Saturday, December 28, 2019
Weekly Commentary:
Just the Facts
by Doug Noland
full column here:
Portions that
interested me
are below:
Ye Editor
For the week ending
December 27, 2019:
S&P500 up 0.6% (up 29.2% y-t-d)
Dow up 0.7% (up 22.8%).
Dow Utilities down 0.3% (up 22.2%)
Dow Transports up 0.3% (up 19.3%)
S&P 400 Midcaps little changed (up 24.0%)
Small cap Russell 2000 down 0.2% (up 23.8%).
Nasdaq100 up 1.1% (up 38.6%)
Nasdaq100 up 1.1% (up 38.6%)
Biotechs down 1.2% (up 21.0%).
With gold bullion jumping $29,
the HUI gold stock index surged 8.2%
(up 47.9%).
U.K.'s FTSE gained 0.8% (up 13.6% y-t-d).
Japan's Nikkei little changed (up 19.1% y-t-d).
France's CAC40 increased 0.3% (up 27.6%)
German DAX unchanged (up 26.3%).
Spain's IBEX 35 added 0.3% (up 13.6%).
Italy's FTSE MIB fell 1.0% (up 29.7%).
Brazil's Bovespa rose 1.2% (up 28.0%)
Mexico's Bolsa declined 0.5% (up 6.3%).
South Korea's Kospi unchanged (up 8.0%).
India's Sensex dipped 0.3% (up 15.3%).
China's Shanghai little changed (up 20.5%).
Turkey's Istanbul National 100 jumped 2.3% (up 24.6%).
Russia's MICEX gained 1.1% (up 28.7%).
Ten-year US Treasury bond yields
declined four bps to 1.88%
(down 81bps y-o-y).
(down 81bps y-o-y).
Freddie Mac 30-year fixed mortgage rates
added a basis point to 3.74%
(down 81bps y-o-y).
Fifteen-year rates were unchanged at 3.19%
(down 82bps).
Five-year hybrid ARM rates
jumped eight bps to 3.45%
(down 55bps).
Jumbo mortgage 30-year fixed rates
up seven bps to 4.00
(down 44bps).
Federal Reserve Credit last week surged $32.8bn to $4.120 TN.
Over the past year, Fed Credit expanded 1.9%.
M2 (narrow) "money" supply jumped $74.4bn last week to a record $15.420 TN.
"Narrow money" surged 7.6%, over the past year.
Commodities Watch:
Bloomberg Commodities Index
gained 1.2% this week (up 5.7% y-t-d).
Spot Gold jumped 2.0% to $1,511 (up 18%).
Silver surged 4.2% to $17.943 (up 15.5%).
WTI crude jumped $1.28 to $61.72 (up 36%).
Gasoline rose 2.4% (up 32%)
Natural Gas sank 4.2% (down 24%).
Copper increased 0.8% (up 8%).
Wheat jumped 2.6% (up 11%).
Corn increased 0.6% (up 4%).
News in the Past Week
December 24 – CNBC (Jesse Pound):
"The value of global equities began the year just under $70 trillion but has now surpassed $85 trillion,
according to… Deutsche Bank’s Torsten Slok… Central banks around the world have taken a more dovish approach, boosting markets. The Federal Reserve has cut its benchmark interest rate three times this year, and the European Central Bank cut its already negative rates even further.”
December 22 – CNBC (Jacob Pramuk):
“President Donald Trump signed bills Friday to prevent a government shutdown and make major changes to U.S. health policy.
The president approved the $1.4 trillion appropriations package with only hours to spare before funding lapsed Saturday. The legislation, which boosts funding for both domestic programs and the military, keeps the government running through Sept. 30.”
December 24 – Wall Street Journal (Michael Wursthorn):
“The S&P 500’s 29% rise for the year, on track for the best showing since 2013, stands out in part because corporate earnings have contributed a modest 0.4% to the climb.
Rising earnings are typically the most dependable fuel for sustained stock-price gains, so the sight of major indexes climbing to records while profits shuffle behind often stokes concern about the risks of runaway sentiment, as seen in the 2000 dot-com bust.”
December 23 – Bloomberg (Eliza Ronalds-Hannon):
“Retailers are strapping in for the final days of their traditional do-or-die holiday shopping period. For some, that could be meant literally, as creditors and vendors decide which ones are still worth supporting in a field plagued by fewer shoppers, more online competition and too much debt…
In 2019 alone, Coresight Research estimates, retailers have shut more than 9,300 stores.”
December 27 – Wall Street Journal (Eric Morath and Jeffrey Sparshott):
“Wages for the typical worker—nonsupervisory employees who account for 82% of the workforce—are rising at the fastest rate in more than a decade, a sign that the labor market has tightened sufficiently to convey bigger pay increases to lower-paid employees…
A short supply of workers, increased poaching and minimum-wage increases have helped those nearer to the bottom of the pay scale. Pay for the bottom 25% of wage earners rose 4.5% in November from a year earlier… Wages for the top 25% of earners rose 2.9%."
December 26 – CNBC (Amelia Lucas):
“The move toward a $15 minimum wage is gaining steam, with 21 states raising minimum wages in 2019 and more increases on the way in 2020.
Restaurant workers and Democratic presidential candidates are among those leading the charge for higher wages.”
December 22 – Wall Street Journal (Christopher M. Matthews, Bradley Olson and Allison Prang):
“Some of the banks that helped fuel the fracking boom are beginning to question the industry’s fundamentals, as many shale wells produce less than companies forecast.
Banks have begun to tighten requirements on revolving lines of credit, an essential lifeline for smaller companies, as these institutions revise estimates on the value of some shale reserves held as collateral for loans to producers… Some large financial institutions… are likely to decrease the size of current and future loans to shale companies linked to reserves as a result of their semiannual reviews of the loans, the people say. The banks are concerned that if some companies go bankrupt, their assets won’t cover the loans, the people say.”
December 23 – Bloomberg (Gerson Freitas Jr):
“U.S. utilities are on a record borrowing spree this year, selling more than $90 billion in bonds for the first time ever.
The surge in debt from NextEra Energy Inc., Duke Energy Inc. and other power giants comes as interest rates are at historic lows, leaving investors hungry for the safe and relatively strong returns offered by utility bonds… ‘Financing costs are lower than we ever thought they would be,’ Morgan Stanley analyst Stephen Byrd said… ‘The low-interest rate environment helps the deployment of renewables.’”
December 23 – Wall Street Journal (Grace Zhu and Chao Deng):
“China will cut import tariffs for frozen pork, pharmaceuticals and some high-tech components starting from Jan. 1, a move that comes as Beijing and Washington are trying to complete a phase-one trade deal.
The plan, approved by China’s cabinet, will lower tariffs for all trading partners on 859 types of products to below the rates that most-favored nations enjoy…”
December 25 – Wall Street Journal (Chuin-Wei Yap):
“Tens of billions of dollars in financial assistance from the Chinese government helped fuel Huawei Technologies Co.’s rise to the top of global telecommunications, a scale of support that in key measures dwarfed what its closest tech rivals got from their governments.
“Tens of billions of dollars in financial assistance from the Chinese government helped fuel Huawei Technologies Co.’s rise to the top of global telecommunications, a scale of support that in key measures dwarfed what its closest tech rivals got from their governments.
A Wall Street Journal review of Huawei’s grants, credit facilities, tax breaks and other forms of financial assistance details for the first time how Huawei had access to as much as $75 billion in state support as it grew from a little-known vendor of phone switches to the world’s largest telecom-equipment company—helping Huawei offer generous financing terms and undercut rivals’ prices by some 30%, analysts and customers say.”
December 23 – Bloomberg:
“China has a mounting debt problem. Not just over-leveraged companies, but a rapid build-up on household balance sheets that is hitting records.
You can blame youth for a borrowing binge that, if left unchecked, could be China’s next credit bubble. Household debt hit levels of 57% of gross domestic product in the third quarter…, more than double just 27% in 2010. Fitch Ratings said in July that it was surging at a pace roughly double nominal GDP growth. Behind it lies increasing use of mortgages, credit cards and smartphone lending apps. As a percentage of disposable income, household debt jumped to 99.9% in 2018 from 93.4% a year earlier…”
You can blame youth for a borrowing binge that, if left unchecked, could be China’s next credit bubble. Household debt hit levels of 57% of gross domestic product in the third quarter…, more than double just 27% in 2010. Fitch Ratings said in July that it was surging at a pace roughly double nominal GDP growth. Behind it lies increasing use of mortgages, credit cards and smartphone lending apps. As a percentage of disposable income, household debt jumped to 99.9% in 2018 from 93.4% a year earlier…”
December 25 – Financial Times (Don Weinland):
“Corporate defaults in China surged to a record high in 2019, raising new questions over how policymakers in Beijing will manage mounting financial distress among large private and state-owned companies.
Onshore corporate defaults hit Rmb130bn ($18.6bn) in the final weeks of the year, breaking the record of Rmb122bn last year… Private companies that expanded rapidly in recent years, accruing large piles of debt, have been at the heart of the explosion in corporate distress. Some of the country’s leaders in sectors such as chemicals and textiles have faced financial pressures in recent weeks.”
“Corporate defaults in China surged to a record high in 2019, raising new questions over how policymakers in Beijing will manage mounting financial distress among large private and state-owned companies.
Onshore corporate defaults hit Rmb130bn ($18.6bn) in the final weeks of the year, breaking the record of Rmb122bn last year… Private companies that expanded rapidly in recent years, accruing large piles of debt, have been at the heart of the explosion in corporate distress. Some of the country’s leaders in sectors such as chemicals and textiles have faced financial pressures in recent weeks.”
December 22 – Reuters (Bart Meijer):
“Interest rates in the euro zone could remain historically low for years, but the European Central Bank’s (ECB) ultra-loose monetary policy risks becoming counterproductive, ECB governing council member Klaas Knot said…
‘I do not have a crystal ball, but I cannot rule out that the current low interest rate environment could last another five years’, Knot told… De Volkskrant. ‘This worries me, because temporarily low interest rates are something quite different from persistently low interest rates.’”
“Interest rates in the euro zone could remain historically low for years, but the European Central Bank’s (ECB) ultra-loose monetary policy risks becoming counterproductive, ECB governing council member Klaas Knot said…
‘I do not have a crystal ball, but I cannot rule out that the current low interest rate environment could last another five years’, Knot told… De Volkskrant. ‘This worries me, because temporarily low interest rates are something quite different from persistently low interest rates.’”
December 26 – Reuters (Leika Kihara and Yoshifumi Takemoto):
“The Bank of Japan has nearly exhausted its policy ammunition to boost the economy as deepening negative interest rates, seen as the most likely step if it were to expand stimulus, will do more harm than good, former BOJ Deputy Governor Toshiro Mutoh said. …He questioned BOJ Governor Haruhiko Kuroda’s argument that the central bank could take short-term rates deeper into negative territory if the economy needed more stimulus. ‘There are too many demerits to deepening negative rates,’ Mutoh told Reuters…”
“The Bank of Japan has nearly exhausted its policy ammunition to boost the economy as deepening negative interest rates, seen as the most likely step if it were to expand stimulus, will do more harm than good, former BOJ Deputy Governor Toshiro Mutoh said. …He questioned BOJ Governor Haruhiko Kuroda’s argument that the central bank could take short-term rates deeper into negative territory if the economy needed more stimulus. ‘There are too many demerits to deepening negative rates,’ Mutoh told Reuters…”
December 19 – Financial Times (Tommy Stubbington):
“Developing countries racked up a ‘towering’ $55tn of debt by the end of last year, in a borrowing surge since the financial crisis that has been the fastest and widest in modern history, according to World Bank research. Fuelled by the era of very low interest rates, total debt has rocketed to 170% of emerging markets’ gross domestic product, a 54 percentage point increase since 2010… ‘The size, speed and breadth of the latest debt wave should concern us all,’ said David Malpass, World Bank group president. The bank warned that, on many measures, emerging economies were more vulnerable today than before the global financial crisis. Three-quarters have budget deficits, while corporate debt denominated in foreign currencies is much higher and current account deficits are four times larger than in 2007.”
“Developing countries racked up a ‘towering’ $55tn of debt by the end of last year, in a borrowing surge since the financial crisis that has been the fastest and widest in modern history, according to World Bank research. Fuelled by the era of very low interest rates, total debt has rocketed to 170% of emerging markets’ gross domestic product, a 54 percentage point increase since 2010… ‘The size, speed and breadth of the latest debt wave should concern us all,’ said David Malpass, World Bank group president. The bank warned that, on many measures, emerging economies were more vulnerable today than before the global financial crisis. Three-quarters have budget deficits, while corporate debt denominated in foreign currencies is much higher and current account deficits are four times larger than in 2007.”
December 22 – Financial Times (James Politi and Demetri Sevastopulo):
“A top US development finance official has warned that China's $1.3tn global spending spree on infrastructure is destined to collapse, shattering some emerging market economies.
Adam Boehler, the chief executive of the US International Development Finance Corporation, told the Financial Times that China’s international investments were ‘100%’ like a house of cards because of ‘debt overload, poor infrastructure, bribes [and] lack of transparency’. ‘Everything comes around, it’s only a matter of time. It was only a matter of time before WeWork came around, right?,’ Mr Boehler said… ‘We have to be there as an alternative because I could see China take down a whole bunch of emerging countries . . . there will be more and more cracks and then the glass will break,’ he added.”
“A top US development finance official has warned that China's $1.3tn global spending spree on infrastructure is destined to collapse, shattering some emerging market economies.
Adam Boehler, the chief executive of the US International Development Finance Corporation, told the Financial Times that China’s international investments were ‘100%’ like a house of cards because of ‘debt overload, poor infrastructure, bribes [and] lack of transparency’. ‘Everything comes around, it’s only a matter of time. It was only a matter of time before WeWork came around, right?,’ Mr Boehler said… ‘We have to be there as an alternative because I could see China take down a whole bunch of emerging countries . . . there will be more and more cracks and then the glass will break,’ he added.”
December 26 – Bloomberg (Fabiola Moura, Vinícius Andrade and Patricia Lara):
“Sao Paulo real estate has never been so hot. Walking around Brazil’s wealthiest city, it’s impossible to avoid the construction sites suddenly breathing life into formerly empty lots.
One street alone in Itaim Bibi, the city’s financial district, has five skyscrapers going up. Newspapers are packed with ads for new high rises targeting just about anyone with a steady paycheck. And then there are the real estate brokers. In some neighborhoods, they seem to be everywhere, waiting to pounce on any passer-by who might seem like a potential buyer. They lurk outside of bakeries and wait at traffic lights, proffering leaflets showing grand renderings of buildings covered in lush green plants or packed with all the services of a five-star hotel.”
“Sao Paulo real estate has never been so hot. Walking around Brazil’s wealthiest city, it’s impossible to avoid the construction sites suddenly breathing life into formerly empty lots.
One street alone in Itaim Bibi, the city’s financial district, has five skyscrapers going up. Newspapers are packed with ads for new high rises targeting just about anyone with a steady paycheck. And then there are the real estate brokers. In some neighborhoods, they seem to be everywhere, waiting to pounce on any passer-by who might seem like a potential buyer. They lurk outside of bakeries and wait at traffic lights, proffering leaflets showing grand renderings of buildings covered in lush green plants or packed with all the services of a five-star hotel.”
December 26 – Reuters (Ben Blanchard and Babak Dehghanpisheh):
“China, Iran and Russia will hold joint naval drills starting on Friday in the Indian Ocean and Gulf of Oman, China’s defense ministry said…,
amid heightened tension in the region between Iran and the United States. China will send the Xining, a guided missile destroyer, to the drills, which will last until Monday and are meant to deepen cooperation between the three countries’ navies, ministry spokesman Wu Qian told a monthly news briefing.”
“China, Iran and Russia will hold joint naval drills starting on Friday in the Indian Ocean and Gulf of Oman, China’s defense ministry said…,
amid heightened tension in the region between Iran and the United States. China will send the Xining, a guided missile destroyer, to the drills, which will last until Monday and are meant to deepen cooperation between the three countries’ navies, ministry spokesman Wu Qian told a monthly news briefing.”
December 26 – Reuters (Ece Toksabay and Ali Kucukgocmen):
“Turkey will send troops to Libya at the request of Tripoli as soon as next month, President Tayyip Erdogan said…, putting the North African country’s conflict at the center of wider regional frictions.”
“Turkey will send troops to Libya at the request of Tripoli as soon as next month, President Tayyip Erdogan said…, putting the North African country’s conflict at the center of wider regional frictions.”
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