Economic and financial news for the week ending August 23, 2019

Saturday, August 24, 2019

Weekly Commentary: 

Trade War Escalation and Bombs

by Doug Noland

full column here:

http://creditbubblebulletin.blogspot.com/2019/08/weekly-commentary-trade-war-escalation.html

Portions that 

interested me

are below:

Ye Editor

For the week ending

August 23, 2019:

GLOBAL  STOCKS:

S&P500 fell 1.4% (up 13.6% y-t-d)

Dow Industrials declined 1.0% (up 9.9%)

Dow Utilities added 0.2% (up 16.1%)

Dow Transports fell 2.3% (up 6.2%)

S&P 400 Midcaps lost 2.0% (up 10.4%)

Small cap Russell 2000 dropped 2.3% (up 8.2%). 

Nasdaq100 tumbled 1.8% (up 17.9%)

Biotechs sank 3.7% (up 4.0%). 

With gold bullion gaining $14,
 the HUI gold stock index 
surged 5.9% (up 40.9%).

U.K.'s FTSE slipped 0.3% (up 5.5% y-t-d).

Japan's Nikkei rallied 1.4% (up 3.5% y-t-d). 

France's CAC40 added 0.5% (up 12.6%)

German DAX increased 0.4% (up 10.0%). 

Spain's IBEX 35 slipped 0.2% (up 1.3%). 

Italy's FTSE MIB recovered 0.7% (up 11.7%).

Brazil's Bovespa fell 2.1% (up 7.3%)

Mexico's Bolsa rallied 1.3% (down 4.3%). 

South Korea's Kospi gained 1.1% (down 4.5%). 

India's Sensex dropped 1.7% (up 1.8%). 

China's Shanghai jumped 2.6% (up 16.2%). 

Turkey's Istanbul National 100 recovered 1.5% (up 6.4%). 

Russia's MICEX gained 1.7% (up 12.3%).

U.S.  BONDS

Ten-year Treasury yields declined two bps to 1.54% (down 115bps). 

Long bond yields slipped one basis point to 2.03% (down 99bps). 

Benchmark Fannie Mae MBS yields rose three bps to 2.46% (down 103bps).

U.S. MORTGAGES:

Freddie Mac 30-year fixed mortgage rates fell five bps to 3.55% (down 96bps y-o-y). 

Fifteen-year rates declined four bps to 3.03% (down 95bps). 

Five-year hybrid ARM rates slipped three bps to 3.32% (down 50bps). 

Jumbo mortgage 30-year fixed rates down a basis point to 4.05% (down 51bps).


FEDERAL  RESERVE  BANK:

Federal Reserve Credit

 Over the past year,

contracted 11.0%. 

M2 money supply gained

5.3%, over the past year. 

Currency Watch:

The U.S. dollar index 

declined 1.1% to 97.169 

(up 1.0% y-t-d).

Commodities Watch:

 Bloomberg Commodities Index declined 0.9% this week (down 1.2% y-t-d). 

Spot Gold gained 0.9% to $1,527 (up 19.1%). 

Silver jumped 2.5% to $17.554 (up 13.0%). 

WTI crude fell 70 cents to $54.17 (up 19%). 

Gasoline slipped 0.8% (up 24%)

Natural Gas fell 2.2% (down 27%). 

Copper dropped 2.2% (down 4%). 

Wheat was little changed (down 5%). 

Corn sank 3.4% (down 2%).

Market Instability Watch:

August 21 – CNBC (Jeff Cox): 
“Government bonds aren’t the only instruments producing negative yields these days, with corporate debt recently passing the $1 trillion mark in a continuing sign of global financial displacement. Investors these days are facing huge amounts of fixed income instruments that carry no yield. Various estimates of sovereign debt in that category put the total in excess of $15 trillion… Negative-yielding corporate debt, though, is a relatively new thing, rising from just $20 billion in January to pass the $1 trillion mark recently, according to Jim Bianco, founder of Bianco Research.”

Trump Administration Watch:

August 21 – Associated Press (Kevin Freking and Josh Boak): “President Donald Trump acknowledged his aggressive China trade policies may mean economic pain for Americans but insisted they’re needed for more important long-term benefits. He contended he does not fear a recession but is nonetheless considering new tax cuts to promote growth. Asked if his trade war with China could tip the country into recession, he brushed off the idea as ‘irrelevant’ and said it was imperative to ‘take China on.’ ‘It’s about time, whether it’s good for our country or bad for our country short term,’ Trump said… Paraphrasing a reporter’s question, Trump said, ‘Your statement about, ‘Oh, will we fall into a recession for two months?’ OK? The fact is somebody had to take China on.’”

August 16 – Financial Times (Aime Williams): 
“The Trump administration is pressing ahead with an $8bn sale of F-16 fighter jets to Taiwan as Washington signals its support for Taipei in the face of a growing threat from China…. The deal would see the sale of 66 jets to the self-governing territory, and comes as tension between China and the US is heightened by difficult trade negotiations. Beijing claims Taiwan as part of its territory and has threatened to invade if Taipei resists unification indefinitely. The US is committed to helping Taiwan defend itself under the Taiwan Relations Act, a law passed when Washington switched diplomatic recognition from Taiwan to China in 1971.”

U.S. Bubble Watch:

August 21 – Wall Street Journal (Kate Davidson): “Federal deficits are projected to grow much more than expected over the next decade after a budget agreement struck last month, pushing government debt as a share of the economy closer to the highest level since World War II, the Congressional Budget Office said. The deal agreed upon by congressional leaders and the White House will add roughly $1.7 trillion to deficits between 2020 and 2029, assuming federal spending continues to rise by the rate of inflation beyond 2021. Much of that increase will be offset by lower-than-expected interest rates, which will reduce the cost of servicing the government’s swelling debt by $1.4 trillion over the next decade… In total, deficits are now expected to rise $809 billion more than the agency projected just a few months ago, bringing total deficits over the next decade to $12.2 trillion.”

August 21 – CNBC (Kevin Breuninger and Ylan Mui): “The U.S. budget deficit is expected to hit $960 billion in 2019, and average a whopping $1.2 trillion per year between 2020 and 2029, according to the CBO’s look ahead… The new deficit projection for 2019 rose $63 billion from the last report, which came out in May. The CBO says this is mainly because of the massive new budget deal, which passed both houses of Congress and was signed into law by Trump in early August. ‘The nation’s fiscal outlook is challenging,’ CBO Director Phillip Swagel said… ‘Federal debt, which is already high by historical standards, is on an unsustainable course.’”

August 22 – Reuters (Richard Leong): 
“U.S. manufacturing industries recorded their first month of contraction in almost a decade amid concern about whether the U.S.-China trade conflict would tip the economy into a recession, a private survey showed… IHS Markit said its ‘flash’ or preliminary measure on domestic factory activity fell to 49.9 in August, its lowest level since September 2009. This compared with a final reading of 50.4 the month before.”

August 21 – Wall Street Journal (Jessica Menton): 
“U.S. corporations are repurchasing their own shares at the slowest pace in 18 months… Companies in the S&P 500 repurchased about $166 billion of their own stock in the second quarter, S&P Dow Jones Indices projects, down from $205.8 billion in the first quarter and $190.6 billion in the same period a year ago. That marks the lowest total since the fourth quarter of 2017 and the second consecutive quarter of contraction. What has alarmed some investors is that companies eased up on share repurchases even as volatility surged in the midst of a heightened trade dispute between Washington and Beijing.”

August 21 – Reuters (Richard Leong): 
“Mortgage rates are at a three-year low and housing price appreciation has cooled, but many Americans seeking to buy their first home are facing tough times. Why? There just aren’t enough homes for sale. Developers have struggled to build enough new homes, especially at entry-level prices, because of land and labor shortages and rising material costs. The supply tightness has been compounded by retirees ‘aging in place’ and Baby Boomers content to make additions to their current homes, rather than moving, analysts said. ‘The problem for first-time buyers is still supply,’ said Doug Duncan, chief economist at Fannie Mae…”

August 20 – Reuters (Pete Schroeder): 
“U.S. banking regulators… eased trading regulations for Wall Street banks, giving them one of their biggest wins under the Trump administration but drawing criticism from consumer activists who warned of potential risks to taxpayers. The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) approved the revamped version of the so-called ‘Volcker Rule,’ which aims to ban lenders that accept U.S. taxpayer-insured deposits from engaging in proprietary trading… The new rule gives banks more leeway in terms of trading activity and simplifies how banks can tell if that trading is permitted by law.”

August 21 – Wall Street Journal (Ben Eisen): 
“ More than a decade after home loans triggered the worst financial crisis in a generation, the strict lending requirements put in place during its aftermath are starting to erode. Home buyers with low credit scores or high debt levels as well as those lacking traditional employment are finding it easier to get credit. The loans have been rebranded. Largely gone are the monikers subprime and Alt-A, a type of mortgage that earned the nickname ‘liar loan’… Now they are called non-qualified, or non-QM, because they don’t comply with postcrisis standards set by the Consumer Financial Protection Bureau… Borrowers took out $45 billion of these unconventional loans in 2018, the most in a decade, and origination is on track to rise again in 2019, according to Inside Mortgage Finance…”

August 20 – Wall Street Journal (Katherine Clarke): “Once listed for $1 billion, a 157-acre parcel of land in Beverly Hills known as the Mountain has sold at a foreclosure auction to its lender for just $100,000.
An entity linked to the Mark Hughes Trust, a trust established to manage the assets of the late Herbalife founder Mark Hughes, won the property… at a trustee’s sale… The $100,000 price was far less than the roughly $200 million in debt the lenders had alleged was outstanding on the property. No other bidders showed up to the auction…”

China Watch:

August 22 – Bloomberg (Cathy Chan): 
“Most Hong Kong retailers have seen sales drop more than 50% in August, according to the city’s Retail Management Association, as the ongoing political protests take a toll on business and the economy. The association has urged landlords in the city to halve rents for six months to help tenants overcome difficult times, and has called on the government to provide relief measures to retailers…”

Asia Watch:

August 22 – Reuters (Hyonhee Shin, Josh Smith and Kiyoshi Takenaka): “South Korea said… it will scrap an intelligence-sharing pact with Japan, drawing a swift protest from Tokyo and deepening a decades-old row over history that has hit trade and undercut security cooperation over North Korea.”

Europe Watch:

August 20 – Wall Street Journal (Marcus Walker):
 “Italy’s government collapsed, triggering a power struggle between the country’s right-wing nationalists and rival parties, along with deepening Europe's political upheaval as the Continent struggles with immigration and slowing economic growth. Prime Minister Giuseppe Conte resigned on Tuesday after Matteo Salvini, a rising force from Europe’s insurgent far-right, withdrew his support for the government. Mr. Salvini, whose anti-immigrant League is leading in public-opinion polls, is pushing for snap elections. Mr. Salvini’s opponents maneuvered to avoid a fresh vote, with some leaders of the antiestablishment 5 Star Movement, which has been governing alongside the League, saying they were open to exploring a deal with the center-left Democratic Party to form a new coalition.”

August 18 – Bloomberg (John Ainger and Dirk Gojny): “Less than a decade ago, investors could barely be compensated enough to hold the bonds of Spain and Portugal for fear the nations could be severed from the European Union. Now, they are a hair’s breadth away from having to pay for the privilege. An unprecedented surge in sovereign debt across the world has driven 10-year yields in the Iberian nations to record lows just shy of 0%. With about $16 trillion of global debt now paying negative rates, investors are snapping up positive yields wherever they can find them -- even if that means getting into some of the euro area’s riskier markets… ‘I am afraid all curves are going to zero and all rates are going to zero,’ said James Athey, senior investment manager at Aberdeen Standard Investments... ‘It would be an incredibly concerning signal.’”

Global Bubble Watch:

August 21 – Financial Times (Tommy Stubbington): 
“The cost of servicing the debt of developed countries has sunk to its lowest level for more than four decades, piling pressure on governments to borrow and spend more in order to jump-start the flagging global economy. Advanced economies will spend just 1.77% of their combined GDP on debt interest this year according to the OECD — the lowest since 1975, and down from a peak of 3.9% in the mid-1990s. This sharp decline comes despite the huge debt piles accumulated by many countries since the financial crisis. The debt-to-GDP ratio across advanced economies has risen from 45% in 2001 to 76% this year, according to the IMF.”

Japan Watch:

August 18 – Reuters (Daniel Leussink and Tetsushi Kajimoto): “Japan’s exports slipped for an eighth month in July, while manufacturers’ confidence turned negative for the first time in over six years as China-bound sales slumped again in a fresh sign the Sino-U.S. trade war could tip the economy into recession… Exports in July fell 1.6% from a year earlier…, dragged down by China-bound shipments of car parts and semiconductor production equipment.”

Geopolitical Watch:

August 19 – Associated Press (Kelvin Chan and Yanan Wang): “China lashed out at Taiwan… over its offer of political asylum to participants in Hong Kong's pro-democracy protest movement, a day after hundreds of thousands of people marched peacefully in the latest massive demonstration in the Chinese territory. The government of Taiwan, a self-ruled island that China considers its own territory, strongly supports the protests, and Hong Kong students in Taiwan held events over the weekend expressing their backing. Taiwan's president made the asylum offer last month… Taiwan lacks a formal legal mechanism for assessing and granting asylum requests, although it has granted residency to several vocal opponents of the Chinese government. On Monday, Ma Xiaoguang, spokesman for the Chinese Cabinet's Taiwan Affairs Office, said Taiwan's offer would ‘cover up the crimes of a small group of violent militants’ and encourage their ‘audacity in harming Hong Kong and turn Taiwan into a ‘heaven for ducking the law.’”

August 20 – Reuters (Chris Gallagher, Linda Sieg, and Josh Smith): “Japan has upgraded its estimate of North Korea’s nuclear weapons capability in an upcoming annual Defence White Paper, saying it seems Pyongyang has achieved the miniaturization of warheads, the Yomiuri newspaper said… That compares with the assessment in last year’s report in which the government said it was possible North Korea had achieved miniaturization… The report… will maintain the assessment that North Korea’s military activities pose a ‘serious and imminent threat’, the Yomiuri said.”