Saturday, June 29, 2019
Weekly Commentary:
History Rhymes
by Doug Noland
The full article is here:
The portions
that interested me
are summarized below:
In June alone, as the S&P 500 surged to records,
10 initial public offerings rose by 50% or more
in their debut sessions, the most of any month
since at least 2008.
The average return of 37%
is double gains earlier in the year.
‘We’re partying like it’s 1999,’
said Kim Forrest, chief investment officer
at Bokeh Capital Management...
For the week
ending June 28, 2019:
GLOBAL STOCKS:
S&P500 slipped 0.3% (up 17.3% y-t-d)
Dow Industrials declined 0.4% (up 14.0%)
Dow Utilities dropped 2.1% (up 13.5%)
Dow Transports up 1.1% (up 14.1%)
S&P 400 Midcaps up 0.9% (up 17.0%)
Small cap Russell 2000 up 1.1% (up 16.2%).
Nasdaq100 declined 0.7% (up 21.2%)
Biotechs added 0.6% (up 13.4%).
With gold bullion rising $10,
the HUI gold stock index gained 2.2%
(down 20.9%).
U.K.'s FTSE added 0.2% (up 10.4% y-t-d).
Japan's Nikkei little changed (up 6.3% y-t-d).
France's CAC40 added 0.2% (up 17.1%).
German DAX increased 0.5% (up 17.4%). S
pain's IBEX 35 dipped 0.3% (up 7.7%).
Italy's FTSE MIB declined 0.7% (up 15.9%)
Brazil's Bovespa fell 1.0% (up 10.9%)
Mexico's Bolsa declined 0.8% (up 3.7%)
South Korea's Kospi increased 0.2% (up 4.4%).
India's Sensex gained 0.5% (up 9.2%).
China's Shanghai declined 0.8% (up 19.4%).
Turkey's Istanbul National 100 rallied 2.6% (up 5.7%).
Russia's MICEX added 0.2% (up 16.7%).
U.S. BONDS:
Ten-year Treasury yields declined five bps to 2.01% (down 68bps).
Long bond yields fell five bps to 2.53% (down 49bps).
Benchmark Fannie Mae MBS yields added a basis point to 2.74% (down 75bps).
U.S. MORTGAGES:
Freddie Mac 30-year fixed mortgage rates sank 11 bps to 3.73% (down 82bps y-o-y).
Fifteen-year rates fell nine bps to 3.16% (down 88bps).
Five-year hybrid ARM rates dropped nine bps to 3.39% (down 48bps).
Jumbo mortgage 30-yr fixed rates up five bps to 4.17% (down 44bps).
FEDERAL
RESERVE
BANK:
Federal Reserve Credit
contracted 11.2%
over the past year.
M2 (narrow) "money" supply
rose 4.5%, over the past year.
Currency Watch:
The U.S. dollar index
declined 0.1% to 96.13
(down 0.1% y-t-d).
Commodities Watch:
Bloomberg Commodities Index gained 1.0% this week (up 3.5% y-t-d).
Spot Gold added 0.7% to $1,409 (up 9.9%).
Silver slipped 0.2% to $15.341 (down 1.3%).
WTI crude gained $1.04 to $58.47 (up 29%).
Gasoline jumped 2.2% (up 43%)
Natural Gas rose 5.6% (down 22%).
Copper increased 0.4% (up 3%).
Wheat declined 0.7% (up 5%).
Corn dropped 4.9% (up 15%).
Market Instability Watch:
June 21 – Bloomberg (Sarah Ponczek):
“Stocks rose to records, bonds surged, oil jumped almost 10% and even gold got into the act, as traders celebrated a dovish conversion at the Federal Reserve. One back-of-the-envelope measure shows the rally in everything was the strongest since 2011. Banished of late has been the soul searching that had afflicted investors for more than a year. Instead, investors closed their eyes and bought, fortified by the willingness of Jerome Powell’s central bank to forego its pledge to be ‘patient’ in formulating interest-rate policy.”
June 28 – Bloomberg (Antonio Vanuzzo and Jan-Henrik Förster):
“Mutual funds now have 43 times more corporate bonds on their balance sheets than dealers, compared with 2 times in 2007, according to the report by analysts Kinner Lakhani, Amandeep Singh and Brian Bedeli. Even as post-crisis regulations reduced risks in the banking system, investment funds piled into higher yielding bonds that can be difficult to sell quickly. Natixis-backed H20 Asset Management became the third major European fund manager to face market turmoil in less than a year amid questions about the liquidity of its investments…”
Trump Administration Watch:
June 25 – Associated Press (Joe McDonald):
“China… criticized Washington’s efforts to enforce U.S. law abroad following a news report three Chinese banks might be penalized over dealings with North Korea.
The banks named by The Washington Post as facing possible loss of access to the U.S. financial system denied they were under investigation. The Post said a court found three Chinese banks in contempt for ignoring demands for information about possible violations of sanctions imposed over North Korea’s nuclear program.”
June 26 – The Hill (Jordan Fabian):
“President Trump… said tech giants Google and Facebook should be sued over alleged bias toward conservatives. ‘We should be suing Google and Facebook and all that, which perhaps we will,’ Trump said during a phone interview with Fox Business Network. Trump also attacked Twitter, claiming without evidence that the company is ‘making it very hard’ to ‘get out my message’ by making it more difficult for people to follow him. ‘Twitter is just terrible, what they do,’ he said.”
June 23 – Wall Street Journal (Stu Woo in Beijing and Dustin Volz):
“The Trump administration is examining whether to require that next-generation 5G cellular equipment used in the U.S. be designed and manufactured outside China, according to people familiar with the matter.
The move could reshape global manufacturing and further fan tensions between the countries. A White House executive order last month to restrict some foreign-made networking gear and services due to cybersecurity concerns started a 150-day review of the U.S. telecommunications supply chain. As part of that review, U.S. officials are asking telecom-equipment manufacturers whether they can make and develop U.S.-bound hardware, which includes cellular-tower electronics as well as routers and switches, and software outside of China, the people said.”
June 27 – Wall Street Journal (Mike Bird):
“A U.S. judge found three unnamed Chinese banks to be in contempt of court in April, according to recently unsealed documents from the District Court for the District of Columbia. This could add a dangerous new element to the trade tensions between Washington and Beijing. The ruling, relating to the banks’ failure to comply with subpoenas issued a year-and-a-half ago, mandates a fine of $50,000 a day for each bank. But this penalty may not be the lenders’ biggest problem. The case also opens up the possibility of sanctions that would lock them out of the international system of dollar transactions, as Iran has been. It will be up to the heads of the U.S. Department of the Treasury and the Justice Department, not the courts themselves, to decide whether to proceed with such constraints. That makes it a valuable political weapon for President Trump. Crucially, it is one for which China has no equivalent.”
June 26 – CNBC (Jessica Bursztynsky):
“Even if the U.S. and China come to some sort of an agreement at this week’s G-20 summit, the world’s two largest economies will still be fighting for much longer, conservative economics writer Stephen Moore told CNBC... ‘This trade dispute isn’t going to be solved in the next year or two. This is going to be the epic battle of our times,’ said Moore, who withdrew his name from President Donald Trump’s consideration in May for a nomination to the Federal Reserve Board. ‘It’s going to go on for 10 or 15 years.’”
June 27 – Reuters (Neha Dasgupta):
“U.S. President Donald Trump… demanded India withdraw retaliatory tariffs imposed by New Delhi this month, calling the duties ‘unacceptable’ in a stern message that signals trade ties between the two countries are fast deteriorating. India slapped higher duties on 28 U.S. products after the United States withdrew tariff-free entry for certain Indian goods. Washington is also upset with New Delhi’s plans to restrict cross-border data flows and impose stricter rules on e-commerce that hurt U.S. firms operating in India. ‘I look forward to speaking with Prime Minister Modi about the fact that India, for years having put very high tariffs against the United States, just recently increased the tariffs even further,’ Trump said on Twitter.”
U.S. Bubble Watch:
June 23 – Financial Times (Rana Foroohar):
“At the beginning of July, the US’s current economic expansion will officially become its longest one since 1854, the year National Bureau of Economic Research data on business cycles started. Unemployment is at a 49-year low. Asset prices are near record highs. And the US Federal Reserve signalled yet again last week that it was leaning towards lowering rates due to ‘uncertainties’ in the economic outlook and muted inflation."
June 26 – Bloomberg (Ryan Haar):
“The U.S. merchandise-trade deficit widened in May to a five-month high amid a surge in imports following President Donald Trump’s decision to increase levies on $200 billion of items from China. The gap increased to $74.5 billion from $70.9 billion in the prior month… Imports rose 3.7%, the biggest jump in four years, while exports advanced 3%, the most since early 2018.”
June 25 – Reuters (Lucia Mutikani):
“Sales of new U.S. single-family homes unexpectedly fell for a second straight month in May, suggesting lower mortgage rates had yet to provide a boost to the struggling housing market. …New home sales dropped 7.8% to a seasonally adjusted annual rate of 626,000 units last month, the lowest level since December.”
June 26 – Associated Press (Martin Crutsinger):
“Orders to U.S. factories for long-lasting manufactured goods fell sharply in May while demand in a category that tracks business investment rose modestly. Orders fell 1.3% in May following an even bigger 2.8% drop in April... That weakness reflected a sharp falloff in orders for commercial aircraft, a category that has been hurt by the troubles with Boeing’s MAX aircraft…”
June 24 – Wall Street Journal (Rebecca Elliott and Bradley Olson):
“Shale drillers transformed the U.S. into the world’s largest oil producer, churning out roughly 12 million barrels a day… But after years of losing money, they are coming under intense pressure from investors and Wall Street financiers to boost returns. ... Over the past 10 years, 40 of the largest independent oil and gas producers collectively spent roughly $200 billion more than they took in from operations…”
China Watch:
June 27 – Wall Street Journal (Lingling Wei and Bob Davis): “Chinese President Xi Jinping plans to present President Trump with a set of terms the U.S. should meet before Beijing is ready to settle a market-rattling trade confrontation, raising questions of whether the two leaders will agree to relaunch talks. Among the preconditions, said Chinese officials with knowledge of the plan,
Beijing is insisting that the U.S. remove its ban on the sale of U.S. technology to Chinese telecommunications giant Huawei Technologies Co. Beijing also wants the U.S. to lift all punitive tariffs and drop efforts to get China to buy even more U.S. exports than Beijing said it would when the two leaders last met in December.”
June 26 – Reuters (Brenda Goh):
“More than half Chinese consumers have avoided buying anything made in the United States in support of their country in an escalating trade war, a survey suggests, posing a ‘significant’ risk to U.S. companies. The poll, conducted by London-based advisory firm Brunswick which surveyed 1,000 Chinese consumers, said 56% of respondents had said they had avoided U.S. products, while 68% said their opinion of American firms had become more negative. ‘This poses a significant bottom line risk to U.S. companies as three in four Chinese consumers say they often buy products from American businesses,’ Brunswick said…”
June 25 – Bloomberg (Shawn Donnan):
“President Donald Trump often cites China’s massive exports to the U.S. as a grave injustice hanging over the world economy. But lately it pays to look at Chinese imports for the pain that his tariff wars are inflicting on global growth. The world’s biggest trading nation last month saw imports from Japan, South Korea and the U.S. fall sharply from a year earlier… The 27% fall from the U.S. is perhaps not surprising given a year of tit-for-tat tariffs, but a drop of 16% from Japan and 18% from South Korea is reason to consider the broader effects of Trump’s trade battles.”
June 24 – Wall Street Journal (Timothy W. Martin and Eva Dou):
“Hackers believed to be backed by China’s government have infiltrated the cellular networks of at least 10 global carriers, swiping users’ whereabouts, text-messaging records and call logs, according to a new report, amid growing scrutiny of Beijing’s cyberoffensives.
The multiyear campaign, which is continuing, targeted 20 military officials, dissidents, spies and law enforcement—all believed to be tied to China—and spanned Asia, Europe, Africa and the Middle East, says Cybereason Inc., a Boston-based cybersecurity firm that first identified the attacks. The tracked activity in the report occurred in 2018.”
June 26 – Reuters (Jessie Pang and Vivam Tong): “Protesters in Hong Kong blocked roads and forced workers to leave the justice secretary’s offices on Thursday in the latest unrest to rock the city over an extradition bill that has now been suspended. Millions have thronged the streets in the past three weeks to demand that the bill, which would allow criminal suspects to be sent to mainland China for trial in courts controlled by the Chinese Communist Party, be scrapped altogether. ‘You know what everybody has deep in their hearts - is that this is about our future and it’s very very personal,’ said 53-year-old Brian Kern, who was attending the protests.”
Europe Watch:
June 27 – Bloomberg (Jeannette Neumann):
“Euro-area economic confidence declined more than forecast in June, dropping to its lowest level since 2016… The European Commission’s gauge of sentiment fell to 103.3 points, after 105.2 points in May and below the median forecast of 104.8. That was primarily due to a sharp decline in confidence among industry executives, who saw the most significant decrease in about eight years.”
June 24 – Reuters (Joseph Nasr):
“German business morale fell to its lowest level since November 2014 in June, a survey showed…, adding weight to expectations that Europe’s largest economy contracted in the second quarter.”
Global Bubble Watch:
June 27 – Reuters (Greg Roumeliotis and Pamela Barbaglia):
“Mega deals set the pace for mergers and acquisitions (M&A) globally in the second quarter of 2019, as large U.S. companies defied trade row jitters and seized on strong equity and debt capital markets to agree on transformative combinations. Global M&A volume reached $842 billion in the second quarter, down 13% and 27% from the first quarter of 2019 and second quarter of 2018 respectively, according to… Refinitiv… U.S. M&A totaled $466 billion in the second quarter, down just 3% from a year ago. Dealmaking in Europe, however, plunged 54% to $152 billion, while Asia M&A dived 49% to $132 billion.”
Fixed-Income Bubble Watch:
June 5 – Bloomberg (Vildana Hajric and Carolina Wilson): “"
As the risk of an economic slowdown lingers, exchange-traded fund investors are seeking shelter in bond funds. They’ve poured about $72 billion into fixed-income ETFs this year through June 24, with the funds on track for their biggest first-half inflows ever… Those bets have also fueled assets in the debt strategies to hit an all-time high of nearly $741 billion.”
Geopolitical Watch:
June 24 – Reuters (Manaure Quintero):
“A Russian air force plane landed on Monday in Venezuela’s main airport…, three months after a similar arrival spurred a war of words between Washington and Moscow.”
June 24 – Reuters (Maria Kiselyova):
“The U.S. deployment of land-based missile systems near Russia’s borders could lead to a stand-off comparable to the 1962 Cuban missile crisis, Russian Deputy Foreign Minister Sergei Ryabkov was quoted as saying… Russia has been fiercely critical of U.S. plans to deploy missile systems in eastern Europe, and of Washington’s withdrawal from the INF arms control treaty. The Cuban missile crisis erupted in 1962 when the Soviet Union responded to a U.S. missile deployment in Turkey by sending ballistic missiles to Cuba, sparking a standoff that brought the world to the brink of nuclear war.”
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