Saturday, October 5, 2019
Weekly Commentary:
Resurrecting M2
by Doug Noland
Full column here:
Portions that
interested me
are below:
Ye Editor
For the week ending
October 4, 2019:
S&P500 slipped 0.3% (up 17.8% y-t-d)
Dow declined 0.9% (up 13.9%)
Utilities added 0.2% (up 23.4%)
Transports lost 3.0% (up 9.4%)
S&P 400 Midcaps fell 1.0% (up 14.5%)
Small cap Russell 2000 slumped 1.3% (up 11.3%).
Nasdaq100 advanced 0.9% (up 22.5%)
Biotechs increased 0.4% (down 0.1%).
With bullion gaining $8,
the HUI gold stock index
added 0.3% (up 31.6%)
U.K.'s FTSE equities index sank 3.6% (up 6.4% y-t-d).
Japan's Nikkei Equities Index fell 2.1% (up 7.0% y-t-d).
France's CAC40 dropped 2.7% (up 16.0%)
German DAX equities index sank 3.0% (up 13.8%).
Spain's IBEX 35 equities index slumped 2.4% (up 4.9%).
Italy's FTSE MIB index fell 2.5% (up 17.2%)
Brazil's Bovespa index dropped 2.4% (up 12.7%),
Mexico's Bolsa gained 1.3% (up 4.3%).
South Korea's Kospi index declined 1.4% (down 1.0%)
India's Sensex equities index sank 3.0% (up 4.4%).
China's Shanghai Exchange declined 0.9% (up 16.5%).
Turkey's Borsa Istanbul National 100 index lost 1.6% (up 13.4%).
Russia's MICEX equities index dropped 2.4% (up 13.6%).
Freddie Mac 30-year fixed mortgage rates added a basis point to 3.65% (down 106bps y-o-y).
Fifteen-year rates declined two bps to 3.14% (down 101bps).
Five-year hybrid ARM rates were unchanged at 3.38% (down 63bps).
Jumbo mortgage 30-year fixed rates down six bps to 3.98% (down 89bps).
Over the past year,
Fed Credit contracted 6.1%.
M2 money supply
gained 5.9%
over the past year.
Commodities Watch:
Bloomberg Commodities Index
declined 0.5% this week (up 1.2% y-t-d).
Spot Gold rallied 0.5% to $1,505 (up 17.3%).
Silver slipped 0.2% to $17.625 (up 13.4%).
WTI crude fell $3.10 to $52.81 (up 16%).
Gasoline sank 4.7% (up 19%)
Natural Gas dropped 2.2% (down 20%).
Copper lost 1.3% (down 3%).
Wheat increased 0.7% (down 3%).
Corn jumped 3.6% (up 3%).
September 30 – Bloomberg (Brandon Kochkodin):
“Negative interest rates have quite literally broken one of the pillars of modern finance. As economists and central bankers weigh the pros and cons of sub-zero rates and their impact on the world, traders have been contending with a rather more mundane, but fundamental issue: How to price risk on trillions of dollars of financial instruments like interest-rate swaps when their complex mathematical models simply don’t work with negative numbers. Out are certain variations of the Black-Scholes model, the framework that allowed derivatives to flourish in the past four decades. In are a hodgepodge of approximations and workarounds, including one dating to the 19th century.”
October 2 – Reuters (Tim Hepher, Philip Blenkinsop and David Lawder):
“The United States… said it would slap 10% tariffs on European-made Airbus planes and 25% duties on French wine, Scotch and Irish whiskies, and cheese from across the continent as punishment for illegal EU aircraft subsidies. The announcement came after the World Trade Organization gave Washington a green light to impose tariffs on $7.5 billion worth of EU goods annually in the long-running case, a move that threatens to ignite a tit-for-tat transatlantic trade war.”
“The United States… said it would slap 10% tariffs on European-made Airbus planes and 25% duties on French wine, Scotch and Irish whiskies, and cheese from across the continent as punishment for illegal EU aircraft subsidies. The announcement came after the World Trade Organization gave Washington a green light to impose tariffs on $7.5 billion worth of EU goods annually in the long-running case, a move that threatens to ignite a tit-for-tat transatlantic trade war.”
October 3 – Associated Press (Lorne Cook and Barry Hatton):
“The European Union warned… it will retaliate against the U.S. decision to slap tariffs on a range of the bloc’s exports - from cheese to wine - that could cause job losses in Europe and price increases for Americans. The Trump administration’s decision to put new import taxes on EU goods worth $7.5 billion opened a new chapter in the global trade wars that are heightening fears of a global recession. The latest tariffs target large aircraft but also many typical European products such as olives, whiskey, wine, cheese and yogurt. They will take effect Oct. 18 and amount to a 10% tax on EU aircraft and steep 25% rate on everything else.”
“The European Union warned… it will retaliate against the U.S. decision to slap tariffs on a range of the bloc’s exports - from cheese to wine - that could cause job losses in Europe and price increases for Americans. The Trump administration’s decision to put new import taxes on EU goods worth $7.5 billion opened a new chapter in the global trade wars that are heightening fears of a global recession. The latest tariffs target large aircraft but also many typical European products such as olives, whiskey, wine, cheese and yogurt. They will take effect Oct. 18 and amount to a 10% tax on EU aircraft and steep 25% rate on everything else.”
October 1 – Wall Street Journal (Amara Omeokwe, Paul Hannon and Austen Hufford):
“U.S. factory activity contracted for the second straight month in September and hit a 10-year low, triggering fresh concerns about the economy and a broad stock-market decline. The U.S. manufacturing readings were among several data points released Tuesday pointing towards the global impact of the U.S.-China trade war, as trade flows are set to grow this year at the weakest pace since the financial crisis, with rising tariffs and cooling growth. The Institute for Supply Management reported its manufacturing index fell to 47.8 in September, the lowest level since June 2009, from 49.1 the prior month.”
“U.S. factory activity contracted for the second straight month in September and hit a 10-year low, triggering fresh concerns about the economy and a broad stock-market decline. The U.S. manufacturing readings were among several data points released Tuesday pointing towards the global impact of the U.S.-China trade war, as trade flows are set to grow this year at the weakest pace since the financial crisis, with rising tariffs and cooling growth. The Institute for Supply Management reported its manufacturing index fell to 47.8 in September, the lowest level since June 2009, from 49.1 the prior month.”
October 3 – Bloomberg (Reade Pickert):
“America’s service industries joined manufacturing in taking a big step back last month, fueling concerns that the global slowdown and trade war are weighing more on the broader economy…. The Institute for Supply Management’s non-manufacturing index dropped 3.8 points to 52.6 in September, the lowest since August 2016 and well below the most pessimistic forecast…Growth in orders and business activity slowed abruptly, while the employment gauge registered its weakest print in more than five years.”
“America’s service industries joined manufacturing in taking a big step back last month, fueling concerns that the global slowdown and trade war are weighing more on the broader economy…. The Institute for Supply Management’s non-manufacturing index dropped 3.8 points to 52.6 in September, the lowest since August 2016 and well below the most pessimistic forecast…Growth in orders and business activity slowed abruptly, while the employment gauge registered its weakest print in more than five years.”
September 29 – Wall Street Journal (Christopher M. Matthews and Rebecca Elliott):
“The American shale boom is slowing as innovation plateaus—and just when shale’s importance in global markets has reached new highs following an attack on the heart of Saudi Arabia’s oil infrastructure. U.S. oil production increased by less than 1% during the first six months of the year…, down from nearly 7% growth over the same period last year. Unlike several years ago, when shale production fell due to a global price collapse, the slowdown this year is driven partly by core operational issues, including wells producing less than expected after being drilled too close to one another, and sweet spots running out sooner than anticipated.”
“The American shale boom is slowing as innovation plateaus—and just when shale’s importance in global markets has reached new highs following an attack on the heart of Saudi Arabia’s oil infrastructure. U.S. oil production increased by less than 1% during the first six months of the year…, down from nearly 7% growth over the same period last year. Unlike several years ago, when shale production fell due to a global price collapse, the slowdown this year is driven partly by core operational issues, including wells producing less than expected after being drilled too close to one another, and sweet spots running out sooner than anticipated.”
October 2 – Bloomberg (Oshrat Carmiel):
“Resale prices for Manhattan apartments tumbled the most in seven years, pushed down by buyer demands for discounts in a market swamped with choices. Previously owned condos and co-ops sold for a median of $915,000 in the third quarter, down 8% from a year earlier, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate reported. It was the first decline in the past 10 quarters and the biggest since the third quarter of 2012. ‘It’s just more signs that the sellers are capitulating,’ Jonathan Miller, president of Miller Samuel, said… ‘The market is going through what could be called a reset.’”
“Resale prices for Manhattan apartments tumbled the most in seven years, pushed down by buyer demands for discounts in a market swamped with choices. Previously owned condos and co-ops sold for a median of $915,000 in the third quarter, down 8% from a year earlier, appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate reported. It was the first decline in the past 10 quarters and the biggest since the third quarter of 2012. ‘It’s just more signs that the sellers are capitulating,’ Jonathan Miller, president of Miller Samuel, said… ‘The market is going through what could be called a reset.’”
September 29 – Reuters (Richa Naidu and Aishwarya Venugopal):
“Fast-fashion retailer Forever 21 filed for bankruptcy late on Sunday, joining a growing list of brick-and-mortar companies that have seen sales hit by the rise of competition from online sellers like Amazon.com Inc and the changing fashion trends dictated by millennial shoppers.”
“Fast-fashion retailer Forever 21 filed for bankruptcy late on Sunday, joining a growing list of brick-and-mortar companies that have seen sales hit by the rise of competition from online sellers like Amazon.com Inc and the changing fashion trends dictated by millennial shoppers.”
September 29 – Reuters (Stella Qiu and Ryan Woo):
“China’s factory activity unexpectedly expanded at the fastest pace in 19 months in September as plants ramped up production and new orders rose, …suggesting a modest recovery in the manufacturing sector from 50.4 in August, marking the second straight month of expansion.”
“China’s factory activity unexpectedly expanded at the fastest pace in 19 months in September as plants ramped up production and new orders rose, …suggesting a modest recovery in the manufacturing sector from 50.4 in August, marking the second straight month of expansion.”
September 29 – Reuters (Echo Wang and Joshua Franklin):
“Nasdaq Inc is cracking down on initial public offerings (IPOs) of small Chinese companies by tightening restrictions and slowing down their approval, according to regulatory filings, corporate executives and investment bankers. Nasdaq’s attempt to limit these stock market flotations comes as a growing number of them end up raising most of the capital in their IPO from Chinese sources, rather than from U.S. investors.”
“Nasdaq Inc is cracking down on initial public offerings (IPOs) of small Chinese companies by tightening restrictions and slowing down their approval, according to regulatory filings, corporate executives and investment bankers. Nasdaq’s attempt to limit these stock market flotations comes as a growing number of them end up raising most of the capital in their IPO from Chinese sources, rather than from U.S. investors.”
October 3 - Bloomberg (Piotr Skolimowski):
“The euro-area economy stagnated at the end of the third quarter, held back by an industrial recession and a sharper-than-expected slowdown in services. While the slump still remains broadly centered on manufacturing, the measure for services dropped last month to the lowest since January after being revised down from an initial estimate. If that’s a sign that the weakness is spreading, it’s a worrying development for the euro-area economy. A separate report showed U.K. services unexpectedly shrank, posting the weakest index reading since the Brexit referendum in 2016.”
“The euro-area economy stagnated at the end of the third quarter, held back by an industrial recession and a sharper-than-expected slowdown in services. While the slump still remains broadly centered on manufacturing, the measure for services dropped last month to the lowest since January after being revised down from an initial estimate. If that’s a sign that the weakness is spreading, it’s a worrying development for the euro-area economy. A separate report showed U.K. services unexpectedly shrank, posting the weakest index reading since the Brexit referendum in 2016.”
October 3 - Bloomberg (Fergal O'Brien):
“Germany’s economic woes are becoming more pronounced, with a sharp slowdown in services suggesting the pain from its industrial crisis is spreading. While the weakness is still largely centered on manufacturing, a downward revision to services in September adds to the negative news coming from Europe’s largest economy. IHS Markit said the figures mean a technical recession ‘now looks to be all but confirmed.’”
“Germany’s economic woes are becoming more pronounced, with a sharp slowdown in services suggesting the pain from its industrial crisis is spreading. While the weakness is still largely centered on manufacturing, a downward revision to services in September adds to the negative news coming from Europe’s largest economy. IHS Markit said the figures mean a technical recession ‘now looks to be all but confirmed.’”
September 30 – Bloomberg (Rahul Satija):
“Mounting debt failures in India have been catching rating companies off guard, underscoring continued challenges a year after the landmark failure of shadow bank IL&FS increased scrutiny of the industry. Defaults at companies including Dewan Housing Finance Corp., Cox & Kings Ltd. and Altico Capital India Ltd. have occurred even as their long-term ratings indicated very low to moderate risk of non-payment. ‘Raters have not been able to detect stress in time,’ said Ashutosh Khajuria, chief financial officer at Federal Bank Ltd. ‘Cutting credit profiles after the defaults is no rocket science.’”
“Mounting debt failures in India have been catching rating companies off guard, underscoring continued challenges a year after the landmark failure of shadow bank IL&FS increased scrutiny of the industry. Defaults at companies including Dewan Housing Finance Corp., Cox & Kings Ltd. and Altico Capital India Ltd. have occurred even as their long-term ratings indicated very low to moderate risk of non-payment. ‘Raters have not been able to detect stress in time,’ said Ashutosh Khajuria, chief financial officer at Federal Bank Ltd. ‘Cutting credit profiles after the defaults is no rocket science.’”
September 30 – Reuters (Tetsushi Kajimoto):
“Japan rolled out a twice-delayed increase in the sales tax to 10% from 8% on Tuesday, a move that is seen as critical for fixing the country’s tattered finances but that could tip the economy into recession by dampening consumer sentiment.”
“Japan rolled out a twice-delayed increase in the sales tax to 10% from 8% on Tuesday, a move that is seen as critical for fixing the country’s tattered finances but that could tip the economy into recession by dampening consumer sentiment.”
October 1 – Reuters (Joyce Lee and Chang-Ran Kim):
“North Korea fired what may have been a submarine-launched ballistic missile from off its east coast…, a day after it announced the resumption of talks with the United States on ending its nuclear program. If confirmed, it would be the most provocative test by North Korea since it started the talks with the United States in 2018.”
“North Korea fired what may have been a submarine-launched ballistic missile from off its east coast…, a day after it announced the resumption of talks with the United States on ending its nuclear program. If confirmed, it would be the most provocative test by North Korea since it started the talks with the United States in 2018.”
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