Saturday, March 7, 2020
Market Commentary:
The Modern-Day Bank Run
by Doug Noland
full Noland column here:
Below are portions
of the column
that interested me
Ye Editor
For the
Week Ending
March 6, 2020:
US Stocks:
In an alarmingly volatile week,
the S&P500 was up 0.6%
(down 8.0% y-t-d)
Dow Industrials rallied 1.8% (down 9.4%)
Dow Utilities surged 8.3% (up 4.3%)
Dow Transports lost 4.6% (down 17.8%)
S&P 400 Midcaps declined 0.9% (down 12.9%)
Small cap Russell 2000 dropped 1.8% (down 13.1%)
Nasdaq100 rallied 0.8% (down 2.3%)
Biotechs increased 0.4% (down 3.1%).
With gold bullion surging $88,
the HUI gold stock index rallied 11.5%
(down 0.7%).
Foreign Stocks:
U.K.'s FTSE dropped 1.8% (down 14.3%).
Japan's Nikkei fell 1.9% (down 12.3% y-t-d).
France's CAC40 dropped 3.2% (down 14.0%)
German DAX lost 2.9% (down 12.9%).
Spain's IBEX 35 sank 4.0% (down 12.3%).
Italy's FTSE MIB was hit 5.4% (down 11.5%)
Brazil's Bovespa sank 5.9% (down 15.3%)
Mexico's Bolsa recovered 0.2% (down 5.0%)
South Korea's Kospi rallied 2.7% (down 7.2%)
India's Sensex slumped 1.9% (down 8.9%).
China's Shanghai surged 5.4% (down 0.5%).
Turkey's Istanbul National 100 recovered 3.4% (down 4.2%).
Russia's MICEX fell 2.4% (down 10.7%).
US Treasury Bills & Bonds
US Three-month Treasury bill rates
ended the week at 0.4425%.
US Two-year government yields
collapsed 40 bps to 0.51%
(down 106bps y-t-d).
(down 106bps y-t-d).
US Five-year T-note yields
fell 33 bps to 0.61%
(down 108bps).
US Ten-year Treasury yields
sank 39 bps to 0.76%
(down 115bps).
US Long bond yields
collapsed 39 bps to 1.29%
(down 110bps).
US Mortgages:
Freddie Mac 30-year fixed mortgage rates
sank 16 bps to 3.29%
(down 112bps y-o-y).
Fifteen-year rates fell 16 bps to 2.79%
(down 104bps).
Five-year hybrid ARM rates
dipped two bps to 3.18%
(down 69bps).
Jumbo mortgage 30-year fixed rates
up eight bps to 3.78%
(down 57bps).
Federal Reserve Credit
last week jumped $24.9bn to $4.144 TN,
with a 25-week gain of $418 billion.
Over the past year, Fed Credit
expanded $215bn, or 5.5%.
M2 (narrow) "money" supply
added $2.6bn last week
to a record $15.534 TN.
"Narrow money" surged $1.071 TN,
or 7.4%, over the past year.
Commodities:
Bloomberg Commodities Index slipped 0.3%
(down 12.5% y-t-d).
Spot Gold rallied 5.6% to $1,674 (up 10.3%).
Silver jumped 4.9% to $17.263. (down 3.7%).
WTI crude sank $3.48 to $41.28 (down 32%).
Gasoline slumped 6.3% (down 18%)
Natural Gas recovered 1.4% (down 22%).
Copper gained 0.8% (down 9%).
Wheat lost 1.8% (down 8%).
Corn recovered 2.1% (down 3%).
NEWS FROM
LAST WEEK:
March 4 – Reuters (Josh Smith, Sangmi Cha, and Jack Kim):
“South Korea reported hundreds of new coronavirus cases on Wednesday as many sick people waited for hospital beds in Daegu, the city at the center of the worst outbreak outside China. The new cases bring South Korea’s total to 5,621, with at least 32 deaths…”
March 4 – Reuters (Babak Dehghanpisheh, Nafisa Eltahir, Alaa Swilam, and Alexander Cornwell):
“Coronavirus has spread to almost all of Iran’s provinces but the country will get through the outbreak with a ‘minimum’ number of deaths, President Hassan Rouhani said… ‘This disease is a widespread disease,’ he said… ‘It has reached almost all our provinces and in one sense it’s a global disease.’”
March 4 – Reuters:
“The Italian government has decided to close schools and universities across the country until mid-March in a further attempt to contain the worst coronavirus outbreak in Europe, Ansa news agency reported…”
March 4 – Bloomberg (Sarah Ponczek and Vildana Hajric):
“In eight trading sessions, three have seen the S&P 500 close up or down 4%, and two more have brought 3% sell-offs. ‘People are piling in,’ said Charlie Smith, founding partner and chief investment officer at Fort Pitt Capital Group… ‘Any time you get a move of more than 1.5%, to me that’s an indication that you have not only momentum players but also the algorithmic, the machine-driven trades dominating the action.’”
February 29 – Reuters (Stella Qiu, Lusha Zhang and Ryan Woo):
“Factory activity in China contracted at the fastest pace ever in February, even worse than during the global financial crisis, highlighting the colossal damage from the coronavirus outbreak on the world’s second-largest economy. China’s official Purchasing Managers’ Index (PMI) fell to a record low of 35.7 in February from 50.0 in January…”
March 4 – Bloomberg:
“China’s car sales had the biggest monthly plunge on record as the coronavirus kept shoppers away, intensifying the pressure on automakers already battling an unprecedented slump before the outbreak. Sales fell 80% in February, according to… the China Passenger Car Association… Average daily sales improved toward the end of the month compared with the first three weeks, PCA said.”
March 3 – Financial Times (Sun Yu):
“Li Zhenguo is trying hard to return to work after spending five weeks at home in Zhumiao, a village in the central Henan Province. But there is no public transport between Zhumiao and the nearest city of Zhumadian. From there Mr Li, 51, could hop on a high-speed train bound for the southern Guangdong province where he works as an assembler for a battery factory. Even if he somehow could make it to the railway station, though, he would not be able to afford the train ticket. The high-speed train costs more than three times the regular service, which has not operated since January. ‘I can’t go anywhere until traffic returns to normal,’ said Mr Li. Tens of millions of Chinese migrant workers, mostly from the under-developed hinterland, are also stranded.”
March 1 – New York Times (Paul Mozur, Raymond Zhong and Aaron Krolik):
“As China encourages people to return to work despite the coronavirus outbreak, it has begun a bold mass experiment in using data to regulate citizens’ lives — by requiring them to use software on their smartphones that dictates whether they should be quarantined or allowed into subways, malls and other public spaces. But a New York Times analysis of the software’s code found that the system does more than decide in real time whether someone poses a contagion risk. It also appears to share information with the police, setting a template for new forms of automated social control that could persist long after the epidemic subsides.”
March 3 – Financial Times (John Plender):
“According to the Institute of International Finance…, the ratio of global debt to gross domestic product hit an all-time high of over 322% in the third quarter of 2019, with total debt reaching close to $253tn. The implication, if the virus continues to spread, is that any fragilities in the financial system have the potential to trigger a new debt crisis. In the short term the behaviour of credit markets will be critical.”
March 1 – Wall Street Journal (Thomas Gryta and Russell Adams):
“ The novel coronavirus… has swept through Asia and Europe, disrupted global travel and hobbled supply chains that churn out everything from smartphones to pharmaceuticals. In days, it went from pockets of woe to the top concern of chief executives world-wide. Conferences are getting canceled, from the CERAWeek energy conference in Houston to Facebook Inc.’s F8 developer gathering in California. Disneyland Tokyo is closed. Auto suppliers are warning of parts shortages. Generic drug manufacturers are paying 50% more for some raw materials.”
March 1 – Reuters (Jonathan Cable and Leika Kihara):
“Global factories took a beating in February from the coronavirus outbreak, with activity in China shrinking at a record pace, surveys showed on Monday, raising the prospect of a coordinated policy response by central banks to prevent a global recession.”
March 1 - Bloomberg (Peter Vercoe):
“Australia’s housing boom is back in full swing with prices in Melbourne reaching a record high, and Sydney not far behind. Property values in the eight state and territory capitals surged 1.2% last month, according to CoreLogic… The upswing in prices, which started mid-2019, has already recouped most of the losses of a near two-year swoon as record-low interest rates and looser borrowing standards sent buyers flocking back to the market.”
March 3 – Reuters (Noel Randewich):
“Wall Street tumbled in a volatile session on Tuesday after the U.S. Federal Reserve surprised investors with a half percentage-point cut in interest rates, amplifying fears about the magnitude of the coronavirus’ impact on the economy. All three major U.S. stock market indexes closed nearly 3% lower after the Fed’s first emergency rate cut since the 2008 financial crisis.”
March 4 – CNBC (Jeff Cox):
“The U.S. economy continues to move forward but faces risks from both the presidential election and the feared spread of the novel coronavirus, the Federal Reserve reported… In the central bank’s periodic ‘Beige Book’ report from its member districts, officials saw activity growing at a ‘modest to moderate pace.’ Threats from the coronavirus specifically did not seem to pose a major threat yet, though business contacts said they were worried about potential ramifications to come.”
March 6 – Bloomberg (Sophie Caronello):
“The U.S. labor market continues to chug along, despite an ongoing threat from the spread of the coronavirus. Employers added a stronger-than-expected 273,000 workers in February, matching the previous month’s revised gain, according to a Labor Department report... The unemployment rate fell back to a half-century low of 3.5%, while average hourly earnings advanced a steady 3% from a year earlier.”
March 2 – CNBC (Fred Imbert):
“Manufacturing activity in the U.S. grew at a slower-than-expected pace last month as the coronavirus outbreak dampened sentiment in the sector, data from the Institute for Supply Management showed. The ISM manufacturing Purchasing Manager’s Index fell to 50.1 in February from 50.9 in January. That’s the PMI’s lowest level since late 2019…”
March 4 – CNBC (Diana Olick):
“A sharp drop in mortgage interest rates had borrowers rushing to their lenders last week… The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) decreased to 3.57% from 3.73%... Rates are even lower now. One year ago, the average rate was 4.67%, 110 bps higher. That drop caused a 26% surge in weekly refinance applications. Compared with one year ago, refinance volume was nearly 224% higher.”
March 4 – Bloomberg (Doug Alexander):
“Royal Bank of Canada cut its prime rate by 50 bps to 3.45%, matching the Bank of Canada’s cut to its benchmark interest rate. RBC was the first Canadian bank to reduce its prime rate. Canada’s central bank reduced its overnight lending rate 50 bps to 1.25% on Wednesday, the lowest since mid 2018, after saying the spread of the coronavirus represented a ‘material negative shock’ to Canadian and global economic outlooks.”
March 3 – Reuters (Swati Pandey):
“Australia cut its benchmark interest rate to a record low on Tuesday, putting its central bank among the first in the world to ease policy to fight the economic fallout from the coronavirus. This was the fourth reduction by the Reserve Bank of Australia (RBA) in less than a year, bringing the cash rate to 0.5%...”
March 3 – Bloomberg (Anurag Joshi):
“India’s troubled shadow banks face their biggest test yet in the months ahead: a record bill to settle in the local debt market. The lenders will need to repay 1.1 trillion rupees ($15.1bn) of local-currency bonds in the three months starting April 1, the most ever for a quarter… That will prove challenging for the lower-rated ones among them, given they’ve been largely shut out of the domestic funding market.”
March 3 – Reuters (Daniel Leussink):
“Japan’s services sector shrank at the fastest pace in nearly six years in February as a jolt from the coronavirus threatens to push the economy into recession, dashing hopes of a domestic-led recovery. Pressure on the world’s third-largest economy has built rapidly during the past weeks as consumer and business sentiment are taking a sharp hit from a deepening slowdown in China, Asia’s largest economy.”
March 3 – Reuters (Tuvan Gumrukcu and Suleiman Al-Khalidi in Amman):
“Turkey shot down a Syrian government warplane on Tuesday over northwest Syria, where fighting has intensified in recent days, bringing Turkish and Russian forces close to direct conflict in the battle over the last swathe of Syria still held by rebels. It was the third Syrian warplane Turkey has shot down since Sunday in an escalating campaign against President Bashar al-Assad’s forces.”
March 2 – Wall Street Journal (Jared Malsin):
“Barred from entering neighboring Turkey, and fleeing a Syrian-government offensive, hundreds of thousands of people are crammed into camps, sharing few latrines and burning scrap and spare clothes to keep warm, sending up noxious fumes. The largest exodus in Syria’s nine-year conflict has overwhelmed the ability of aid workers to respond—and has become the focal point of a geopolitical crisis that threatens to spiral out of control. Some Syrians amassed at the border have threatened to break through, with activists using the slogan ‘From Idlib to Berlin’ to rally support for a march on the wall.”
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