Below are the portions of Doug Noland's very long, and somewhat hard to read, weekly column,
that interested me:
Ye Editor
Saturday, November 16, 2019
Weekly Commentary:
China Update
by Doug Noland
the full column is here:
Curious, isn’t it, that the world’s two great Credit engines are currently both requiring extraordinary central bank liquidity injections…
November 15 – Reuters (Marc Jones):
“Global debt is on course to end 2019 at a record high of more than $255 trillion, the Institute of International Finance estimated on Friday
— nearly $32,500 for each of the 7.7 billion people on planet. The amount, which is also more than three times the world’s annual economic output, has been driven by a $7.5 trillion surge in the first half of the year that shows no signs of slowing. Around 60% of that jump came from the United States and China. Government debt alone is set to top $70 trillion this year, as will overall debt (government, corporate and financial sector) of emerging-market countries. ‘With few signs of slowdown in the pace of debt accumulation, we estimate that global debt will surpass $255 trillion this year,’ the IIF said…”
November 14 – Bloomberg:
“China’s central bank unexpectedly added liquidity to the banking system Friday to help lenders through the tax season, a move that analysts saw as a sign that larger-scale stimulus is unlikely in the near term.
The People’s Bank of China offered 200 billion yuan ($29bn) of one-year loans to banks Friday. It kept the interest rate unchanged at 3.25%, showing restraint in monetary policy after this week’s worse-than-expected economic data. Liquidity in the banking system is at a ‘reasonable, sufficient’ level as the operation offsets companies’ need for funding to pay tax…”
For the week ending
November 15, 2019:
S&P500 increased 0.9% (up 24.5% y-t-d)
Dow Industrials gained 1.2% (up 20.1%)
Dow Utilities rallied 1.4% (up 18.8%)
Dow Transports fell 1.7% (up 18.6%)
S&P 400 Midcaps were little changed (up 20.3%)
Small cap Russell 2000 slipped 0.2% (up 18.4%).
Nasdaq100 added 0.7% (up 31.4%).
Biotechs jumped 1.9% (up 10.6%).
With gold bullion rallying $9,
the HUI gold stock index
recovered 2.6% (up 30.8%)
U.K.'s FTSE declined 0.8% (up 8.5% y-t-d).
Japan's Nikkei declined 0.4% (up 16.4% y-t-d).
France's CAC40 gained 0.8% (up 25.5%).
German DAX little changed (up 25.4%).
Spain's IBEX 35 fell 1.4% (up 8.4%).
Italy's FTSE MIB added 0.2% (up 28.7%).
Brazil's Bovespa fell 1.0% (up 17.1%)
Mexico's Bolsa declined 0.7% (up 4.2%).
South Korea's Kospi rose 1.2% (up 5.9%).
India's Sensex unchanged (up 11.9%).
China's Shanghai sank 2.5% (up 15.9%).
Turkey's Istanbul National 100 jumped 2.2% (up 15.5%).
Russia's MICEX fell 1.3% (up 23.9%).
US BONDS & MORTGAGES
Ten-year Treasury yields
sank 11 bps to 1.83% (down 85bps).
Thirty year Treasury yields
fell 12 bps to 2.31% (down 71bps).
Freddie Mac 30-year fixed mortgage rates
rose six bps to 3.75% (down 119bps y-o-y).
Fifteen-year rates
gained seven bps to 3.20% (down 116bps).
Five-year hybrid ARM rates
increased five bps to 3.44% (down 70bps).
Jumbo mortgage 30-year fixed rates
unchanged at 4.12% (down 60bps).
Federal Reserve Credit
last week increased $6.6bn
to $4.006 TN, with a nine-week
gain of $280bn.
Over the past year,
Fed Credit contracted
$98.6bn,
or 2.4%.
M2 money supply
jumped $25bn last week
to a record $15.270 TN.
M2 gained $1.029 TN,
or 7.2%,
over the past year.
Commodities Watch:
Bloomberg Commodities Index
dropped 1.0% this week (up 2.7% y-t-d).
Spot Gold increased 0.6% to $1,468 (up 14.5%).
Silver added 0.7% to $16.948 (up 9.1%).
WTI crude increased 48 cents to $57.72 (up 27.1%).
Gasoline little changed (up 24%)
Natural Gas sank 3.6% (down 9%).
Copper fell 1.1% (up 1%).
Wheat declined 0.8% (up 1%).
Corn rallied 0.9% (up 2%).
NEWS SUMMARY
FROM LAST WEEK
November 8 – Bloomberg (Liz McCormick):
“A bond-market warning light that glowed green for years is suddenly flashing red.
The bad news for bondholders is that the last time this happened, it was accompanied by the biggest sell-off since the aftermath of the global financial crisis. That indicator is the term premium, which, for both Treasuries and German bunds, has snapped back from last quarter’s record lows. The U.S. gauge is now on track for the biggest three-month increase since late 2016.”
“A bond-market warning light that glowed green for years is suddenly flashing red.
The bad news for bondholders is that the last time this happened, it was accompanied by the biggest sell-off since the aftermath of the global financial crisis. That indicator is the term premium, which, for both Treasuries and German bunds, has snapped back from last quarter’s record lows. The U.S. gauge is now on track for the biggest three-month increase since late 2016.”
November 14 – Bloomberg:
“A U.S. demand that China spell out how it plans to reach as much as $50 billion in agricultural imports annually has become a sticking point
in negotiations on a phase one trade deal, according to people familiar with the matter. Chinese negotiators are resisting a proposal from American officials that it provide monthly, quarterly and annual targets for purchases… China also insists that the two sides must agree to rollback tariffs in phases if a deal is reached, the people said.”
“A U.S. demand that China spell out how it plans to reach as much as $50 billion in agricultural imports annually has become a sticking point
in negotiations on a phase one trade deal, according to people familiar with the matter. Chinese negotiators are resisting a proposal from American officials that it provide monthly, quarterly and annual targets for purchases… China also insists that the two sides must agree to rollback tariffs in phases if a deal is reached, the people said.”
November 13 – Reuters (Howard Schneider):
“Over the past year in particular, many mainstream economists have concluded that the current U.S. government debt level, north of $20 trillion and rising by $1 trillion a year, could grow much larger without crimping the economy - especially when the interest rate paid by the government is less than the economy’s growth rate… I
"In answer to a question at a congressional hearing, Powell said that in his view, as long as debt grows faster than the economy, it is by definition unsustainable, leaving ‘our kids and grandkids ... servicing debt,’ instead of funding good schools and hospitals.’”
November 13 – Associated Press (Christopher Rugaber):
“Federal Reserve Chairman Jerome Powell said… the Fed is likely to keep its benchmark short-term interest rate unchanged in the coming months, unless the economy shows signs of worsening. But for now… Powell expressed optimism about the U.S. economy and said he expects it will grow at a solid pace, though it still faces risks from slower growth overseas and trade tensions. ‘Looking ahead, my colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2% objective as most likely,’ Powell said before Congress’ Joint Economic Committee.”
“Federal Reserve Chairman Jerome Powell said… the Fed is likely to keep its benchmark short-term interest rate unchanged in the coming months, unless the economy shows signs of worsening. But for now… Powell expressed optimism about the U.S. economy and said he expects it will grow at a solid pace, though it still faces risks from slower growth overseas and trade tensions. ‘Looking ahead, my colleagues and I see a sustained expansion of economic activity, a strong labor market, and inflation near our symmetric 2% objective as most likely,’ Powell said before Congress’ Joint Economic Committee.”
November 9 – Bloomberg (Alexandre Tanzi and Michael Sasso):
“The U.S.’s historic economic expansion has so enriched one-percenters they now hold almost as much wealth as the middle- and upper-middle classes combined. The top 1% of American households have enjoyed huge returns in the stock market in the past decade, to the point that they now control more than half of the equity in U.S. public and private companies, according to… the Federal Reserve. Those fat portfolios have America’s elite gobbling up an ever-bigger piece of the pie. The very richest had assets of about $35.4 trillion in the second quarter, or just shy of the $36.9 trillion held by the tens of millions of people who make up the 50th percentile to the 90th percentile of Americans -- much of the middle and upper-middle classes. Americans now need at Least $500,000 a Year to Enter Top 1%...”
“The U.S.’s historic economic expansion has so enriched one-percenters they now hold almost as much wealth as the middle- and upper-middle classes combined. The top 1% of American households have enjoyed huge returns in the stock market in the past decade, to the point that they now control more than half of the equity in U.S. public and private companies, according to… the Federal Reserve. Those fat portfolios have America’s elite gobbling up an ever-bigger piece of the pie. The very richest had assets of about $35.4 trillion in the second quarter, or just shy of the $36.9 trillion held by the tens of millions of people who make up the 50th percentile to the 90th percentile of Americans -- much of the middle and upper-middle classes. Americans now need at Least $500,000 a Year to Enter Top 1%...”
November 13 – Reuters (Lindsay Dunsmuir):
“The U.S. government recorded a $134 billion budget deficit in October, the first month of the new fiscal year… That compared to a budget deficit of $100 billion in the same month last year…
Unadjusted receipts last month totaled $246 billion, down 3% from October 2018, while unadjusted outlays were $380 billion, a rise of 8% from the same month a year earlier. The U.S. government’s fiscal year ends in September each year. Fiscal year 2019 saw a widening in the deficit to $984 billion, the largest budget deficit in seven years…”
“The U.S. government recorded a $134 billion budget deficit in October, the first month of the new fiscal year… That compared to a budget deficit of $100 billion in the same month last year…
Unadjusted receipts last month totaled $246 billion, down 3% from October 2018, while unadjusted outlays were $380 billion, a rise of 8% from the same month a year earlier. The U.S. government’s fiscal year ends in September each year. Fiscal year 2019 saw a widening in the deficit to $984 billion, the largest budget deficit in seven years…”
November 13 – Reuters (Lucia Mutikani):
“U.S. consumer prices jumped by the most in seven months in October, which together with abating fears of a recession, support the Federal Reserve’s signal for no further interest rate cuts in the near term…
The consumer price index increased 0.4% last month as households also paid more for energy products, food and other goods. That was the largest gain in the CPI since March and followed an unchanged reading in September. In the 12 months through October, the CPI increased 1.8% after climbing 1.7% in September.”
“U.S. consumer prices jumped by the most in seven months in October, which together with abating fears of a recession, support the Federal Reserve’s signal for no further interest rate cuts in the near term…
The consumer price index increased 0.4% last month as households also paid more for energy products, food and other goods. That was the largest gain in the CPI since March and followed an unchanged reading in September. In the 12 months through October, the CPI increased 1.8% after climbing 1.7% in September.”
November 14 – Reuters (Lucia Mutikani):
“U.S. producer prices increased by the most in six months in October, lifted by gains in the costs of goods and services, further bolstering the Federal Reserve’s stance that it will probably not cut interest rates again in the near term.
The… producer price index for final demand rose 0.4% last month, the biggest increase since April, after falling 0.3% in September. In the 12 months through October the PPI climbed 1.1%, the smallest increase since October 2016, after advancing 1.4% in September.”
“U.S. producer prices increased by the most in six months in October, lifted by gains in the costs of goods and services, further bolstering the Federal Reserve’s stance that it will probably not cut interest rates again in the near term.
The… producer price index for final demand rose 0.4% last month, the biggest increase since April, after falling 0.3% in September. In the 12 months through October the PPI climbed 1.1%, the smallest increase since October 2016, after advancing 1.4% in September.”
November 9 – Wall Street Journal (AnnaMaria Andriotis and Ben Eisen):
“John Schricker recently bought a $27,000 Jeep Cherokee with a $45,000 loan from Ally Financial Inc. Consumers, salespeople and lenders are treating cars a lot like houses during the last financial crisis:
by piling on debt to such a degree that it often exceeds the car’s value. This phenomenon… can leave car owners trapped. Some 33% of people who traded in cars to buy new ones in the first nine months of 2019 had negative equity, compared with 28% five years ago and 19% a decade ago…
“John Schricker recently bought a $27,000 Jeep Cherokee with a $45,000 loan from Ally Financial Inc. Consumers, salespeople and lenders are treating cars a lot like houses during the last financial crisis:
by piling on debt to such a degree that it often exceeds the car’s value. This phenomenon… can leave car owners trapped. Some 33% of people who traded in cars to buy new ones in the first nine months of 2019 had negative equity, compared with 28% five years ago and 19% a decade ago…
November 13 – Bloomberg:
“The engines of China’s economy are sputtering, with exports falling, factory output slowing, investment growth at a record low and consumption coming off the boil. Industrial output rose 4.7% from a year earlier, versus a median estimate of 5.4%...
Retail sales expanded 7.2%, compared to a projected 7.8% increase. Fixed-asset investment slowed to 5.2% in the first ten months. That was the lowest reading in comparable data back to 1998.”
“The engines of China’s economy are sputtering, with exports falling, factory output slowing, investment growth at a record low and consumption coming off the boil. Industrial output rose 4.7% from a year earlier, versus a median estimate of 5.4%...
Retail sales expanded 7.2%, compared to a projected 7.8% increase. Fixed-asset investment slowed to 5.2% in the first ten months. That was the lowest reading in comparable data back to 1998.”
November 11 – Associated Press:
“China’s auto sales fell 5.8% from a year earlier in October as demand for electric cars plunged…, extending a painful squeeze in the global industry’s biggest market.
The Chinese auto market is on track to contract for second year… Drivers bought 1.9 million sedans, SUVs and minivans, according to the China Association of Automobile Manufacturers. Sales growth has been in negative territory every month since June 2018. Total vehicle sales, including trucks and buses, shrank 0.6% to 2.3 million.”
“China’s auto sales fell 5.8% from a year earlier in October as demand for electric cars plunged…, extending a painful squeeze in the global industry’s biggest market.
The Chinese auto market is on track to contract for second year… Drivers bought 1.9 million sedans, SUVs and minivans, according to the China Association of Automobile Manufacturers. Sales growth has been in negative territory every month since June 2018. Total vehicle sales, including trucks and buses, shrank 0.6% to 2.3 million.”
November 10 – Financial Times (Sun Yu):
“China’s local governments face a record number of lawsuits for failing to pay their contractors as the country’s slowing economy puts a strain on public finances.
The financial outlook has deteriorated so markedly that analysts have warned that there is a risk of social unrest. Chinese courts have listed 831 local governments as being in default in the first 10 months of this year, compared with 100 in the whole of 2018. The value of these local authorities’ overdue payments grew by more than 50% from Rmb4.1bn at the end of last year to Rmb6.9bn ($984m) at the end of October. The totals do not take into account the amount owed by local government finance vehicles and companies operated by municipal or provincial officials, more than 1,000 of which have been listed as defaulters over the past three years.”
“China’s local governments face a record number of lawsuits for failing to pay their contractors as the country’s slowing economy puts a strain on public finances.
The financial outlook has deteriorated so markedly that analysts have warned that there is a risk of social unrest. Chinese courts have listed 831 local governments as being in default in the first 10 months of this year, compared with 100 in the whole of 2018. The value of these local authorities’ overdue payments grew by more than 50% from Rmb4.1bn at the end of last year to Rmb6.9bn ($984m) at the end of October. The totals do not take into account the amount owed by local government finance vehicles and companies operated by municipal or provincial officials, more than 1,000 of which have been listed as defaulters over the past three years.”
November 11 – Bloomberg (Sydney Maki):
“A wave of social unrest -- from Chile and Ecuador to Lebanon -- has Moody’s… worried. The rating company said its 2020 outlook for global sovereign credit is negative, given unpredictable domestic and geopolitical risks and a push for populist policies that weaken institutions, help slow growth and boost the risk of economic and financial shocks.
Governments will struggle to address further credit challenges in the coming year, analysts including Jaime Reusche, Calyn Lindquist and Marie Diron wrote… ‘‘Populist’ movements have emerged in recent years, either from the political fringe or from within established parties, often in reaction to years of stagnant incomes and rising income inequality,’ they wrote. ‘Escalating global and regional trade tensions increase the risk of financial or economic shocks, and the weakening of multilateral institutions dents policy makers’ ability to deal with those shocks.’”
“A wave of social unrest -- from Chile and Ecuador to Lebanon -- has Moody’s… worried. The rating company said its 2020 outlook for global sovereign credit is negative, given unpredictable domestic and geopolitical risks and a push for populist policies that weaken institutions, help slow growth and boost the risk of economic and financial shocks.
Governments will struggle to address further credit challenges in the coming year, analysts including Jaime Reusche, Calyn Lindquist and Marie Diron wrote… ‘‘Populist’ movements have emerged in recent years, either from the political fringe or from within established parties, often in reaction to years of stagnant incomes and rising income inequality,’ they wrote. ‘Escalating global and regional trade tensions increase the risk of financial or economic shocks, and the weakening of multilateral institutions dents policy makers’ ability to deal with those shocks.’”
November 13 – Bloomberg (Rajesh Kumar Singh):
“The biggest drop in India’s electricity demand in at least 12 years is hindering efforts of Indian lenders to recover a pile of loans to power producers that have soured. Banks had about 1.8 trillion rupees ($25bn) of stressed loans to India’s coal-fired power generators as of last year, according to the State Bank of India. Prospective bidders for these stressed generators are wary as demand from the country’s power distribution utilities contracted in three straight months to October.”
“The biggest drop in India’s electricity demand in at least 12 years is hindering efforts of Indian lenders to recover a pile of loans to power producers that have soured. Banks had about 1.8 trillion rupees ($25bn) of stressed loans to India’s coal-fired power generators as of last year, according to the State Bank of India. Prospective bidders for these stressed generators are wary as demand from the country’s power distribution utilities contracted in three straight months to October.”
November 11 – Reuters (Aftab Ahmed and Nidhi Verma): “India’s industrial output fell at the fastest pace in over six years in September, adding to a series of weak indicators that suggests the country’s economic slowdown is deep-rooted…
Annual industrial output contracted 4.3% in September… It was the worst performance since a 4.4% contraction in February 2013, according to Refinitiv data. Analysts polled by Reuters had forecast industrial output to fall 2%...”
Annual industrial output contracted 4.3% in September… It was the worst performance since a 4.4% contraction in February 2013, according to Refinitiv data. Analysts polled by Reuters had forecast industrial output to fall 2%...”
November 14 – Reuters (Craig Stirling):
“Asia’s biggest economies faltered and Germany barely dodged a recession.
A triple whammy of dreary data on Thursday began with sharp slowing in Japanese growth to a fraction of forecasts, before China reported the smallest increase in fixed-asset investment in at least two decades. In Europe, Germany posted surprise growth -- but only after a deeper contraction than previously estimated.”
“Asia’s biggest economies faltered and Germany barely dodged a recession.
A triple whammy of dreary data on Thursday began with sharp slowing in Japanese growth to a fraction of forecasts, before China reported the smallest increase in fixed-asset investment in at least two decades. In Europe, Germany posted surprise growth -- but only after a deeper contraction than previously estimated.”
November 15 – Bloomberg (Rich Miller):
“The U.S., China and other leading economies confront a massive funding gap of $15.8 trillion in 2050 to ensure lifetime financial support for their aging populations.
That’s according to a report spearheaded by former U.K. Financial Services Authority Chairman Adair Turner for the prestigious Group of 30, comprised of current and former policy makers. ‘If public policies and individual behaviors do not change, many countries’ pension systems will face a severe crisis, threatening either unaffordable public expenditure pressures or inadequate incomes for retirees,’ Turner said…”
“The U.S., China and other leading economies confront a massive funding gap of $15.8 trillion in 2050 to ensure lifetime financial support for their aging populations.
That’s according to a report spearheaded by former U.K. Financial Services Authority Chairman Adair Turner for the prestigious Group of 30, comprised of current and former policy makers. ‘If public policies and individual behaviors do not change, many countries’ pension systems will face a severe crisis, threatening either unaffordable public expenditure pressures or inadequate incomes for retirees,’ Turner said…”
November 12 – Bloomberg (Jeremy Hodges and Jesper Starn):
“Global greenhouse-gas pollution rose for a second year, ending a lull in emissions and putting the world on track for further increases through 2040 unless governments take radical action.
The findings in the International Energy Agency’s annual report on energy paint a grim outlook for efforts to rein in climate change and mark a setback for the increasingly vocal environmental movement. It said emissions levels would have to start falling almost immediately to bring the world into line with ambitions in the Paris Agreement to limit temperature increases to well below 2 degrees Celsius (3.6 degrees Fahrenheit) since the industrial revolution.”
“Global greenhouse-gas pollution rose for a second year, ending a lull in emissions and putting the world on track for further increases through 2040 unless governments take radical action.
The findings in the International Energy Agency’s annual report on energy paint a grim outlook for efforts to rein in climate change and mark a setback for the increasingly vocal environmental movement. It said emissions levels would have to start falling almost immediately to bring the world into line with ambitions in the Paris Agreement to limit temperature increases to well below 2 degrees Celsius (3.6 degrees Fahrenheit) since the industrial revolution.”
November 11 – Wall Street Journal (Matt Wirz):
“Stocks rose to records in October. One corner of the debt market had a rougher time. Some securities in the $680 billion market for collateralized loan obligations, or CLOs, lost about 5% in October, reflecting worries about rising risk in the complex investment vehicles.
The declines were a rare stumble for the CLO market, which has grown by about $350 billion in the past three years…, fueled by demand from government pensions, hedge funds and other yield-hungry investors. ‘We think there’s more volatility coming,’ said Maggie Wang, head of U.S. CLO strategy at Citigroup. ‘We recommend investors reduce risk and stay with cleaner portfolios and better managers.’ The trouble hitting CLOs could be a sign that the trillion-dollar market for high-yield bonds also is headed for a rough patch.”
“Stocks rose to records in October. One corner of the debt market had a rougher time. Some securities in the $680 billion market for collateralized loan obligations, or CLOs, lost about 5% in October, reflecting worries about rising risk in the complex investment vehicles.
The declines were a rare stumble for the CLO market, which has grown by about $350 billion in the past three years…, fueled by demand from government pensions, hedge funds and other yield-hungry investors. ‘We think there’s more volatility coming,’ said Maggie Wang, head of U.S. CLO strategy at Citigroup. ‘We recommend investors reduce risk and stay with cleaner portfolios and better managers.’ The trouble hitting CLOs could be a sign that the trillion-dollar market for high-yield bonds also is headed for a rough patch.”
November 13 – Bloomberg (Heejin Kim):
“South Korea’s $29 billion hedge-fund industry just saw its worst withdrawals ever, after its largest fund froze redemptions from investments on illiquid assets.
Outflows from local hedge funds reached a record 700 billion won ($598 million) in the past two months, with the total assets under management falling to 34.2 trillion won, according to Gilbert Choi, an analyst at NH Investment & Securities. It is the first time since November 2017 that they suffer two straight months of outflows. The industry had rapidly grown in recent years amid the country’s record-low interest rates.”
“South Korea’s $29 billion hedge-fund industry just saw its worst withdrawals ever, after its largest fund froze redemptions from investments on illiquid assets.
Outflows from local hedge funds reached a record 700 billion won ($598 million) in the past two months, with the total assets under management falling to 34.2 trillion won, according to Gilbert Choi, an analyst at NH Investment & Securities. It is the first time since November 2017 that they suffer two straight months of outflows. The industry had rapidly grown in recent years amid the country’s record-low interest rates.”
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