Economic & Financial News for the week ending November 1, 2019

Saturday, November 2, 2019

Weekly Commentary: 

Music to the Market

by Doug Noland

full Noland column is here:

http://creditbubblebulletin.blogspot.com/2019/11/weekly-commentary-music-to-market.html

Portions that interested

me are summarized below

          Ye Editor

For the week ending

November 1, 2019:

S&P500 gained 1.5% (up 22.3% year-to-date)

Dow Industrials rose 1.4% (up 17.2%)

Dow Utilities slipped 0.3% (up 21.7%)

Dow Transports fell 1.1% (up 17.1%).

S&P 400 Midcaps rose 1.2% (up 19.3%)

Small cap Russell 2000 jumped 2.0% (up 17.9%)

Nasdaq100 advanced 1.6% (up 28.9%)

Biotechs surged 3.0% (up 7.3%). 

With gold bullion jumping $14, 

the HUI gold stock index rose 2.3% (up 36.3%).

U.K.'s FTSE slipped 0.3% (up 8.5% y-t-d).

Japan's Nikkei added 0.2% (up 14.2% y-t-d).

France's CAC40 increased 0.7% (up 21.8%). 

German DAX gained 0.5% (up 22.7%). 

Spain's IBEX 35 fell 1.1% (up 9.2%). 

Italy's FTSE MIB rose 1.4% (up 25.2%)

Brazil's Bovespa gained 0.8% (up 18.9%)

Mexico's Bolsa increased 1.0% (up 5.2%). 

South Korea's Kospi added 0.6% (up 2.9%). 

India's Sensex surged 2.8% (up 11.4%). 

China's Shanghai little changed (up 18.6%). 

Turkey's Istanbul National 100 fell 1.7% (up 7.9%). 

Russia's MICEX jumped 2.0% (up 23.7%).

US  BONDS  and MORTGAGES

Ten-year Treasury yields 

    dropped nine bps to 1.71% 

   (down 97bps). 

Thirty-year Treasury yields

fell 10 bps to 2.19% 

   (down 83bps). 

Freddie Mac 30-year 

fixed mortgage rates

increased three bps to 3.78% 

   (down 105bps y-o-y). 

Fifteen-year rates 

added one basis point to 3.19% 

   (down 104bps). 

Five-year hybrid ARM rates 

rose three bps to 3.43% 

   (down 61bps). 

Jumbo mortgage 30-year fixed rates

 unchanged at 4.11% 

   (down 72bps).

Federal Reserve Credit 

over the past year, 

contracted 3.8%. 

M2 money supply 

gained 6.6%, 

over the past year. 

Commodities Watch:

Bloomberg Commodities Index

 rose 1.4% this week

   (up 4.7% y-t-d). 

Spot Gold gained 0.7% to $1,514 (up 18.1%). 

Silver was little changed at $18.052 (up 16.2%). 

WTI crude declined 46 cents to $56.20 (up 24%). 

Gasoline fell 1.0% (up 25%)

Natural Gas surged 10.4% (down 8%). 

Copper declined 0.8% (up 1%). 

Wheat slipped 0.3% (up 3%). 

Corn added 0.6% (up 4%).

October 29 – Reuters (Heather Timmons and Hallie Gu): 

“U.S. President Donald Trump’s demand that Beijing commit to big purchases of American farm products has become a major sticking point in talks to end the Sino-U.S. trade war, according to several people briefed on the negotiations. 

Trump has said publicly that China could buy as much as $50 billion of U.S. farm products, more than double the annual amount it did the year before the trade war started. U.S. officials continue to push for that in talks, while Beijing is balking at committing to a large figure and a specific time frame. Chinese buyers would like the discretion to buy based on market conditions. ‘China does not want to buy a lot of products that people here don’t need or to buy something at a time when it is not in demand,’ an official from a Chinese state-owned company explained.”

November 1 – The Hill (Niv Elis): 

“The federal government's outstanding public debt has surpassed $23 trillion for the first time in history, 

according to… the Treasury Department… 

Growing budget deficits have added to the nation’s debt at a speedy rate since President Trump took office. The debt has grown some 16% since Trump's inauguration, when it stood at $19.9 trillion. It passed $22 trillion for the first time just 10 months ago.”

October 30 – Reuters (David Brunnstrom): 

“U.S. Secretary of State Mike Pompeo… stepped up recent U.S. rhetoric targeting China’s ruling Communist Party, saying Beijing was focused on international domination and needed to be confronted. 

Pompeo made the remarks even as the Trump administration said it still expected to sign the first phase of deal to end a damaging trade war with China next month… ‘They are reaching for and using methods that have created challenges for the United States and for the world and we collectively, all of us, need to confront these challenges ... head on,’ Pompeo said…”

October 28 – CNBC (Lauren Hirsch): 

“The U.S. will consider extending certain tariff exclusions on $34 billion of imports from China as the two nations work toward a trade agreement, 

the Office of the U.S. Trade Representative said… 

Nearly 1,000 products were exempted from the July 2018 tariff, and those exclusions are set to expire on Dec. 28.”

November 1 – Wall Street Journal (Michael S. Derby): 

“The Federal Reserve Bank of New York added $104.583 billion in temporary liquidity to financial markets Friday, when it also added permanent reserves to expand its balance sheet. The Fed’s intervention came in two parts. One was through repurchase agreements that expire Monday, in which the Fed took in $73.133 billion in securities; the other was a 13-day repo operation that took in $31.45 billion. The Fed also bought $7.501 billion in Treasury bills.” 

October 30 – Financial Times (Brendan Greeley and Colby Smith): 

“The Federal Reserve cut US interest rates by 25 bps for the third time this year but signalled that it has finished easing monetary policy for the time being, pending clearer economic data. 

... After a two-day meeting in Washington, the Fed’s rate-setting committee made two significant changes to the language of its monetary policy statement. It said it would ‘assess the appropriate path’ for rates instead of saying it would ‘act as appropriate to sustain the expansion’… ‘This is a hawkish cut,’ said Peter Tchir, the head of macro strategy at Academy Securities.”

October 29 – Bloomberg (William Edwards): 

“Contract signings to purchase previously owned U.S. homes posted the largest annual increase in four years, signaling lower mortgage rates are reviving interest from buyers. 

The National Association of Realtors’ Index of pending home sales increased 6.3% in September from a year earlier on an unadjusted basis, the biggest gain since August 2015… On a monthly adjusted basis, contracts rose 1.5%, exceeding the median forecast… of 0.9%. The result indicates the housing market is regaining traction after a separate report showed contract closings fell 2.2% in September.”

October 29 – Bloomberg (Kelsey Butler): 

“Home prices in 20 U.S. cities declined in August from the prior month for the first time in a year, reflecting moderation in some once-hot real estate markets. 

The S&P CoreLogic Case-Shiller index of property values fell 0.2% during the month, compared with estimates for a 0.1% decline, after no change in July… Prices increased 2% from August 2018, matching the year-over-year gain in the prior month but slightly below the median estimate… Nationally, annual home prices were up 3.2% after a 3.1% increase in July.”

October 29 – Bloomberg (Reade Pickert): 

“Three years after Donald Trump campaigned for president pledging a factory renaissance, the opposite appears to be happening. 

Manufacturing made up 11% of gross domestic product in the second quarter, the smallest share in data going back to 1947 and down from 11.1% in the prior period… The latest number compares with 13.4% for real estate, 12.8% for professional and business services and 12.3% for governments…”

October 29 – Bloomberg (Christopher Maloney and Adam Tempkin): 

"Online installment loan is a form of debt with much longer maturities but often the same sort of crippling, triple-digit interest rates.

If the payday loan’s target audience is the nation’s poor, then the installment loan is geared to all those working-class Americans who have seen their wages stagnate and unpaid bills pile up… In just a span of five years, online installment loans have gone from being a relatively niche offering to a red-hot industry. Non-prime borrowers now collectively owe about $50 billion on installment products…”

October 30 – Wall Street Journal (Matt Wirz and Juliet Chung): 

“The Kincade Fire blazing north of San Francisco is wreaking havoc thousands of miles away: on Wall Street. Investors in PG&E Corp. stocks and bonds lost about $4.1 billion in the four trading days after the blaze in Sonoma County, Calif., started… 

The stock has dropped 25% since the fire began, cutting the utility’s market capitalization to $3.25 billion on Wednesday from a high of $37 billion in 2017. PG&E bond prices have fallen as much as 12.5% "

November 1 – Bloomberg: 

“It started with an unverified rumor from an obscure social media account: Yichuan Rural Commercial Bank was insolvent. Within hours of the post on Tuesday, more than 1,000 worried customers had lined up to withdraw their money. 

By Wednesday, a run on the bank had prompted local authorities to arrange more than 30 billion yuan ($4.3bn) of liquidity injections. As branch staff sought to restore confidence, they displayed stacks of cash to convince depositors that there was enough to go around. While the panic appeared to subside on Friday, the episode marked the latest test of faith in more than 2,000 rural Chinese lenders that collectively control $5 trillion of assets. Confidence in their financial strength has dwindled since May, when the government seized a bank for the first time since 1998 and imposed losses on some of its creditors.”

October 29 – Bloomberg: 

“A Chinese company’s bond default is causing market concern that trouble may spread to other firms in the province. 

Shandong-based steelmaker Xiwang Group Co.’s failure to repay 1 billion yuan ($142 million) of bonds last week, saw investors dump neighboring firms’ notes on contagion fears as companies in this province are well known for providing guarantees for each other’s debt. China Hongqiao Group Ltd.’s dollar bond due 2023 and Shandong Sanxing Group Co.’s 2021 dollar bond have both dropped to their lowest levels after Xiwang’s default… ‘Xiwang’s default onshore has raised concerns that other privately owned enterprises in Shandong, particularly those from the same locality, may have been associated with the firm,’ said Wu Qiong, executive director at BOC International Holdings…”

October 31 – Bloomberg (Shawn Donnan, Jenny Leonard and Steven Yang): 

“Chinese officials are casting doubts about reaching a comprehensive long-term trade deal with the U.S. even as the two sides get close to signing a ‘phase one’ agreement. 

In private conversations with visitors to Beijing and other interlocutors in recent weeks, Chinese officials have warned they won’t budge on the thorniest issues, according to people familiar with the matter. They remain concerned about President Donald Trump’s impulsive nature and the risk he may back out of even the limited deal both sides say they want to sign in the coming weeks.”

October 30 – Reuters (Gabriel Crossley and Ryan Woo): 

“Factory activity in China shrank for the sixth straight month in October and by more than expected,

while service sector growth eased as firms grapple with the weakest economic growth in nearly 30 years … The Purchasing Managers’ Index (PMI) fell to 49.3 in October, China’s National Bureau of Statistics said on Thursday, versus 49.8 in September.”

October 29 – Bloomberg: 

“More than 2 trillion yuan ($283bn) of local-government notes will mature in 2020… -- a record and 58% more than this year’s level. 

This means fresh debt to refinance the borrowing could start hitting the market shortly. A report Tuesday said the southern province of Guangdong may sell notes as early as November.”

October 31 – Reuters (Noah Sin and Twinnie Siu): 

“Hong Kong slid into recession for the first time in a decade in the third quarter, 

weighed down by increasingly violent anti-government protests and the protracted U.S.-China trade war… The city’s economy shrank 3.2% in July-September from the preceding period, contracting for a second straight quarter and meeting the technical definition of a recession…”

October 30 – Reuters (Tetsushi Kajimoto): 

“Japan’s industrial output rebounded in September to log its fastest gain in four months, offering some relief to manufacturers 

amid a slowdown in global demand and rising pressure on the country’s exports from the U.S.-China trade war.”

October 28 – Bloomberg (Zoe Schneeweiss and William Horobin): 

“In the first half of 2019, global foreign-direct-investment flows decreased by 20% compared with the second half of 2018, with a sharp drop in the second quarter, according to OECD data. Quarterly flows can be volatile -- often affected by a few very large transactions. …The latest decline continues the slowdown following the post-crisis peak in 2015 and can be partly attributed to ‘uncertainties regarding trade tensions and prospects for future economic growth.’”