Saturday, October 19, 2019
Market Commentary:
China Watch
by Doug Noland
the full article is here:
Portions that interested me are below
Ye Editor
For the week ending
October 18, 2019:
S&P500 added 0.5%
(up 19.1% y-t-d)
Dow Industrials slipped 0.2%
(up 14.8%).
Dow Utilities dipped 0.2%
(up 14.8%).
Dow Transports gained 2.1%
(up 14.6%).
S&P 400 Midcaps advanced 1.1%
(up 16.5%)
Small cap Russell 2000 jumped 1.6%
(up 13.9%).
Nasdaq100 added 0.3%
(up 24.3%).
Biotechs rose 1.5%
(up 1.4%).
While gold bullion traded
little changed, the HUI gold
stock index rallied 2.0%
(up 29.6%).
U.K.'s FTSE fell 1.3% (up 6.3% y-t-d).
Japan's Nikkei surged 3.2% (up 12.4% y-t-d).
France's CAC40 declined 0.5% (up 19.1%)
German DAX gained 1.0% (up 19.6%).
Spain's IBEX 35 increased 0.6% (up 9.2%).
Italy's FTSE MIB gained 0.7% (up 21.8%)
Brazil's Bovespa increased 0.9% (up 15.1%)
Mexico's Bolsa unchanged (up 3.7%)
South Korea's Kospi rose 0.8% (up 1.0%)
India's Sensex jumped 3.1% (up 9.0%)
China's Shanghai fell 1.2% (up 17.8%)
Turkey's Istanbul National 100 declined 0.6% (up 7.8%).
Russia's MICEX rose 1.7% (up 16.2%).
US Ten-year Treasury yields
increased two bps to 1.76%
(down 93bps y-o-y).
Long bond yields rose six bps to 2.25%
(down 77bps).
Freddie Mac 30-year fixed mortgage rates
jumped 12 bps to 3.69% (down 116bps y-o-y).
Fifteen-year rates
rose 10 bps to 3.15% (down 111bps).
Five-year hybrid ARM rates
were unchanged at 3.35% (down 75bps).
Jumbo mortgage 30-year fixed rates
rising 12 bps to 4.12% (down 76bps).
Federal Reserve Credit
last week increased $0.3bn
to $3.910 TN.
Over the past year,
Fed Credit contracted 5.5%.
M2 money"supply
grew 6.5% over the
past year.
Commodities Watch:
Bloomberg Commodities Index slipped 0.2% this week (up 2.2% y-t-d).
Spot Gold was little changed at $1,490 (up 16.2%).
Silver added 0.2% to $17.578 (up 13.1%).
WTI crude fell 92 cents to $53.78 (up 18%).
Gasoline declined 1.0% (up 23%)
Natural Gas rallied 4.8% (down 21%).
Copper increased 0.3% (unchanged).
Wheat surged 4.8% (up 6%).
Corn dropped 1.7% (up 4%).
October 18 – Wall Street Journal (Michael S. Derby):
“The Federal Reserve injected both temporary and permanent liquidity into the financial system Friday.
The permanent addition came by way of $7.501 billion in Treasury bill purchases, which are aimed at growing the Fed’s nearly $4 trillion in holdings… The New York Fed also on Friday added $56.65 billion in short-term liquidity to financial markets. In a repurchase agreement operation that will expire on Monday, the Fed took in $47.95 billion in Treasurys, $500 million in agency securities, and $8.2 billion in mortgage-backed securities. The Fed’s operations on Friday are part of an effort to help tame volatility in short-term rate markets with temporary and permanent injections of liquidity.
October 15 – New York Times (Ana Swanson and Keith Bradsher):
“President Trump portrayed the ‘Phase 1’ agreement he announced on Friday with China with typical fanfare, describing the pact as ‘massive’ and ‘the largest contract’ ever signed. ... But the ‘agreement in principle’ is limited in scope, and exact details have yet to be put in writing — a process that has derailed negotiations with China in the past.”
October 15 – CNBC (Diana Olick):
“Anyone out hunting for an affordable home today knows that the pickings are slim – and they are about to get slimmer. Housing inventory hit a record low about two years ago, but a lull in home sales over the past year helped build back much-needed supply, especially in the mid-priced range. Then a sharp drop in rates this summer brought demand back and depleted that supply dramatically. National housing inventory fell 2.5% annually in September, a sharper decline than August’s 1.8% decrease… Supply has always been leanest on the low end, as investors have been very active in that price range since the foreclosure crisis. Roughly 5 million mostly entry-level homes have been turned into single-family rentals, and strong demand for those rentals means investors are unlikely to put the homes up for sale anytime soon. In addition, an unseasonably strong surge in demand at the end of summer and into this fall now has the supply of homes priced below $200,000 down 10% compared with a year ago.”
October 16 – Reuters (Lucia Mutikani):
“U.S. retail sales fell for the first time in seven months in September, suggesting that manufacturing-led weakness could be spreading to the broader economy, keeping the door open for the Federal Reserve to cut interest rates again later this month… Retail sales dropped 0.3% last month as households cut back spending on motor vehicles, building materials, hobbies and online purchases. That was the first drop since February. Data for August was revised up to show retail sales rising 0.6% instead of 0.4% as previously reported.”
October 14 – Bloomberg (Catherine Ngai, Michael Jeffers, and Kevin Crowley):
“America’s shale boom got the world accustomed to soaring production. Now growth has slowed, and a cloud has formed over the industry. Fracking pushed the U.S. closer to its long-sought goal of energy independence at a time of unprecedented geopolitical risk. Wells from Texas’s Permian Basin to the Bakken in North Dakota turned farmers and ranchers into overnight millionaires. Drivers enjoyed cheap gasoline, decent-paying jobs sprung up in small towns and new technology attracted investment from all corners of the world, keeping drillers busy… For years, the good times came with the warning that a litany of financial and engineering issues would doom the revolution. Such naysaying was proven wrong again and again by the industry’s resilience. Producers were able to borrow cheaply, fine-tune operations and trim costs along their supply chains. But the tea leaves look different this year. Money isn’t as plentiful for an industry that in the past decade burned through nearly $200 billion. Investors are restless.”
October 12 – Bloomberg:
“Chinese auto sales fell in September for the 15th month in 16, extending their unprecedented slump despite government efforts to support the world’s largest car market. Sales of sedans, sport utility vehicles, minivans and multipurpose vehicles dropped 6.6% from a year earlier to 1.81 million units… The only increase since mid-2018 came in June, when dealers offered big discounts to clear inventory.”
October 13 – Reuters (Yawen Chen and Gabriel Crossley):
“A slide in China’s exports picked up pace in September while imports contracted for a fifth straight month, pointing to further weakness in the economy and underlining the need for more stimulus as the Sino-U.S. trade war drags on… September exports fell 3.2% from a year earlier, the biggest fall since February… Total September imports fell 8.5% after August’s 5.6% decline, the lowest since May, and were expected to fall 5.2%.”
October 14 – Market Watch (Grace Zhu):
“Rising pork prices pushed China's consumer inflation to its highest level in nearly six years in September… The consumer price index rose 3% in September from a year earlier compared with the 2.8% expansion recorded August… The government aims to keep consumer inflation under roughly 3% for 2019. In the first nine months of the year China's CPI rose 2.5% from the same period a year earlier… Food prices in September surged 11.2% on year to set the strongest pace in nearly eight years and extend August's 10.0% gain.”
October 14 – CNBC (Grace Shao):
'On Friday, the Trump administration announced it was suspending a tariff increase to 30% from 25% on at least $250 billion in Chinese goods which were set to take effect on Tuesday. However, a tariff hike implemented in September was not rolled back and plans for another hike just before the Christmas holiday on Dec. 15 remain in place. ‘While the negotiations do appear to have produced a fundamental understanding on the key issues and the broader benefits of friendly relations, the Champagne should probably be kept on ice, at least until the two presidents put pen to paper,’ said China Daily…”
October 16 – Wall Street Journal (Chao Deng and Lingling Wei):
“China has promised to buy more U.S. farm products, but questions remain over how much, the time frame for purchases, and what the U.S. might have to give in return. Beijing is pushing the U.S. to drop plans to impose new 15% tariffs on $156 billion in consumer goods starting Dec. 15 and could use the farm purchases as leverage. Chinese negotiators continue to say purchases must be based on actual demand and at fair-market prices… The roughly $50 billion in farm products touted by President Trump is far beyond what China has historically spent in any one year and would likely require Beijing to lean heavily on its state-owned firms to accomplish. ‘The uncertainty is still there,’ says John Frisbie, managing director of international consulting firm Hills & Company…”
October 18 – Bloomberg:
“The total number of Chinese onshore company bond defaults this year just equaled the record set for the whole of 2018. New defaulted bonds reached 120 this week… The missed payments totaling 102.9b yuan ($14.6bn) is approaching last year’s all-time high of 122 billion yuan. Some 45 companies have defaulted on their debt year-to-date versus 40 in the previous year…”
October 13 – Reuters (Yawen Chen and Gabriel Crossley):
“China’s exports to the United States fell 10.7% from a year earlier in dollar terms in January-September, while U.S. imports dropped 26.4% during that period…”
October 15 – Bloomberg (Alessandro Speciale and Giovanni Salzano):
“Italy’s debt rose almost to the highest level on record, adding urgency to the government’s clash over the 2020 budget. The country’s public debt increased to 138% of gross domestic product in the second quarter… That’s just under the high of 138.8% reached in the second quarter of 2015.”
October 14 – Bloomberg (Masaki Kondo and Toru Fujioka):
“The Bank of Japan is on course for an historic turning point that would see its bond holdings shrink next year for the first time in a decade… The shift is all the more notable given that the European Central Bank and Federal Reserve are set to once again increase their balance sheets. It’s a remarkable prospect for a central bank that has refused to drop guidance for boosting government debt holdings by 80 trillion yen ($740 billion) annually, even as it steadily tapers purchases since pivoting to yield-curve control in 2016.”
October 16 – Associated Press (Martin Crutsinger):
“The International Monetary Fund is further downgrading its outlook for the world economy, predicting that growth this year will be the weakest since the 2008 financial crisis… The IMF’s latest World Economic Outlook… foresees a slight rebound in 2020 but warns of threats ranging from heightened political tensions in the Middle East to the threat that the United States and China will fail to prevent their trade war from escalating… The new forecast predicts global growth of 3% this year, down 0.2 percentage point from its previous forecast in July and sharply below the 3.6% growth of 2018.”
October 14 – Reuters:
“Turkey vowed to press ahead with its offensive in northern Syria on Tuesday despite U.S. sanctions and growing calls for it to stop, while Syria’s Russia-backed army moved on the key city of Manbij that was abandoned by U.S. forces. They say ‘declare a ceasefire’. ‘We will never declare a ceasefire,’ Turkish President Tayyip Erdogan told reporters… ‘They are pressuring us to stop the operation. They are announcing sanctions. Our goal is clear. We are not worried about any sanctions.’”
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