Economic News for the week ending July 19. 2019

Saturday, July 20, 2019

Weekly Commentary: 

Living Life Near the ZLB

by Doug Noland

full column here:

http://creditbubblebulletin.blogspot.com/2019/07/weekly-commentary-living-life-near-zlb.html

Following are items 

from Mr. Noland's column

that interested me:

For the 

week ending

July 19, 2019:

GLOBAL  STOCKS:

S&P500 down 1.2% (up 18.7% year-to-date)

Dow Industrials down 0.7% (up 16.4%)

Dow Utilities down 0.5% (up 14.7%)

Dow Transports down 0.3% (up 15.6%)

S&P 400 Midcaps down 1.2% (up 16.5%)

Small cap Russell 2000 down 1.4% (up 14.8%). 

Nasdaq100 down 1.4% (up 23.8%)

Biotechs up 0.7% (up 10.5%). 

With gold bullion gaining $10, 

the HUI gold stock index jumped 5.1% 

   (up 31.4%)

U.K.'s FTSE little changed (up 11.6% y-t-d).

Japan's Nikkei dropped 1.0% (up 7.3% y-t-d).

 France's CAC40 slipped 0.4% (up 17.4%)

German DAX declined 0.5% (up 16.1%)

Spain's IBEX 35 fell 1.3% (up 7.4%)

Italy's FTSE MIB dropped 2.4% (up 18.1%)

Brazil's Bovespa dipped 0.4% (up 13.7%)

Mexico's Bolsa dropped 2.4% (down 0.1%)

South Korea's Kospi rallied 0.4% (up 2.6%)

India's Sensex fell 1.0% (up 6.3%)

China's Shanghai slipped 0.2% (up 17.3%)

Turkey's Istanbul National 100 rallied 4.9% (up 11.6%)

Russia's MICEX dropped 2.8% (up 14.0%).

U.S. BONDS:

Ten-year Treasury yields 
dropped seven bps to 2.06% (down 63bps). 

Long bond yields 
fell seven bps to 2.58% (down 44bps). 

Benchmark Fannie Mae MBS yields 
declined eight bps to 2.78% (down 71bps).

U.S. MORTGAGES:

Freddie Mac 30-year fixed mortgage rates 

jumped six bps to 3.81% 

   (down 71bps y-o-y). 

Fifteen-year rates 

added a basis point to 3.23% 

   (down 77bps). 

Five-year hybrid ARM rates 

gained two bps to 3.48% 

   (down 39bps). 

Jumbo mortgage 30-yr fixed rates 

unchanged at 4.13% 

   (down 41bps).

FEDERAL  RESERVE  BANK

Federal Reserve Credit,

contracted 11.3%

over the past year, 

M2 (narrow) money supply

gained 5.0% over the past year. 

Currency Watch:

The U.S. dollar index 

increased 0.4% to 97.151 

   (up 1.0% y-t-d).

Commodities Watch:

Bloomberg Commodities Index dropped 2.0% this week (up 3.1% y-t-d). 

Spot Gold gained 0.7% to $1,425 (up 11.1%). 

Silver surged 6.3% to $16.195 (up 4.2%). 

WTI crude sank $4.58 to $55.63 (up 23%). 

Gasoline sank 6.9% (up 39%)

Natural Gas dropped 8.2% (down 23%). 

Copper gained 2.2% (up 5%). 

Wheat fell 3.9% (unchanged). 

Corn sank 5.1% (up 16%).

Market Instability Watch:

July 17 – Bloomberg (Vivien Lou Chen): 

“The world’s almost $13 trillion pile of negative-yielding bonds is looking like ‘quicksand’ that risks engulfing much of the fixed-income universe, including the U.S., says JPMorgan Chase & Co.’s Jan Loeys. The prospect of Treasury yields dropping to zero may seem remote, with the 10-year benchmark now back above 2%, the U.S. jobless rate near a 50-year low and stocks close to record highs. But Loeys… lays out a scenario in which that could happen. It would be a multi-year process, in his view, that could be triggered by ‘a plain-vanilla recession’ caused perhaps by an extended trade war and plummeting capital expenditures. As he sees it, that would push the Federal Reserve to cut rates to zero and resort to quantitative easing again as inflation ebbs. The net result: much lower yields.”

July 14 – Wall Street Journal (Paul J. Davies): 

“In the latest sign of financial markets going into uncharted territory, more than a dozen junk bonds, which usually carry high yields, now trade in Europe with a negative yield. It is a stark illustration of how ultraloose monetary policies have turned debt investing into a choice about how to lose the least amount of money. European investors have gotten used to paying for the privilege of owning safe government bonds with negative yields… Investors have also gotten used to highly rated, investment-grade companies trading with negative yields. But junk bonds are typically risky borrowers with weaker balance sheets and often smaller businesses that may struggle to pay back what they borrow anyway.”

Trump Administration Watch:

July 16 – Bloomberg (Justin Sink): 

“President Donald Trump reiterated that he could impose additional tariffs on Chinese imports if he wants, after promising to hold off on more duties in a trade-war truce he reached with China’s Xi Jinping last month. ‘We have a long way to go as far as tariffs where China is concerned, if we want. We have another $325 billion we can put a tariff on, if we want,’ Trump said. ‘So, we’re talking to China about a deal, but I wish they didn’t break the deal that we had.’ China said… that further levies would complicate the negotiations.”

July 17 – Wall Street Journal (William Mauldin and Chao Deng): 

“Progress toward a U.S.-China trade deal has stalled while the Trump administration determines how to address Beijing’s demands that it ease restrictions on Huawei Technologies Co., people familiar with the talks said. No face-to-face meetings have taken place and none has been scheduled since President Trump and President Xi Jinping of China met last month in Japan and agreed to resume talks. At that time, Mr. Trump said the U.S. would allow some U.S. firms to sell products to Huawei, the… telecommunications giant that Beijing sees as a strategic priority and Washington considers a national-security threat. Yet so far administration officials haven’t reached consensus on which semiconductor chips and other products can be provided to Huawei without triggering security concerns or giving the company a strategic edge.”

July 15 - The Hill: 

“President Trump is putting his hopes for reshaping the Federal Reserve on a controversial conservative economist who is a fierce advocate for his economic agenda — and who has adjusted her views on monetary policy to fit the commander-in-chief’s. After several derailed attempts to stock the independent central bank with allies, Trump announced last week that he intends to nominate former campaign adviser Judy Shelton and Christopher Waller, executive vice president at the Federal Reserve Bank of St. Louis, to two open spots… Waller, a career academic, is seen as a safe and independent choice that won’t carry Trump’s water. But Shelton’s selection may be Trump’s most viable chance to sway the direction of the Fed after Republicans rejected his past efforts fill the bank with loyalists. If Shelton is confirmed and Trump wins re-election, she’d be an immediate front-runner to replace Fed Chairman Jerome Powell when his term expires in 2022.”

U.S. Bubble Watch:

July 17 – Wall Street Journal (Laura Kusisto): 

“Foreign purchases of U.S. homes have dropped by half over the last two years, a fresh blow to the top end of the market in New York City, Miami and cities in California. Foreigners bought less than $78 billion worth of U.S. residential real estate in the year that ended in March—a 36% decline from $121 billion the previous year, according to… the National Association of Realtors. Their pullback is leading to price cuts in several coastal cities and causing new condos to sit empty.”

July 16 – Reuters: 

“U.S. retail sales increased more than expected in June, pointing to strong consumer spending, which could help to blunt some of the hit on the economy from weak business investment. …Retail sales rose 0.4% last month as households stepped up purchases of motor vehicles and a variety of other goods… June’s strong gain in core retail sales, coming on the heels of solid increases in April and May, suggested a sharp acceleration in consumer spending in the second quarter.”

July 15 – Associated Press (Joyce M. Rosenberg): 

“The market for small businesses cooled for the third straight quarter during the spring as tariffs from the trade war with China made some sellers and buyers uneasy about making a deal. That report comes from BizBuySell.com, an online marketplace for small companies that counted 2,444 transactions reported by business brokers from April through June, down 9.6% from 2,705 in the second quarter of last year. Sales fell 6.5% in this year’s first quarter from a year earlier, and 6% during 2018′s fourth quarter… The administration’s tariffs on thousands of imports has driven up costs for companies of all sizes and hurt the profitability of many, but small businesses that don’t have the financial resources that larger ones do suffer a proportionately larger impact from the duties.”

China Watch:

July 16 – Bloomberg: 

“China’s efforts to shore up sagging economic growth are leading to a resurgence in indebtedness, underlining the challenge President Xi Jinping’s government faces in curbing financial risk. The nation’s total stock of corporate, household and government debt now exceeds 303% of gross domestic product and makes up about 15% of all global debt, according to a report published by the Institute of International Finance. That’s up from just under 297% in the first quarter of 2018.”

July 18 – Bloomberg: 

“A cash crunch at one of China’s best known conglomerates is getting worse as the company said it will not be able to pay its upcoming dollar notes. China Minsheng Investment Group Corp.’s offshore unit said in a filing that it won’t be able to repay the principal, as well as the interest on the 3.8% $500 million bond due August, after considering its liquidity and performance. On Thursday, the property-to-financial conglomerate announced it only managed to repay part of the principal on a 6.5% 1.46 billion yuan note. The development underscores the liquidity crisis that has been pressuring the… company that aspired to become China’s answer to JPMorgan... It will be the first time that the firm’s dollar bond creditors will miss out on repayment.”

July 14 – Bloomberg: 

“China’s economy slowed to the weakest pace since quarterly data began in 1992 amid the ongoing trade standoff with the U.S., while monthly indicators provided signs that a stabilization is emerging. Gross domestic product rose 6.2% in the April-June period from a year earlier, below the 6.4% expansion in the first quarter. In June, factory output and retail sales growth beat estimates, while investment in the first half of the year also gave further evidence that stimulus measures to curb the slowdown are feeding through.”

July 14 – Reuter: 

“China’s industrial output grew 6.3% in June from a year earlier…, picking up from May’s 17-year low and handily beating market expectations. Analysts polled by Reuters had tipped a 5.2% rise, compared with 5.0% growth seen in May. Fixed-asset investments for the first half of the year rose 5.8% from a year earlier… Retail sales for June rose 9.8% in annual terms. Analysts had expected growth to cool to 8.3% from May’s 8.6%.”

July 14 – Wall Street Journal (Austen Hufford and Bob Tita):

“U.S. manufacturers are shifting production to countries outside of China as trade tensions between the world’s two biggest economies stretch into a second year. Companies that make Crocs shoes, Yeti beer coolers, Roomba vacuums and GoPro cameras are producing goods in other countries to avoid U.S. tariffs of as much as 25% on some $250 billion of imports from China. Apple Inc. also is considering shifting final assembly of some of its devices out of China to avoid U.S. tariffs.”

July 16 – Bloomberg: 

“Chinese regulators said indebted state-owned enterprises shouldn’t be blocked from filing for bankruptcies, renewing China’s push for market-based workouts on failing companies. Governments or financial institutions shouldn’t offer ‘non-compliant subsidies or loans’ to indebted ‘zombie companies’ just to keep them alive, authorities… said… Creditors shouldn’t ask the government to repay a state-owned company’s debt in excess of the government’s contribution… The fresh warning comes in the wake of rising defaults in China as the economy slows amid a protracted trade war with the U.S. The NDRC ordered local governments in December to complete debt disposals of zombie companies and those with excessive production capacity by 2020, saying these should be market driven and law-based.”

July 15 – Reuter (Ben Blanchard): 

“China’s government and Chinese companies will cut business ties with U.S. firms selling arms to Taiwan, China’s Foreign Ministry said…, declining to give details of the sanctions in a move likely to worsen already poor ties with Washington.”

Europe Watch:

July 15 – Reuters (Michael Nienaber): 

“The mood among German investors deteriorated more sharply than expected in July…, with the ZEW institute pointing to the unresolved trade dispute between China and the United States as well as political tensions with Iran. ZEW said its monthly survey showed economic sentiment among investors fell to -24.5 from -21.1 in June… A separate gauge measuring investors’ assessment of the economy’s current conditions plunged to -1.1, the lowest level since June 2010.”

Asia Watch:

July 16 – Bloomberg (Enda Curran): 

“Exports from India and Indonesia slumped more than economists forecast in June, cementing fears that nations beyond China and the U.S. are suffering from tariff battles. The fresh numbers followed China’s weak trade report... The bad news from Asia this week may not be over: Manufacturing hubs Singapore and Japan are also likely to report declines in exports. The data confirm what some economists have warned about for 18 months: The tariff-slapping pain will spread, leaving even countries with large populations like India and Indonesia at risk. With Asia accounting for more than 60% of world economic growth, there’s little doubt the global outlook is getting gloomier.”

Japan Watch:

July 16 – New York Times (Ben Dooley): 

“Prime Minister Shinzo Abe of Japan ... became the latest world leader to strike a blow against free trade, when he moved to limit South Korea’s access to Japanese chemicals that are essential to its vast electronics industry, citing vague and unspecified concerns about national security. In doing so, Japan joined the United States, Russia and other countries that have used national security concerns as a justification for cutting off trade.”

July 18 – Reuters (Susan Heavey): 
“Japan’s core inflation slowed to its weakest in about two years in June, underlining policymakers’ long battle to boost consumer prices and adding to speculation the Bank of Japan could deliver more stimulus later this month… Japan’s core consumer price index, which includes oil products but excludes fresh food prices, rose 0.6% in June from a year earlier, matching economists’ median estimate.”

July 17 – Reuters (Tetsushi Kajimoto): 
“Japan’s exports fell yet again in June, while manufacturers’ confidence crumbled to a three-year low this month as a Sino-U.S. tariff row, slowing China growth and rising trade protectionism heaped pressure on the world’s third-biggest economy… Exports in June fell 6.7% from a year earlier, the seventh straight month of declines…, dragged down by slowing sales of tankers, China-bound car parts and steel pipes.”

Emerging  Markets  Watch:

July 14 – Reuters (Neha Dasgupta): 
“One of India’s biggest housing finance companies, Dewan Housing Finance Corp Ltd (DHFL), warned on Saturday that its financial situation was so grim that it may not survive. The company said it was ‘undergoing substantial financial stress’ and its ability to raise funds was ‘substantially impaired and the business has been brought to a standstill with there being minimal/virtually no disbursements.’”

July 15 – Bloomberg (Rahul Satija): 
“Investors are fleeing from India’s debt funds at the fastest pace in a year as wariness mounts amid widening cracks in the nation’s credit market. Monthly net outflows from the fixed-income funds jumped to 1.7 trillion rupees ($25bn) in June, the most in at least a year, estimates provided by Morningstar Investment Adviser India show.”

July 17 – Bloomberg (Mihir Sharma): 
“China isn’t just the world’s largest exporter of goods: It’s now the world’s largest exporter of capital, too. Of course, these two facts are linked. China earns so much from being the world’s factory, and the spending of its households is so constrained, that it needs to find somewhere to park the difference. That’s the basic imbalance underlying the Belt and Road Initiative, China’s big push into the developing world. Many analysts -- including senior U.S. officials -- have long worried about the terms on which China parts with slivers of its giant pile of capital. Unlike traditional development finance, Chinese loans -- especially for building infrastructure -- carry fairly high rates of interest, and the assets they build often don’t earn enough to pay them back. It’s fair to worry that some countries could end up mired in debt, borrowing more from the Chinese than they can possibly repay.”

Fixed-Income Bubble Watch:

July 17 – Bloomberg (Adam Tempkin): 
“A real estate financing tool revived from the pre-crisis era is growing riskier. Real estate investors are bundling increasingly speculative short-term commercial property mortgages into bonds known as collateralized loan obligations. The properties packaged into these deals don’t qualify for more traditional forms of financing, such as being included in commercial mortgage-backed securities, because they are being refurbished or are otherwise in a state of transition. An example may include an empty office tower undergoing renovations and waiting for new tenants.”

Geopolitical Watch:

July 17 – Reuters (Babak Dehghanpisheh and Phil Stewart): 
“The increased use of drones by Iran and its allies for surveillance and attacks across the Middle East is raising alarms in Washington. The United States believes that Iran-linked militia in Iraq have recently increased their surveillance of American troops and bases in the country by using off-the-shelf, commercially available drones, U.S. officials say.”

July 14 – Associated Press: 
“Taiwan… defended a proposal to purchase $2.2 billion in arms from the U.S., following a Chinese announcement that it would sanction any American companies involved in the deal. U.S. weapons help strengthen Taiwan’s self-defense in the face of a growing military threat from China, the defense ministry said. ‘The national army will continue to strengthen its key defense forces, ensure national security, protect its homeland and ensure that the fruits of freedom and democracy won’t be attacked,’ the ministry said…”

July 16 – Financial Times (John Reed and Kathrin Hille): “At least seven Chinese and Vietnamese ships have been engaged in a stand-off in a resource-rich part of the South China Sea since early July, in an impasse that maritime analysts say could ignite into a dangerous confrontation. The Haiyang Dizhi 8, a Chinese geological survey vessel, arrived in an area less than 200 nautical miles off Vietnam’s coast on July 3…”