Saturday, February 29, 2020
Weekly Commentary:
Hair of the Dog
by Doug Noland
full Noland column here:
Portions that
interested me
are below:
Ye Editor
For the Week Ending
February 28, 2020:
STOCKS:
S&P500 down 11.5%
(down 8.6% y-t-d)
Dow Industrials down 12.4%
(down 11.0%)
Dow Utilities down 11.6%
(down 3.7%)
Dow Transports down 13.9%
(down 13.9%)
S&P 400 Midcaps down 13.0%
(down 12.1%)
Small cap Russell 2000 down 12.0%
(down 11.5%)
Nasdaq100 down 10.4%
(down 3.1%)
Biotechs down 7.8%
(down 3.5%).
With gold bullion sinking $58,
the HUI gold stock index fell 13.7%
(down 10.9%).
U.K.'s FTSE down 11.1%
(down 12.8% y-t-d).
Japan's Nikkei down 9.6%
(down 10.6%).
France's CAC40 down 11.9%
(down 11.2%)
German DAX down 12.4%
(down 10.3%).
Spain's IBEX 35 down 11.8%
(down 8.6%).
Italy's FTSE MIB down 11.3%
(down 6.5%)
Brazil's Bovespa down 8.4%
(down 9.9%)
Mexico's Bolsa down 7.8%
(down 5.1%).
South Korea's Kospi down 8.1%
(down 9.6%).
India's Sensex down 7.0%
(down 7.2%).
China's Shanghai down 5.2%
(down 5.6%).
Turkey's Istanbul National 100 down 9.3%
(down 7.4%).
Russia's MICEX down 10.3%
(up 8.6%).
BONDS & MORTGAGES
US Ten-year Treasury yields fell 32 bps to 1.15%
(down 77bps year-over-year).
US Long bond yields dropped 24 bps to 1.68%
(down 71bps).
Freddie Mac 30-year fixed mortgage rates
declined four bps to 3.45%
(down 90bps y-o-y).
Fifteen-year rates fell four bps to 2.95%
(down 82bps).
ive-year hybrid ARM rates
dropped five bps to 3.20%
(down 64bps)
Jumbo mortgage 30-year fixed rates
down four bps to 3.70%
(down 42bps).
Federal Reserve Credit last week declined $25.3bn to $4.119 TN, with a 24-week gain of $393 billion. Over the past year, Fed Credit expanded $180bn, or 4.6%.
M2 (narrow) "money" supply rose $21.3bn last week to a record $15.530 TN. "Narrow money" surged $1.085 TN, or 7.5%, over the past year.
Commodities Watch:
Bloomberg Commodities Index sank 6.9%
(down 12.2% y-t-d).
Spot Gold declined 3.5% to $1,586
(up 4.4%).
Silver sank 11.6% to $16.457
(up 8.2%).
WTI crude collapsed $8.70 to $44.76
(down 27%).
Gasoline dropped 10.2%
(down 12%)
Natural Gas sank 11.6%
(down 23%).
Copper fell 2.9%
(down 9%).
Wheat dropped 4.9%
(down 6%).
Corn declined 3.3%
(down 8%).
NEWS FROM LAST WEEK
February 26 – Reuters (David Stanway and Josh Smith):
“The number of new coronavirus infections inside China - the source of the outbreak - was for the first time overtaken by fresh cases elsewhere on Wednesday, as U.S. markets turned negative on fears over the rapid global spread of the disease. Asia reported hundreds of new cases, Brazil confirmed Latin America’s first infection and the new disease - COVID-19 - also hit Pakistan, Greece and Algeria. Global food conglomerate Nestle suspended all business travel until March 15.”
“The number of new coronavirus infections inside China - the source of the outbreak - was for the first time overtaken by fresh cases elsewhere on Wednesday, as U.S. markets turned negative on fears over the rapid global spread of the disease. Asia reported hundreds of new cases, Brazil confirmed Latin America’s first infection and the new disease - COVID-19 - also hit Pakistan, Greece and Algeria. Global food conglomerate Nestle suspended all business travel until March 15.”
February 28 – Bloomberg (David Qu and Chang Shu):
“China continues to crawl back to work, but still has a long way to go to get fully back in business. The economy is running at 60-70% of its normal level, up from 50-60% a week ago, according to our latest estimates. More service-sector firms are starting to resume operations, and the government’s effort to kickstart activity more broadly has intensified… Data on passenger transportation suggest that more staff are returning to their working cities. The end of a two-week quarantine period for people who traveled over the extended Lunar New Year holiday means more workers are able to get back on the job.”
“China continues to crawl back to work, but still has a long way to go to get fully back in business. The economy is running at 60-70% of its normal level, up from 50-60% a week ago, according to our latest estimates. More service-sector firms are starting to resume operations, and the government’s effort to kickstart activity more broadly has intensified… Data on passenger transportation suggest that more staff are returning to their working cities. The end of a two-week quarantine period for people who traveled over the extended Lunar New Year holiday means more workers are able to get back on the job.”
February 23 – Bloomberg:
“A monthly survey on the health of China’s small and medium-sized businesses plummeted to a record-low in February, highlighting the negative economic impact brought by the ongoing coronavirus outbreak. The SMEI index complied by Standard Chartered Plc economists Lan Shen and Ding Shuang fell to 40.5 this month, the lowest since the gauge was created in 2014… A sub-index evaluating ‘current performance’ dropped even more sharply to 31.3, while the reading for the outlook was better than the headline number, signaling some hope for recovery once the outbreak is contained.”
“A monthly survey on the health of China’s small and medium-sized businesses plummeted to a record-low in February, highlighting the negative economic impact brought by the ongoing coronavirus outbreak. The SMEI index complied by Standard Chartered Plc economists Lan Shen and Ding Shuang fell to 40.5 this month, the lowest since the gauge was created in 2014… A sub-index evaluating ‘current performance’ dropped even more sharply to 31.3, while the reading for the outlook was better than the headline number, signaling some hope for recovery once the outbreak is contained.”
February 26 – Reuters (Brenda Goh and Yilei Sun):
“Auto sales in China fell 18.7% in January, more than expected and marking the industry’s 19th consecutive month of sales decline, data from the country’s biggest auto industry association showed…”
“Auto sales in China fell 18.7% in January, more than expected and marking the industry’s 19th consecutive month of sales decline, data from the country’s biggest auto industry association showed…”
February 27 – Bloomberg:
“Chinese banks are taking extraordinary measures to avoid recognizing bad loans, seeking to shield themselves and cash-strapped borrowers from the economic fallout of the coronavirus outbreak. Some of the measures, which include rolling over loans to companies at risk of missing payment deadlines and relaxing guidelines on how to categorize overdue debt, have the explicit approval of regulators in Beijing. Some lenders are also refraining from reporting delinquencies to the country’s centralized credit-scoring system and allowing borrowers to skip interest payments for as long as six months, according to people familiar…”
“Chinese banks are taking extraordinary measures to avoid recognizing bad loans, seeking to shield themselves and cash-strapped borrowers from the economic fallout of the coronavirus outbreak. Some of the measures, which include rolling over loans to companies at risk of missing payment deadlines and relaxing guidelines on how to categorize overdue debt, have the explicit approval of regulators in Beijing. Some lenders are also refraining from reporting delinquencies to the country’s centralized credit-scoring system and allowing borrowers to skip interest payments for as long as six months, according to people familiar…”
February 26 – Associated Press (Joe McDonald): “Factories that make the world’s smartphones, toys and other goods are struggling to reopen after a virus outbreak idled China’s economy. But even with the ruling Communist Party promising help, companies and economists say it may be months before production is back to normal. The problem is supply chains — the thousands of companies that provide components, from auto parts to zippers to microchips. China’s are famously nimble and resourceful, but they lack raw materials and workers after the most intensive anti-disease measures ever imposed closed factories, cut off most access to cities with more than 60 million people and imposed travel curbs.”
February 27 – New York Times (Keith Bradsher and Niraj Chokshi):
“Some docks in China are clogged with arriving shipping containers or iron ore. Warehouses overflow with goods that cannot be exported for lack of trucks. And many factories are idle because components are not reaching them. As Beijing tries to jump-start an economy hobbled by its coronavirus epidemic, one of the biggest obstacles lies in the country’s half-paralyzed logistics industry. China has some of the world’s biggest and newest seaports and airports, but using them has become a lot harder because of roadblocks, quarantines and factory closings. Global shipping has been one of the biggest casualties. More tonnage of container ships is idled around the world now than during the global financial crisis, according to Alphaliner, a shipping data service. Daily charter rates for tankers and bulk freighters have plummeted more than 70% since early January…”
“Some docks in China are clogged with arriving shipping containers or iron ore. Warehouses overflow with goods that cannot be exported for lack of trucks. And many factories are idle because components are not reaching them. As Beijing tries to jump-start an economy hobbled by its coronavirus epidemic, one of the biggest obstacles lies in the country’s half-paralyzed logistics industry. China has some of the world’s biggest and newest seaports and airports, but using them has become a lot harder because of roadblocks, quarantines and factory closings. Global shipping has been one of the biggest casualties. More tonnage of container ships is idled around the world now than during the global financial crisis, according to Alphaliner, a shipping data service. Daily charter rates for tankers and bulk freighters have plummeted more than 70% since early January…”
February 24 – Wall Street Journal (Mike Bird):
“The rapid spread of coronavirus in South Korea is bleak news for global manufacturers. China-style industrial shutdowns look increasingly likely in a country that punches above its weight—perhaps more than any other—in global supply chains. On Sunday South Korean president Moon Jae-in raised the country’s virus alert to red after a surge in cases in the city of Daegu. A Samsung Electronics facility near the city has already closed after an employee was diagnosed with the disease. The Kospi stock index dropped nearly 4% Monday and the Korean won was down more than 1% against the U.S. dollar. South Korea is a medium-size country, but a mammoth in trade. The country’s exports are equivalent to 44% of its GDP, second only to Germany among major advanced economies.”
“The rapid spread of coronavirus in South Korea is bleak news for global manufacturers. China-style industrial shutdowns look increasingly likely in a country that punches above its weight—perhaps more than any other—in global supply chains. On Sunday South Korean president Moon Jae-in raised the country’s virus alert to red after a surge in cases in the city of Daegu. A Samsung Electronics facility near the city has already closed after an employee was diagnosed with the disease. The Kospi stock index dropped nearly 4% Monday and the Korean won was down more than 1% against the U.S. dollar. South Korea is a medium-size country, but a mammoth in trade. The country’s exports are equivalent to 44% of its GDP, second only to Germany among major advanced economies.”
February 22 – Associated Press (Paul Wiseman):
“American dairy farmers, distillers and drugmakers have been eager to break into India, the world’s seventh-biggest economy but a tough-to-penetrate colossus of 1.3 billion people. Looks like they’ll have to wait. Talks between the Trump administration and New Delhi, intended to forge at least a modest deal in time for President Donald Trump’s visit that begins Monday, appear to have fizzled. Barring some last-minute dramatics — always possible with the Trump White House — a U.S.-India trade pact is months away, if not longer. ‘I’m really saving the big deal for later on,’ Trump said... ‘I don’t know if it will be done before the election, but we’ll have a very big deal with India.’”
“American dairy farmers, distillers and drugmakers have been eager to break into India, the world’s seventh-biggest economy but a tough-to-penetrate colossus of 1.3 billion people. Looks like they’ll have to wait. Talks between the Trump administration and New Delhi, intended to forge at least a modest deal in time for President Donald Trump’s visit that begins Monday, appear to have fizzled. Barring some last-minute dramatics — always possible with the Trump White House — a U.S.-India trade pact is months away, if not longer. ‘I’m really saving the big deal for later on,’ Trump said... ‘I don’t know if it will be done before the election, but we’ll have a very big deal with India.’”
February 26 – Reuters (Lucia Mutikani):
“Sales of new U.S. single-family homes raced to a 12-1/2-year high in January… New home sales jumped 30.3% in the Midwest to their highest level since October 2007. They soared 23.5% in the West to levels last seen in July 2006 and rose 4.8% in the Northeast to more than a 1-1/2-year high… The median new house price surged 14.0% to a record $348,200 in January from a year ago. Sales last month were concentrated in the $200,000-$749,000 price range. New homes priced below $200,000, the most sought after, accounted for less than 10% of sales. There were 324,000 new homes on the market in January, up 0.3% from December. At January’s sales pace it would take 5.1 months to clear the supply of houses on the market, down from 5.5 months in December.”
“Sales of new U.S. single-family homes raced to a 12-1/2-year high in January… New home sales jumped 30.3% in the Midwest to their highest level since October 2007. They soared 23.5% in the West to levels last seen in July 2006 and rose 4.8% in the Northeast to more than a 1-1/2-year high… The median new house price surged 14.0% to a record $348,200 in January from a year ago. Sales last month were concentrated in the $200,000-$749,000 price range. New homes priced below $200,000, the most sought after, accounted for less than 10% of sales. There were 324,000 new homes on the market in January, up 0.3% from December. At January’s sales pace it would take 5.1 months to clear the supply of houses on the market, down from 5.5 months in December.”
February 24 – New York Times (Erin Griffith):
“Over the past decade, technology start-ups grew so quickly that they couldn’t hire people fast enough. Now the layoffs have started coming in droves. Last month, the robot pizza start-up Zume and the car-sharing company Getaround slashed more than 500 jobs. Then the DNA testing company 23andMe, the logistics start-up Flexport, the Firefox maker Mozilla and the question-and-answer website Quora did their own cuts. ‘It feels like a reckoning is here,’ said Josh Wolfe, a venture capitalist at Lux Capital... It’s a humbling shift for an industry that long saw itself as an engine of job creation and innovation, producing the ride-hailing giant Uber, the hospitality company Airbnb and other now well-known brands that often disrupted entrenched industries.”
“Over the past decade, technology start-ups grew so quickly that they couldn’t hire people fast enough. Now the layoffs have started coming in droves. Last month, the robot pizza start-up Zume and the car-sharing company Getaround slashed more than 500 jobs. Then the DNA testing company 23andMe, the logistics start-up Flexport, the Firefox maker Mozilla and the question-and-answer website Quora did their own cuts. ‘It feels like a reckoning is here,’ said Josh Wolfe, a venture capitalist at Lux Capital... It’s a humbling shift for an industry that long saw itself as an engine of job creation and innovation, producing the ride-hailing giant Uber, the hospitality company Airbnb and other now well-known brands that often disrupted entrenched industries.”
February 28 – Reuters (Manoj Kumar):
“India’s economy expanded by 4.7% in the December quarter compared with the same period a year earlier, the slowest pace in more than six years, and analysts see the global impact of the coronavirus further stifling growth in Asia’s third-largest economy.”
“India’s economy expanded by 4.7% in the December quarter compared with the same period a year earlier, the slowest pace in more than six years, and analysts see the global impact of the coronavirus further stifling growth in Asia’s third-largest economy.”
February 28 – Reuters (Ami Miyazaki and Karolos Grohmann):
“Tokyo has no Plan B for this year’s Summer Olympics despite alarm over the spread of the coronavirus in Japan and elsewhere with under five months before the event, a senior official said on Friday. ‘There will not be one bit of change in holding the Games as planned,’ Katsura Enyo, deputy director general of the Tokyo 2020 Preparation Bureau at the city government, told Reuters.”
“Tokyo has no Plan B for this year’s Summer Olympics despite alarm over the spread of the coronavirus in Japan and elsewhere with under five months before the event, a senior official said on Friday. ‘There will not be one bit of change in holding the Games as planned,’ Katsura Enyo, deputy director general of the Tokyo 2020 Preparation Bureau at the city government, told Reuters.”
February 24 – Financial Times (Miles Johnson and Valentina Romei):
“Italy is facing a rising likelihood of a technical recession in the first quarter of this year as the rapidly worsening coronavirus outbreak threatens to further damage an economy that was already shrinking. The Italian economy contracted 0.3% quarter on quarter in the final three months of 2019, the steepest decline in six years, and the global economic impact of coronavirus could drive a further contraction in the succeeding quarter… ‘The first-quarter hit to China from the coronavirus will probably drive further weakness in Italy’s manufacturing-sensitive economy,’ said Nadia Gharbi, senior economist at Pictet Wealth Management.”
“Italy is facing a rising likelihood of a technical recession in the first quarter of this year as the rapidly worsening coronavirus outbreak threatens to further damage an economy that was already shrinking. The Italian economy contracted 0.3% quarter on quarter in the final three months of 2019, the steepest decline in six years, and the global economic impact of coronavirus could drive a further contraction in the succeeding quarter… ‘The first-quarter hit to China from the coronavirus will probably drive further weakness in Italy’s manufacturing-sensitive economy,’ said Nadia Gharbi, senior economist at Pictet Wealth Management.”
February 25 – Reuters (Madeline Chambers and Michael Nienaber):
“Shrinking exports held back German economic activity in the fourth quarter of last year…, confirming that Europe’s largest economy was stagnating even before the coronavirus outbreak began… Exports fell by 0.2% in the fourth quarter from the third, which meant that net trade took off 0.6 percentage points from gross domestic product growth.”
“Shrinking exports held back German economic activity in the fourth quarter of last year…, confirming that Europe’s largest economy was stagnating even before the coronavirus outbreak began… Exports fell by 0.2% in the fourth quarter from the third, which meant that net trade took off 0.6 percentage points from gross domestic product growth.”
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