Saturday, July 6, 2019
Weekly Commentary:
Abject Monetary Disorder
by Doug Noland
Full column is here:
The portions
that interest me
are summarized below:
For the week
ending July 5, 2019:
GLOBAL STOCKS:
S&P500 gained 1.7% (up 19.3% y-t-d)
Dow Industrials rose 1.2% (up 15.4%)
Dow Utilities jumped 1.7% (up 15.4%)
Dow Transports added 0.2% (up 14.3%)
S&P 400 Midcaps gained 1.7% (up 18.2%)
Small cap Russell 2000 increased 0.6% (up 16.8%).
Nasdaq100 advanced 2.2% (up 23.9%)
Biotechs slipped 0.3% (up 13.1%).
With gold bullion down $10,
the HUI gold stock index slipped 0.6%
(up 20.2%).
U.K.'s FTSE jumped 1.7% (up 12.3% y-t-d).
Japan's Nikkei Equities Index rose 2.2% (up 8.7% y-t-d).
France's CAC40 gained 1.0% (up 18.2%).
German DAX advanced 1.4% (up 19.0%).
Spain's IBEX 35 gained 1.5% (up 9.3%).
Italy's FTSE MIB surged 3.5% (up 20.0%)
Brazil's Bovespa jumped 3.1% (up 14.4%)
Mexico's Bolsa added 0.6% (up 4.2%)
South Korea's Kospi declined 0.9% (up 3.4%).
India's Sensex increased 0.3% (up 9.6%)
China's Shanghai rose 1.1% (up 20.7%).
Turkey's Istanbul National 100 jumped 3.3% (up 9.2%).
Russia's MICEX rose 2.5% (up 19.7%).
U.S. BONDS & MORTGAGES:
Ten-year Treasury yields
gained three bps to 2.04% (down 65bps).
Long bond yields
increased a basis point to 2.54% (down 47bps).
Benchmark Fannie Mae MBS yields
were unchanged at 2.74% (down 76bps).
Freddie Mac 30-year fixed mortgage rates
rose two bps to 3.75% (down 77bps y-o-y).
Fifteen-year rates
increased two bps to 3.18% (down 81bps).
Five-year hybrid ARM rates
gained six bps to 3.45% (down 29bps).
Jumbo mortgage 30-yr fixed rates
down seven bps to 4.10% (down 45bps).
Federal Reserve Credit
over the past year
contracted 11.2%.
M2 (narrow) "money" supply
gained 4.5%, over the past year.
Currency Watch:
The U.S. dollar index
gained 1.2% to 97.286 (up 1.2% y-t-d).
Commodities Watch:
Bloomberg Commodities Index declined 0.7% this week (up 2.8% y-t-d).
Spot Gold slipped 0.7% to $1,399 (up 9.1%).
Silver fell 2.2% to $15.001 (down 3.5%).
WTI crude declined 96 cents to $57.51 (up 27%).
Gasoline rose 1.7% (up 46%)
Natural Gas jumped 4.8% (down 18%).
Copper lost 1.9% (up 1%).
Wheat fell 2.3% (up 2%).
Corn rallied 2.5% (up 18%).
Spot Gold slipped 0.7% to $1,399 (up 9.1%).
Silver fell 2.2% to $15.001 (down 3.5%).
WTI crude declined 96 cents to $57.51 (up 27%).
Gasoline rose 1.7% (up 46%)
Natural Gas jumped 4.8% (down 18%).
Copper lost 1.9% (up 1%).
Wheat fell 2.3% (up 2%).
Corn rallied 2.5% (up 18%).
Market Instability Watch:
July 3 – Bloomberg (Annie Massa, Miles Weiss and John Gittelsohn):
“What’s really inside bond funds these days? The answer, for many of them, is more risk than there used to be. With little fanfare, many traditionally safe investment-grade bond funds have been edging into more complex corners of fixed income. The goal: to eke out returns in today’s low-interest-rate world. At issue is just how big some of those risks might turn out to be. Of particular concern is whether managers are moving into investments that could prove difficult to sell in the event investors rush for the exits. High-profile problems at several European funds have set nerves on edge... ‘It can definitely be a disaster,’ said Clark Randall, founder of financial planning and advisory firm Financial Enlightenment, if investors don’t keep tabs on whether their bond fund manager is moving further and further into junk-rated debt.”
“What’s really inside bond funds these days? The answer, for many of them, is more risk than there used to be. With little fanfare, many traditionally safe investment-grade bond funds have been edging into more complex corners of fixed income. The goal: to eke out returns in today’s low-interest-rate world. At issue is just how big some of those risks might turn out to be. Of particular concern is whether managers are moving into investments that could prove difficult to sell in the event investors rush for the exits. High-profile problems at several European funds have set nerves on edge... ‘It can definitely be a disaster,’ said Clark Randall, founder of financial planning and advisory firm Financial Enlightenment, if investors don’t keep tabs on whether their bond fund manager is moving further and further into junk-rated debt.”
Trump Administration Watch:
July 1 – CNBC (Maggie Fitzgerald):
“Tensions between the U.S. and China are not escalating but there is still ‘no clear path’ towards a deal between the world’s two largest economies, according to Morgan Stanley. Developments at the G-20 Summit in Osaka, Japan over the weekend on their own do not erase the uncertainty that is weighing on corporate confidence and the broader global economy, the firm said. ‘As things stand, we lack clarity on whether real progress was achieved on the sticking points that caused talks to break down in the first place,’ Morgan Stanley chief economist Chetan Ahya said in a note…”
“Tensions between the U.S. and China are not escalating but there is still ‘no clear path’ towards a deal between the world’s two largest economies, according to Morgan Stanley. Developments at the G-20 Summit in Osaka, Japan over the weekend on their own do not erase the uncertainty that is weighing on corporate confidence and the broader global economy, the firm said. ‘As things stand, we lack clarity on whether real progress was achieved on the sticking points that caused talks to break down in the first place,’ Morgan Stanley chief economist Chetan Ahya said in a note…”
June 30 – Financial Times (Demetri Sevastopulo and Tom Mitchell):
“Donald Trump has angered US security hawks by softening his stance on Chinese telecoms company Huawei — a concession even Beijing had not expected to win as part of a trade truce with President Xi Jinping at the G20. As part of the trade compromise brokered on Saturday in Osaka, the US president agreed not to impose new tariffs on Chinese goods and China agreed to buy US agricultural produce. In a less expected twist, Mr Trump also agreed to reverse a decision that had in effect imposed a ban on American groups to sell software and equipment to Huawei. Mr Trump first said he told Mr Xi he would only consider addressing Huawei issues at the ‘very end’ of the trade talks. But on Sunday he revealed he reversed his position on the sale of gear to Huawei ‘at the request of our high tech companies and President Xi’.”
“Donald Trump has angered US security hawks by softening his stance on Chinese telecoms company Huawei — a concession even Beijing had not expected to win as part of a trade truce with President Xi Jinping at the G20. As part of the trade compromise brokered on Saturday in Osaka, the US president agreed not to impose new tariffs on Chinese goods and China agreed to buy US agricultural produce. In a less expected twist, Mr Trump also agreed to reverse a decision that had in effect imposed a ban on American groups to sell software and equipment to Huawei. Mr Trump first said he told Mr Xi he would only consider addressing Huawei issues at the ‘very end’ of the trade talks. But on Sunday he revealed he reversed his position on the sale of gear to Huawei ‘at the request of our high tech companies and President Xi’.”
July 2 – Reuters (Alexandra Alper, Karen Freifeld, Stephen Nellis and Sijia Jiang):
“A senior U.S. official told the Commerce Department’s enforcement staff this week that China’s Huawei should still be treated as blacklisted, days after U.S. President Donald Trump sowed confusion with a vow to ease a ban on sales to the firm. Trump surprised markets on Saturday by promising Chinese President Xi Jinping on the sidelines of the G20 summit in Japan that he would allow U.S. companies to sell products to Huawei Technologies Co Ltd.”
“A senior U.S. official told the Commerce Department’s enforcement staff this week that China’s Huawei should still be treated as blacklisted, days after U.S. President Donald Trump sowed confusion with a vow to ease a ban on sales to the firm. Trump surprised markets on Saturday by promising Chinese President Xi Jinping on the sidelines of the G20 summit in Japan that he would allow U.S. companies to sell products to Huawei Technologies Co Ltd.”
July 3 – Associated Press (Martin Crutsinger): “President Donald Trump… accused China and Europe of playing a ‘big currency manipulation game.’ He said the United States should match that effort, a move that directly contradicts official U.S. policy not to manipulate the dollar’s value to gain trade advantages. In a tweet, the president said if America doesn’t act, the country will continue ‘being the dummies who sit back and politely watch as other countries continue to play their games — as they have for so many years.’”
July 2 – Bloomberg (John Boudreau and Philip Heijmans):
“The U.S. Commerce Department imposed duties of more than 400% on steel imports from Vietnam, accusing some businesses of shipping products from the Southeast Asian nation to evade the levies in a further escalation of tension between the two trading partners… Customs officials have been ordered to collect cash deposits at rates as high as 456.23% on imports of the steel products produced in Vietnam using material from South Korea and Taiwan.”
“The U.S. Commerce Department imposed duties of more than 400% on steel imports from Vietnam, accusing some businesses of shipping products from the Southeast Asian nation to evade the levies in a further escalation of tension between the two trading partners… Customs officials have been ordered to collect cash deposits at rates as high as 456.23% on imports of the steel products produced in Vietnam using material from South Korea and Taiwan.”
July 1 – Reuters (Andrea Shalal):
“Just days after reaching a truce in the U.S.-China trade war, the U.S. government… ratcheted up pressure on Europe in a long-running dispute over aircraft subsidies, threatening tariffs on $4 billion of additional EU goods. The U.S. Trade Representative’s office released a list of additional products - including olives, Italian cheese and Scotch whiskey - that could be hit with tariffs, on top of products worth $21 billion that were announced in April.”
“Just days after reaching a truce in the U.S.-China trade war, the U.S. government… ratcheted up pressure on Europe in a long-running dispute over aircraft subsidies, threatening tariffs on $4 billion of additional EU goods. The U.S. Trade Representative’s office released a list of additional products - including olives, Italian cheese and Scotch whiskey - that could be hit with tariffs, on top of products worth $21 billion that were announced in April.”
June 30 – Reuters (Parisa Hafezi and Francois Murphy):
“Iran announced… it had amassed more low-enriched uranium than permitted under its 2015 nuclear deal with world powers, drawing a warning from U.S. President Donald Trump that Tehran was ‘playing with fire.’ Tehran’s announcement marked its first major step beyond the terms of the pact since the United States pulled out of it more than a year ago.”
“Iran announced… it had amassed more low-enriched uranium than permitted under its 2015 nuclear deal with world powers, drawing a warning from U.S. President Donald Trump that Tehran was ‘playing with fire.’ Tehran’s announcement marked its first major step beyond the terms of the pact since the United States pulled out of it more than a year ago.”
June 30 – The Hill (Jordain Carney):
“Senate Republicans are struggling to unite behind a plan to fund the government after budget talks have ground to a halt. Congress has until the end of September to prevent the second government closure of the year, but Republicans are struggling to overcome the first roadblock — agreeing to top-line defense and nondefense figures or deciding what comes next if they can’t. The drama over how to fund the government and avoid deep budget cuts has played out in private, closed-door meetings and put a public spotlight on the high-profile split among Republicans as well as with the White House about the best path to avoid a shutdown.”
“Senate Republicans are struggling to unite behind a plan to fund the government after budget talks have ground to a halt. Congress has until the end of September to prevent the second government closure of the year, but Republicans are struggling to overcome the first roadblock — agreeing to top-line defense and nondefense figures or deciding what comes next if they can’t. The drama over how to fund the government and avoid deep budget cuts has played out in private, closed-door meetings and put a public spotlight on the high-profile split among Republicans as well as with the White House about the best path to avoid a shutdown.”
U.S. Bubble Watch:
July 3 – Associated Press (Paul Wiseman):
“The U.S. trade deficit rose to a five-month high in May as the politically sensitive imbalances with China and Mexico widened. …The gap between the goods and services the U.S. sells and what it buys from foreign countries rose 8.4% to $55.5 billion in May, the highest since December. Exports increased 2% to $210.6 billion on rising shipments of soybeans, aircraft and cars. But imports climbed more — 3.3% to $266.2 billion… The deficit in the trade of goods with Mexico rose 18.1% to a record $9.6 billion. The goods gap with China widened 12.2% to $30.2 billion.”¬
“The U.S. trade deficit rose to a five-month high in May as the politically sensitive imbalances with China and Mexico widened. …The gap between the goods and services the U.S. sells and what it buys from foreign countries rose 8.4% to $55.5 billion in May, the highest since December. Exports increased 2% to $210.6 billion on rising shipments of soybeans, aircraft and cars. But imports climbed more — 3.3% to $266.2 billion… The deficit in the trade of goods with Mexico rose 18.1% to a record $9.6 billion. The goods gap with China widened 12.2% to $30.2 billion.”¬
June 28 – Reuters (Noel Randewich):
“The S&P 500 information technology index has surged 9% in June, its strongest month in three years. That rally, and the S&P 500's record high on June 21, reflect investors' increased appetite for risk as they become more confident the Federal Reserve will cut interest rates to support a slowing economy.”
“The S&P 500 information technology index has surged 9% in June, its strongest month in three years. That rally, and the S&P 500's record high on June 21, reflect investors' increased appetite for risk as they become more confident the Federal Reserve will cut interest rates to support a slowing economy.”
July 5 – CNBC (Jeff Cox):
“Payroll growth rebounded sharply in June as the U.S. economy added 224,000 jobs, the best gain since January and running contrary to worries that both the employment picture and overall growth picture were beginning to weaken. The unemployment rate edged up to 3.7% as labor force participation rose… Economists… had expected nonfarm payrolls to rise by 165,000…”
“Payroll growth rebounded sharply in June as the U.S. economy added 224,000 jobs, the best gain since January and running contrary to worries that both the employment picture and overall growth picture were beginning to weaken. The unemployment rate edged up to 3.7% as labor force participation rose… Economists… had expected nonfarm payrolls to rise by 165,000…”
July 1 – Reuters:
“The U.S. economy’s manufacturing sector expanded in June but at a slower pace than the previous month and the slowest pace overall since October 2016… The Institute for Supply Management (ISM) said its index of national factory activity fell to 51.7 from 52.1 the month before. The reading was just above expectations of 51…”
“The U.S. economy’s manufacturing sector expanded in June but at a slower pace than the previous month and the slowest pace overall since October 2016… The Institute for Supply Management (ISM) said its index of national factory activity fell to 51.7 from 52.1 the month before. The reading was just above expectations of 51…”
July 1 – CNBC (Jeff Cox):
“Analysts have been taking a dimmer view of what is ahead for earnings. They’ve already forecast a decline for the first three quarters of 2019. Now companies are echoing those concerns with a level of pessimism not often seen from corporate America. Ahead of a season…, 77% of the 113 companies that have issued earnings per share guidance have warned that their numbers will be worse than what Wall Street analysts are estimating, according to FactSet… Earnings for the S&P 500, which had its best June since 1955, are projected to decline 2.6% from the same period a year ago.”
“Analysts have been taking a dimmer view of what is ahead for earnings. They’ve already forecast a decline for the first three quarters of 2019. Now companies are echoing those concerns with a level of pessimism not often seen from corporate America. Ahead of a season…, 77% of the 113 companies that have issued earnings per share guidance have warned that their numbers will be worse than what Wall Street analysts are estimating, according to FactSet… Earnings for the S&P 500, which had its best June since 1955, are projected to decline 2.6% from the same period a year ago.”
July 2 – Wall Street Journal (Michael Wursthorn):
“Share repurchases contracted for the first time in seven quarters, with S&P 500 companies spending $205.8 billion to buy back stock in the first three months of the year, according to the latest S&P Dow Jones Indices data. While still robust, that is down from a record $223 billion in the fourth quarter… Buybacks have been one of the biggest sources of equity demand throughout much of the bull-market run, analysts say, with companies spending more than $800 billion last year alone on share repurchases—the most ever in a single year.”
“Share repurchases contracted for the first time in seven quarters, with S&P 500 companies spending $205.8 billion to buy back stock in the first three months of the year, according to the latest S&P Dow Jones Indices data. While still robust, that is down from a record $223 billion in the fourth quarter… Buybacks have been one of the biggest sources of equity demand throughout much of the bull-market run, analysts say, with companies spending more than $800 billion last year alone on share repurchases—the most ever in a single year.”
July 2 – Reuters (Nick Carey and Ankit Ajmera):
“Major automakers… posted mixed U.S. sales results for June and the second quarter, with demand still fairly strong for SUVs and pickup trucks while passenger car sales continued a long-running decline… ‘The market is not as down as it was to start off the year, which says a lot about market stability,’ said George Augustaitis, director of industry analysis at CarGurus… ‘At this point, a Fed interest rate cut could be the thing that sparks the industry.’”
“Major automakers… posted mixed U.S. sales results for June and the second quarter, with demand still fairly strong for SUVs and pickup trucks while passenger car sales continued a long-running decline… ‘The market is not as down as it was to start off the year, which says a lot about market stability,’ said George Augustaitis, director of industry analysis at CarGurus… ‘At this point, a Fed interest rate cut could be the thing that sparks the industry.’”
China Watch:
July 4 – Bloomberg:
“China continues to stress that the U.S. must remove all the tariffs placed on Chinese goods as a condition for reaching a trade deal. On Friday, an influential blog connected to state media said the talks will ‘go backward again’ without that step, echoing the line from Ministry of Commerce’s weekly briefing… While President Donald Trump and President Xi Jinping agreed last month to re-start talks and the U.S. suspended the application of fresh tariffs, no plan for face-to-face negotiations has yet been announced. If the two sides are to reach a deal, all imposed tariffs must be removed,’ Ministry of Commerce Spokesman Gao Feng said… ‘China’s attitude on that is clear and consistent.’”
“China continues to stress that the U.S. must remove all the tariffs placed on Chinese goods as a condition for reaching a trade deal. On Friday, an influential blog connected to state media said the talks will ‘go backward again’ without that step, echoing the line from Ministry of Commerce’s weekly briefing… While President Donald Trump and President Xi Jinping agreed last month to re-start talks and the U.S. suspended the application of fresh tariffs, no plan for face-to-face negotiations has yet been announced. If the two sides are to reach a deal, all imposed tariffs must be removed,’ Ministry of Commerce Spokesman Gao Feng said… ‘China’s attitude on that is clear and consistent.’”
July 5 – South China Morning Post (Wendy Wu, Josephine Ma and Teddy Ng):
“China will not buy American agriculture products if the United States ‘flip-flops’ again in future trade negotiations, Chinese state media said on Friday.
A commentary by Taoran Notes, a social media account affiliated with Economic Daily, said recent remarks by US officials signalled that America was not treating China on an equal basis. It referred to remarks by White House economic adviser Larry Kudlow, who said the US would not remove tariffs already imposed on Chinese imports during negotiations.”
“China will not buy American agriculture products if the United States ‘flip-flops’ again in future trade negotiations, Chinese state media said on Friday.
A commentary by Taoran Notes, a social media account affiliated with Economic Daily, said recent remarks by US officials signalled that America was not treating China on an equal basis. It referred to remarks by White House economic adviser Larry Kudlow, who said the US would not remove tariffs already imposed on Chinese imports during negotiations.”
July 1 – Reuters (Yawen Chen and Ryan Woo):
“Only a small number of companies are moving supply chains out of China, a commerce ministry official said…, amid signs that some firms are shifting production to other countries as the U.S-China trade war drags on. The problem shouldn’t be overstated, Chu Shijia, a department director at the ministry, said…”
“Only a small number of companies are moving supply chains out of China, a commerce ministry official said…, amid signs that some firms are shifting production to other countries as the U.S-China trade war drags on. The problem shouldn’t be overstated, Chu Shijia, a department director at the ministry, said…”
June 30 – Reuters (Yawen Chen, Yilei Sun and Norihiko Shirouzu):
“China’s factory activity shrank more than expected in June, an official manufacturing survey showed, highlighting the need for more economic stimulus as U.S. tariffs and weaker domestic demand ramped up pressure on new orders for goods. The Purchasing Managers’ Index (PMI) stood at 49.4 in June…”
“China’s factory activity shrank more than expected in June, an official manufacturing survey showed, highlighting the need for more economic stimulus as U.S. tariffs and weaker domestic demand ramped up pressure on new orders for goods. The Purchasing Managers’ Index (PMI) stood at 49.4 in June…”
June 29 – Reuters:
“Growth in China’s services sector activity held firm in June..., despite growing pressure on the broader economy from tougher U.S. trade measures. The official non-manufacturing Purchasing Managers’ Index (PMI) fell to 54.2 from 54.3 in May, 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.”
“Growth in China’s services sector activity held firm in June..., despite growing pressure on the broader economy from tougher U.S. trade measures. The official non-manufacturing Purchasing Managers’ Index (PMI) fell to 54.2 from 54.3 in May, 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.”
June 29 – Reuters (Dominique Patton and Hallie Gu):
“As many as half of China’s breeding pigs have either died from African swine fever or been slaughtered because of the spreading disease, twice as many as officially acknowledged, according to the estimates of four people who supply large farms. While other estimates are more conservative, the plunge in the number of sows is poised to leave a large hole in the supply of the country’s favorite meat, pushing up food prices and devastating livelihoods in a rural economy that includes 40 million pig farmers. ‘Something like 50% of sows are dead,’ said Edgar Wayne Johnson, a veterinarian who has spent 14 years in China and founded Enable Agricultural Technology Consulting, a Beijing-based farm services firm…”
“As many as half of China’s breeding pigs have either died from African swine fever or been slaughtered because of the spreading disease, twice as many as officially acknowledged, according to the estimates of four people who supply large farms. While other estimates are more conservative, the plunge in the number of sows is poised to leave a large hole in the supply of the country’s favorite meat, pushing up food prices and devastating livelihoods in a rural economy that includes 40 million pig farmers. ‘Something like 50% of sows are dead,’ said Edgar Wayne Johnson, a veterinarian who has spent 14 years in China and founded Enable Agricultural Technology Consulting, a Beijing-based farm services firm…”
Europe Watch:
June 30 – MarketWatch (Paul Hannon):
“Eurozone manufacturers were at their most downbeat in almost six years in June as hopes for a speedy resolution to a series of disputes between the U.S. and its main trading partners faded. Weaker exports have cooled the eurozone economy over the past 18 months, hitting the currency area's manufacturing sector particularly hard.”
“Eurozone manufacturers were at their most downbeat in almost six years in June as hopes for a speedy resolution to a series of disputes between the U.S. and its main trading partners faded. Weaker exports have cooled the eurozone economy over the past 18 months, hitting the currency area's manufacturing sector particularly hard.”
July 4 – Reuters (Michelle Martin):
“German industrial orders fell far more than expected in May, and the Economy Ministry warned on Friday that this sector of Europe’s largest economy was likely to remain weak in the coming months. Contracts for ‘Made in Germany’ goods were down by 2.2% on the month after rising slightly in March and April… ‘The great order book deflation continues,’ ING economist Carsten Brzeski said. ‘Devastating new orders data just undermined any hopes for an industrial rebound.’”
“German industrial orders fell far more than expected in May, and the Economy Ministry warned on Friday that this sector of Europe’s largest economy was likely to remain weak in the coming months. Contracts for ‘Made in Germany’ goods were down by 2.2% on the month after rising slightly in March and April… ‘The great order book deflation continues,’ ING economist Carsten Brzeski said. ‘Devastating new orders data just undermined any hopes for an industrial rebound.’”
Asia Watch:
July 1 – Associated Press (Yuri Kageyama and Hyung-Jin Kim):
“Japan is imposing restrictions on exports to South Korea, citing a decline in ‘relations of international trust’ between the Asian neighbors. The Ministry of Economy, Trade and Industry said a review soliciting public comments starts Monday on the move to effectively remove South Korea from a list of so-called ‘white nations,’ like the U.S. and European nations, that have minimum restrictions on trade. Starting Thursday, Japanese manufacturers must apply for approval for each technology-related contract, such as sales of fluorinated polyimides used for displays, the ministry said.”
“Japan is imposing restrictions on exports to South Korea, citing a decline in ‘relations of international trust’ between the Asian neighbors. The Ministry of Economy, Trade and Industry said a review soliciting public comments starts Monday on the move to effectively remove South Korea from a list of so-called ‘white nations,’ like the U.S. and European nations, that have minimum restrictions on trade. Starting Thursday, Japanese manufacturers must apply for approval for each technology-related contract, such as sales of fluorinated polyimides used for displays, the ministry said.”
Japan Watch:
June 30 – Reuters (Daniel Leussink):
“Japanese manufacturing activity contracted in June to hit a three-month low, a revised survey showed on Monday, offering fresh evidence of an economy under the pump as global demand weakened in the face of a heated U.S.-China trade conflict.”
“Japanese manufacturing activity contracted in June to hit a three-month low, a revised survey showed on Monday, offering fresh evidence of an economy under the pump as global demand weakened in the face of a heated U.S.-China trade conflict.”
July 4 – Reuters (Kaori Kaneko):
“Household spending in Japan rose at the fastest pace in four years in May, in a sign improving domestic demand will offer some support for an economy facing growing external pressure. Household spending grew 4.0% in May from a year earlier thanks to Japan’s 10-day holiday…”
“Household spending in Japan rose at the fastest pace in four years in May, in a sign improving domestic demand will offer some support for an economy facing growing external pressure. Household spending grew 4.0% in May from a year earlier thanks to Japan’s 10-day holiday…”
Emerging Markets Watch:
July 4 – Wall Street Journal (Corinne Abrams):
“A pair of defaults and failures by nonbank lenders in India has cut down on consumer and business credit, weighing on the country’s economic growth and prompting calls for tighter regulation. The lenders have grown rapidly in the past decade, handing out car loans, construction loans and much else. But the failure of one lender last fall, and a default by another on some of its payments last month, has spun out into the economy. Car sales in May, for example, fell 19%, and economists say lending constraints account for a significant part of a slowdown in consumer spending that has persisted for the past few months. Now, some analysts and economists worry, without more aggressive regulation of the troubled industry, defaults could gain momentum and create a new wave of soured loans for a financial system already weighed down by bad debts at regular banks. ‘This has a potential to disrupt the economy,’ said Kunal Kundu, India economist for Société Générale.”
“A pair of defaults and failures by nonbank lenders in India has cut down on consumer and business credit, weighing on the country’s economic growth and prompting calls for tighter regulation. The lenders have grown rapidly in the past decade, handing out car loans, construction loans and much else. But the failure of one lender last fall, and a default by another on some of its payments last month, has spun out into the economy. Car sales in May, for example, fell 19%, and economists say lending constraints account for a significant part of a slowdown in consumer spending that has persisted for the past few months. Now, some analysts and economists worry, without more aggressive regulation of the troubled industry, defaults could gain momentum and create a new wave of soured loans for a financial system already weighed down by bad debts at regular banks. ‘This has a potential to disrupt the economy,’ said Kunal Kundu, India economist for Société Générale.”
Global Bubble Watch:
July 2 – Bloomberg (Michelle Jamrisko):
“Global trade is starting to exhibit war wounds that not even a U.S.-China ceasefire can heal. Bloomberg’s Trade Tracker is as bleak as it’s been since its start in November, thanks in part to sour purchasing managers’ indexes from the battered industrial engines of Asia to sluggish Europe, and then on to the barely expanding U.S. factories. It was a blue Monday that threatens to carry through this week and beyond. Here are some other warning signs: Nine of the 10 gauges tracked by Bloomberg to assess the health of global trade — across shipping, sentiment and exports — are below their average midpoint… The downturn in the electronics cycle has dealt a special blow to export powerhouses South Korea and Taiwan.”
“Global trade is starting to exhibit war wounds that not even a U.S.-China ceasefire can heal. Bloomberg’s Trade Tracker is as bleak as it’s been since its start in November, thanks in part to sour purchasing managers’ indexes from the battered industrial engines of Asia to sluggish Europe, and then on to the barely expanding U.S. factories. It was a blue Monday that threatens to carry through this week and beyond. Here are some other warning signs: Nine of the 10 gauges tracked by Bloomberg to assess the health of global trade — across shipping, sentiment and exports — are below their average midpoint… The downturn in the electronics cycle has dealt a special blow to export powerhouses South Korea and Taiwan.”
June 30 – Bloomberg (Yuan Liu and Xiaoyu Zhu):
“China’s global mergers & acquisitions slid to a four-year low last quarter as a nascent ‘economic iron curtain’ between China and the U.S. strangled technology investments outside of Asia. Cross-border M&A by mainland companies slid 38% in the second quarter from a year earlier to $14.6 billion. The slump was paced by a drop-off in semiconductor, internet and healthcare deals, after several quarters in which real estate was the worst hit… China’s global M&A is being hit by both domestic regulators, who are concerned capital outflows will weaken the yuan, and those abroad, where Chinese ownership has become a liability in countries with nationalist leaders such as Donald Trump.”
“China’s global mergers & acquisitions slid to a four-year low last quarter as a nascent ‘economic iron curtain’ between China and the U.S. strangled technology investments outside of Asia. Cross-border M&A by mainland companies slid 38% in the second quarter from a year earlier to $14.6 billion. The slump was paced by a drop-off in semiconductor, internet and healthcare deals, after several quarters in which real estate was the worst hit… China’s global M&A is being hit by both domestic regulators, who are concerned capital outflows will weaken the yuan, and those abroad, where Chinese ownership has become a liability in countries with nationalist leaders such as Donald Trump.”
June 30 – Financial Times (Tom Hancock and Jamie Smyth):
“Chinese people made 150m border crossings last year and are crucial to the global travel market, accounting for about a fifth of tourism spending worldwide… But they spent 10% less outside the country in the first quarter compared with the same period last year, according to official data. Industry executives and analysts say China’s slowing economic growth combined with the depreciation over the past year of its currency, partly as a result of the trade war with the US, are to blame.”
“Chinese people made 150m border crossings last year and are crucial to the global travel market, accounting for about a fifth of tourism spending worldwide… But they spent 10% less outside the country in the first quarter compared with the same period last year, according to official data. Industry executives and analysts say China’s slowing economic growth combined with the depreciation over the past year of its currency, partly as a result of the trade war with the US, are to blame.”
July 1 – Financial Times (Delphine Strauss):
“A global manufacturing index produced by JPMorgan and IHS Markit fell to its lowest level since 2012 in June, with new orders weakening sharply and business optimism at the lowest level on record. Its monthly reading of 49.4, down from 49.8 in May, indicated a majority of firms reported falling output.”
“A global manufacturing index produced by JPMorgan and IHS Markit fell to its lowest level since 2012 in June, with new orders weakening sharply and business optimism at the lowest level on record. Its monthly reading of 49.4, down from 49.8 in May, indicated a majority of firms reported falling output.”
Fixed-Income Bubble Watch:
July 1 – Bloomberg (Danielle Moran):
“U.S. states are selling mortgage-backed debt at the fastest pace since the height of the real estate bubble more than a decade ago. The slide in tax-exempt bond yields has spurred a steep increase in borrowing by state housing agencies… State housing authorities have sold about $8.6 billion of debt over the last six months, 70% more than the same period a year earlier.”
“U.S. states are selling mortgage-backed debt at the fastest pace since the height of the real estate bubble more than a decade ago. The slide in tax-exempt bond yields has spurred a steep increase in borrowing by state housing agencies… State housing authorities have sold about $8.6 billion of debt over the last six months, 70% more than the same period a year earlier.”
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Geopolitical Watch:
July 4 – Wall Street Journal (Sune Engel Rasmussen):
“Tighter new U.S. sanctions have proved more punishing than Iran’s leaders expected, driving Tehran to hit back militarily and breach limits it had agreed to put on its nuclear program. This increasingly confrontational approach aims to raise the costs to the U.S. of its maximum-pressure campaign and to push Western European nations to offer economic relief, according to former Iranian officials and analysts. Iran’s brinkmanship could present President Trump, who campaigned against U.S. involvement in Middle East conflicts, with difficult questions of war and peace as he heads into the 2020 election. On Wednesday, Iranian President Hassan Rouhani said Tehran would enrich uranium beyond 3.67%—a step that would surpass limits imposed by a 2015 nuclear deal…”
“Tighter new U.S. sanctions have proved more punishing than Iran’s leaders expected, driving Tehran to hit back militarily and breach limits it had agreed to put on its nuclear program. This increasingly confrontational approach aims to raise the costs to the U.S. of its maximum-pressure campaign and to push Western European nations to offer economic relief, according to former Iranian officials and analysts. Iran’s brinkmanship could present President Trump, who campaigned against U.S. involvement in Middle East conflicts, with difficult questions of war and peace as he heads into the 2020 election. On Wednesday, Iranian President Hassan Rouhani said Tehran would enrich uranium beyond 3.67%—a step that would surpass limits imposed by a 2015 nuclear deal…”
July 2 – Reuters (Idrees Ali and Ben Blanchard):
“The Pentagon said… a recent Chinese missile launch in the disputed South China Sea was ‘disturbing’ and contrary to Chinese pledges that it would not militarize the disputed waterway. The South China Sea is one of a growing number of flashpoints in the U.S.-China relationship, which include a trade war, U.S. sanctions and Taiwan. China and the United States have repeatedly traded barbs in the past over what Washington says is Beijing’s militarization of the South China Sea by building military installations on artificial islands and reefs.”
“The Pentagon said… a recent Chinese missile launch in the disputed South China Sea was ‘disturbing’ and contrary to Chinese pledges that it would not militarize the disputed waterway. The South China Sea is one of a growing number of flashpoints in the U.S.-China relationship, which include a trade war, U.S. sanctions and Taiwan. China and the United States have repeatedly traded barbs in the past over what Washington says is Beijing’s militarization of the South China Sea by building military installations on artificial islands and reefs.”
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