Economic & Financial News for the week ending December 20, 2019

Saturday, December 21, 2019

Weekly Commentary: 

Last of the Great 

Central Bankers

by Doug Noland

full column here:

http://creditbubblebulletin.blogspot.com/2019/12/weekly-commentary-last-of-great-central.html

Portions that 

interested me 

are below:

Ye  Editor

For the week ending

December 20, 2019:

STOCKS:

S&P500 up 1.7% (up 28.5% y-t-d)

Dow Industrials up 1.1% (up 22.0%)

Dow Utilities up 2.7% (up 22.5%)

Dow Transports up 1.2% (up 18.9%)

S&P 400 Midcaps up 2.0% (up 24.2%)

Small cap Russell 2000 up 2.1% (up 24.0%)

Nasdaq100 up 2.2% (up 37.1%)

Biotechs gained 1.5% (up 22.5%)

With gold bullion up $5, 

HUI gold stock index down 2.8% 

(up 36.7%).

U.K.'s FTSE up 3.1% (up 12.7% y-t-d).

Japan's Nikkei down 0.9% (up 19.0% y-t-d). 

France's CAC40 up 1.7% (up 27.3%)

German DAX up 0.3% (up 26.1%). 

Spain's IBEX 35 up 1.2% (up 13.3%). 

Italy's FTSE MIB up 2.9% (up 31.0%). 

Brazil's Bovespa up 2.3% (up 26.5%)

Mexico's Bolsa up 0.6% (up 6.9%). 

South Korea's Kospi up 1.6% (up 8.0%).

India's Sensex up 1.6% (up 15.6%). 

China's Shanghai up 1.3% (up 20.5%). 

Turkey's Istanbul National 100 up 0.6% (up 21.8%). 

Russia's MICEX up 0.6% (up 27.3%).

U.S. MORTGAGES:

Freddie Mac 30-year fixed mortgage rates 

were unchanged at 3.73% 

   (down 89bps y-o-y). 

Fifteen-year rates 

were unchanged at 3.19% 

   (down 88bps). 

Five-year hybrid ARM rates 

added a basis point to 3.37% 

   (down 61bps). 

Jumbo mortgage 30-year fixed rates 

down five bps to 3.93% 

   (down 55bps).

Federal Reserve Credit 

surged $40.4bn 

last week

and was up 1.0%

in the past year.

M2 money supply 

declined $19.2bn 

last week

but was up 7.1% 

over the past year. 

US Ten-year Treasury bond yields 

jumped 10 bps to 1.92% 

(down 77bps y-o-y)

Commodities Watch:

Bloomberg Commodities Index 

up 1.2% this week (up 4.4% y-t-d). 

Spot Gold up 0.4% to $1,482 (up 15.5%). 

Silver up 1.2% to $17.224 (up 10.8%). 

WTI crude up 37 cents to $60.44 (up 33%). 

Gasoline up 2.6% (up 29%)

Natural Gas up 1.4% (down 21%). 

Copper up 0.9% (up 7%). 

Wheat up 1.8% (up 8%). 

Corn up 1.8% (up 3%).

NEWS  FROM  LAST  WEEK:

December 17 – Wall Street Journal (Sam Goldfarb): 

“Including price changes and interest payments, U.S. investment-grade corporate bonds have returned 14.2% year-to-date through Monday—on track for their first double-digit tally since 2009,

 according to Bloomberg Barclays data. Speculative-grade bonds have returned 13.5%. December is shaping up to be a particularly good month for corporate debt investors. Not only have higher-quality bonds rallied, as they have for most of the year, but prices have climbed on… bonds with near-rock bottom, or triple-C, ratings that investors have largely shunned since May.”

December 18 – CNBC (Yun Li): 

“The ‘phase one’ trade deal between the U.S. and China, supposedly a game changer for the global economy going by the stock market’s rise to a record after the announcement, has left many analysts and investors puzzled about what was specifically agreed to… Skepticism is brewing in the markets as much of the details have not been confirmed by both sides. China, in particular, has been reluctant to commit to the amount of agriculture products it’s willing to buy, while big numbers are floating from Washington. Beijing has also been quiet about tariffs on U.S. goods as well as an enforcement mechanism. ‘There remains more questions than answers,’ Chris Krueger, Washington strategist at Cowen, said… ‘It’s ‘more trade truce than deal ... It is unclear if any China tariffs on U.S. goods have been reduced ... Vague promises on IP protections.’”

December 14 – Wall Street Journal (James Mackintosh): 

“Are U.S. companies making more money than ever before, or are they mired in one of their longest profit slumps since World War II? 

Widely used measures have diverged in recent years, leaving many investors worrying that something is amiss. Look at pretax domestic profits as measured by the Bureau of Economic Analysis, and it is easy to be bearish. Profits are down 13% in five years, the biggest drop outside a recession since World War II. President Trump’s tax cut has cushioned the blow to earnings, with after-tax corporate profits falling only a little. Profit margins also are down sharply, with the pretax margin for domestic business lower than the postwar average and below where it stood from World War II until 1970. Falling domestic profits suggest companies are in deep trouble, avoiding an even deeper slump only thanks to tax cuts. Earnings by S&P 500 companies tell the opposite story. Reported earnings per share were at a record in the 12 months to June, up 31% in five years and forecast to keep rising. The after-tax profit margin is slightly down from a record last year, but still higher than any time before that.”

December 17 – Reuters (Lucia Mutikani): 

“U.S. homebuilding increased more than expected in November and permits for future home construction surged to a 12-1/2-year high 

as lower mortgage rates continue to boost the housing market and support the broader economy… Overall housing starts jumped 13.6% on a year-on-year basis in November. Building permits increased 1.4% to a rate of 1.482 million units in November, the highest level since May 2007.”

December 19 – CNBC (Diana Olick): 

“The number of homes for sale at the end of November was the lowest on record for the month, 

according to the National Association of Realtors, which began tracking this metric in 1999. There were just 1.66 million homes on the market, down 5.7% compared with November 2018. That represents a 3.7-month supply at the current sales pace, down from a 4-month supply a year ago. Supply is leanest on the low end, where demand is strongest. For homes priced below $100,000, inventory was down 15% annually. For those priced between $100,000 and $250,000, supplies were 7% lower annually… The housing shortage has reignited home prices, which had been cooling last year and into the first months of this year. The median price for an existing home sold in November was $271,300, the highest November price reading since the Realtors began tracking in 1999.”

December 19 – Reuters (Lindsay Dunsmuir): 

“U.S. home sales dropped more than expected in November due to an ongoing shortage of properties for sale, 

despite the sector receiving an overall boost from the Federal Reserve’s decision to cut interest rates this year. …Existing home sales fell 1.7% to a seasonally adjusted annual rate of 5.35 million units last month. October’s sales pace was downwardly revised to 5.44 million units… Existing home sales still rose 2.7% from one year ago, NAR said, the fifth straight month of year-on-year gains.”

December 15 – CNBC (Michael Ivanovitch): 

“Looking at the latest U.S.-China trade numbers, one wonders how the agreement announced last week could lead to an acceptable balance of bilateral trade accounts. China’s surplus on its U.S. goods trade in the first 10 months of this year was $294.5 billion, and amounted to 40% of America’s total trade gap. During the same period, Beijing slashed U.S. exports to China by 14.5% to $87.6 billion. By contrast, Chinese goods sales to the U.S. were more than four times larger at $382.1 billion.”

December 16 – Reuters (Eric M. Johnson, David Shepardson): 

“Boeing Co said… it would suspend production of its best-selling 737 MAX jetliner in January,

its biggest assembly-line halt in more than 20 years, as fallout from two fatal crashes of the now-grounded aircraft drags into 2020. Boeing… said it would not lay off any of the roughly 12,000 employees there during the production freeze, though the move could have repercussions across its global supply chain and the U.S. economy.”

December 17 – Bloomberg (Romy Varghese): 

“San Francisco is projecting a $420 million budget gap over the next two fiscal years as expenses such as pension contributions are rising faster than the growth in revenue for the technology hub.”

December 19 – Bloomberg (Sarah Husband and Ruth McGavin):

"The Financial Stability Board, which acts as a lookout for systemic risks in the banking system, encountered ‘important’ data gaps in a study of exposure to leveraged loans and collateralized-loan obligations…

The global stock of leveraged loans to highly indebted companies may be as high as $3.2 trillion… Meanwhile, borrowers have become more indebted and investor protections included in documentation for loans have gotten weaker.”

December 15 – Reuters (Lusha Zhang and Ryan Woo):

“China’s new home prices grew at their weakest pace in nearly two years in November while property investment also eased, 

with tightening policies continuing to cool the market even as some local easing is expected to prevent a sharp slowdown… Average new home prices in China’s 70 major cities rose 0.3% in November from the previous month, lower than the 0.5% growth reported in October and the weakest since February 2018… On an annual basis, average new home prices in the 70 cities rose 7.1% in November, down from 7.8% in October… Most of the 70 cities surveyed still reported monthly price increases for new homes, but the number was down to 44 from 50 in October.”

December 16 – Financial Times (Don Weinland): 

“Years of aggressive, highly leveraged expansion have also turned Zouping and several neighbouring counties into a hotspot for corporate defaults, 

most recently with privately held corn oil producer Xiwang Group’s failure to repay a Rmb1bn ($143m) bond. The distress in Shandong has become a harbinger for financial risk across the country this year. A wave of defaults on corporate bonds has pushed China’s private sector default rate to a record 4.9% as of the end of November, according to Fitch…, up from 0.6% in 2014.”

December 14 – Financial Times (Yuan Yang and Patrick Mathurin): 

“Tech spats between China and the US have encompassed smartphones and social media apps — and now the humble office keyboard. 

This week’s news that Beijing has ordered all government offices and public institutions to remove foreign computer equipment and software within three years marked another example of ‘decoupling’ between the two countries’ tech sectors. The new directive, nicknamed ‘3-5-2’, aims to increase China’s reliance on homemade technology and could deal a blow to foreign technology groups such as HP, Dell Technologies and Microsoft.”

December 19 – Wall Street Journal (Francis Yoon):

“Companies in developing nations sold a record $118 billion of high-yield dollar bonds this year, and are likely to keep up a fast pace in 2020. 

The total has more than doubled from five years earlier, according to Dealogic... The figures cover debt in dollars with subinvestment grade credit ratings, or no rating, and run to Dec. 18. They don’t include bonds sold by governments.”

December 17 – New York Times (Liz Alderman): 

“Europe’s rock-bottom interest rates meant to power a recovery are fueling a property boom that is creating a new set of problems. 

Money is so cheap — a 20-year mortgage can be had in Paris or Frankfurt at a rate of less than 1% — that borrowers are flocking to buy apartments and houses. And institutional investors, seeing a chance for lucrative returns, are acquiring swaths of residential real estate in cities across Europe. In some parts of Europe, said Jörg Krämer, the chief economist at Commerzbank…, valuations have already returned to or exceeded levels that preceded the Continent’s debt crisis a decade ago, igniting concerns that the property boom could end badly.”

December 17 – Reuters (Daniel Leussink): 

“Japan’s exports slipped for a 12th straight month in November, 

as declining shipments to the United States and China hit the trade-reliant economy, raising the risk of a fourth-quarter contraction. …Japan’s exports fell 7.9% year-on-year in November, a smaller decline than the 8.6% decline expected…”

December 13 – Reuters (Heekyong Yang and Josh Smith): 

“North Korea said it had successfully conducted another test at a satellite launch site, the latest in a string of developments aimed at ‘restraining and overpowering the nuclear threat of the U.S.’, state news agency KCNA reported…”

December 18 – Bloomberg (Pankaj Mishra):

 “India has exploded into protests against a citizenship law that explicitly discriminates against its 200 million-strong Muslim population. 

Narendra Modi’s Hindu nationalist government has responded with police firing on demonstrators and assaults on university campuses. The global wildfire of street protests, from Sudan to Chile, Lebanon to Hong Kong, has finally reached the country whose 1.3 billion population is mostly below the age of 25. The social, political, and economic implications couldn’t be more serious. It was only last month that students on the campus of Hong Kong Polytechnic University were throwing petrol bombs at the police, and fielding, in turn, teargas, rubber bullets and water cannons. This violent resistance to an authoritarian state is novel to Hong Kong…. The campaigners for democracy in Hong Kong today have also traveled very far away from the Chinese students who occupied Tiananmen Square in 1989, and to whom they have been wrongly compared.”