Friday, July 9, 2021
Weekly Commentary
by Doug Noland
FOLLOWING IS MY EDITED
EASY TO READ VERSION
OF THE NOLAND ARTICLE
AT THE LINK ABOVE.
YE EDITOR
GLOBAL STOCK INDEXES:
S&P500 increased 0.4% (up 16.3% y-t-d)
Dow Industrials added 0.2% (up 13.9%)
Utilities rose 1.0% (up 2.6%)
Banks fell 1.2% (up 27.1%)
Broker/Dealers dropped 1.8% (up 22.7%)
Transports fell 1.3% (up 18.7%)
S&P 400 Midcaps were little changed (up 17.3%)
Small cap Russell 2000 declined 1.1% (up 15.5%)
Nasdaq100 gained 0.7% (up 15.0%)
Semiconductors fell 1.1% (up 17.3%)
Biotechs dipped 0.4% (up 3.0%)
While GOLD bullion gained $21,
the HUI gold index declined 0.5%
(down 10.2%)
U.K.'s FTSE about unchanged (up 10.2% y-t-d).
Japan's Nikkei sank 2.9% (up 1.8% y-t-d).
France's CAC40 slipped 0.4% (up 17.6%)
German DAX added 0.2% (up 14.4%).
Spain's IBEX 35 fell 1.5% (up 8.7%).
Italy's FTSE MIB declined 0.9% (up 12.7%)
Brazil's Bovespa index lost 1.7% (up 5.4%)
Mexico's Bolsa declined 0.9% (up 12.9%).
South Korea's Kospi slumped 1.9% (up 12.0%).
India's Sensex slipped 0.2% (up 9.7%).
China's Shanghai added 0.2% (up 1.5%).
Russia's MICEX declined 0.3% (up 17.2%).
US BONDS:
Three-month Treasury bill rates ended the week at 0.0425%.
Two-year government yields
dipped two bps to 0.215% (up 9bps y-t-d).
Five-year T-note yields
dropped seven bps to 0.79% (up 42bps).
Ten-year Treasury yields
fell six bps to 1.36% (up 45bps).
Long bond yields
declined five bps to 1.99% (up 34bps).
Benchmark Fannie Mae MBS yields
dipped three bps to 1.78% (up 44bps).
Federal Reserve Credit last week
added $8.3bn to $8.048 TN.
Over the past 95 weeks,
Fed Credit expanded $4.321 TN,
or 116%.
US MORTGAGES:
Freddie Mac 30-year fixed mortgage rates
dropped nine bps
to an almost five-month low 2.90%
(down 13bps y-o-y).
Fifteen-year rates fell six bps to 2.20%
(down 31bps).
Five-year hybrid ARM rates
slipped two bps to 2.52%
(down 50bps).
Jumbo mortgage 30-year fixed rates
down a basis point to 3.07%
(down 19bps).
COMMODITIES:
July 6
– CNBC
(Patti Domm):
“Disagreement within OPEC could trigger a more a volatile period for oil, with prices jumping on lack of new supply or sinking suddenly if member countries decide to release crude independently. Oil prices initially surged to a six-year high on news that the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, ended their meeting Monday with no action and no new meeting date. A proposed plan by OPEC, Russia and other allies to bring 400,000 barrels a day back to the market was disrupted by the United Arab Emirates’ objection to other aspects of the deal.”
Bloomberg Commodities Index
fell 1.6% (up 19.8% y-t-d).
Spot Gold rallied 1.2% to $1,808 (down 4.8%).
Silver fell 1.4% to $26.10 (down 1.1%).
WTI crude slipped 60 cents to $74.54 (up 54%).
Gasoline dipped 0.3% (up 63%)
Natural Gas declined 0.7% (up 45%).
Copper gained 1.6% (up 24%).
Wheat sank 5.8% (down 4%).
Corn fell 10.8% (up 7%).
Bitcoin was little changed this week
at $33,666 (up 15.8%).
DOUG NOLAND'S COMMENTARY:
... Ten-year Treasury yields traded down to 1.25% in Thursday trading, a notable 35 bps six-week decline to a five-month low. German bund yields dropped to negative 0.34%, the low since March. French 10-year yields were back down to zero Thursday, before closing the week at 0.05%. Swiss yields traded down to negative 0.34%, about 20 bps below their May peak.
... At Friday lows, Japan’s Nikkei Index was down 4.7% for the week and near 2021 lows (ending the week 2.9% lower).
Hong Kong’s China Financials Index dropped another 4.1% this week to 2021 lows, boosting losses since June 1st to 13.5%.
July 9
– Bloomberg:
“China’s central bank cut the amount of cash most banks must hold in reserve, a move that went further than many economists had expected and suggested growing concerns about the economy’s faltering recovery. The People’s Bank of China will reduce the reserve requirement ratio by 0.5 percentage point for most banks… That will unleash about 1 trillion yuan ($154bn) of long-term liquidity into the economy and will be effective on July 15, the central bank said.”
... The last (PBOC) reserve cut was in April 2020, in the heart of the pandemic economic downturn.
NEWS FROM LAST WEEK
Coronavirus Watch:
July 5
– Financial Times
(Neri Zilber):
“The BioNTech/Pfizer vaccine is less effective at halting the spread of the Delta variant than previous strains of coronavirus, according to a preliminary study by Israel’s health ministry. Data collected over the past month suggest the vaccine is 64% effective at preventing infection among those who are fully inoculated… Efficacy against previous strains of the virus was estimated at 94%. However, the figures… indicate the vaccine is 93% effective against serious illness and hospitalisation.”
July 8
– Reuters
(Renju Jose):
“Australia's New South Wales (NSW) state… reported its biggest daily rise in locally acquired cases of COVID-19 this year as officials struggle to stamp out a growing cluster of the highly infectious Delta variant. The spike in cases after two weeks of a hard lockdown in Sydney, Australia's largest city, raised the prospect of a further extension in restrictions, with officials blaming illegal family visits for a continuing rise in infections.”
July 7
– CNBC
(Yen Nee Lee):
“Among countries with both high vaccination rates and high rates of Covid-19 infection, most rely on vaccines made in China, a CNBC analysis shows. The findings come as the efficacy of Chinese vaccines faces growing scrutiny, compounded by a lack of data on their protection against the more transmissible delta variant. CNBC found that weekly Covid cases, adjusted for population, have remained elevated in at least six of the world’s most inoculated countries — and five of them rely on vaccines from China.”
Market Mania Watch:
July 5
– Wall Street Journal
(Caitlin McCabe):
“Retail investors keep pouring money into markets, even as many of their favorite meme stocks and cryptocurrencies have languished. In June, so-called retail investors bought nearly $28 billion of stocks and exchange-traded funds on a net basis, according to… Vanda Research’s VandaTrack, the highest monthly amount deployed since at least 2014. That even trumped the amount retail traders spent in January during the first meme-stock frenzy… When the Covid-19 pandemic ushered in a wave of first-time traders, many market observers suspected these investors would retreat when the economy reopened. Instead, individual investors have grown in number: More than 10 million new brokerage accounts are estimated to have been opened in the first half of this year… That is around the total for all of 2020.”
July 6
– Bloomberg
(Katherine Greifeld):
“Retail investors poured money into markets as equities embarked on a nearly record-run of all-time highs in June. Whether they’ll stick around when volatility inevitably resurfaces remains to be seen. Last month, TD Ameritrade’s Investor Movement Index -- a measure that has tracked clients’ positioning in the market since 2010 -- rose to the highest level on record… The influx came as trading volume dropped off while the S&P 500 hit five consecutive record closes to end the month, en route to the longest streak since 1997.”
July 4
– CNBC
(Ari Levy):
“From Krispy Kreme to China’s Didi Chuxing, the busiest week for U.S. IPOs in 17 years produced a windfall for Wall Street’s top investment banks. A cybersecurity company, drug developers and a Turkish e-commerce platform were all in on the action. At least 14 companies raised $100 million or more in offerings…, the most active stretch for debuts since 2004. In total, underwriters generated close to $400 million in fees for assisting with the IPOs.”
Market Instability Watch:
July 5
– Financial Times
(Steve Johnson):
“Tesla’s entry into the S&P 500 has cost investors tracking or benchmarked against the index of blue-chip US stocks more than $45bn since December. The electric vehicle pioneer was already the world’s seventh-largest listed company when it was finally admitted to the S&P at the end of 2020… Its stock had rallied 764% in the 12 months beforehand — partly in anticipation of forced buying on entry to the S&P 500 — and its market capitalisation equaled the total market cap of the nine largest automakers by sales volume…, according to Research Affiliates… Tesla’s share price then fell in the six months after its admission…”
Inflation Watch:
July 6
– Bloomberg
(Alexandre Tanzi):
“The cost of renting a home is soaring in cities across the U.S., squeezing the finances of low-income households and posing a threat to the consensus that pandemic inflation will soon fade away. The median national rent climbed 9.2% in the first half of 2021, according to Apartment List… Surveys by the New York Fed and Fannie Mae suggest renters are braced for further hikes of 7% to 10% in the coming year. Higher rents are the kind of price increase that’s hard to reverse -– unlike many of the ones that have accompanied the economy’s reopening, from lumber to used cars.”
July 8
– Bloomberg
(Brendan Murray):
“The cost to ship a boxload of goods to the U.S. from China edged close to $10,000 as the world’s biggest economy keeps vacuuming up imports amid slower recoveries from the pandemic from Europe to Asia. The spot rate for a 40-foot container from Shanghai to Los Angeles increased to $9,631, up 5% from the previous week and 229% higher than a year ago, according to the Drewry World Container Index… A composite index, reflecting eight major trade routes, rose to $8,796, a 333% surge from a year ago. Drewry said it expects rates to increase further in the coming week.”
U.S. Bubble Watch:
July 8
– Bloomberg
(Reade Pickert):
“U.S. consumer credit surged in May by the most on record, reflecting a jump in non-revolving loans that underscores solid household spending. Total credit climbed $35.3 billion from the prior month after an upwardly revised $20 billion gain in April… On an annualized basis, borrowing rose 10% in May. Economists… had called for a $18 billion gain. Non-revolving credit, which includes auto and school loans, increased $26.1 billion, the most on record. Revolving credit, which includes credit cards, rose $9.2 billion after declining in the previous month.”
July 7
– Yahoo Finance
(Ethan Wolff-Mann):
“The wealth of the richest 0.00001% of the U.S. now exceeds that of the prior historical peak, which occurred in the Gilded Age, according to economist Gabriel Zucman. In the late 19th century, the U.S. experienced rapid industrialization and economic growth, creating an inordinate amount of wealth for a handful of families. This era was also known for its severe inequality; and some have called the period that began around 1990 a ‘Second Gilded Age.’ Back then, just four families represented the richest 0.00001% – today’s equivalent is 18 families. Zucman, a French economist whose doctoral advisor was the historical economist Thomas Piketty… released data… showing that as of July 1, the top 0.00001% richest people in the U.S. held 1.35% of the country’s total wealth.”
July 4
– Financial Times
(Patrick Temple-West):
“Corporate executives have saved millions of dollars by selling large chunks of shares just before the stock began to underperform, according to new research that suggests company officials cash out when misfortune is just around the corner. When company insiders have used pre-arranged stock trading schemes to quickly sell $50m or more in a single day, the company’s stock subsequently underperformed its peers…, according to… Daniel Taylor, an accounting professor at the Wharton School and director of its forensic analytics lab.”
Fixed-Income Bubble Watch:
July 9
– Wall Street Journal
(Julia-Ambra Verlaine):
“Investors’ headlong embrace of risk passed a new milestone in recent sessions: The return that investors receive for investing in the riskiest U.S. companies fell below inflation. A rally in corporate debt rated below investment grade has pushed yields to record lows around 4.54%, according to ICE Bank of America data, while consumer prices rose 5% in May compared with a year earlier. That marks the first time on record junk-bond yields have dropped below the rate of inflation, according to Bespoke Investment Group. The move upends the conventional logic of investing in bonds…”
China Watch:
July 7
– Financial Times
(Hudson Lockett and
Tabby Kinder):
“Beijing has sent shockwaves through global financial circles with plans to tighten restrictions on overseas listings of Chinese companies, in a development that could threaten more than $2tn worth of shares on Wall Street. But the vague and sprawling nature of the announcement…, which followed a crackdown on New York-listed ride-hailing group Didi, has sown confusion among traders and investment bankers… The announcement came from China’s top leaders and stated that the reforms were ‘guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era’.”
July 8
– Reuters
(Stella Qiu and Ryan Woo):
“China’s factory gate inflation eased in June after a government crackdown on runaway commodity prices, but the annual rate stayed uncomfortably high and underlined growing strains on the economy… The producer price index (PPI) increased 8.8% from a year earlier, compared with a 9.0% rise in May…”
July 4
– Reuters
(Stella Qiu and
Ryan Woo):
“Growth in China's services sector slowed sharply in June to a 14-month low, weighed down by a resurgence of COVID-19 cases in southern China…, adding to concerns the world's second-largest economy may be starting to lose some momentum. The Caixin/Markit services Purchasing Managers' Index (PMI) fell to 50.3 in June, the lowest since April 2020 and down significantly from 55.1 in May.”
July 8
– Bloomberg
(Jeanny Yu):
“A key gauge of Chinese stocks traded in Hong Kong neared a bear market as Beijing’s latest crackdown drives investors to dump shares of the nation’s technology giants. The Hang Seng China Enterprises Index tumbled by 3.2% on Thursday, extending its loss since a February high to just shy of 20%. The gauge was dragged down by some of the biggest internet names including Meituan, Alibaba Group Holding Ltd. and Tencent Holdings Ltd., which were down by at least 3.7%. Hong Kong’s benchmark Hang Seng Index slid 2.9%, wiping out gains for the year.”
Global Bubble Watch:
July 5
– Financial Times
(Tabby Kinder,
Hudson Lockett
and Mercedes Ruehl):
“More than two-thirds of Chinese groups that have listed in the US this year have sunk below their initial public offering price, despite record levels of fundraising, as growing regulatory scrutiny hit investor sentiment. The poor share price performance comes after 34 Chinese companies raised $12.4bn in New York floats in the first half of 2021, data from… Dealogic showed, an all-time high on both counts.”
July 7
– Bloomberg
(Mark Gongloff):
“One point three million U.S. dollars sounds like too many dollars to pay for a house that’s practically falling down, until you consider it’s in the suburb of a major city in a developed country that beat Covid-19, is relatively safe from nuclear fallout, and has a toothbrush fence. That’s how much an Auckland ‘dunger,’ which is the New Zealandish word for ‘dump,’ sold for in January. If it sold today, it would probably go for more.”
Europe Watch:
July 6
– Financial Times
(Ben Hall):
“Central Europe is at the forefront of a surge in inflationary pressures in Europe. Inflation in Poland hit 4.7% in May before easing to 4.4% in June. Hungary has the highest inflation in the EU at 5.1%. Some of this is due to transitory factors. But there are also reasons to think price pressures are here to stay in these two countries, creating potential tensions between their central banks and their free-spending nationalist governments. It also risks putting a dent in their carefully cultivated reputations for macroeconomic orthodoxy.”
Japan Watch:
July 4
– Reuters
(Daniel Leussink):
“Japan's services sector activity shrank for the 17th straight month in June as the coronavirus dampened demand at home and abroad, underscoring sluggish momentum for the world's third-largest economy. The decline in the services industry kept overall private-sector activity in contraction for a second month...”
July 7
– Reuters
(Leika Kihara):
“Japanese bank lending rose at its slowest annual pace in more than eight years in June as corporate fund demand to weather coronavirus-linked cash constraints subsided, central bank data showed… Total deposits parked at commercial banks continued to rise and hit a fresh record last month… ‘The balance of bank lending remains at elevated levels, but corporate fund demand seems to be subsiding,’ a Bank of Japan official told reporters…”
Cybersecurity Watch:
July 6
– Reuters
(Raphael Satter):
“Between 800 and 1,500 businesses around the world have been affected by a ransomware attack centered on U.S. information technology firm Kaseya, its chief executive said… Fred Voccola, the… company's CEO, said… it was hard to estimate the precise impact of Friday's attack because those hit were mainly customers of Kaseya's customers. Kaseya is a company which provides software tools to IT outsourcing shops: companies that typically handle back-office work for companies too small or modestly resourced to have their own tech departments. One of those tools was subverted…, allowing the hackers to paralyze hundreds of businesses on all five continents.”
July 5
– Wall Street Journal
(Robert McMillan):
“The boss of the company at the heart of a widespread hack that has affected hundreds of businesses said he briefed the White House and that attackers are demanding a single $70 million ransomware payment. The cyberattack that started to unfold Friday is estimated to have hit hundreds of mostly small and medium-size businesses and tens of thousands of computers. It quickly set off alarms in U.S. national security circles over concern that it could have far-reaching effects.”
Geopolitical Watch:
July 2
– Reuters
(Idrees Ali and
Jonathan Landay):
“American troops pulled out of their main military base in Afghanistan on Friday, leaving behind a piece of the World Trade Center they buried 20 years ago in a country that could descend into civil war without them. The quiet departure from Bagram Air Base brought an effective end to the longest war in U.S. history. It came as the Taliban insurgency ramps up its offensive throughout the country after peace talks sputtered.”
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