Saturday, January 11, 2020
Weekly Commentary:
Issues 2020
by Doug Noland
full column is here:
Portions that
interested me
are below
Ye Editor
For the week ending
January 10, 2020:
S&P500 gained 0.9% (up 1.1% y-t-d)
Dow Industrials rose 0.7% (up 1.0%)
Dow Utilities increased 0.8% (down 0.4%)
Dow Transports added 0.6% (up 0.7%)
S&P 400 Midcaps slipped 0.2% (down 0.6%)
Small cap Russell 2000 dipped 0.2% (down 0.6%)
Nasdaq100 jumped 2.0% (up 2.7%)
Biotechs surged 4.3% (up 2.6%).
Alhough bullion gained $10,
the HUI gold index dropped 3.0%
(down 4.5%).
U.K.'s FTSE declined 0.5% (up 0.6%).
Japan's Nikkei gained 0.8% (up 0.8% y-t-d)
France's CAC40 little changed (up 1.0%)
German DAX jumped 2.0% (up 1.8%).
Spain's IBEX 35 fell 0.8% (up 0.3%).
Italy's FTSE MIB rose 1.3% (up 2.2%).
Brazil's Bovespa dropped 1.9% (down 0.1%)
Mexico's Bolsa unchanged (up 2.6%).
South Korea's Kospi gained 1.4% (up 0.4%).
India's Sensex increased 0.3% (up 0.8%).
China's Shanghai added 0.3% (up 1.4%).
Turkey's Istanbul National 100 advanced 4.4% (up 3.7%).
Russia's MICEX rose 1.5% (up 2.6%).
US BONDS & MORTGAGES:
Ten-year Treasury bond yields
increased three bps to 1.82% (down 10bps).
Thirty year Trteasury bond yields
added three bps to 2.28% (down 11bps).
Benchmark Fannie Mae MBS yields
slipped a basis point to 2.62% (down 9bps).
Freddie Mac 30-year fixed mortgage rates
dropped eight bps to 3.64% (down 81bps y-o-y).
Fifteen-year rates
fell nine bps to 3.07% (down 82bps).
Five-year hybrid ARM rates
sank 16 bps to 3.30% (down 53bps).
Jumbo mortgage 30-year fixed rates
down nine bps to 3.95% (down 45bps).
Federal Reserve Credit
last week
gained $6.9bn to $4.128 TN,
Over the past year, Fed Credit
expanded $111.5bn, or 2.8%.
M2 (narrow) "money" supply
gained $3.5bn last week
to a record $15.428 TN.
"Narrow money" surged $1.003 TN,
or 7.0%, over the past year.
COMMODITIES:
Bloomberg Commodities Index rallied 0.5% (up 0.9% y-t-d).
Spot Gold gained 0.7% to $1,562 (up 2.9%).
Silver slipped 0.3% to $18.105 (up 1.0%).
WTI crude dropped $4.01 to $59.04 (down 3.3%).
Gasoline sank 5.1% (down 2%)
Natural Gas rallied 3.4% (up 1%).
Copper gained 1.0% (up 1%).
Wheat jumped 1.8% (up 1%).
Corn slipped 0.2% (down 1%).
THE NEWS:
January 5 – Bloomberg (Ranjeetha Pakiam and Justina Vasquez):
“Gold surged to its highest since 2013 as rising tensions in the Middle East stoked demand for havens, with Goldman Sachs… seeing more room to run. Palladium extended gains to a fresh record. Bullion neared $1,600 an ounce after Tehran said it would no longer abide by any limits on its enrichment of uranium following the killing of General Qassem Soleimani.”
January 6 – Financial Times (Chloe Cornish and Andrew England):
“When Donald Trump ordered the air strikes that killed Qassem Soleimani he took his highest-stakes gamble yet as he ramps up pressure on Iran and seeks to counter the Islamic regime’s regional influence. For years, Washington had viewed Soleimani as its arch-nemesis. The commander of Iran’s elite Quds force cultivated a network of Iranian proxies across the Middle East that the Trump administration accuses of attacking American targets and destabilising the region. But rather than weaken the influence of Tehran and its proxies in Iraq, the US president’s decision to eliminate Soleimani as he left Baghdad airport threatens to strengthen it, Iraqis and western analysts said. ‘Trump has accelerated Soleimani’s work in Iraq,’ said one Iraqi official. ‘They created a mess because they couldn’t understand Iraq.’”
January 8 – Bloomberg (Craig Torres):
“One of the Federal Reserve Board’s top economists said a U.S. recession could drive both short- and longer-term Treasury yields close to zero, limiting the tools the central bank has to aid the economy. Michael Kiley, a deputy director in the Fed Board’s financial stability unit, said even a moderate recession in the U.S. ‘may result in near-zero interest rates at long maturities, bringing U.S. experience closer to that seen in Europe and Japan.’ The research was published on the Fed Board’s website…”
January 7 – CNBC (Diana Olick):
“The average rate on the 30-year fixed mortgage fell to the lowest level since October this week, at 3.69%... That has an already competitive housing market heating up even more. Open houses, which are usually pretty rare the first week in January, were plentiful in markets across the nation this year, as buyers hope to get in before the competition gets even worse. Buyer sentiment in the housing market remained high in December, according to a monthly survey from Fannie Mae — the Home Purchase Sentiment Index.”
January 5 – Wall Street Journal (Nicole Friedman):
“Home sales are slowing in wildfire-prone areas of California as insurers retreat from high-risk regions, say real-estate agents and homeowners. Insurance companies have continued to reduce their wildfire exposure in the past two years after paying more than $24 billion for California wildfire losses in 2017 and 2018. Home insurers have declined to renew policies for tens of thousands of homeowners across the state, and regulators expect more nonrenewals in the coming months. Real-estate agents say potential buyers are having difficulty obtaining insurance and are backing out of purchases or lowering their offers…”
January 6 – Wall Street Journal (Paul J. Davies):
“ In the U.S. at the start of December, some 2.5% of leveraged loans were trading at less than 70% of face value, the most since September 2016, according to S&P Global Market Intelligence’s LCD… Analysts and investors blame the loose credit standards that characterized the market in recent years, encouraged by strong demand from yield-hungry investors. The hunt for yield also fed a boom in new issuance of structured loan funds known as collateralized loan obligations, or CLOs, which have been the biggest group of lenders in recent years.”
January 6 – Associated Press (Dee-Ann Durbin):
“The U.S. dairy industry, the largest in the world, is under severe pressure as the consumption habits of Americans shift. Borden Dairy Co. filed for bankruptcy protection, the second major U.S. dairy to do so in as many months. Borden produces nearly 500 million gallons of milk each year… It employs 3,300 people and runs 12 plants across the U.S.”
January 7 – CNBC (Evelyn Cheng):
“China remains vague on how much the country will increase purchases of U.S. farm goods, considered a critical part of a trade agreement with Washington. Han Jun, vice minister of agriculture and rural affairs, confirmed to Chinese financial news site Caixin that import quotas for wheat, corn and rice will not increase. ‘These are global quotas. We will not adjust them just for one country,’ Han told Caixin…”
January 8 – Reuters (Lusha Zhang and Ryan Woo):
“ The price of pork rose 97% over a year earlier despite increased imports of China’s staple meat and the release of thousands of tons from government stockpiles. Food prices rose 17.4% and overall consumer inflation was 4.5%, well above the ruling Communist Party’s official target of 3%. That matched November’s inflation, the highest since 2012.”
January 8 – Bloomberg:
“Car sales in China continued to fall in December, capping a second straight annual drop, though a slowing pace of declines suggests the world’s biggest market may be close to a bottom. Sales of sedans, sport utility vehicles, minivans and multipurpose vehicles fell 3.6% last month from a year earlier to 2.17 million units…”
January 9 – Financial Times (Sun Yu):
“When China’s bond issuers run into trouble, investors face an increasingly tough task in extracting any returns. Bond defaults across the world’s second-biggest economy are rising, with more borrowers failing either to repay creditors’ initial investments, or make regular interest payments. Typically, some investors can find a way to hold on to so-called distressed debt and recover scraps of cash… Now, though, returns are shrinking. In 2016, 46% of borrowers in default made some sort of principal or interest payments to bondholders, according to Wind… Last year, that total dropped to 13%.”
January 6 – Bloomberg (Subhadip Sircar):
“With credit growth at multi-year lows, Indian lenders have been binging on sovereign debt. With the government set to borrow more, the move is fraught with risk. Bond holdings as a proportion of aggregate deposits stood at about 29% in the two weeks ended Dec. 20, way higher than the 18.25% mandated by the central bank... That leaves banks exposed to losses if yields climb on higher federal borrowings.”
January 8 – Bloomberg:
“India’s budget deficit could widen to 3.8% of gross domestic product in the current fiscal year, breaching a target of 3.3%... The law allows the government to exceed the target by as much as half a percentage point… The government can also miss its target if it faces acts of war, a collapse in farm output, or the economy is undergoing structural reforms with unanticipated fiscal implications.”
January 9 – Bloomberg (Divya Patil):
“It’s the last thing India’s stricken credit markets need: a record debt bill. Companies must repay an unprecedented 5.9 trillion rupees ($83bn) of local notes this year, just as corporate defaults spike. Many firms are already struggling after economic growth slumped to its weakest since 2009.”
January 7 – Reuters (Michael Nienaber):
“German industrial orders fell unexpectedly in November on weak foreign demand and a lack of major contracts…, suggesting that a manufacturing slump will continue to curtail growth in Europe’s largest economy… Contracts for German goods decreased by 1.3% from the previous month, posting the steepest drop since July…”
January 6 – Reuters (Daniel Leussink):
“Japan’s services sector saw its deepest contraction in more than three years in December as business activity took a hit from weak demand at home and abroad… The final seasonally adjusted Jibun Bank Japan Services Purchasing Managers’ Index (PMI) fell to 49.4 in December from 50.3 in November…”
January 8 – Reuters (Martin Petty and Colin Packham):
“Australian authorities urged another mass evacuation across the heavily populated southeast on Thursday as a return of hot weather fanned huge bushfires threatening several towns and communities.”
January 5 – Reuters (Parisa Hafezi):
“Iran announced on Sunday it would abandon limitations on enriching uranium, taking a further step back from commitments to a 2015 nuclear deal with six major powers, but it would continue to cooperate with the U.N. nuclear watchdog… ‘Iran will continue its nuclear enrichment with no restrictions .... and based on its technical needs,’ a government statement cited by television said.”
January 6 – CNBC (Joanna Tan):
“President Donald Trump threatened Sunday to slap sanctions on Iraq after its parliament passed a resolution calling for the government to expel foreign troops from the country. Tensions in the Middle East spiraled last week after Trump called for a U.S. airstrike in Baghdad that killed a top Iranian general, Qasem Soleimani. …The U.S. president said: ‘If they do ask us to leave, if we don’t do it in a very friendly basis, we will charge them sanctions like they’ve never seen before ever. It’ll make Iranian sanctions look somewhat tame.’ ‘We have a very extraordinarily expensive air base that’s there. It cost billions of dollars to build. Long before my time. We’re not leaving unless they pay us back for it,’ Trump said.”
January 5 – Reuters (Ahmed Rasheed, Ahmed Aboulenein and Jeff Mason):
“Iraq’s parliament called… for U.S. and other foreign troops to leave as a backlash grows against the U.S. killing of a top Iranian general, and President Donald Trump doubled down on threats to target Iranian cultural sites if Tehran retaliates. Deepening a crisis that has heightened fears of a major Middle East conflagration, Iran said it was taking another step back from commitments under a 2015 nuclear deal with six major powers.”
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