Economic News for the Week ending July 12, 2019

Saturday, July 13, 2019

Weekly Commentary: 

Central Banker to the World

by Doug Noland

full column here:

http://creditbubblebulletin.blogspot.com/2019/07/weekly-commentary-central-banker-to.html

Portions that

interest me 

are below:

     Ye Editor

For the 

Week Ending 

July 12, 2019:

GLOBAL  STOCKS:

S&P500 increased 0.8% (up 20.2% y-t-d)

Dow Industrials jumped 1.5% (up 17.2%)

Dow Utilities were little changed (up 15.3%)

Dow Transports rose 1.5% (up 16.0%)

S&P 400 Midcaps declined 0.3% (up 17.9%)

Small cap Russell 2000 dipped 0.4% (up 16.4%). 

Nasdaq100 advanced 1.3% (up 25.5%)

Biotechs fell 2.9% (up 9.8%). 

With gold bullion up $17, 

the HUI gold stock index 

surged 4.0% (up 25.0%).

U.K.'s FTSE declined 0.6% (up 11.6% y-t-d). 

Japan's Nikkei slipped 0.3% (up 8.3% y-t-d).

France's CAC40 declined 0.4% (up 17.8%)

German DAX dropped 2.0% (up 16.7%)

Spain's IBEX 35 dipped 0.4% (up 8.8%)

Italy's FTSE MIB gained 0.9% (up 21.1%)

Brazil's Bovespa slipped 0.2% (up 14.2%)

Mexico's Bolsa fell 1.7% (up 2.4%). 

South Korea's Kospi declined 1.1% (up 2.2%). 

India's Sensex dropped 2.0% (up 7.4%). 

China's Shanghai sank 2.7% (up 17.5%). 

Turkey's Istanbul National 100 dropped 2.5% (up 6.4%). 

Russia's MICEX fell 2.0% (up 17.2%).

U.S.  BONDS  &  MORTGAGES:

Ten-year Treasury yields 

jumped nine bps to 2.12% (down 56bps). 

Long bond yields 

rose 11 bps to 2.65% (down 37bps). 

Benchmark Fannie Mae MBS yields 

jumped 13 bps to 2.86% (down 63bps).

Freddie Mac 30-year fixed mortgage rates 

were unchanged at 3.75% (down 78bps y-o-y). 

Fifteen-year rates 

rose four bps to 3.22% (down 80bps). 

Five-year hybrid ARM rates 

added a basis point to 3.46% (down 40bps). 

Jumbo mortgage 30-yr fixed rates 

up three bps to 4.13% (down 42bps).

Federal Reserve

Fed Credit contracted 11.2%

over the past year.

M2 (narrow) "money" supply

gained 4.8%, over the past year. 

Currency Watch:

The U.S. dollar index 

declined 0.5% to 96.81 

(up 0.7% y-t-d).

Commodities Watch:

Bloomberg Commodities Index 

  rallied 2.4% this week (up 5.2% y-t-d). 

Spot Gold jumped 1.2% to $1,416 (up 10.4%). 

Silver recovered 1.6% to $15.236 (down 2.0%). 

WTI crude surged $2.70 to $60.21 (up 33%). 

Gasoline jumped 2.5% (up 49%)

Natural Gas gained 1.4% (down 17%). 

Copper rose 1.2% (up 2%). 

Wheat gained 1.6% (up 4%). 

Corn jumped 3.8% (up 23%).

Market Instability Watch:

July 11 – Bloomberg (Garfield Reynolds): 

“More than $25 trillion of bonds worldwide offer negative real yields. That could soar past $30 trillion if the Fed cuts rates at least twice this year, as expected – a scenario that would then see more than half of the world's debt yield less than inflation. That means there’s even more sunk costs at risk than the much-touted $13 trillion or so of bonds nominally yielding below zero. What happens to the holders of what used to be known as fixed-income securities, should the bond market go into reversal? Europe is the epicenter of the negative real-yield universe, with euro-denominated debt offering yields under CPI exceeding comparable yen notes mostly because there’s more euro debt out there.”

July 9 - Bloomberg (Cormac Mullen): 

“Investors banking on the ‘Fed Put’ keeping the equity rally going should be getting worried about the direction of earnings growth, according to UBS Group AG. A decline in forward earnings growth for S&P 500 Index members below 0% would likely bring an end to the ‘bad news is good news’ dynamic that’s helped propel the year’s stock rally, strategist Francois Trahan wrote… History shows the bullish effect from expectations of Federal Reserve stimulus ended after growth turned negative, he said. 

Twelve-month estimated earnings growth for the S&P 500 Index has slumped from over 20% late last year to just 3% currently…”

Trump Administration Watch:

July 11 – Washington Post (Robert Costa and David J. Lynch): 

“The Trump administration is increasingly concerned about prospects for a trade deal with China, amid an unexpected reshuffling of the Chinese negotiating team and a lack of progress on core issues since the Group of 20 summit in Japan… Commerce Minister Zhong Shan, regarded by some White House officials as a hard-liner, has assumed new prominence in the talks, participating in a Tuesday teleconference alongside Chinese Vice Premier Liu He, who has headed the Chinese trade team for more than a year. Hopes for a deal also have been dented by China's failure to make large new purchases of U.S. farm products — despite President Trump's claim at the G-20 that Chinese President Xi Jinping had agreed to place such orders ‘almost immediately’ — and the lack of any announced schedule for the next round of direct talks.”

July 10 – New York Times (Ana Swanson and Keith Bradsher): 

“President Trump emerged from a June meeting in Japan with Xi Jinping, the Chinese president, saying that China would immediately begin purchasing American farm products in return for a trade truce that would forestall more United States tariffs on Chinese goods. China did not see it that way. People familiar with the negotiations say China has denied making any explicit commitment to buy American farm products during those discussions and instead saw large-scale purchases as contingent on progress toward a final trade deal that is still nowhere in sight. That is raising questions among trade experts about whether the United States gave up more than it got during Mr. Trump’s recent efforts to de-escalate the trade war.”

July 11 – Reuters (Doina Chiacu): 

“U.S. President Donald Trump said… that China was not living up to promises it made on buying agricultural products from American farmers as the world’s two largest economies work to resolve a trade dispute. ‘Mexico is doing great at the Border, but China is letting us down in that they have not been buying the agricultural products from our great Farmers that they said they would. Hopefully they will start soon!’ Trump said on Twitter.”

July 11 – CNBC (Elizabeth Schulze): 

“France’s Senate approved a tax on the revenues of tech giants like Google, Amazon and Facebook…, defying a warning from the President Donald Trump administration that it ‘unfairly targets American companies.’ On Wednesday, Trump ordered an investigation into France’s planned ‘digital tax’ on tech companies. The 3% tax would apply to the French revenues of roughly 30 major companies, mostly from the U.S. ‘France is sovereign, and France decides its own tax rules. And this will continue to be the case,’ France’s Finance Minister Bruno Le Maire said…”

July 7 – Reuters (Parisa Hafezi and Tuqa Khalid):

 “Iran said… it will shortly boost its uranium enrichment above a cap set by a landmark 2015 nuclear deal, prompting a warning ‘to be careful’ from U.S. President Donald Trump, who has pressured Tehran to renegotiate the pact.”

U.S. Bubble Watch:

July 11 – Wall Street Journal (Kate Davidson): 

“Government tax receipts rose again in June but not enough to offset higher federal spending, which pushed the U.S. budget gap to $747 billion for the first nine months of the fiscal year. The… deficit grew 23% from October through June, compared with the same period a year earlier. The government collected $2.6 trillion in receipts, a 3% increase, reflecting a substantial increase last month in corporate tax revenue, which had been running below Congressional Budget Office projections so far this year. Higher spending on the military and interest on the debt drove federal outlays up 7%, to $3.3 trillion since the start of the fiscal year… Both revenues and outlays set a record for this point in the fiscal year.”

July 11 – Reuters (Lucia Mutikani): 

“U.S. underlying consumer prices increased by the most in nearly 1-1/2 years in June amid solid gains in the costs of a range of goods and services, but that will likely not change expectations the Federal Reserve will cut interest rates this month… In another report…, initial claims for state unemployment benefits declined 13,000 to a seasonally adjusted 209,000 for the week ended July 6, the lowest level since April.”

July 9 - Bloomberg (Robert Burgess): 

“By any credible measure, the U.S. has become less creditworthy under President Donald Trump. Total debt outstanding has risen by $2 trillion to $22 trillion since Trump took office at the start of 2017, and the federal budget deficit has expanded to 4.5% of the economy, the most since 2013. Larry Kudlow… said Tuesday that the expanding debt load is ‘quite manageable’ and not ‘a huge problem right now.’ Maybe not now, but the trend at the U.S. government’s bond auctions isn’t encouraging. Investors submitted bids for 2.39 times the $38 billion of three-year notes offered by the Treasury Department on Tuesday, the smallest so-called bid-to-cover ratio for that maturity in a decade. This is no anomaly. In May, the bid-to-cover ratio at a 10-year auction was also the lowest in a decade.”

July 8 – The Hill (Niv Elis): 

“The U.S. government could default on its debt in early September if Congress does not raise the debt ceiling before then, according to a new study from the Bipartisan Policy Center (BPC)… ‘We now see a significant risk that the 'X date' could arrive in the first half of September,’ said Shai Akabas, BPC's director of economic policy. The U.S. officially hit its debt limit earlier this year, but the Treasury Department has been using what are known as ‘extraordinary measures’ that allow it to borrow internally in ways that do not count toward the debt. When those measures run out, the government will no longer be able to pay all its bills and would default, a move that would almost certainly trigger chaos in global financial markets. Though BPC still projects the deadlines is more likely to land in October, just the possibility of it hitting in September raises considerable political stakes.”

July 11 – Bloomberg (Ryan Haar): 

“Sentiment among American consumers climbed last week to a fresh 18-year high on increased optimism about the buying climate and U.S. economy.”

China Watch:

July 6 – South China Morning Post (Finbarr Bermingham and Cissy Zhou): 

“A year after the beginning of the tit-for-tat tariff war that has upended the global trading system, few trade experts see the US-China relationship improving any time soon. Instead, companies are being advised to dig in for the long haul, with the way ahead packed with volatility, hot-tempered tweets and tariffs galore. Rather than progressing towards a deal, and despite reaching a tentative truce at the G20 summit in Osaka last week, the United States and China seem are as entrenched in their positions as ever. Beijing is insisting that as a prerequisite to a deal, the US remove existing tariffs on US$250 billion worth of Chinese goods. At the same time, it is difficult to see what China can do to placate a seeming unappeasable White House, short of tearing up its entire economic model… ‘I do not foresee a scenario right now where the United States would remove all the tariffs that have been implemented so far. I think they are too deep, and I think there are a lot of deeply rooted structural concerns that are going to make it really hard to remove those,’ said Jon Cowley, a senior international trade lawyer at Baker McKenzie…”

July 11 – Bloomberg (Kari Lindberg and Miao Han): 

“China’s export growth slowed in June and imports shrank more than expected, as the continuing trade war with the U.S. and a global slowdown hurt trade. 

Exports declined 1.3% in June from a year earlier, while imports decreased 7.3%, leaving the trade surplus of $50.98 billion… Imports from the U.S. slumped 31.4% from a year earlier; exports to the U.S. fell 7.8%. The $29.9 billion surplus in trade with the U.S. was the biggest this year.”

July 9 - Bloomberg (Daniela Wei and Jinshan Hong): 

“The world’s largest supplier of consumer goods says China’s factories are getting ‘urgent and desperate’ as worried U.S. retailers accelerate a move out of the country amid heightened trade tensions. China will see more factory shutdowns as the trade war that’s roiled the global supply chain exacerbates an exodus, said Spencer Fung, chief executive officer of Li & Fung Ltd. The company, which designs, sources and transports consumer goods from Asia for some of the world’s biggest retailers including Walmart and Nike, is being pushed by American clients to shift production out of China.”

July 10 – Associated Press (Joe McDonald): 

“China’s auto sales fell 7.8% in June amid a trade fight with Washington and slower economic growth, extending an unexpectedly painful downturn for automakers that are spending heavily to develop electric cars. Drivers in the global industry’s biggest market bought 1.7 million SUVs, sedans and minivans… Total purchases in the first six months of 2019 fell 14% from a year earlier to 10.1 million vehicles…”

July 9 – Bloomberg (Peter Elstrom): 

“China went through a five-year surge in venture capital investment that fostered a new generation of startups from ride-hailing giant Didi Chuxing to TikTok-parent Bytedance Ltd. Now the boom may be over. Venture deals in China plummeted in the second quarter as investors pulled back amid unpredictable trade talks and growing concerns about startup valuations. The value of investments in the country tumbled 77% to $9.4 billion in the second quarter from a year earlier, while the number of deals roughly halved to 692, according to… Preqin. The second quarter of 2018 marked the peak for China venture deals with a total of $41.3 billion invested.”

July 8 – Financial Times (Gideon Rachman): 

“The mass demonstrations that are taking place on the streets of Hong Kong have a significance that extends well beyond the territory itself. They represent the biggest challenge to the Chinese Communist party since the Tiananmen uprising of 1989. 

The authorities in Beijing will be hoping that the demonstrations in Hong Kong fizzle out… Something like that happened after the ‘umbrella movement’ protests of 2014. But any respite is likely to be temporary. The essential dilemma is that ordinary Hong Kongers have no desire to live in an authoritarian one-party state. Their resistance to this fate could flare up again, at any time.”

Asia Watch:

July 8 – Bloomberg (Sohee Kim, Debby Wu, and Pavel Alpeyev): 

“Resurgent tensions between Japan and South Korea threaten to wallop chipmakers from Samsung Electronics Co. to SK Hynix Inc., upsetting a carefully choreographed global supply chain by smothering the production of memory chips and other components vital to widely used devices. As the world fixates on Donald Trump’s campaign to contain Huawei Technologies Co. and China’s ambitions, a concurrent dispute between Beijing’s two richest neighbors also has far-reaching implications for the production of everything from Apple Inc. iPhones to Dell Technologies Inc. laptops. The industry is now scrambling to gauge the fallout after Japan -- citing longstanding and unresolved tensions -- slapped restrictions on exports to Korea of three classes of materials crucial to the production of semiconductors and cutting-edge screens.”

Japan Watch:

July 10 – Bloomberg (Isabel Reynolds and Jihye Lee): 

“Japan and South Korea plan to meet on Friday over Tokyo’s move to restrict vital exports to its neighbor, but neither has much political incentive to climb down from their worst dispute in decades. Decades of mistrust make it difficult for Japanese Prime Minister Shinzo Abe and South Korean President Moon Jae-in to retreat from their budding trade feud. A series of looming deadlines, including a Japanese upper house election on July 21, are only raising the political pressure on both men, who can’t afford to look weak dealing with disagreements rooted in Japan’s 1910-45 occupation of the Korean Peninsula.”

Emerging  Markets Watch:

July 9 - Bloomberg (John Authers): 

“After seven months of laboriously convincing the international markets that he can be trusted with the presidency of Mexico, Andres Manuel Lopez Obrador risks seeing all his work undone by tweet. The sudden resignation of Carlos Urzua as his finance minister, and the resignation letter he posted on Twitter are deeply damaging. In combination, they are almost exactly what investors were worried could happen when they sold off Mexican assets ahead of AMLO’s inauguration last December. This is partly because of the importance of the finance minister in Mexican politics. The Finance Ministry, known as Hacienda, has a strong tradition of independence and continuity, which has remained intact over the last two decades as Mexico has gingerly embarked on democracy.”

July 8 – Reuters (Marcela Ayres):

 “Brazil’s government is set to slash its 2019 economic growth forecast, a senior Economy Ministry official said…, warning that weak growth is putting pressure on government revenues and could force another budget freeze. Waldery Rodrigues, special secretary to the Economy Ministry, said the new growth forecast, to be announced later this week, will likely be around 0.8%-1.2%, in line with market expectations but sharply down from the government’s current 1.6% projection.”

Global Bubble Watch:

July 7 – Reuters (Tom Sims, Paulina Duran, Sumeet Chatterjee, Matt Scuffham):
“Deutsche Bank laid off staff from Sydney to New York on Monday as it began to slash 18,000 jobs in a 7.4 billion euro ($8.3bn) ‘reinvention’ that will lead to yet another annual loss, a plan that knocked its already battered shares. Germany’s largest lender said on Sunday it will scrap its global equities unit and cut some fixed-income operations in a retreat from a long-held ambition to make its struggling investment bank… a force on Wall Street.”

Fixed-Income Bubble Watch:

July 11 – Wall Street Journal (Daniel Kruger): 

“As anxiety over an economic downturn creeps higher, investors have been avoiding one of the riskiest markets for corporate debt. The amount of extra yield, or spread, investors demand to hold company bonds rather than safe government debt has jumped since March by 0.62 percentage point for triple-C-rated company bonds versus a 0.07 percentage point decrease for junk debt with higher double-B ratings.”

Geopolitical Watch:

July 10 – Reuters (Michelle Nichols and Carlo Allegri): 

“Taiwanese President Tsai Ing-wen arrived in the United States on Thursday on a trip that has angered Beijing, warning that democracy must be defended and that the island faced threats from ‘overseas forces,’ in a veiled reference to China. China, which claims self-ruled and democratic Taiwan as its own and views it as a wayward province, had called on the United States not to allow Tsai to transit there on her overseas tour. ‘I want to reiterate that Taiwan is not, and will never, be intimidated,’ Tsai told a reception in New York…”

July 8 - Reuters (Mohammad Zargham, Mike Stone, Patricia Zengerle, Yimou Lee and Ben Blanchard): 

“The U.S. State Department has approved the possible sale to Taiwan of M1A2T Abrams tanks, Stinger missiles and related equipment at an estimated value of $2.2 billion, the Pentagon said…, despite Chinese criticism of the deal. China’s foreign ministry expressed anger about the sale and urged the United States to revoke it. The timing is especially sensitive as the Washington and Beijing are seeking to resolve a bitter trade war.”

July 9 - Reuters (Parisa Hafezi):

 “A commander in Iran’s elite Revolutionary Guards said… that U.S. regional bases and its aircraft carriers in the Gulf are within the range of Iranian missiles, the Tasnim news agency reported… ‘American bases are within the range of our missiles ... Our missiles will destroy their aircraft carriers if they make a mistake,’ said Hossein Nejat. ‘Americans are very well aware of the consequences of a military confrontation with Iran.’”