Saturday, November 23, 2019
Weekly Commentary:
Weak Link
by Doug Noland
full column here:
Following are portions
that interested me
Ye Editor
For the Week ending
November 22, 2019:
S&P500 declined 0.3% (up 24.1% y-t-d)
Dow Industrials fell 0.5% (up 19.5%)
Dow Utilities added 0.2% (up 19.1%)
Dow Transports fell 0.8% (up 17.6%)
S&P 400 Midcaps declined 0.7% (up 19.4%)
Small cap Russell 2000 dipped 0.5% (up 17.8%).
Nasdaq100 fell 0.5% (up 30.7%)
Nasdaq100 fell 0.5% (up 30.7%)
Biotechs surged 3.4% (up 14.4%).
Though gold bullion declined $7,
the HUI gold stock index
increased 0.3% (up 31.3%).
U.K.'s FTSE added 0.3% (up 8.9% y-t-d).
Japan's Nikkei declined 0.8% (up 15.5% y-t-d).
France's CAC40 fell 0.8% (up 24.6%)
German DAX dipped 0.6% (up 24.7%).
Spain's IBEX 35 little changed (up 8.4%).
Italy's FTSE MIB fell 1.4% (up 26.9%).
Brazil's Bovespa rallied 2.0% (up 19.4%)
Mexico's Bolsa increased 0.3% (up 4.5%).
South Korea's Kospi sank 2.8% (up 3.0%).
India's Sensex unchanged (up 11.9%).
China's Shanghai slipped 0.2% (up 15.7%).
Turkey's Istanbul National 100 gained 1.1% (up 16.8%).
Russia's MICEX increased 0.4% (up 24.4%).
Ten-year US Treasury yields fell six bps to 1.77% (down 91bps).
Long bond yields dropped eight bps to 2.22% (down 79bps).
Freddie Mac 30-year fixed mortgage rates
dropped nine bps to 3.66% (down 115bps y-o-y).
Fifteen-year rates
declined five bps to 3.15% (down 109bps).
Five-year hybrid ARM rates
fell five bps to 3.39% (down 70bps).
Jumbo mortgage 30-year fixed rates
down 11 bps to 4.01% (down 69bps).
Federal Reserve Credit
Over the past year,
contracted $82.7bn, or 2.0%.
M2 money supply rose 7.4%,
over the past year.
Commodities Watch:
Bloomberg Commodities Index
declined 0.5% this week (up 2.3% y-t-d).
Spot Gold dipped 0.5% to $1,462 (up 14.0%).
Silver jumped 1.2% to $17.147 (up 10.3%).
WTI crude added five cents to $57.77 (up 27%).
Gasoline jumped 2.4% (up 27%)
Natural Gas declined 0.9% (down 9%).
Copper increased 0.3% (up 1%).
Wheat jumped 2.5% (up 3%).
Corn declined 0.6% (up 1%).
In the news last week:
November 18 – Financial Times (Philip Stafford):
“The ViIX volatility index — a measure of expected swings in the S&P over the next 30 days — has slumped to 12.78, not far off its lowest levels of the year,
and well below its 30-year average of around 19. More significant is that hedge funds seem confident that this tranquil state of affairs will continue. They have gone ‘short’ the Vix in a record 204,000 futures contracts tied to the index…”
November 17 – Financial Times (Tommy Stubbington):
“Investors lent €487.5m to Greece’s government last month. When the debt matures after 13 weeks, they will get back slightly less than they paid.
The high price raised eyebrows in bond markets. Investors had refused to lend to Greece at any price during the eurozone’s 2009-2015 debt crisis, leading to three sovereign bailouts. Now, they are paying Athens to look after their cash… ‘Greece selling at negative yields is absurd,’ says Mohamed El-Erian… ‘It shows you the extent to which markets are distorted. One by one, things that seemed impossible a few years ago have happened.’”
November 21 – Bloomberg (Daniel Flatley and Justin Sink):
“U.S. President Donald Trump is expected to sign legislation passed by Congress supporting Hong Kong protesters, setting up a confrontation with China that could imperil a long-awaited trade deal between the world’s two largest economies.
The bill, approved unanimously by the U.S. Senate on Tuesday, passed the House 417-1 on Wednesday and could go to Trump as soon as Thursday. A person familiar with the matter said Trump planned to sign the bill… The remarkable bipartisan support for a hard-line U.S. stance on China creates one of the toughest economic and foreign policy challenges of Trump’s presidency… China’s foreign ministry urged the U.S. to prevent the legislation from becoming law…”
November 18 – CNBC (Kevin Stankiewicz):
“Former White House chief economic advisor Gary Cohn said… he believes President Donald Trump will go forward with the Dec. 15 tariffs if the U.S. and China haven’t agreed to a trade deal.
‘I think he thinks that that’s a forcing function and if he keeps blinking, he loses credibility in the Chinese eyes,’ Cohn said…”
November 18 – Reuters (Alexandra Alper):
“Top Senate Democrat Chuck Schumer and Republican Senator Tom Cotton… urged the U.S. government to swiftly issue rules to make it harder to export sophisticated technologies to China that Beijing can use to boost its military.”
November 19 – Financial Times (Lucia Mutikani):
“U.S. homebuilding rebounded in October and permits for future home construction jumped to a more than 12-year high, pointing to strength in the housing market amid lower mortgage rates…
Housing starts increased 3.8% to a seasonally adjusted annual rate of 1.314 million units last month, with single-family construction rising for a fifth straight month and activity in the volatile multi-family sector rebounding solidly… Building permits surged 5.0% to a rate of 1.461 million units in October, the highest level since May 2007. Permits were driven by the single-family housing segment, which increased 3.2% to the highest level since August 2007.”
November 21 – Bloomberg (Romy Varghese):
“America’s states are increasing their spending at the fastest pace since the end of the Great Recession. Their budgets swelled by 5.9% in the 2019 fiscal year to about $2.1 trillion, the biggest annual increase since the recession ended in 2009,
according to… the National Association of State Budget Officers. That’s up from a 3.7% pace in the year before as state officials pumped more money into transportation projects, pensions and reserves that will help them weather the next economic rout.”
November 19 – Wall Street Journal (Akane Otani and Karen Langley):
“The S&P 500 technology sector’s 41% gain for the year has put the group well above the S&P 500’s 24% climb and on course for its biggest one-year advance since 2009.”
November 18 – CNBC (Yun Li):
“The mood in Beijing about a trade deal is pessimistic due to President Donald Trump’s reluctance to roll back tariffs, which China believed the U.S. had agreed to,
a government source told CNBC’s Eunice Yoon. ‘Mood in Beijing about #trade deal is pessimistic, government source tells me. #China troubled after Trump said no tariff rollback. (China thought both had agreed in principle.) Strategy now to talk but wait due to impeachment, US election. Also prioritize China economic support.’”
November 18 – Financial Times (Don Weinland):
“China’s central bank cut its short-term lending rate for the first time in four years on Monday, signalling the start of a new easing cycle as Beijing becomes increasingly concerned over slowing economic growth.
The People’s Bank of China said… it would lower the seven-day reverse repurchase rate from 2.55% to 2.5%.”
November 18 – Bloomberg (Divya Patil):
“The health of India’s shadow banks remained weak last month as a credit crisis continued to sting.
Among four indicators compiled by Bloomberg News covering areas including liquidity and share performance, three were stuck in the same position as the previous month, with two at levels indicating weakness. Another gauge showed total outstanding debt increased at 50 financial firms and other companies impacted by the crisis, as banking-system liquidity remained buoyant given the central bank’s monetary easing.”
November 20 – Financial Times (Mehreen Khan and Daniel Dombey):
“Brussels has warned France and Italy that they are running stubbornly high levels of public debt, meaning their future budgets risk breaching EU rules and alarming investors.
The European Commission… published its opinion on the 2020 draft spending plans of all eurozone member states. It had harsh words for Paris, Rome and Madrid which, it said, had failed to make use of good economic times to chip away at their debt burdens.”
November 19 – Bloomberg (Denise Wee):
“From Chinese conglomerates to coal miners in Indonesia, companies in Asia are facing rising financial stress,
prompting fears defaults will pick up next year. Weaker regional borrowers with dollar bonds yielding at least 15% could come under further pressure next year, when they have about $15.1 billion or nearly a third of such debt due… Amid rising failures in China, some firms are finding it harder to refinance their debt offshore, while Indian shadow lenders are grappling with a liquidity crunch.”
November 19 – Reuters (Daniel Leussink):
“Japan’s exports tumbled at their quickest pace in three years in October, threatening to tip the trade-reliant economy into recession as weakening demand from United States and China darkened the outlook.
…Japan’s exports fell 9.2% year-on-year in October, a bigger decline than the 7.6% drop expected by economists in a Reuters poll.”
November 20 – Bloomberg:
“Former U.S. Secretary of State Henry Kissinger said the U.S. and China were in the ‘foothills of a Cold War,’ and warned that the conflict could be worse than World War I if left to run unconstrained.
‘That makes it, in my view, especially important that a period of relative tension be followed by an explicit effort to understand what the political causes are and a commitment by both sides to try to overcome those,’ Kissinger told a session of the New Economy Forum. ‘It is far from being too late for that, because we are still in the foothills of a cold war.’ Kissinger said China and the U.S. were countries of a magnitude exceeding that of the Soviet Union and America, and that the world’s two largest economies, who are locked in a protracted trade war, ‘are bound to step on each other’s toes all over the world, in the sense of being conscious of the purposes of the other.’”
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