Verma and Neha Dasgupta): 

“India will impose higher retaliatory tariffs on 28 U.S. products including almonds, apples and walnuts from Sunday, following Washington’s withdrawal of key trade privileges for New Delhi.”

June 19 – Bloomberg (Neha Dasgupta and Aditya Kalra):

“The United States has told India it is considering caps on H-1B work visas for nations that force foreign companies to store data locally, three sources with knowledge of the matter told Reuters, widening the two countries’ row over tariffs and trade… India, which has upset firms such as Mastercard and irked the U.S. government with stringent new rules on data storage, is the largest recipient of these temporary visas, most of them to workers at big Indian technology firms.”

U.S. Bubble Watch:

June 18 – The Hill (Brian Riedl): 

“Seemingly no one cares about the budget deficit anymore. Republicans recently cut taxes by $2 trillion, while Democrats are promising a spending spree that could top $40 trillion over the decade. And this is on top of the current budget trajectory that shows annual deficits exceeding $2 trillion within a decade, and totaling a staggering $84 trillion over the next 30 years. The cost of paying interest on this debt is projected to become the largest federal expenditure within a few decades, consuming one-third of all federal taxes. Even that assumes continued low interest rates. Every percentage point they rise adds another $13 trillion in budget interest costs over the next three decades. In short, an avalanche of debt is upon us. Yet pandering politicians promise even more free lunches, paid for by our kids. America desperately needs a ‘grand deal’ on deficits, where Republicans and Democrats come together and make the difficult choices to avert a debt-based calamity… Such a deal seems wildly implausible.”

June 20 – Reuters (Lucia Mutikani): 

“The U.S. current account deficit narrowed sharply in the first quarter as imports of goods declined… The… current account deficit, which measures the flow of goods, services and investments into and out of the country, fell 9.4% to $130.4 billion. Data for the fourth quarter was revised to show the deficit widening to $143.9 billion, instead of the previously reported $134.4 billion.”

June 20 – Bloomberg (Katia Dmitrieva and Laura Davison): 

“Corporations brought $100.2 billion of overseas profits back to the U.S. in the first quarter, marking $876.8 billion that has returned since Congress overhauled the international tax system and prodded companies to repatriate more. The cash that has come back to the U.S. falls short of the $4 trillion President Donald Trump said would return as a result of the 2017 tax law. Investment banks and think tanks have estimated that U.S. corporations actually held $1.5 trillion to $2.5 trillion in offshore funds at the time the law was enacted.”

June 16 – Wall Street Journal (Maureen Farrell and Corrie Driebusch)

: "Overall, 2019 tech IPOs are up roughly 30% on average through Friday’s close, according to Dealogic. That surpasses the Nasdaq Composite’s 18% rise in 2019. Ten out of the year’s 26 tech IPOs are up more than 50% from their IPO prices.”

June 20 – Wall Street Journal (Laura Kusisto): 

“Big private-equity firms, real-estate speculators and others that buy properties comprised more than 11% of U.S. home purchasers in 2018, according to… CoreLogic Inc. The investor purchases are the highest on record and nearly twice the levels before the 2008 housing crash. The investor interest poses a challenge for millennials and other first-time buyers who are increasingly looking to buy starter homes and are forced to compete with deep-pocketed cash buyers. Big commercial property owners like Blackstone Group LP and Starwood Capital Group began buying thousands of homes out of foreclosure during the housing bust.”

June 17 – Bloomberg (Shahien Nasiripour): 

“New data from a Bloomberg Businessweek survey of more than 10,000 MBA graduates from the class of 2018 at 126 schools around the world suggest that nearly half the students at some of the best business schools are borrowing at least $100,000 to finance their master’s degree in business administration.”

China Watch:

June 18 – Wall Street Journal (Nathaniel Taplin): 

“While the world has been focused on the U.S.-China trade conflict, another threat—potentially just as large—has been brewing beneath the surface of China’s financial system. On Sunday, the country’s securities regulator convened a meeting asking big brokerages and funds to support their smaller peers… The briefing cited rising risk aversion in money markets after defaults in the bond repurchase market. Some interbank lending rates have moved sharply higher in recent weeks… Nonbank borrowing through bond repos and interbank loans has skyrocketed since China’s central bank began easing monetary policy in early 2018. It hit a net 74 trillion yuan ($10.7 trillion) in the first quarter of 2019, according to Enodo Economics, up nearly 50% from a year earlier… Worryingly, problems appear to be migrating from the relatively small market for negotiable certificates of deposit (NCDs)—used primarily by small banks—into the much larger bond repo market.”

June 20 – Associated Press: 

“China warned Thursday that threats and tariffs will not resolve trade tensions between the two biggest economies and blasted Republican Sen. Marco Rubio for his criticism of technology giant Huawei over patents. Ministry spokesman Gao Feng said… that its ‘core concern’ over mutual respect has to be properly accommodated. ‘If the US insists on taking unilateral trade measures against China, it will definitely bring serious impacts on the economy of itself and the welfare of its people,’ Gao said…”

June 16 – Reuters (Brenda Goh and Samuel Shen): 

“The United States has underestimated the Chinese people’s will to fight a trade war and Beijing is prepared for a long economic battle, an influential Chinese Communist Party journal said... China would not give way on major principles in its negotiations with the United States on ending the dispute, the commentary in the ideological journal Qiushi, or Seeking Truth, said. The editorial represented ‘a further mobilization of Chinese society’ in the struggle against U.S. trade pressure, wrote Hu Xijin, editor-in-chief of the state-run Global Times… ‘China will not be afraid of any threats or pressure the United States is making that may escalate economic and trade frictions. China has no choice, nor escape route, and will just have to fight it out till the end,’ the commentary said.”

June 17 – Reuters (Yawen Chen, Ryan Woo and Min Zhang): 

“New home prices in China rose at their fastest pace in five months in May, complicating government efforts to keep frothy housing markets under control as it rolls out more stimulus for the slowing economy. Average new home prices in China’s 70 major cities rose 0.7% in May from the previous month, picking up from a 0.6% rise in April and the quickest pace since December… That marked the 49th straight month of price gains. Sixty-seven of the total 70 cities surveyed by the NBS reported higher prices in May… On an annual basis, home prices increased 10.7% in May, unchanged from April’s growth rate.”

June 17 – Bloomberg: 

“Huawei Technologies Co. founder Ren Zhengfei expects U.S. sanctions to curtail its revenue by about $30 billion over the coming two years, wiping out the networking giant’s growth by withholding critical American technology. Sales at China’s largest technology company will likely remain stagnant at about $100 billion in 2019 and 2020, the billionaire said…, quantifying for the first time the hit from a plethora of Trump administration restrictions.”

Japan Watch:

June 18 – Reuters (Tetsushi Kajimoto and Daniel Leussink): 

“Japan’s exports fell for a sixth straight month in May as China-bound shipments of semiconductor manufacturing equipment and car parts weakened, in a sign of a deteriorating outlook for growth as the trade-reliant economy faces persistent pressure from slowing external demand… Ministry of Finance (MOF) data showed… that exports declined 7.8% in May from a year earlier, down for the sixth straight month.”

Emeging Markets Watch:

June 18 – Wall Street Journal (Paulo Trevisani, Samantha Pearson and Luciana Magalhaes)

: “Brazil’s state-controlled banks are bracing for potentially heavy losses after Odebrecht SA, the construction conglomerate at the center of a regionwide corruption scandal, filed for the largest-ever bankruptcy in Latin America. Brazil’s development bank, BNDES, holds nearly a 10th of Odebrecht’s total $25.3 billion of debt, followed by two other state lenders, Banco do Brasil SA and Caixa Econômica Federal, the construction group said… ‘This is terrible for Brazil,’ said Pedro Galdi, a stock analyst at Mirae Asset.... ‘Creditors will be hit and the biggest ones are controlled by the government.’”

June 14 – Reuters (Daren Butler): 

“Moody’s cut Turkey’s sovereign credit rating deeper into ‘junk’ territory on Friday, saying the risk of a balance of payments crisis continued to rise, and with it the risk of a government default… Soon after the latest move, the Turkish Treasury and Finance Ministry said the downgrade was not in accordance with the country’s economic indicators. ‘The decision does not conform with the Turkish economy’s fundamental indicators and thus creates question marks about the objectivity and impartiality of the institution’s analyses,’ it said…”

June 18 – Bloomberg (Anurag Joshi): 

“Facing a record amount of debt that’s about to mature, India’s non-bank financing companies are finding their troubles worsening as a crisis of credibility starts to bite. The shadow lenders, which have been under increased strain after the collapse of IL&FS Group last year, have a record 1.1 trillion rupees ($15.8 billion) of local-currency bonds due next quarter… Refinancing the obligations poses a challenge as investor concerns flare amid mounting problems such as auditors quitting, repayment problems and allegations of embezzlement. ‘The refinancing risk is becoming bigger for those NBFCs with a larger quantum of repayments coming due,’ said Rajat Bahl, chief analytical officer at Brickwork Ratings… ‘The only options for them are the selldown of loan portfolios, securitization and zero-to-no growth in new loan disbursements.’”

June 16 – Bloomberg (Suvashree Ghosh): 

“Just as India’s banks emerge from under a pile of bad loans to large energy, steel and other industrial companies, they are facing a new reckoning from the accelerating crisis in the country’s shadow banking sector. A year after a series of defaults by Infrastructure Leasing & Financial Services Ltd. forced the government to intervene and exposed weaknesses in the sector, the problems of India’s non-bank financial companies are entering a new phase. Other weaker lenders such as Dewan Housing Finance Corp. and Anil Ambani’s Reliance Capital Ltd. are struggling, putting the loans they received from a handful of the regulated banks at risk.”

Global Bubble Watch:

June 17 – Bloomberg (Michael Heath): 

“Australia’s mortgage arrears have climbed back toward 2010 levels, but remain short of posing a threat to the financial system or households, a senior Reserve Bank Official said. The number of borrowers falling behind in their mortgage repayments is still well beneath the levels reached in the early 1990s recession, as well as those in a number of other developed nations, said Jonathan Kearns, head of financial stability at the RBA.”

Fixed-Income Bubble Watch:

June 18 – Financial Times (Judith Evans and Joe Rennison): 

“Packages of real-estate loans are hitting the US market at the fastest rate in a decade as investors step up their search for higher returns. A total of $8.4bn of property-based collateralised loan obligations — pools of loans backing debt and equity — have been issued in the US so far this year. That places 2019 on track to beat last year’s $13.9bn of issuance, which in turn was nearly double the previous year’s $7bn of new deals… The boom in CLOs — riskier cousins of the more mainstream commercial mortgage-backed securities — comes as investors struggle to make decent returns from a real estate sector swollen by a vast influx of capital in recent years, and mimics the resurgence of more complex financial products across markets.”

Geopolitical Watch:

June 18 – Financial Times (David Gardner): 

“Some people call the brinkmanship in the Gulf between Iran and the US a game of chicken. But with Tehran announcing this week that it will breach the uranium enrichment limits in the 2015 nuclear deal, and Washington moving another 1,000 troops to the region, the game is starting dangerously to resemble nuclear roulette. The starting point for this escalation is President Donald Trump’s decision last year to withdraw the US unilaterally from the Joint Comprehensive Plan of Action. Painstakingly negotiated over years — with the US, France, Germany, the UK, China and Russia — and ratified by the UN Security Council, this diplomatic breakthrough constrained Tehran’s nuclear programme into the medium term with intrusive international monitoring. In return, Iran would be released from economic quarantine, allowing it to rejoin the world. Mr Trump described the accord as ‘the worst deal ever’, even though the only alternative is war — probably on a scale even the Middle East has never seen.”

June 17 – Financial Times (Kathrin Hille): 

“The brutal crackdown on street protests in Hong Kong over a planned extradition bill has turned an entire generation against Beijing and shaken the business community’s trust in the city’s rule of law. The damage for the Chinese government, however, goes beyond the former British colony: the demonstrations have galvanised Taiwan’s will to defend its democracy and independence. The events could also upend a presidential race Beijing hopes will bring to power a more China-friendly government. Over the past four months, politicians vying for nomination as the presidential candidate of the opposition Kuomintang (KMT) have blamed Tsai Ing-wen — the incumbent who is calmly but stubbornly resisting Chinese pressure to define Taiwan as a part of China — for rising cross-strait tension, and have pledged to bring peace and economic prosperity through better relations with Beijing.”

June 18 – Financial Times (Tom Mitchell, Sue-Lin Wong and Nicolle Liu): 

“For Communist party officials, it was an embarrassing rebuke: as many as 2m residents of a major Chinese city marching to demand the resignation of its Beijing-appointed leader. And because it was happening in Hong Kong they could do nothing about it. Worse still the protest — broadcast globally — was being widely viewed as a celebration of the biggest climbdown in the political career of their boss, President Xi Jinping. Sunday’s mass demonstration in Hong Kong was the third in a week called in protest over a legal amendment that would allow, for the first time, the city’s residents to be extradited to the Chinese mainland. Organisers say about 30% of Hong Kong’s population of 7.4m took to the streets even though Carrie Lam, the territory’s chief executive whose decision to propose the law changes initially triggered the unrest, had shelved the extradition plans 24 hours earlier.”

June 15 – Reuters (Ben Blanchard):

“Chinese President Xi Jinping celebrated his 66th birthday on Saturday with Russian President Vladimir Putin, who Xi considers a close friend and who gave Xi ice cream as a present, Chinese state media reported. The discussion of senior leaders’ private lives is extremely rare in China…”