Saturday, February 1, 2020
Weekly Commentary:
The First Major Pandemic Scare
by Doug Noland
full column here:
Portions
of the column
that interested me
are below
Ye Editor
Copper dropped
6.2% this week
and 9.8% for the
“worst month
since 2015.”
Nickel fell 5.5% this week,
Palladium 5.7%,
Platinum 4.5%,
Lead 7.2%,
Tin 5.9%,
Zinc 7.1%
Aluminum 3.6%.
For the week ending
January 31, 2020:
S&P500 dropped 2.1% (down 0.2% y-t-d)
Dow Industrials fell 2.5% (down 1.0%)
Dow Utilities gained 0.9% (up 6.9%)
Dow Transports sank 4.5% (down 3.1%)
S&P 400 Midcaps fell 2.8% (down 2.7%)
Small cap Russell 2000 dropped 2.9% (down 3.3%)
Nasdaq100 declined 1.6% (up 3.0%)
Biotechs fell 2.5% (down 4.7%).
Though bullion was up $18,
the HUI gold stock index declined 0.8%
(down 3.0%).
U.K.'s FTSE sank 4.0% (down 3.4%).
Japan's Nikkei slumped 2.6% (down 1.9% y-t-d).
France's CAC40 dropped 3.6% (down 2.9%)
German DAX sank 4.4% (down 2.0%).
Spain's IBEX fell 2.0% (down 1.9%).
Italy's FTSE MIB dropped 3.1% (down 1.1%)
Brazil's Bovespa sank 3.9% (down 1.6%)
Mexico's Bolsa declined 2.3% (up 1.3%)
South Korea's Kospi was clobbered 5.7% (down 3.6%).
India's Sensex fell 2.1% (down 1.2%).
China's Shanghai will open back up Monday (down 2.4%).
Turkey's Istanbul National 100 dropped 2.5% (up 4.1%).
Russia's MICEX fell 2.2% (up 1.0%).
Ten-year US Treasury bond yields
dropped 18 bps to 1.51% (down 41bps).
Long bond yields
declined 13 bps to 2.00% (down 39bps).
Freddie Mac 30-year fixed mortgage rates
dropped nine bps to 3.51% (down 95bps y-o-y).
Fifteen-year rates
declined four bps to 3.00% (down 89bps).
Five-year hybrid ARM rates
fell four bps to 3.24% (down 72bps).
Jumbo mortgage 30-year fixed rates
down 21 bps to 3.74% (down 66bps).
Federal Reserve Credit
last week added $0.9bn to $4.115 TN,
with a 20-week gain of $388 billion.
Over the past year,
Fed Credit
expanded $114bn,
or 2.9%.
M2 (narrow) "money" supply
surged $62.3bn last week
to a record $15.460 TN.
"Narrow money"
surged $1.023 TN,
or 7.1%, over the past year.
Commodities Watch:
Bloomberg Commodities Index
dropped 3.2% (down 7.5% y-t-d).
Spot Gold advanced 1.1% to $1,589 (up 4.7%).
Silver slipped 0.6% to $18.012 (up 0.5%).
WTI crude dropped $2.63 to $51.56 (down 15.6%).
Gasoline declined 0.9% (down 11%)
Natural Gas fell 2.4% (down 16%).
Copper sank 6.2% (down 10%).
Wheat dropped 3.4% (down 1%).
Corn fell 1.5% (down 2%).
NEWS FROM LAST WEEK
January 27 – Bloomberg:
“China’s financial markets will remain closed until next Monday after authorities extended the Lunar New Year break by three days as they grapple with the worsening virus crisis. Trading will resume Feb. 3, the Shanghai and Shenzhen stock exchanges said. Shanghai authorities separately advised that companies shouldn’t start work until at least Feb. 9.”
January 28 – Wall Street Journal (James Mackintosh):
“The world’s business elite is convinced that Donald Trump will win a second term in the White House in November, and investors seem to believe there’s little risk they will end up victims of the U.S. election. In reality, investors face triple uncertainty about the outcome—and should be concerned. The election is highly likely to be close, because modern America is split down the middle—and that makes it inherently uncertain. The Democratic candidate isn’t yet chosen, and could be radical. And a victory by Mr. Trump might not provide the relief that investors expect. Discussions with CEOs and executives from the U.S. and Europe at the World Economic Forum in Davos last week showed great confidence that Mr. Trump will win.”
January 26 – Financial Times (Henry Sanderson and Don Weinland): “China’s largest lithium producer is struggling to repay debt that helped finance an aggressive overseas expansion, the latest Chinese company to hit setbacks going global. Tianqi Lithium is facing mounting pressure to repay part of a $3.5bn loan from state-owned Citic Bank this year, which it used to buy a 24% stake in Chilean lithium producer SQM in May 2018. The global lithium market has been hit by rising supply from new mines…”
January 29 – CNBC (Jeff Cox):
“While the Federal Reserve kept its benchmark rate steady, it did make an adjustment… to the interest it pays on funds stored at the central bank. The Fed boosted the interest on excess reserves rate 5 bps to 1.6% even as it kept the benchmark funds rate in a target range of 1.5% to 1.75%. Fed officials characterize the moves on the IOER as technical adjustments, though markets are watching the situation because it also is a reflection of where the funds rate trades while the central bank figures out the level where it needs to keep its balance sheet.”
January 28 – Financial Times (Brendan Greeley):
“The US will rack up budget deficits totaling $13.1 trillion over the coming decade and continuing to rise to levels ‘unprecedented in US history’, according to projections from the non-partisan Congressional Budget Office. In its twice-yearly report…, the CBO predicted a budget shortfall of $1tn in 2020, or 4.6% of gross domestic product, and set out a deteriorating longer-term picture based on recent changes to the tax code and the ageing US population. ‘Not since World War II has the country seen deficits during times of low unemployment that are as large as those we project, nor, in the past century, has it experienced large deficits for as long as we project,’ CBO director Phillip Swagel said…”
January 28 – CNBC (Jeff Cox):
“The U.S. budget deficit likely will break the $1 trillion barrier in 2020, the first time that has happened since 2012, according to Congressional Budget Office estimates… After passing that mark this year, the deficit is expected to average $1.3 trillion between 2021-30, rising from 4.6% of GDP to 5.4% over the period. That’s well above the long-term average since around the end of World War II. The deficit since then has not topped 4% of GDP for more than five consecutive years, averaging just 1.5% over the period. As part of a spending pattern that the CBO deemed unsustainable, the national debt is expected to hit $31.4 trillion by 2030.”
January 24 – Financial Times (Joe Rennison and Colby Smith):
“Stress in US financial markets has dropped to its lowest level on record, according to a widely-watched index, after the Federal Reserve sought to ease strains in short-term borrowing with a huge injection of cash. The St Louis Fed financial stress index fell to minus 1.6 for the week ending January 17, it said this week — the lowest reading since the index was created at the end of 1993. The measure has been negative for several years but has lurched lower in recent months, as the US central bank has tried to boost the amount of cash in the financial system following an unusual bout of volatility in the overnight repo market, where investors borrow cash in exchange for high-quality collateral like US Treasuries.”
January 29 – CNBC (Diana Olick):
“Mortgage rates fell to their lowest level since November, and that sent current borrowers and potential homebuyers rushing to their lenders… Mortgage applications to purchase a home increased 5% for the week and were a strong 17% higher than a year ago. Housing demand is incredibly strong right now, and real estate agents are reporting seeing much higher buyer traffic than normal. The spring season appears to have started very early. The only thing standing in the way of more home sales is the tight supply…”
January 27 – Reuters (Lucia Mutikani):
“Sales of new U.S. single-family homes unexpectedly fell in December, likely held down by a shortage of more affordable homes, but the housing market remains supported by lower mortgage rates… New home sales slipped 0.4% to a seasonally adjusted annual rate of 694,000 units last, with sales in the South dropping to more than a one-year low.”
January 29 – Bloomberg (Max Reyes):
“Contract signings to purchase U.S. previously owned homes unexpectedly slumped in December, depressed by fewer listings of properties and representing a blemish after a recent spate of positive housing-market news. An index of pending home sales decreased 4.9% from the month prior, the largest decline since May 2010… ‘Due to the shortage of affordable homes, home sales growth will only rise by around 3%,’ Lawrence Yun, chief economist at the NAR, said…, adding that mortgage rates will probably hold below 4% for most of the year. ‘Home prices and even rents are increasing too rapidly, and more inventory would help correct the problem and slow price gains.’”
January 28 – Reuters (Lucia Mutikani):
“New orders for key U.S.-made capital goods dropped by the most in eight months in December and shipments were weak, suggesting business investment contracted further in the fourth quarter and was a drag on economic growth.”
January 30 – Reuters (P.J. Huffstutter):
“U.S. farm bankruptcy rates jumped 20% in 2019 - to an eight-year high - as financial woes in the U.S. agricultural economy continued in spite of massive federal bail-out funding, according to federal court data.”
January 29 – Financial Times (Joe Rennison and Jennifer Ablan):
“Junk-rated energy bonds have plummeted after the spread of coronavirus hit oil prices, highlighting the strains on a sector that already led US defaults last year. …Laredo Petroleum’s $600m bond, which was priced at 100 cents on the dollar in mid-January, dropped to as low as 90 cents after just a week of trading. Meanwhile, the yield on a widely watched junk-rated energy bond index run by Ice Data Services jumped 0.77 percentage points to a high of 9.02% this week, reflecting a broad sell-off in lower quality debt from the sector.”
January 31 – Reuters (John Chalmers):
“Britain’s Union Jack was removed from lines of EU member state flags at the European Council and European Parliament buildings in Brussels on Friday evening ahead of the United Kingdom’s exit from the bloc at midnight. Britain will become the first country to quit the European Union after 47 years in the club, leaving 27 member states that will now regard it as a third country. Two solemn-looking officials, a man and a woman, took less than a minute to take down the flag in the cavernous entrance to the European Council, which represents national leaders and sets EU policy. They took away the flagstand, folded the Union Jack twice into a rectangle and walked without comment out of a door.”
January 31 – Reuters (Gavin Jones and Leigh Thomas):
“The economies of France and Italy, respectively the euro zone’s second and third largest, shrank unexpectedly in the last quarter of 2019 causing GDP growth for the 19 countries sharing the single currency to miss forecasts… Gross domestic product in the 19 countries sharing the euro rose 0.1% quarter-on-quarter for a 1.0% year-on-year gain…”
January 30 – Reuters (Kaori Kaneko):
“Japan’s factory output fell at the fastest pace on record in October-December amid sluggish demand at home and abroad, reinforcing views the economy likely contracted in the fourth quarter… Factory output fell 4.0% in October-December, the fastest pace of decline since comparable data began in 2013…”
January 29 – Associated Press (Kelvin Chan and Danica Kirka):
“Britain decided… to let Chinese tech giant Huawei have a limited role supplying new high-speed network equipment to wireless carriers, ignoring the U.S. government’s warnings that it would sever intelligence sharing if the company was not banned. Britain’s decision is the first by a major U.S. ally in Europe, and follows intense lobbying from the Trump administration… It sets up a diplomatic clash with the Americans…
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