Weekly Commentary:
Q2 2019 Z.1 and Repos
by Doug Noland
full column here:
Summary of
what interested me
follows: Ye Editor
It’s worth noting
the Fed’s balance sheet
contracted $58 billion
during the quarter
to $4.140 TN.
As a percentage of GDP,
Debt Securities ended Q2
at 214% of GDP
(the record was 223% in Q1 2013).
Equities ended Q2
at 233% of GDP
(the record was 243% in Q3 2018).
Total Securities
(Debt & Equities)
ended June at 448%
(the record was 458% in Q3 2018).
Previous cycle peaks
were 379% during Q3 ’07
and 359% in Q1 ’00.
Total Securities-to-GDP
began the 1980s at 44%
and the 1990s at 67%.
Household Real Estate holdings
were 153% of GDP,
versus the
previous cycle peak
of 189% of GDP,
during Q4 ’06.
Household Net Worth
rose to a record
(matching Q4 ’17)
532% of GDP.
For comparison,
Household
Net Worth-to-GDP
posted cycle peaks of 492%
during Q1 2007 and
446% to end Q1 2000.
Net Worth-to-GDP
began the 1980s at 342%
and the 1990s at 378%.
For the week ending
September 27, 2019:
GLOBAL STOCKS:
S&P500 declined 1.0% (up 18.1% y-t-d)
Dow Industrials slipped 0.4% (up 15.0%)
Dow Utilities gained 1.3% (up 23.1%)
Dow Transports fell 1.1% (up 12.8%)
S&P 400 Midcaps declined 1.1% (up 15.6%)
Small cap Russell 2000 dropped 2.5% (up 12.7%).
Nasdaq100 fell 1.8% (up 21.4%)
Biotechs sank 6.1% (down 0.4%).
With gold bullion down $20,
the HUI gold stock index
dropped 3.5% (up 31.1%).
U.K.'s FTSE rallied 1.1% (up 10.4% y-t-d).
Japan's Nikkei declined 0.9% (up 9.3% y-t-d).
France's CAC40 fell 0.9% (up 19.2%)
German DAX dipped 0.7% (up 17.3%).
Spain's IBEX 35 was little changed (up 7.5%).
Italy's FTSE MIB declined 0.5% (up 20.2%)
Brazil's Bovespa added 0.2% (up 15.5%)
Mexico's Bolsa slumped 1.6% (up 2.9%)
South Korea's Kospi dropped 2.0% (up 0.4%)
India's Sensex rose 2.1% (up 7.6%)
China's Shanghai sank 2.5% (up 17.6%)
Turkey's Istanbul National 100 surged 4.9% (up 15.2%).
Russia's MICEX lost 1.4% (up 16.4%).
US BONDS & MORTGAGES:
Ten-year US Treasury yields fell four bps to 1.68% (down 100bps).
Long bond yields declined three bps to 2.13% (down 89bps).
Benchmark Fannie Mae MBS yields slipped two bps to 2.62% (down 87bps).
Freddie Mac 30-year fixed mortgage rates
dropped nine bps to 3.64% (down 108bps y-o-y).
Fifteen-year rates
declined five bps to 3.16% (down 100bps).
Five-year hybrid ARM rates
sank 11 bps to 3.38% (down 59bps).
Jumbo mortgage 30-year fixed rates
down 12 bps to 4.04% (down 72bps).
Over the past year,
Fed Credit contracted 8.5%
and
M2 money supply gained 5.5%
Commodities Watch:
Bloomberg Commodities Index
declined 1.1% this week (up 1.8% y-t-d).
Spot Gold fell 1.3% to $1,497 (up 16.7%).
Silver lost 1.1% to $17.652 (up 13.6%).
WTI crude sank $2.18 to $55.91 (up 23%).
Gasoline fell 1.6% (up 25%)
Natural Gas sank 5.1% (down 18%).
Copper slipped 0.3% (down 1%).
Wheat gained 0.6% (down 3%).
Corn increased 0.2% (down 1%).
September 26 – Wall Street Journal (Maureen Farrell, Corrie Driebusch, Miriam Gottfried and Allison Prang):
“The IPO market took another hit Thursday as Endeavor Group Holdings Inc. yanked its planned offering, and Peloton Interactive Inc. ’s shares skidded on their first day of trading. Endeavor became the second big casualty of the IPO market’s recent chill after WeWork’s parent company pulled its offering earlier this month. It is the second time Endeavor has hit the brakes on its IPO this year.”
September 27 – CNBC (Kate Rooney):
“This has been a tough week for bitcoin. The world’s first and largest cryptocurrency plunged more than 20% over seven days, hitting a low of $7,757 Friday — its lowest level since June. Bitcoin futures meanwhile, were on pace for their worst week of the year.”
September 26 – Associated Press (Lisa Mascaro, Mary Clare Jalonick and Julie Pace):
“President Donald Trump pressed the leader of Ukraine to ‘look into’ Joe Biden, Trump’s potential 2020 reelection rival, as well as the president’s lingering grievances from the 2016 election, according to a rough transcript of a summer phone call that is now at the center of Democrats’ impeachment probe. Trump repeatedly prodded Volodymyr Zelenskiy, new president of the East European nation, to work with U.S. Attorney General William Barr and Rudy Giuliani, Trump’s personal lawyer. At one point in the July conversation, Trump said, ‘I would like for you to do us a favor.’”
September 27 – Bloomberg (Jenny Leonard and Shawn Donnan):
“Trump administration officials are discussing ways to limit U.S. investors’ portfolio flows into China in a move that would have repercussions for billions of dollars in investment pegged to major indexes, according to people familiar with the internal deliberations."T
September 24 – Reuters (Jeff Mason and David Lawder):
“U.S. President Donald Trump delivered a stinging rebuke to China’s trade practices… at the United Nations General Assembly, saying he would not accept a ‘bad deal’ in U.S.-China trade negotiations.
‘Not only has China declined to adopt promised reforms, it has embraced an economic model dependent on massive market barriers, heavy state subsidies, currency manipulation, product dumping, forced technology transfers and the theft of intellectual property and also trade secrets on a grand scale,’ Trump said. ‘As far as America is concerned, those days are over.’”
September 25 – Wall Street Journal (Kate O’Keeffe in Washington and Jeremy Page):
“Beijing is increasingly tapping private Chinese firms to acquire foreign technology for its military, according to officials and a new report, in a strategy that is prompting calls by leaders in Washington to retool U.S. national security policy. Chinese President Xi Jinping is pressing these companies to bid for defense contracts as part of a ‘military-civil fusion’ drive to upgrade an arms industry long dominated by a handful of inefficient state-run contractors and research institutes. The initiative… is alarming U.S. officials, who fear it is a central plank in Beijing’s attempt to build a world-class military capable of challenging the U.S. in Asia and beyond... ‘China’s obfuscation and elimination of barriers between the defense and civilian sectors has troubling implications for foreign as well as domestic Chinese firms,’ a senior U.S. administration official said…”
September 22 – CNBC (Nancy Hungerford):
‘More cases are being opened that implicate trade secret theft’ — and more of them point to China, said U.S. Deputy Assistant Attorney General Adam Hickey. Since 2012, more than 80% of economic espionage cases brought by the department’s National Security Division have implicated China. The frequency of cases has been rising in recent years, according to Hickey.”
September 26 – Associated Press (Mike Schneider):
“The gap between the haves and have-nots in the United States grew last year to its highest level in more than 50 years of tracking income inequality, according to U.S. Census Bureau figures… Income inequality in the United States expanded from 2017 to 2018, with several heartland states among the leaders of the increase, even though several wealthy coastal states still had the most inequality overall… The nation’s Gini Index, which measures income inequality, has been rising steadily over the past five decades.”
September 25 – Reuters (Lucia Mutikani):
“The Commerce Department said new home sales increased 7.1% to a seasonally adjusted annual rate of 713,000 units last month, boosted by a surge in activity in the South and West. July’s sales pace was revised up to 666,000 units from the previously reported 635,000 units. It was the second time in three months that new homes sales jumped above 700,000.”
September 25 – Bloomberg (Esha Dey, Drew Singer, Ryan Vlastelica, Kristine Owram and Mathieu Benhamou): “Unprofitable companies are raising money in initial public offerings at the fastest pace since the dot-com bubble when a revolution in the banking industry sparked a rush to risk. Peloton Interactive Inc.’s planned Nasdaq debut on Thursday extends this year’s run of IPOs by so-called unicorns—huge, money-losing firms like Uber Technologies Inc. and Pinterest Inc. The unprofitable members of the 2019 class of IPOs have already raised the most cash of any year since at least 2000… And there’s more to come: Another 107 companies filed in 2019 to go public, among them The We Co., parent to WeWork, the office-share operator awash in red ink… ‘It used to be an article of faith that you couldn’t go public until you turn a profit,’ said Rett Wallace, chief executive officer of Triton Research… ‘Not a path to profitability, a profit.’ The 2019 class of IPOs may turn out to be as risky as those dot-com companies that went bust at the turn of the century despite the exuberance surrounding them.”
September 26 – Bloomberg (John Tozzi):
“The cost of family health coverage in the U.S. now tops $20,000, an annual survey of employers found, a record high that has pushed an increasing number of American workers into plans that cover less or cost more, or force them out of the insurance market entirely. ‘It’s as much as buying a basic economy car,’ said Drew Altman, chief executive officer of the Kaiser Family Foundation, ‘but buying it every year.’”
September 23 – Financial Times (Richard Henderson):
“Executives across the US are shedding
stock in their own companies at the fastest pace in two decades…
Corporate insiders — typically chief executives, chief financial officers and board members — sold a combined $19bn of stock in their companies through to mid-September, according to… Smart Insider, a UK-based group. That puts them on track to hit about $26bn for the year, which would mark the most active year since 2000, when executives sold $37bn of stock amid the giddy highs of the dotcom bubble. That projected total for the year would also set a post-crisis high, eclipsing the $25bn of stock sold in 2017.”
September 24 – Bloomberg:
“China’s economy in the third quarter was the weakest it has been this year, according to the China Beige Book, with manufacturing, property and the services sectors all worsening, even as borrowing picked up. Manufacturing revenue, profits, volumes and sales prices fell by double-digit paces from the previous three months, although borrowing remained at its highest level, according to the quarterly report. ‘Retail and services stood out mostly for how incapable they were at picking up the slack,’ the report said… The current weakness in the economy is primarily due to manufacturing. While a drop in exports was a factor, most of the decline was due to ‘considerably slower sales price growth,’ according to the report… The services sector continued to underperform, with both revenue and profits dropping from the same period last year. Hiring also slowed, which means that ‘if manufacturing does have to shed a large number of jobs, services has shown no capacity to absorb them,’ the report said. There was a resurgence of borrowing in the period.”
September 23 – Bloomberg (Piotr Skolimowski):
“Growth in the euro-area economy almost ground to a halt at the end of the third quarter amid evidence that the manufacturing slump is starting to spread into the services sector. A Purchasing Managers’ Index for the 19-nation region fell to 50.4 in September, missing estimates, down from 51.9 a month earlier and the weakest in more than six years… Markit showed. That suggests growth of just 0.1% in the third quarter and further deterioration in the coming months, it said.”
September 24 – Financial Times (Toby Stubbington):
“The level of government debt around the world has ballooned since the financial crisis, reaching levels never seen before during peacetime. A Deutsche Bank analysis shows the world’s major economies have debts on average of more than 70% of GDP, the highest level of the past 150 years except for a spike around the second world war… Unlike earlier eras, when governments typically ran surpluses during peacetime, the pressures of modern democracy and welfare systems have made persistent deficits the norm in many countries… ‘The problem in sustainably recreating such a scenario today is that the post-WWII era saw much higher levels of GDP growth due to favourable demographics, post-war reconstruction and high productivity growth,’ said Deutsche’s Jim Reid.”
September 22 – Associated Press (Carlo Piovano and Gregory Katz):
“The sudden collapse of British tour company Thomas Cook and its network of airlines and hotels sowed chaos for hundreds of thousands of travelers and businesses around the world Monday. Brought down by a variety of factors, including crushing debts and online competition, the 178-year-old travel agency that helped pioneer the package tour ceased operating in the middle of the night. Its four airlines stopped carrying customers, and its 21,000 employees in 16 countries lost their jobs.”
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