Saturday, October 26, 2019
Weekly Commentary:
Whatever It Takes
to Never Give Up
by Doug Noland
full column here:
My short summary follows:
Ye Editor
For the week ending
October 25, 2019:
S&P500 rose 1.2% (up 20.6% y-t-d)
Dow Industrials added 0.7% (up 15.6%)
Dow Utilities increased 0.6% (up 22.0%)
Dow Transports jumped 3.3% (up 18.4%)
S&P 400 Midcaps gained 1.2% (up 17.8%)
Small cap Russell 2000 jumped 1.5% (up 15.6%)
Nasdaq100 advanced 2.0% (up 26.8%)
The Biotechs jumped 2.7% (up 4.1%).
With gold bullion jumping $15,
the HUI gold index rose 2.8% (up 33.3%).
U.K.'s FTSE surged 2.4% (up 8.9% y-t-d).
Japan's Nikkei gained 1.4% (up 13.9% y-t-d)
France's CAC40 rose 1.5% (up 21.0%).
The German DAX jumped 2.1% (up 22.1%).
Spain's IBEX 35 gained 1.1% (up 10.4%).
Italy's FTSE MIB advanced 1.3% (up 23.4%)
Brazil's Bovespa jumped 2.5% (up 18.0%)
Mexico's Bolsa added 0.5% (up 4.2%).
South Korea's Kospi rose 1.3% (up 2.3%).
India's Sensex declined 0.6% (up 18.5%).
China's Shanghai increased 0.6% (up 18.5%).
Turkey's Istanbul National 100 jumped 1.8% (up 9.8%).
Russia's MICEX surged 4.4% (up 21.3%).
US Ten-year Treasury bond yields
rose four bps to 1.80% (down 89bps).
Freddie Mac 30-year fixed mortgage rates
gained six bps to 3.75% (down 111bps y-o-y).
Fifteen-year rates
rose three bps to 3.18% (down 111bps).
Five-year hybrid ARM rates
increased five bps to 3.40% (down 74bps).
Jumbo mortgage 30-year fixed rates
down a basis point to 4.11% (down 67bps).
Federal Reserve Credit
over the past year,
contracted 4.9%.
M2 money supply
gained 6.5%,
over the past year.
Commodities Watch:
Bloomberg Commodities Index
gained 1.1% this week (up 3.3% y-t-d).
Spot Gold added 1.0% to $1,505 (up 17.3%).
Silver jumped 2.6% to $18.035 (up 16.1%).
WTI crude surged $2.88 to $56.66 (up 25%).
Gasoline rose 3.1% (up 26%)
Natural Gas declined 0.9% (down 22%).
Copper gained 1.5% (up 2%).
Wheat dropped 2.7% (up 3%).
Corn fell 1.1% (up 3%).
Financial and Economic News:
October 19 – Reuters (Lindsay Dunsmuir):
“The U.S. government ended fiscal year 2019 with the largest budget deficit in seven years as gains in tax receipts were offset by higher spending and growing debt service payments… It is the first time since the early 1980s that the budget gap has widened over four consecutive years… The U.S. budget deficit widened to $984 billion, which was 4.6% of the nation’s gross domestic product. The previous fiscal year deficit was $779 billion, with a deficit-to-GDP-ratio of 3.8%. Total receipts increased by 4% to $3.5 trillion but outlays rose by 8.2% to $4.4 trillion.”
October 22 – Financial Times (Colby Smith):
“The Federal Reserve could soon own 12% of the market for US Treasury bills, according to Oxford Economics… Earlier this month the Fed announced it would buy $60bn of Treasury bills… each month until the end of the second quarter of next year. When the Fed buys bills to expand its balance sheet, it credits commercial banks with an equal amount of reserves. The intervention aims to replenish those reserves to a level where even a spike in demand for cash will not send short-term borrowing costs significantly higher… In order to get reserves back to the roughly $1.5tn level it says is adequate for the system to run smoothly by early 2020, the Fed needs to buy approximately $300bn of the shorter-dated debt.”
October 21 – Wall Street Journal (Gunjan Banerji):
“Stocks and bonds have staged a rare simultaneous ascent, logging the best performance in a quarter-century. The S&P 500 has advanced 20% in 2019, while Treasurys have rallied. The last time the benchmark stock index rose more than 10% while the Treasury yield fell more than a percentage point in the first three quarters of the year was in 1995, according to Dow Jones Market Data. That trend continued as the fourth quarter kicked off… In data going back to 1984, the S&P 500, crude oil and gold have never jumped at least 10% together through the first three quarters of the year while the yield on the 10-year Treasury note fell more than 1 percentage point…”
October 21 – Bloomberg (Lu Wang and Sarah Ponczek):
“High on the list of things bulls dread this earnings season is that it become the scene of a big downward cut in next year’s estimates. It happened last year, helping foment the worst fourth quarter of the bull market. And though it’s very early, it’s happening now. Despite a week of decent results, analysts last week chopped estimates for combined S&P 500 earnings in 2020 by almost $1, to $178.40 a share. Down 0.5%, the decline was the biggest for any week since January…”
October 22 – Reuters (Lindsay Dunsmuir):
“U.S. home sales fell more than expected in September as the market continues to struggle with a dearth of properties for sale, especially for cheaper homes. The National Association of Realtors said… existing home sales fell 2.2% to a seasonally adjusted annual rate of 5.38 million units last month, reversing two straight months of gains. August’s sales pace was upwardly revised to 5.50 million units… There were 1.83 million homes in the market last month, a decline of 2.7% compared to a year ago. It was the fourth consecutive month of year-on-year inventory declines.”
October 23 – Bloomberg (Prashant Gopal):
“Home prices in the U.S. are up 25% in five years, according to the S&P CoreLogic Case-Shiller index. Unlike during the property fever of the 2000s, new construction has been slow, so policymakers and even employers are reaching for ways to make housing affordable. There’s a similar trend in global cities.”
October 24 – Reuters (Lindsay Dunsmuir):
“New orders for key U.S.-made capital goods fell more than expected in September and shipments also declined, a sign that business investment remains soft amid the continuing fallout from the U.S.-China trade war. …Orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans on equipment, fell 0.5% last month on weak demand for transportation equipment, motor vehicle parts and computers and electronic products.”
October 25 – Bloomberg (Adam Tempkin):
“A growing percentage of Santander Consumer USA Holdings Inc.’s subprime auto loans are turning out to be clunkers soon after the cars are driven off the lot.
Some loans made last year are souring at the fastest rate since 2008, with more consumers than usual defaulting within the first few months of borrowing, according to analysts at Moody’s... Many of those loans were packaged into bonds. Santander Consumer is one of the largest subprime auto lenders in the market.”
October 23 – Bloomberg (Reade Pickert):
“A poll released Wednesday showed just 40% of employed Americans say they’re in good jobs, versus 44% in mediocre jobs and 16% in bad jobs.
How respondents ranked the quality of their job had a strong correlation with their quality of life: Seventy-nine percent of workers in good jobs report a high quality of life, versus only a third of those in bad jobs.”
October 20 – Reuters (Ryan Woo):
“Many privately held firms in Shandong, China’s third-biggest province by economic output, are struggling to repay short-term debt due to declining industry fundamentals, entangled cross guarantees and ill-managed investments, S&P Global Ratings said. China’s slowing economy and enforcement of environmental protection rules have pressured the profitability and cash flow of Shandong companies in over-capacity sectors including oil refining, petrochemicals, steel, aluminium and textiles, S&P said.”
October 24 – Market Watch (Steve Goldstein):
“The German economy is continuing to struggle…, with the difficulties of its export-oriented base extending to the service sector as global trade dries up.
The IHS Markit flash German manufacturing PMI inched up to 41.9 in October from September’s decade-worst 41.7… The flash German services PMI meanwhile fell to a 37-month low of 51.2 in October from 51.4.”
October 22 – Bloomberg (Divya Patil):
“A health check on India’s shadow banks shows the crisis in the industry is far from over. Indicators from liquidity to share performance show weakness…
In recent weeks, another financier defaulted, it got harder for investors to cut losses in the sector’s debt and a mortgage lender altered financing plans due to waning appetite for shadow bank bonds. Banking system liquidity stayed lower last month, the premium that investors demand to hold shadow lender bonds over sovereign notes remained elevated and a custom gauge of shares of 20 financial firms and other companies impacted by the crisis was stagnant.”
October 23 – Bloomberg (Anurag Joshi and Rahul Satija):
“Indian companies have defaulted on a record 76 billion rupees ($1.1bn) of local-currency and international bonds so far this year after the shadow bank crisis triggered a credit squeeze, and it doesn’t look like the worst is over. Those firms that delayed or missed debt payments in 2019 still have the equivalent of $17 billion of notes and loans outstanding including the defaulted securities…”
October 24 – Reuters (Daniel Leussink):
“Japanese factory activity shrank at the fastest pace in over three years in October, largely hurt by slumping new orders and output, in yet another sign of broadening economic cracks in the face of slowing global demand and trade frictions… The Jibun Bank Flash Japan Manufacturing Purchasing Managers’ Index (PMI) in October contracted at the quickest pace since June 2016, slipping to 48.5 on a seasonally adjusted basis from a final 48.9 in the previous month.”
October 20 – Reuters (Daniel Leussink):
“Japan’s exports contracted for a 10th straight month in September, adding to speculation the central bank could ease monetary policy as soon as next week to support an economy hit by a slowdown in global demand… Exports in September slumped 5.2% from a year earlier…, dragged down by car and airplane parts to the United States and semiconductor production equipment to South Korea.”
October 21 – Bloomberg (Hannah Levitt):
“More than half of the world’s banks are already in a weak position before any downturn that may be coming, according to a report from… McKinsey & Co.
A majority of banks globally may not be economically viable because their returns on equity aren’t keeping pace with costs, McKinsey said in its annual review of the industry… It urged firms to take steps such as developing technology, farming out operations and bulking up through mergers ahead of a potential economic slowdown. ‘We believe we’re in the late economic cycle and banks need to make bold moves now because they are not in great shape,’ Kausik Rajgopal, a senior partner at McKinsey, said… ‘In the late cycle, nobody can afford to rest on their laurels.’”
October 20 – Wall Street Journal (Christopher M. Matthews):
“Desperate for cash, shale companies are trying to court investors with a new and potentially risky financial instrument that resembles mortgage bonds.
The companies are floating a type of asset-backed security that involves existing oil and gas wells. Producers transfer ownership interests in the wells to special entities that then issue bonds to be paid off by the output from the wells over time. Raisa Energy LLC, a Denver-based oil-and-gas company backed by private equity firm EnCap Investments LP, closed the first such offering in September and several others are planned… The bonds will pay nearly 6% interest on the best quality wells, the people said, with higher rates on riskier assets.”
October 22 – Reuters (Darya Korsunskaya and Tuvan Gumrukcu):
“Syrian and Russian forces will deploy in northeast Syria to remove Kurdish YPG fighters and their weapons from the border with Turkey under a deal agreed on Tuesday which both Moscow and Ankara hailed as a triumph. Hours after the deal was announced, the Turkish defense ministry said that the United States had told Turkey the withdrawal of Kurdish militants was complete from the ‘safe zone’ Ankara demands in northern Syria.”
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