Saturday, April 21, 2018

Weekly Commentary: Recalling 1994

Equities rallied to begin the week. With Syrian missile strikes more limited than feared and no military response from Russia, there was immediate impetus to unwind hedges. That it was option expiration week ensured plenty of firepower. The S&P500 had rallied 2.3% at Wednesday's trading high, before a resumption of selling cut the gain for the week to 0.5%.

WTI crude dropped $1.17 in Monday's trading, though selling was short-lived. Crude gained $1.01 for the week to $68.40, trading to the high since December 2014. WTI is now up a rather inflationary 13% y-t-d. The President's Friday morning tweet - "Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!" - generated media attention but only brief selling pressure. The market seems to think it knows more about crude supply dynamics than the Commander and Chief.

The GSCI Commodities Index rose another 1.2% this week, also to the high since December 2014. It wasn't only energy driving commodity gains. Silver rose 3.0% this week, with Palladium up 4.2%, Aluminum 8.1%, Zink 3.7%, Nickel 6.4%, Tin 3.2% and Copper 2.8%.

Trade frictions, Middle East instability and general geopolitical uncertainty add up to mounting inflation concerns. The 10-year TIPS breakeven rate (implied inflation rate calculated by subtracting the 10-year TIP yield from the 10-year Treasury yield) rose four bps this week to 2.18%, the high since August 2014. It's worth noting that the breakeven rate bottomed at 1.26% in February 2016. It rallied to 2.07% by early-2017 before settling back to 1.68% near mid-year - and has been on a reasonably steady ascent now for nine months.

Ten-year Treasury yields rose 13 bps this week to 2.96%, surpassing the February 21st level to the high going back to January 2014. If 10-year Treasuries surpass 3.0% next week, it will mark the highest yield since July 2011. Two-year yields jumped nine bps to 2.45%, the high going back to August 2008. Generating surprisingly little attention, Benchmark MBS yields surged 14 bps this week to 3.66% (up 66bps y-t-d!), the high all the way back to September 2013. Expect more discussion about mortgage convexity.

Notably, 10-year Treasury yields rose eight bps during Thursday and Friday trading, despite a 1.4% fall in the S&P500. The safe haven status of Treasuries is anything but iron clad these days. Treasuries did, however, outperform investment-grade corporates. The iShares investment-grade ETF (LQD) fell 1.27% this week - most of the decline coming Wednesday through Friday - to trade below March lows. Sell Treasuries to hedge mortgage and corporate interest-rate risk. Between new issuance and hedging related selling, that's a supply glut that risks a bout of market indigestion.

Yet this week's jump in yields was not isolated to U.S. fixed-income. Key emerging bond markets were under pressure, particularly during Friday's session. Mexico saw its 10-year (dollar) yields jump 17 bps this week to 4.31%. Mexican bond yields are now up 70bps y-t-d and close to breaking out to highs going back to 2011. Brazilian bond (dollar) yields rose seven bps (to 4.99%), Peru's 15 bps, Colombia's nine bps, and Indonesia's 12 bps. Indonesia saw its local currency 10-year yields jump 20 bps to 6.74%, and India's local bond yields surged 21 bps to 7.74%.

Friday EM trading was notable. Currencies came under pressure, as the South African rand dropped 1.15%, the Colombian peso 1.0%, the Turkish lira 0.85%, the Russian ruble 0.8% and the Brazilian real 0.7%. For the week, the Mexican peso dropped 2.6%, the Colombian peso 1.8% and the Indian rupee 1.4%. Combining currency and bond losses, there was some pain this week in key emerging markets. In equities, the Shanghai Composite dropped 1.5% Friday, increasing losses for the week to 2.8% (down 7.1% y-t-d). EM inflows have been unrelenting in the face of a lengthening list of issues. Why do I sense these flows are about to reverse?

April 18 - Financial Times (Peter Wells): "The chances of the Federal Reserve delivering four interest rates in 2018 have ballooned in recent days. There is a 35.3% chance the US central bank will deliver three more rate rises this year, following its 0.25 percentage lift in March…, which is the highest probability in the history of the contract. As such, the chance of the Fed delivering at least three interest rate rises this year is sitting at 82%, also a contract-era high."

It's a far cry from "slamming on the brakes," yet the Fed is finally feeling some heat to get short-term rates up to a more reasonable level. A novel idea was offered by Dallas Federal Reserve Bank President Robert Kaplan: "I don't have a problem with being restrictive." As notably, the doves have really come around. Federal Reserve Bank of Minneapolis President Neel Kashkari: "I think it's likely that the fiscal actions that have been taken are going to on the margin help us achieve our inflation target. I was much more skeptical… It now seems much more likely that we are going to actually achieve our inflation target in the near future…" And from Governor Lael Brainard: "My anticipation is that the outlook is for continued, solid growth. The outlook looks consistent to me for continued gradual increases in the federal funds rate."

Imagining a murkier inflation outlook does not come easily. The global boom has decent momentum, although lurking financial fragilities could rather abruptly haunt economic prospects. Tariffs, protectionism and trade wars have the potential for consequential pricing impacts. There is, as well, significant ramifications for the global economy in the event trade disputes really heat up. And let us not forget an extraordinarily uncertain geopolitical backdrop, with myriad potential consequences for inflation and growth. Last but not least, there's the great uncertainty associated with myriad interdependent global Bubbles.

One thing we know with certainty: the world has added tremendous amounts of debt since the last debt crisis. And debt is poised to continue rising rapidly until sober markets impose some discipline on profligate borrowers. This is a momentous festering issue that will come to a head at some point. Ten-years of ultra-loose global finance destroyed discipline - by borrowers and lenders alike. "Deficits don't matter." In the markets, the view holds that central banks won't tolerate a problematic backup in market yields. So, as central bankers gaze submissively from the sidelines, governments just keep issuing debt and markets keep buying it.

April 18 - Bloomberg (Andrew Mayeda): "The world's debt load has ballooned to a record $164 trillion, a trend that could make it harder for countries to respond to the next recession and pay off debts if financing conditions tighten, the International Monetary Fund said. Global public and private debt swelled to 225% of global gross domestic product in 2016, the last year for which the IMF provided figures, the fund said… in its semi-annual Fiscal Monitor report. The previous peak was in 2009, according to the… fund. 'One hundred and sixty-four trillion is a huge number,' Vitor Gaspar, head of the IMF's fiscal affairs department, said… 'When we talk about the risks looming on the horizon, one of the risks has to do with the high level of public and private debt.'"

For posterity, I've pulled a few paragraphs from the IMF's most recent Fiscal Monitor report:

"At $164 trillion-equivalent to 225% of global GDP-global debt continues to hit new record highs almost a decade after the collapse of Lehman Brothers. Compared with the previous peak in 2009, the world is now 12% of GDP deeper in debt, reflecting a pickup in both public and nonfinancial private sector debt after a short hiatus. All income groups have experienced increases in total debt but, by far, emerging market economies are in the lead. Only three countries (China, Japan, United States) account for more than half of global debt -significantly greater than their share of global output...

"A large number of countries currently have a high debt-to-GDP ratio, as suggested by critical thresholds identified in the IMF's debt sustainability analysis. In 2017, more than one-third of advanced economies had debt above 85% of GDP, three times more countries than in 2000. One-fifth of emerging market and middle-income economies had debt above 70% of GDP in 2017, similar to levels in the early 2000s in the aftermath of the Asian financial crisis. One-fifth of low-income developing countries now have debt above 60% of GDP, compared with almost none in 2012."

"From a longer-term perspective, global indebtedness has been driven by private sector debt-which has almost tripled since 1950. For almost six decades, advanced economies spearheaded the global leverage cycle, with the debt of the nonfinancial private sector reaching a peak of 170% of GDP in 2009, with little deleveraging since. Emerging market economies, in contrast, are relative newcomers. Their nonfinancial private debt started to accelerate in 2005, overtaking advanced economies as the main force behind global trends by 2009. Private debt ratios doubled in a decade, reaching 120% of GDP by 2016."

"The ongoing recovery presents a golden opportunity to focus fiscal policy on rebuilding buffers and raising potential growth. Forecasts indicate that economic activity will continue to accelerate, which implies that fiscal stimulus to support demand is no longer a priority in most countries. Governments should avoid the temptation of spending the revenue windfalls during good times. Starting to rebuild buffers now will ensure that policymakers have sufficient fiscal ammunition to respond in case of a downturn and prevent fiscal vulnerabilities themselves from hurting the economy."

Wishful thinking with respect to "a golden opportunity." The global government finance Bubble has been fueled by almost a decade of near zero rates, massive central bank monetization and unprecedented amounts of government borrowing. My view holds that myriad global Bubbles have become only more vulnerable to any meaningful tightening of financial conditions. And there are pressing issues that increasingly put the loose financial landscape in jeopardy.

China has belatedly moved to slow system Credit growth. On the surface, it appears they are having some success. Overall Credit expansion has decelerated, mainly on the back of significant regulator pressures over shadow banking. At the same time, mortgage and household lending has accelerated. One can make a case that the overall ongoing expansion of non-productive Credit growth remains highly problematic. Underlying financial fragility continues to worsen. Along with sinking stock prices, China's interbank lending market this week indicated tightened liquidity conditions. The People's Bank of China announced Tuesday that it would support lending with lower bank reserve requirements.

April 17 - Wall Street Journal (William A. Galston): "I know that worrying about the deficit and debt is hopelessly retro, but please indulge me for a few minutes. Last week the Congressional Budget Office issued its outlook for the next 10 years. The news was not good. Over the next decade, the annual federal deficit averages $1.2 trillion. It rises from 3.5% of gross domestic product in 2017 to 5.1% in 2027. The national debt, which is driven by annual deficits, rises from $15.7 trillion to $28.7 trillion over the same period, and surges from 78.0% to 96.2% as a share of GDP-the highest mark since just after World War II. These projections have worsened significantly since the CBO's report last June, and public-policy decisions are the culprit."

April 18 - Bloomberg (Vincent Del Giudice and Alexandre Tanzi): "Mamma Mia! In five years, the U.S. government is forecast to have a bleaker debt profile than Italy, the perennial poor man of the Group of Seven industrial nations. The U.S. debt-to-GDP ratio is projected widen to 116.9% by 2023 while Italy's is seen narrowing to 116.6%, according to the latest data from the International Monetary Fund. The U.S. will also place ahead of both Mozambique and Burundi in terms of the weight of its fiscal burden."

If China's Bubble doesn't pose enough risk for global finance, there's the unfolding fiscal fiasco in Washington. Put on so much debt and you sacrifice flexibility - that's the case for the U.S., China and globally. Especially for the behemoth importer U.S. economy, tariffs and trade wars risk stronger inflation. There is as well the risk that our foreign creditors might find less appetite for additional bonds and other U.S. financial assets. Then there's the pressure such egregious late-cycle fiscal stimulus places on the Federal Reserve. For a Fed that is already far behind the curve, the prospect of stimulus-induced economic expansion with heightened inflationary pressures must be unsettling. Long convinced that inflation was dead and buried, doubt is now making some headway.

It's hard for me to believe there's not massive leverage throughout U.S. and global fixed-income markets. This historic speculative Bubble was at risk of being pierced back in late-2016. 2017, however, proved to be a year with still enormous ongoing global QE (chiefly BOJ and ECB), rampant Chinese Credit expansion and global inflation dynamics that just didn't quite attain momentum. Along the way, financial conditions remained extraordinarily loose and markets ever more complacent.

With the bond vigilantes long extinct, an overindulgent Washington embarked on massive tax cut fiscal stimulus. Mission Accomplished. Next on the agenda, trade and China. This week saw 10-year Treasury yields a mere four bps away from the 3.00% bogey. U.S. and emerging bond markets would appear unusually poised for a negative surprise. Things get interesting if the Fed ever ponders whether monetary tightening might be necessary to calm a frazzled bond market. Thinking back, I've always been intrigued by how the bond (and derivatives!) market was so caught by surprise in 1994. IO's and PO's and such and, of course, ghastly amount of speculative leverage.

For the Week:

The S&P500 added 0.5% (down 0.1% y-t-d), and the Dow increased 0.4% (down 1.0%). The Utilities gained 1.1% (down 4.8%). The Banks rose 0.9% (up 0.6%), and the Broker/Dealers jumped 3.3% (up 10.7%). The Transports jumped 2.0% (down 0.3%). The S&P 400 Midcaps gained 0.9% (unchanged), and the small cap Russell 2000 rose 0.9% (up 1.9%). The Nasdaq100 added 0.6% (up 4.2%). The Semiconductors sank 4.4% (up 1.4%). The Biotechs fell 1.3% (up 8.1%). Though bullion was down almost $10, the HUI gold index increased 0.4% (down 4.2%).

Three-month Treasury bill rates ended the week at 1.77%. Two-year government yields rose 10 bps to 2.46% (up 57bps y-t-d). Five-year T-note yields gained 13 bps to 2.80% (up 59bps). Ten-year Treasury yields jumped 13 bps to 2.96% (up 55bps). Long bond yields gained 12 bps to 3.15% (up 41bps).

Greek 10-year yields declined five bps to 4.02% (down 5bps y-t-d). Ten-year Portuguese yields were unchanged at 1.66% (down 29bps). Italian 10-year yields slipped two bps to 1.79% (down 24bps). Spain's 10-year yields rose four bps to 1.28% (down 29bps). German bund yields jumped eight bps to 0.59% (up 16bps). French yields rose seven bps to 0.81% (up 3bps). The French to German 10-year bond spread narrowed one to 22 bps. U.K. 10-year gilt yields gained four bps to 1.48% (up 29bps). U.K.'s FTSE equities index jumped 1.4% (down 4.2%).

Japan's Nikkei 225 equities index gained 1.8% (down 2.6% y-t-d). Japanese 10-year "JGB" yields added two bps to 0.06% (up 1bp). France's CAC40 rose 1.8% (up 1.9%). The German DAX equities index gained 0.8% (down 2.9%). Spain's IBEX 35 equities index rose 1.2% (down 1.6%). Italy's FTSE MIB index jumped 2.1% (up 9.0%). EM equities were mixed. Brazil's Bovespa index gained 1.4% (up 12%), while Mexico's Bolsa declined 0.7% (down 1.9%). South Korea's Kospi index rose 0.9% (up 0.4%). India’s Sensex equities index increased 0.7% (up 1.1%). China’s Shanghai Exchange dropped 2.8% (down 7.1%). Turkey's Borsa Istanbul National 100 index rallied 1.2% (down 3.8%). Russia's MICEX equities recovered 2.6% (up 5.8%).

Investment-grade bond funds saw inflows of $1.535 billion, and junk bond funds posted inflows of $2.971 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates gained five bps to 4.47% (up 50bps y-o-y). Fifteen-year rates jumped seven bps to 3.94% (up 71bps). Five-year hybrid ARM rates rose six bps to 3.67% (up 57bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates up four bps to 4.52% (up 45bps).

Federal Reserve Credit last week expanded $6.4bn to $4.349 TN. Over the past year, Fed Credit contracted $95.1bn, or 2.1%. Fed Credit inflated $1.538 TN, or 55%, over the past 285 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $13.2bn last week to $3.437 TN. "Custody holdings" were up $231bn y-o-y, or 7.2%.

M2 (narrow) "money" supply declined $11.6bn last week to $13.936 TN. "Narrow money" gained $528bn, or 3.9%, over the past year. For the week, Currency increased $2.6bn. Total Checkable Deposits rose $8.7bn, while savings Deposits fell $29bn. Small Time Deposits gained $3.4bn. Retail Money Funds added $2.8bn.

Total money market fund assets sank $33.4bn to $2.794 TN. Money Funds gained $167bn y-o-y, or 6.4%.

Total Commercial Paper rose $7.0bn to $1.065 TN. CP gained $90bn y-o-y, or 9.2%.

Currency Watch:

April 19 - Financial Times (Emma Dunkley): "Hong Kong's de facto central bank indicated there would be more currency intervention to come, after the monetary authority bought more than HK$51bn to support the Hong Kong dollar over the past week. The Hong Kong Monetary Authority had stepped in 13 times within a week by Thursday morning, using its reserves to sell US$6.54bn and buying Hong Kong dollars to prop up the local currency, after it slumped to its weakest level since 2005… The HKMA is required to support the peg if the Hong Kong dollar slips to the edges of the band…"

The U.S. dollar index gained 0.6% to 90.316 (down 2.0% y-t-d). For the week on the upside, the Swedish krona increased 0.3%, the Brazilian real 0.3% and the South Korean won 0.2%. For the week on the downside, the Mexican peso declined 2.6%, the New Zealand dollar 2.2%, the British pound 1.7%, the Swiss franc 1.3%, the Canadian dollar 1.2%, the Australian dollar 1.2%, the Norwegian krone 0.6%, the euro 0.3%, the Singapore dollar 0.3%, the Japanese yen 0.3%, and the South African rand 0.3%. The Chinese renminbi slipped 0.34% versus the dollar this week (up 3.34% y-t-d).

Commodities Watch:

April 19 - Reuters (David Gaffen): "Oil prices on Thursday hit highs not seen since 2014, built on the ongoing drawdowns in global supply and as Saudi Arabia looks to push prices higher, though U.S. crude gave back gains in the afternoon to finish lower. A global oil glut has been virtually eliminated, according to a joint OPEC and non-OPEC technical panel…, thanks in part to an OPEC-led supply cut deal in place since January 2017."

April 18 - Reuters (Rania El Gamal and Alex Lawler): "Top oil exporter Saudi Arabia would be happy to see crude rise to $80 or even $100 a barrel, three industry sources said, a sign Riyadh will seek no changes to an OPEC supply-cutting deal even though the agreement's original target is within sight. The Organization of the Petroleum Exporting Countries, Russia and several other producers began to reduce supply in January 2017 in an attempt to erase a glut. They have extended the pact until December 2018 and meet in June to review policy."

April 19 - CNBC (Jeff Cox): "Threats of a trade war and continued signs of global growth are combining to create myriad opportunities for investors in one long-dormant asset class: commodities. In fact, the geopolitical turbulence and market volatility putting downward pressure on the stock market is working out just fine for the commodities market, which languished for years under slow economic conditions and a general trading malaise. One popular commodities index just hit a 2½-year high, and investors in the space see the trend continuing."

April 16 - Bloomberg (Mark Burton): "Aluminum extended last week's record gain, touching the highest in more than six and a half years in London as the market weighed the possibility that United Co. Rusal will be forced to cut production after being shut out of western markets."

The Goldman Sachs Commodities Index gained 1.2% (up 7.1% y-t-d). Spot Gold slipped 0.7% to $1,336 (up 2.5%). Silver jumped 3.0% to $17.16 (up 0.1%). Crude rose another $1.01 to $68.40 (up 13%). Gasoline gained 1.5% (up 17%), while Natural Gas was little changed (down 7%). Copper jumped 2.8% (down 4%). Wheat fell 2.5% (up 12%). Corn dropped 2.3% (up 10%).

Market Dislocation Watch:

April 18 - Bloomberg (Lu Wang, Elena Popina, and Luke Kawa): "The Cboe Volatility Index is how Wall Street measures anxiety. Lately it's the gauge's own plumbing that's making people nervous. It's a recurrent claim -- the VIX is rigged. It got a fresh airing Wednesday, when the index swung wildly just as derivatives on it were expiring. Billions of dollars are earned or lost as VIX futures settle. The concern is that owners of those wagers are willing to spend a few million to make them pay off. The suspicions are only that, suspicions. Volatility markets are too complex for easy conclusions to be drawn, and reasonable explanations have been offered for the patterns. But strange-looking outcomes have happened enough on VIX settlement day that the debate keeps being revived."

April 15 - Wall Street Journal (Chelsey Dulaney and Ira Iosebashvili): "The currencies of places as diverse as Russia, Hong Kong and Kazakhstan slid last week, an alarming sign to some investors who worry that the geopolitical volatility affecting U.S. stocks is spreading to other markets. Hong Kong's dollar hit the lowest level allowed under a more than three-decade-old U.S. dollar-peg agreement, forcing the de facto central bank to step in to defend the currency and stabilize it. Russia's ruble fell amid increased U.S. sanctions against the country and concern about a U.S. strike on Syria, a decline that also contributed to a fall in Kazakhstan's tenge."

Trump Administration Watch:

April 19 - Bloomberg (Saleha Mohsin): "The Treasury Department is considering using an emergency law to curb Chinese investments in sensitive technologies, as the Trump administration looks to punish China for what it sees as violations of American intellectual-property rights. The U.S. government is reviewing the possible use of a law known as the International Emergency Economic Powers Act, said Heath Tarbert, an assistant secretary in the agency's international affairs office. Under the 1977 law, President Donald Trump could declare a national emergency in response to an 'unusual and extraordinary threat,' allowing him to block transactions and seize assets."

April 18 - Axios (Steve LeVine): "The U.S. is experiencing a revival of Japan syndrome, harking back to the late 1970s when 'Made in Japan' abruptly stopped being a source of mirth, Americans began to snap up Toyotas and Nissans in big numbers, and Detroit sank into a profit-and-jobs bloodbath. The big picture: Five years ago, American technologists sneered at China's Baidu and its new search engine. But 'they aren't laughing anymore,' says Gregory Allen, an AI expert at the Center for a New American Security. 'Now they are marveling at Baidu's advances in artificial intelligence.' Chinese Big Tech is one dimension of a juggernaut that's collectively terrifying the Trump administration, Silicon Valley and the western foreign policy community. It's 'Made in China 2025,' Beijing's three-year old game plan for dominating the 10 biggest technologies of the future, such as AI, robotics and electric cars."

April 17 - New York Times (Raymond Zhong, Paul Mozur and Jack Nicas): "The United States undercut China's technology ambitions on Tuesday, advancing a new rule that would limit the ability of Chinese telecommunications companies to sell their products in this country. The Federal Communications Commission voted unanimously to move forward with a plan that would prevent federally subsidized telecommunications carriers from using suppliers deemed to pose a risk to American national security. The decision takes direct aim at Huawei, which makes telecommunications network equipment and smartphones, and its main Chinese rival, ZTE…"

April 16 - Reuters (Steve Stecklow, Karen Freifeld and Sijia Jiang): "The United States has banned American firms from selling parts and software to China's ZTE Corp for seven years, potentially devastating for the telecoms equipment maker and exacerbating tensions between the world's two largest economies… The U.S. Commerce Department imposed the ban following ZTE's violation of an agreement on punishing employees that was reached after it was caught illegally shipping U.S. goods to Iran."

April 19 - Reuters: "China will retaliate if the United States insists on initiating a trade war, China's ambassador to the United States was quoted as saying… Speaking at an event… Cui Tiankai said any dispute should be worked out through dialogue and a trade war would poison the atmosphere of overall China-U.S. relations."

April 16 - Reuters (Doina Chiacu, Dan Burns and James Oliphant): "U.S. President Donald Trump accused Russia and China… of devaluing their currencies while the United States raises interest rates, prompting China to accuse the United States of sending confusing messages. 'Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable!' Trump said in a Twitter post."

April 20 - CNBC (John Melloy): "President Donald Trump blasted the oil-producing cartel OPEC on Twitter on Friday. 'Looks like OPEC is at it again,' he wrote. 'With record amounts of Oil all over the place, including the fully loaded ships at sea, Oil prices are artificially Very High! No good and will not be accepted!'"

April 17 - The Hill (Mike Lillis): "Rep. Steny Hoyer (D-Md.) said… that Democrats would seek to roll back the GOP's tax-code overhaul if they control the lower chamber next year. Hoyer, the minority whip, said the Democrats would not repeal the tax law in its entirety, citing certain provisions the party supports, such as cuts for the middle class, a reduction in the corporate rate and efforts to encourage companies to repatriate foreign-held dollars into the U.S. economy. But Hoyer said the 21% corporate tax rate adopted in the GOP bill is too low, suggesting that Democrats would raise it."

April 18 - Wall Street Journal (Greg Ip): "Among President Donald Trump's most deeply held economic convictions is that trade deficits are bad, yet his signature economic policy-a major tax cut-likely will deepen the trade deficits he abhors for years to come. For now, that's more a problem of optics than economics, albeit one that may prompt Mr. Trump to dial up trade tensions with other countries. But in the long run wider trade deficits will make Americans poorer. That's not because foreigners are stealing American jobs, as Mr. Trump often contends. Rather, it's because Americans will increasingly borrow from foreigners to sustain their standard of living. Paying them back will wipe out a sizable chunk of the tax cut's benefit."

April 17 - CNBC (Michelle Fox): "The United States has to make it clear to Russian President Vladimir Putin that there are lines that the U.S. will not allow Russia to cross, former Defense Secretary Leon Panetta told CNBC… 'There's no question we're in a new chapter of the Cold War with Russia,' Panetta said… 'There are an awful lot of steps that the Russians are taking to be very aggressive,' he said. 'Part of it is because they've read weakness into the United States, as well as our allies.'"

Federal Reserve Watch:

April 16 - Bloomberg (Rich Miller and Jennifer Jacobs): "U.S. President Donald Trump announced his intention to nominate Richard Clarida, a respected monetary economist and Pacific Investment Management Co. global strategic adviser, as vice chairman of the Federal Reserve. …Trump also announced plans to nominate Kansas State Bank Commissioner Michelle Bowman as Fed governor representing the interests of community banks… 'I would describe him as centrist and pragmatic,' said New York University professor Mark Gertler, who has co-written a number of research papers with Clarida. 'He has a nice balance between understanding and contributing to what the academic literature has to say and very practical, real world knowledge.'"

April 16 - Wall Street Journal (Nick Timiraos): "Minneapolis Federal Reserve President Neel Kashkari said recent steps by the federal government to stimulate economic growth have made him more confident the Fed will achieve its 2% inflation objective soon, allowing the central bank to press ahead with planned interest-rate increases. Mr. Kashkari had been outspoken last year against rate increases because of concerns they would hobble the economic expansion in the face of subdued inflation."

April 16 - Reuters (Ann Saphir): "Dallas Federal Reserve Bank President Robert Kaplan… said he expects the U.S. central bank to raise interest rates three times this year and further next year to levels that could put the brakes on U.S. economic growth, but that he does not want to push short-term rates above long-term borrowing costs. 'I don't have a problem with being restrictive,' Kaplan said, adding that monetary policy would be restrictive if interest rates rise above the 2.5% or 2.75% that he estimates is their 'neutral' level."

April 19 - Reuters (Michelle Price): "Federal Reserve Board Governor Lael Brainard… warned it was premature for regulators to revisit liquidity and capital requirements for the largest banks amid growing vulnerabilities in the economy. Speaking at a conference in Washington, Brainard said rising asset prices and leverage signaled it was too early in the economic cycle to review core rules introduced following the 2007-2009 global financial crisis."

U.S. Bubble Watch:

April 17 - Bloomberg (Joanna Ossinger): "Investors need to prepare for downside as the end of the economic cycle is near and U.S. markets are priced for best-case scenarios, Morgan Stanley says. While fiscal stimulus is supportive of growth in the near term, the benefits are already likely 'in the price' and increase potential downside for markets at the end of the cycle, Morgan Stanley strategists including Michael Zezas, Matthew Hornbach and Andrew Sheets wrote… 'There's less reason to behave like it's 'morning in America' than 'Happy Hour in America,'' the report said. Markets are 'closer to the end of the day than the beginning.'"

April 17 - CNBC (Jeff Cox): "Employers appear to be using proceeds from corporate tax cuts to continue the practice of rewarding shareholders and executives over workers. In the first quarter of 2018, corporate America dedicated $305 billion to stock buybacks and cash takeovers compared with $131 billion in pretax wage growth, according to TrimTabs… 'The recently enacted corporate tax cut is likely to deliver far more benefits to top management and investors than to typical American households,' said David Santschi, director of liquidity research at TrimTabs."

April 17 - Bloomberg (Sho Chandra): "U.S. new-home construction rose by more than forecast in March on a rebound in multifamily starts, giving a boost to first-quarter economic growth… Residential starts rose 1.9% to 1.32m annualized rate (est. 1.27m) after upwardly revised 1.3 mln pace in prior month. Multifamily home starts rose 14.4%; single-family fell 3.7%..."

April 19 - CNBC (Diana Olick): "Homebuyers, hold onto your wallets. The gains in home prices are getting bigger as the supply of homes for sale gets leaner. The median price of a home sold in March surged 8.9% compared with March 2017, according to Redfin, a real estate brokerage. It is the biggest annual increase in four years. Redfin tracks prices in 174 local markets and calculated the median home price at $297,000. High prices are the result of very, very low inventory. The supply of homes for sale was down 11.9% in March, compared with a year ago. As a result, sales fell 3.7%. The number of new listings in March dropped 5.6% annually…"

April 18 - CNBC (Diana Olick): "A rise in the thermometer across much of the country last week may have been just the remedy for an ailing mortgage market. Mortgage applications increased 4.9% from the previous week… Mortgage applications to purchase a home jumped 6% for the week and were 10% higher than a year ago. That is the strongest reading since January…"

April 16 - Financial Times (Alistair Gray): "US banks have finally reopened the lending taps to corporate America, expanding their loan books at the fastest pace since Donald Trump's election resulted in a lengthy credit stagnation. While the industry data published on Friday reflect only one month of recovery, bankers said they were an encouraging sign and predicted a more sustained pick up as US business gets more comfortable about taking on more debt. 'You saw a decent pick up in March and we're seeing that in our pipeline,' said Bill Demchak, chairman and chief executive of PNC Financial Services… 'That should set us up well for the rest of the year.' Commercial and industrial loan balances swelled at a seasonally adjusted rate of 9.3% last month to hit a record $2.13 trillion…"

April 20 - Reuters (Herbert Lash): "A housing shortage, strong economy and robust demand have pushed many homes in major U.S. cities over $1 million, offsetting buyers' concerns about the reduced benefits of owning a pricey property under President Donald Trump's tax reform, data show. Home sales at $750,000 and above have surged by double digits annually in the past three years, closings data from show for 30 counties on the east and west coasts."

April 19 - New York Times (Cade Metz): "One of the poorest-kept secrets in Silicon Valley has been the huge salaries and bonuses that experts in artificial intelligence can command. Now, a little-noticed tax filing by a research lab called OpenAI has made some of those eye-popping figures public. OpenAI paid its top researcher, Ilya Sutskever, more than $1.9 million in 2016. It paid another leading researcher, Ian Goodfellow, more than $800,000 - even though he was not hired until March... Both were recruited from Google… Salaries for top A.I. researchers have skyrocketed because there are not many people who understand the technology and thousands of companies want to work with it."

China Watch:

April 17 - Reuters (Josephine Mason): "China's central bank announced… it will cut the amount of cash that most commercial and foreign banks must hold as reserves to pay back medium-term lending facilities. The People's Bank of China (PBOC) said… it would cut the reserve requirement ratio (RRR) - currently at 15% or 17% - by 100 bps for most commercial banks."

April 17 - Reuters (Dominique Patton and Tom Polansek): "China will slap hefty anti-dumping deposits on imports of U.S. sorghum from Wednesday…, a higher-than-expected charge on the grain used in livestock feed and the spirits industry, as trade tensions escalate between the world's top two economies. CHS Inc and other U.S. companies will have to put up a 178.6% deposit on the value of sorghum shipments to the country…"

April 19 - Reuters (Yawen Chen and Se Young Lee): "China is well prepared to handle any negative effects from its trade dispute with the United States, the commerce ministry said…, adding that Beijing's tariff hikes on U.S. imports will not have a big impact overall on its domestic industries. It would be a miscalculation by the United States if its intention is to contain China's rise, ministry spokesman Gao Feng said…"

April 16 - Bloomberg: "China's steady first-quarter expansion masked a tug-of-war between struggling old industries from mining to textiles, and booming new-economy sectors including e-commerce and health care. The key question: As President Xi Jinping strives to curb debt and jousts with Donald Trump over trade, how much of the potential drag can the new growth drivers offset? For now, the new engines are taking up the slack with the economic expansion matching the 6.8% pace for the last three months of 2017. Among the drivers, online retail sales soared 35.4% in the first quarter from a year earlier while investment in education jumped 26.9%... Consumption contributed 77.8% to the quarterly expansion…"

April 15 - Bloomberg: "China's sprawling local government financing system needs 'crucial' reforms to increase consumption, build prosperity and encourage economic rebalancing, the International Monetary Fund said. Among the IMF's recommendations is to fund local governments by imposing recurring property taxes and adding local surcharges to national individual income taxes. China's fiscal system is the world's most decentralized, with local bodies responsible for 85% of government spending, the fund said in a report, citing the breadth across 31 provincial level governments, 334 prefectures, 2,850 counties, 40,000 townships and 900,000 informal village jurisdictions. Including off-budget spending by local government financing vehicles brings the ratio up to 89% of all public expenditures."

April 17 - Bloomberg: "China's home prices rose at the fastest pace in three months in March, fueled by gains in smaller cities, even as the government maintained a two-year campaign to cool the housing market. New-home prices across 70 cities gained 0.42% from a month earlier… That compared with a 0.25% increase in February."

Central Bank Watch:

April 17 - Bloomberg (Takashi Nakamichi and Tesun Oh): "The Bank of Japan will likely find it easier to make its inflation target less binding if recent scandals throw Prime Minister Shinzo Abe from power, according to Takahide Kiuchi, a former board member at the central bank. 'If the unusually strong administration changes, the Bank of Japan could get a little more freedom,' Kiuchi said… The BOJ has faced 'considerable political pressure' these past five years, he said."

Global Bubble Watch:

IMF Fiscal Monitor: "Global debt is at historic highs, reaching the record peak of US$164 trillion in 2016, equivalent to 225% of global GDP. The world is now 12% of GDP deeper in debt than the previous peak in 2009, with China as a driving force. Public debt plays an important role in the surge in global debt, with little improvement expected over the medium term. The rise in government debt reflects the economic collapse during the global financial crisis and the policy response, as well as the effects of the 2014 fall in commodity prices and rapid spending growth in the case of emerging market and low-income developing countries. For advanced economies, debt-to-GDP ratios have plateaued since 2012 above 105% of GDP-levels not seen since World War II…"

April 18 - Bloomberg (Andrew Mayeda): "Threats to the global financial system are rising, with the price of risky assets surging in a manner reminiscent of the years before the global financial crisis, the International Monetary Fund warned. Downside risks to world financial stability have increased 'somewhat' over the past six months, the IMF said… in the latest edition of its Global Financial Stability Report. 'Financial vulnerabilities, which have accumulated during years of extremely low rates and volatility, could make the road ahead bumpy and could put growth at risk,' said the… fund."

April 18 - Reuters (Michael Martina and Robin Emmott): "China's international trade representative held a series of meetings with the ambassadors from major European nations last week to ask them to stand together with Beijing against U.S. protectionism… Amid the rapidly rising tensions between the two sides, China has sought to seize the moral high ground as a defender of the multilateral trade system, even as U.S. allies express shared concern with Washington over Beijing's highly restricted market."

April 17 - Reuters (Helen Reid): "Alarm bells are ringing over valuations of the world's leading technology stocks with worries over regulation causing many investors to cut exposure to the sector, Bank of America Merrill Lynch (BAML)'s April fund manager survey found. Long FAANG + BAT' remains the top pick for most crowded trade' for the third month running, BAML strategists said, referring to U.S. tech companies Facebook, Apple, Amazon, Netflix and Google, and China's Baidu, Alibaba and Tencent."

April 18 - Financial Times (George Hammond): "For centuries, great cities have lured the young and ambitious in search of streets paved with gold. Now those city streets seem more likely to appeal to the silver-haired as young people either flee or shun the increasingly unaffordable property prices. London has traditionally 'imported the young and exported the old', says UK housing market analyst Neal Hudson. But this equation is in danger of reversing. The city is getting older - and fast… It's a similar story in other 'global' cities, where house price rises have outstripped the wider economy…"

Europe Watch:

April 19 - Bloomberg (Liz McCormick and Elizabeth Stanton): "A wave of selling across European sovereign debt and a rally in commodities prices are giving Treasury-market bears their mojo back. The benchmark 10-year Treasury yield reached 2.93% Thursday, within about 2 bps of the 2018 high touched in February. The slump in the world's biggest bond market came as U.K. gilts slid along with German bunds amid a burst of supply out of Western Europe."

April 17 - Financial Times (Katrina Manson and Max Seddon): "Countries in western Europe are struggling to reduce their debt levels amid declining political appetite for fiscal reform, rating agency Fitch has warned. Six Western European countries have received rating upgrades from Fitch since last October, with none being downgraded, and the UK is the only country with a negative outlook. However credit ratings in the region remain sensitive to the trend in public debt in proportion to GDP, Fitch said, and 'it is difficult to foresee the current upward rating momentum being sustained without bigger reductions in government debt burdens'."

Japan Watch:

April 16 - Bloomberg (Isabel Reynolds): "Shinzo Abe's approval rating fell again amid allegations of cronyism and government cover-ups, placing new pressure on the Japanese prime minister to stage yet another comeback or risk losing his grip over the ruling party. Abe's popularity fell to a record low of 26.7% in a survey by Nippon TV…"

EM Bubble Watch:

April 19 - Financial Times (Joe Leahy): "When Brazil's populist former president Luiz InĂ¡cio Lula da Silva was jailed for corruption this month, markets were expected to cheer the end of the leftist leader`s comeback hopes in elections this year. But instead of rallying, Brazil's currency, the real, headed in the opposite direction, breaking out of its previous range of R$3.20 to R$3.30 to the dollar and touching some of its weakest levels since 2016 of above R$3.40. While politics was the catalyst for the sudden slide, the weakening of the real has been coming for some time as part of what UBS is calling the 'Great Unwind' - a mixture of the end of a carry trade in the currency combined with the liquidation by the central bank of billions of dollars of swaps that were used by investors for hedging."

April 18 - Reuters (Tuvan Gumrukcu and David Dolan): "President Tayyip Erdogan… called snap elections for June 24, saying economic challenges and the war in Syria meant Turkey must switch quickly to the powerful executive presidency that goes into effect after the vote. The presidential and parliamentary elections will take place under a state of emergency that has been in place since an attempted coup in July 2016."

Leveraged Speculator Watch:

April 20 - Bloomberg (Katherine Burton): "Hedge-fund billionaires were already struggling to keep investors from heading out the door. Then along came another problem: big tax bills. David Einhorn, John Paulson, Steve Cohen and other high-profile managers cumulatively owed billions of dollars to federal, state and local governments for taxes, thanks to a 2008 rule change tied to offshore holdings that gave them a decade to comply. To make the payments, they had to pull some of their own money from their funds."

Geopolitical Watch:

April 15 - Reuters: "Russian President Vladimir Putin warned… that further Western attacks on Syria would bring chaos to world affairs, as Washington prepared to increase pressure on Russia with new economic sanctions. In a telephone conversation with his Iranian counterpart Hassan Rouhani, Putin and Rouhani agreed that the Western strikes had damaged the chances of achieving a political resolution in the seven-year Syria conflict, according to a Kremlin statement."

April 17 - Financial Times (Katrina Manson and Max Seddon): "The US and UK issued a joint warning… that Russia was deliberately targeting critical western internet-based infrastructure with cyber intrusions that threatened home and business routers. Jeanette Manfra, assistant secretary of the US Department of Homeland Security, said Washington had 'high confidence' the Russian government was behind the alleged intrusions. 'We hold the Kremlin responsible for its malicious cyber activities,' she said, adding that officials were unable to determine the full scope of the claimed compromise."

April 17 - Wall Street Journal (Dion Nissenbaum and Rory Jones): "With tacit American support, the Israeli military targeted an advanced Iranian air-defense system at a Syrian base last week, said intelligence officials…, the latest sign the Trump administration is working with Israel to blunt Tehran's expanding influence in the Middle East. After conferring with President Donald Trump, Israeli Prime Minister Benjamin Netanyahu ordered a strike on the newly arrived antiaircraft battery to prevent Iranian forces from using it against Israeli warplanes carrying out increasing numbers of operations in Syria…"

April 19 - CNBC (Parisa Hafezi): "Iran warned the United States… of 'unpleasant' consequences if Washington pulls out of a multinational nuclear deal, Iranian state TV reported. 'Iran has several options if the United States leaves the nuclear deal. Tehran's reaction to America's withdrawal of the deal will be unpleasant,' TV quoted Iranian Foreign Minister Mohammad Javad Zarif as saying…"

April 18 - Reuters (Ben Blanchard and Judy Peng): "Chinese aircraft have again flown around self-ruled Taiwan in what China's air force… called a 'sacred mission', as Taiwan denounced its big neighbour over what it called a policy of military intimidation. Taiwan, claimed by Beijing as Chinese territory, is one of China's most sensitive issues and a potential military flashpoint. China has ramped up military exercises around Taiwan in the past year, including flying bombers and other military aircraft around the island. More recently, China has been incensed by comments by Taiwan Premier William Lai that it deemed were in support of Taiwan independence…"

April 16 - Wall Street Journal (Gerald F. Seib): "At a Wall Street Journal gathering of business leaders in London a few days ago, John Sawers, a career British diplomat and former head of the MI6 intelligence service, delivered a sober warning: For the first time in living memory, there is a realistic prospect of a superpower conflict. His declaration came as the Western missile strike at Russia's friends in Syria was imminent. But that confrontation is only a small part of the troubling equation he described. The U.S., a mature power, simultaneously confronts an aggrieved and newly assertive Russia as well as an aggressive rising power in China. This is the backdrop for not only the standoff in Syria but also rising trade tensions with China."

Friday, April 20, 2018

Thursday, April 19, 2018

Thursday Evening Links

[Bloomberg] Asian Stocks Set to Slip; Bond Sell-Off Deepens: Markets Wrap

[Reuters] Tobacco and tech drag on Wall Street; yields boost banks

[Bloomberg] U.S. Weighs Emergency Powers to Curb Tech Investments by China

[Bloomberg] Bond Traders Refocus on 3% U.S. Yield as Inflation Bets Mount

[CNBC] Home prices just took the biggest jump in four years

[CNBC] What's behind the big commodities rally, and why it could be just getting started

[Bloomberg] Commodities Shoulder the Blame for Hits to Treasuries and Stocks

[Reuters] BOJ Kuroda steps up warning on protectionism as risk to Japan's recovery

[Reuters] Iran warns of 'unpleasant' response if U.S. drops nuclear deal: TV

[NYT] A.I. Researchers Are Making More Than $1 Million, Even at a Nonprofit

[FT] Government bond market sell-off accelerates

[FT] Treasury sell-off deepens despite equity weakness

[FT] Hong Kong’s currency intervention offers taste of what is to come

Thursday's News Links

Please join me and David McAlvany for the MWM Tactical Short Second-Quarter 2018 Conference Call: "Market Structure, Trump Tariffs, Higher Rates… Markets at a Precipice?" Thursday, April 19th, at 4:30pm EST (2:30pm MST): Click here to register:

[Bloomberg] Commodities Rally as Metals Surge; Bonds Slide: Markets Wrap

[Reuters] Oil near late-2014 highs as Saudi pushes for higher prices, U.S. crude stocks decline

[Reuters] Fed governor Brainard says 'premature' to revisit liquidity, capital rules

[Reuters] China says it's ready to deal with any fallout from trade row with US

[CNBC] Global debt is at historic highs and governments should start cutting levels now, the IMF says

[Bloomberg] VIX Rigging Talk Erupts on Wall Street After Another Wild Swing

[Axios] U.S. panics over China tech threat

[Reuters] China carries out live fire drills, unclear if aimed at Taiwan

[WSJ] Flattening Yield Curve Raises Warning Flag

[FT] IMF sounds alarm on excessive global borrowing

[FT] Markets warm to the prospect of four Fed rate rises this year

[FT] Young buyers are being priced out of global city property

[FT] Brazil’s weaker currency suggests fading of carry trade appeal 

Wednesday, April 18, 2018

Wednesday Evening Links

[Bloomberg] U.S. Stocks Advance on Earnings, Oil as Bonds Fall: Markets Wrap

[Bloomberg] U.S. Debt Load Seen Worse Than Italy's by 2023, IMF Predicts

[Bloomberg] World Debt Hits Record $164 Trillion

[Bloomberg] Investors Are Getting Worried About an Inverted Yield Curve

[Reuters] Turkey's Erdogan declares early elections on June 24

Wednesday's News LInks

[Bloomberg] U.S. Stocks Fluctuate on Earnings, Geopolitics: Markets Wrap

[Bloomberg] Oil Rises to Highest Since 2014 on Bullish U.S. Inventory Report

[Reuters] Trump says on Twitter he does not like TPP for U.S., too many contingencies

[CNBC] Spring hits the housing market as weekly mortgage applications rise 4.9%

[Bloomberg] IMF Warns of Rising Threats to Global Financial System

[The Hill] Hoyer: Dems eyeing ways to roll back GOP tax law

[Reuters] Exclusive: China seeks trade firewall with U.S. allies in rush of ambassador meetings - sources

[Bloomberg] China’s Economic Growth Remains Robust Amid Strong Retail Sales

[Bloomberg] China's Home Price Gains Accelerate Led by Smaller Cities

[Bloomberg] Inflation Gains Footing in Japan

[Bloomberg] BOJ May Get More Policy Freedom If Abe Quits: Ex-BOJ Kiuchi

[Reuters] Exclusive: OPEC's new price hawk Saudi Arabia seeks oil as high as $100 - sources

[Reuters] Russia: our response to U.S. sanctions will be precise and painful

[NYT] U.S. Moves to Block Sales by Chinese Telecom Equipment Makers

[WSJ] Is the U.S. Shale Boom Choking on Growth?

[WSJ] How the Tax Cut President Trump Loves Will Deepen Trade Deficits He Hates

[WSJ] The National Debt Is Worse Than You Think

[FT] China set to launch Taiwan Strait naval exercises

Tuesday, April 17, 2018

Tuesday Evening Links

[Bloomberg] Earnings Spur Stocks as Trade Woes Take Back Seat: Markets Wrap

[CNBC] 2-year yield hits highest level since 2008 after Fed official says he sees more inflation ahead

[Bloomberg] Oil Steadies as Risk of Mideast Strife Ebbs Before OPEC Meeting

[CNBC] Tax cut riches have gone to execs and investors over workers by nearly 3-to-1 margin

[CNBC] How a trade war with China could hurt the tech industry

[Bloomberg] Goldman Bond-Trading Bounce Not Enough to Get Investors on Board

[Bloomberg] Morgan Stanley Warns Markets the Best Times May Be Near an End

[Bloomberg] Fed's Williams Says Inverted Yield Curve Powerful Recession Sign

[CNBC] We're in new chapter of Cold War with Russia: Former Defense Secretary Leon Panetta

[WSJ] Fallout From Sanctions Against Russia Fuels Commodities Rally

[WSJ] Trump’s Establishment Picks Show Support for Fed Status Quo

[WSJ] Israel Conferred With U.S. on Strike in Syria to Target Iranian War Gear

Tuesday's News Links

[Bloomberg] Stocks Get Boost From Earnings as Treasuries Fall: Markets Wrap

[Bloomberg] U.S. Housing Starts Top Forecasts on Multifamily Construction

[Reuters] As trade spat grows, China hits U.S. sorghum imports with hefty deposit

[CNBC] Treasury Secretary Mnuchin: Trump tweet was 'warning shot' to China on currency

[Reuters] China cuts reserve requirement by 100 bps for most banks

[Bloomberg] China’s Economic Growth Remains Robust Amid Strong Retail Sales

[Reuters] China March industrial output up 6.0 percent, misses expectations, January-March investment growth slows

[Bloomberg] Euro-Area Engine Sputters as German Downturn Risk Sharpens

[Bloomberg] Draghi's High-Class Problem Rears Its Head as ECB Views Exit

[Bloomberg] Powell’s Inner Circle Takes Shape With Clarida as Fed’s No. 2

[Bloomberg] U.S. Cuts Off China's ZTE From American Tech for Seven Years

[Bloomberg] China May Be Set for Rare Property Defaults, Neuberger Says

[Reuters] Tech giants remain most crowded trade for third month running: BAML survey

[UK Telegraph] Macron warns of European 'civil war' over growing East-West divide

[NYT] China’s Economy Grows, and Its Trade Gap With the U.S. Widens

[FT] China adopts carrot-and-stick approach in trade dispute with US

[FT] Russia targeting millions of web users in west, warn US and UK

[FT] Political tides stymie European nations’ debt reduction efforts

Monday, April 16, 2018

Monday Evening Links

[Bloomberg] Asia Stocks Head for Mixed Start; Dollar Slides: Markets Wrap

[Bloomberg] Stocks Rally as Investors Turn Focus to Earnings: Markets Wrap

[CNBC] Trump to nominate economist Richard Clarida as Fed vice chair

[Reuters] Fed's Kaplan says he has no problem with being 'restrictive'

[Bloomberg] U.S. Libor Replacement, Two Weeks After Debut, Has Some Issues

[Bloomberg] Emerging Markets Have Had a Good Run. But Things May Get Bumpier

[Reuters] U.S., Britain blame Russia for global cyber attack

Monday's News Links

[Bloomberg] U.S. Stocks Rally, Bonds Fall After Syria: Markets Wrap

[Bloomberg] Aluminum Hits Highest Since 2011 With Rusal Supply Seen at Risk

[Bloomberg] U.S. Retail Sales Rebound in Sign Consumer Weakness Transitory

[Reuters] U.S. Homebuilder Sentiment Declined in April for a Fourth Month

[Bloomberg] Fed's Dudley Sees More ‘Gradual’ Hikes Unless Inflation Jumps

[Bloomberg] IMF Says China's Complex Fiscal System Needs ‘Crucial’ Overhaul

[Bloomberg] Hong Kong Plows $1.7 Billion Into Defending Currency to Little Effect

[Bloomberg] Japan Scandals Push Abe's Support Near Historical Danger Zone

[Reuters] Former Japan PM Koizumi says embattled Abe may quit in June - magazine

[Reuters] Trump says Russia, China playing 'currency devaluation game'

[Reuters] U.S. bans American companies from selling to China's ZTE

[Reuters] Kremlin says U.S. sanctions amount to asset grab

[WSJ] Homebuilding Isn’t Keeping Up With Growth, Development Group Says

[WSJ] Kashkari Says Fiscal Stimulus Supports Fed’s Rate-Raising Plans

[WSJ] In Syria and Beyond, a Dangerous New Era Dawns

Saturday, April 14, 2018

Saturday's News Links

[CNBC] Oil prices vulnerable to 'super spikes' again as geopolitics heats up

[CNBC] Russia warns of 'consequences' for US-led strike on Syria

[Bloomberg] Russia calls for UN meeting on Syria, mulls supplies of S-300 systems

[SCMP] China opposes Western air strikes on Syria, calls for talks

[NYT] A $76,000 Monthly Pension: Why States and Cities Are Short on Cash

Weekly Commentary: Bizarre and Ominous

Please join me and David McAlvany for the MWM Tactical Short Second-Quarter 2018 Conference Call: "Market Structure, Trump Tariffs, Higher Rates… Markets at a Precipice?" Thursday, April 19th, at 4:30pm EST (2:30pm MST): Click here to register:

Things have gone from surreal to the bizarre. The President points blame directly at Putin for a chemical attack in Syria. Russia threatens to shoot down any missiles fired into Syria. President Trump tweets "Get ready Russia, because [missiles] will be coming, nice and new and 'smart!'" A presidential tweet the next morning provided an unequivocal update: "Could Take Place Very Soon Or Not So Soon At All." Russia claims false flag. "U.S. Says Syria Has Used Chemical Weapons at Least 50 Times During War." Missiles were flying Friday night.

The President's personal attorney, target of a criminal investigation, had his office and residences raided by the FBI. An enraged President is said to be considering firing the special counsel and/or the Deputy Attorney General. "Trump Sees Inquiry Into Cohen as Greater Threat Than Mueller." The Speaker of the House announces he's through with Washington.

The former Director of the FBI will release his memoirs next week, with interviews lined up. It's not going to be pretty. Leaks began to flow this week. James Comey likens the "unethical" President to a "mob boss." The President tweeted that Comey is an "untruthful slime ball."

Department of the Treasury announced the U.S. budget deficit had reached $600 billion during the first-half of the fiscal year. March's deficit of $209 billion was 12% above the consensus estimate. Federal spending during the month was up 7% y-o-y, while revenues increased 2.7%. The CBO announced that Trillion dollar annual deficits will commence soon - about two-years sooner than expected only recently.

"President Xi Jinping presided over the Chinese navy's largest-ever military display on Thursday…, the country's latest show of force in the disputed South China Sea." On board a navy destroyer dressed in full military garb, XI announced China would hold live-fire military drills in the Taiwan Strait next week. "…The task of building a strong navy 'has never been as urgent as present.'"

Russian stocks sank 4.5% this week. Russian bond yields surged 43 bps to 7.49%, and the ruble fell 6.2%. Russia canceled a ruble bond auction, as Russian sovereign CDS posted their biggest jump in five years. "The Russian government on Monday called the latest US sanctions against the country 'scandalous' and 'illegal' and vowed it would retaliate…" Russia is putting together a list of banned U.S. imports, including rocket engines and titanium. With the lira down another 1.3% to record lows, Turkish President Erdogan warned that those committing "economic terror" would pay a steep price.

"Vitaly Churkin, Russia's ambassador at the United Nations, said he unfortunately 'cannot exclude any possibilities' when asked about the danger of war between the US and Russia." An ominous Friday evening Bloomberg headline: "Russia, U.S. Near Brink in Syrian Standoff With Nuclear Risks."

The Hong Kong Monetary Authority intervened three straight sessions to support the Hong Kong dollar peg against the U.S. dollar. It was their first currency intervention since 2005.

Aluminum prices surged 15% this week. Palladium jumped 9.2%, and Nickel increased 3.0%. Crude (WTI) surged 8.6%, trading at a three-year high. "Americans Face Highest Pump Prices in Years." Gasoline rose 5.7% this week, and heating oil jumped 7.3%. The GSCI Commodities index jumped 5.5% this week to the high since December 2014.

FOMC minutes offered added confirmation that the Powell Fed is not rushing to coddle the markets. Increasingly, they see upside risks to both growth and inflation. Rates remain much too low. "Fed Leans to Faster Pace of Hikes…" "Excluding food and energy, the core consumer-price index rose 2.1% from March 2017, the most in a year…" "U.S. wholesale prices advanced in March by more than forecast, reflecting broad increases in the costs of services and goods…" Even Chicago Fed President Charles Evans is calling for more hikes.

April 11 - Wall Street Journal (Nick Timiraos): "Federal Reserve officials at their meeting last month expressed greater confidence inflation would rise to their 2% target over the coming year, a development that could affect how much they raise interest rates in coming years. They also debated the costs and benefits of allowing the economy to run hot and discussed how they might need to later raise rates to a level that would deliberately slow growth… The minutes highlight just how much Fed officials' outlook has changed since last fall, when surprisingly slow inflation raised questions about the need for continued rate increases."

April 10 - Bloomberg (Alexandre Tanzi): "Global debt rose to a record $237 trillion in the fourth quarter of 2017, more than $70 trillion higher from a decade earlier, according to… the Institute of International Finance. Among mature markets, household debt as a percentage of GDP hit all-time highs in Belgium, Canada, France, Luxembourg, Norway, Sweden and Switzerland. That's a worrying signal, with interest rates beginning to rise globally… Still, the ratio of global debt-to-gross domestic product fell for the fifth consecutive quarter as the world's economic growth accelerated. The ratio is now around 317.8% of GDP, or 4 percentage points below the high in the third quarter of 2016…"

Failing to make the top 1000 newsworthy items of the week, Chinese Credit data nonetheless continue to fascinate. China's March growth in total Social Finance was reported much weaker than expect. At $212 billion (1.33 trillion yuan), growth was about 25% below estimates. Bank loan growth ($180bn) slightly missed estimates. The big story is the intensifying slowdown in shadow lending, which posted a net contraction during the month. Total Social Finance has expanded about $1.49 TN over the past six months, down 17% from the comparable year ago period.

The marked slowdown in system lending is leading a deceleration in money supply growth. March saw a notable slowdown. M2 money supply expanded 8.2% y-o-y versus estimates of 8.9%. And at this point it would appear the slowdown in money and Credit has impact general pricing pressures. March CPI was reported up 2.1% y-o-y versus estimates of 2.6%. PPI came in up 3.1% y-o-y against estimates of 3.3%.

Curiously, China also report disappointing March trade data. China posted a trade deficit of $5.8 billion, the first deficit since February 2017. Imports surged a stronger-than-expected 14.4% y-o-y, while imports were down 2.7% (after a huge February). It's worth noting that China's first quarter trade surplus with the U.S. was up 19.4% to $58.25bn.

Stocks, well, they enjoyed just a splendid week. The S&P500 rose 2.0%, outdone by the Nasdaq100's 3.0% jump. The Biotechs surged 8.6%, and the Semiconductors advanced 5.0%. The DJIA was up about 440 points at Monday's trading highs following Chinese President Xi's "conciliatory" weekend speech. Not enamored with the interpretation, Chinese officials pushed back: "Beijing says Xi speech wasn't a concession to US, it's ready to hit back at any escalation." With option expiration next Friday, it's been another month to tease - then torment - put buyers.

Earnings season started off with a bang. "JPMorgan Q1 Earnings Beat on Better Rates and Trading." "Citi beats, profits jump 13%." "Wells Fargo beats by $0.05 and beats on revenue." On Friday's earnings reports, JPMorgan's stock fell 2.7%, Citigroup dropped 1.6% and Wells Fargo sank 3.4%. Mark Zuckerberg travels to the nation's capital and is grilled for 10 hours. My nine-year-old son asked me why the Democrats were meaner to him than the Republicans. Reasonable question. Facebook rallied 4.7% this week.

Treasuries were a little worried that stocks remain oblivious to an extraordinary host of mounting risks. Ten-year Treasury yields added five bps to 2.83%. Two-year yields jumped nine bps to 2.36%, the high since August 2008.

It will be interesting to see how markets respond to tonight's missile strikes on Syria. It appears as many as 100 missiles hit at least three targets, in a more intensive operation than a year ago.

"Russia's ambassador in Washington Anatoly Antonov said in a statement on Friday immediately after the first strikes on Syria. 'The worst expectations have materialized. Our warnings fell on deaf ears. A pre-planned scenario is being acted on. We are being threatened again. We have warned that such actions will not remain without consequences. All responsibility for them rests upon Washington, London and Paris. Antonov stressed that insulting the Russian president was inadmissible.'"

The week was bizarre and ominous. Reports had President Trump livid after Monday's FBI raid on his personal attorney. I can imagine Putin is absolutely livid in Moscow. For different reasons, I worry increasingly about them both.

For the Week:

The S&P500 jumped 2.0% (down 0.6% y-t-d), and the Dow rose 1.8% (down 1.5%). The Utilities fell 1.4% (down 5.9%). The Banks gained 1.2% (down 0.3%), while the Broker/Dealers rose 1.5% (up 7.2%). The Transports rallied 2.2% (down 2.3%). The S&P 400 Midcaps gained 1.6% (down 0.9%), and the small cap Russell 2000 jumped 2.4% (up 0.9%). The Nasdaq100 recovered 3.0% (up 3.6%). The Semiconductors surged 5.1% (up 6.1%). The Biotechs jumped 8.6% (up 9.5%). With bullion up $12, the HUI gold index advanced 3.3% (down 4.6%).

Three-month Treasury bill rates ended the week at 1.72%. Two-year government yields jumped nine bps to 2.36% (up 47bps y-t-d). Five-year T-note yields gained nine bps to 2.67% (up 47bps). Ten-year Treasury yields rose five bps to 2.83% (up 42bps). Long bond yields added a basis point to 3.03% (up 29bps).

Greek 10-year yields jumped nine bps to 4.07% (unchanged y-t-d). Ten-year Portuguese yields declined four bps to 1.65% (down 29bps). Italian 10-year yields added one basis point to 1.80% (down 22bps). Spain's 10-year yields increased a basis point to 1.24% (down 33bps). German bund yields gained a basis point to 0.51% (up 8bps). French yields rose one basis point to 0.74% (down 7bps). The French to German 10-year bond spread was unchanged at 23 bps. U.K. 10-year gilt yields rose four bps to 1.44% (up 25bps). U.K.'s FTSE equities index advanced 1.1% (down 5.5%).

Japan's Nikkei 225 equities index rose 1.0% (down 4.3% y-t-d). Japanese 10-year "JGB" yields were down one basis point to 0.04% (down 1bp). France's CAC40 gained 1.1% (unchanged). The German DAX equities index rose 1.6% (down 3.7%). Spain's IBEX 35 equities index increased 0.9% (down 2.8%). Italy's FTSE MIB index jumped 1.7% (up 6.8%). EM equities were mixed. Brazil's Bovespa index slipped 0.6% (up 10.4%), while Mexico's Bolsa rose 1.8% (down 1.2%). South Korea's Kospi index gained 1.0% (down 0.5%). India’s Sensex equities index advanced 1.7% (up 0.4%). China’s Shanghai Exchange rallied 0.9% (down 4.5%). Turkey's Borsa Istanbul National 100 index sank 4.5% (down 5.0%). Russia's MICEX equities was hit 4.6% (up 3.1%).

Investment-grade bond funds saw inflows of $3.346 billion, and junk bond funds posted inflows of $989 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates added two bps to 4.42% (up 34bps y-o-y). Fifteen-year rates were unchanged at 3.87% (up 53bps). Five-year hybrid ARM rates slipped a basis point to 3.61% (up 43bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down one basis point to 4.48% (up 33bps).

Federal Reserve Credit last week declined $9.6bn to $4.342 TN. Over the past year, Fed Credit contracted $92.2bn, or 2.0%. Fed Credit inflated $1.531 TN, or 54%, over the past 284 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt jumped $12.4bn last week to $3.450 TN. "Custody holdings" were up $238bn y-o-y, or 7.4%.

M2 (narrow) "money" supply added $4.5bn last week to a record $13.940 TN. "Narrow money" gained $575bn, or 4.3%, over the past year. For the week, Currency increased $0.3bn. Total Checkable Deposits fell $7.9bn, while savings Deposits rose $10.0bn. Small Time Deposits gained $3.6bn. Retail Money Funds dipped $1.5bn.

Total money market fund assets declined $5.3bn to $2.827 TN. Money Funds gained $183bn y-o-y, or 6.9%.

Total Commercial Paper gained $10.0bn to $1.058 TN. CP gained $72.9bn y-o-y, or 7.4%.

Currency Watch:

April 11 - Bloomberg (Justina Lee and Emma Dai): "Hong Kong's dollar fell to the weak end of its permitted band for the first time since the range was imposed in 2005, a warning sign for a city where easy money has stoked a property boom and underpinned the stock market's record rally. The spot rate reached HK$7.85 per dollar on Thursday… The Hong Kong Monetary Authority, which is obligated to defend the band, said in a statement that it stands ready to fulfill any requests from banks to support the currency."

The U.S. dollar index slipped 0.3% to 89.80 (down 2.5% y-t-d). For the week on the upside, the New Zealand dollar increased 1.4%, the Canadian dollar 1.4%, the Mexican peso 1.4%, the Australian dollar 1.0%, the British pound 1.0%, the Norwegian krone 0.7%, the euro 0.4% and the Singapore dollar 0.3%. For the week on the downside, the Brazilian real declined 1.6%, the Swedish krona 1.0%, the Japanese yen 0.4%, the South African rand 0.3%, and the Swiss franc 0.3%. The Chinese renminbi gained 0.45% versus the dollar this week (up 3.69% y-t-d).

Commodities Watch:

April 11 - Bloomberg (Thomas Wilson): "Aluminum approached a six-year high after top exchanges said they'll stop accepting metal from United Co. Rusal, increasing concerns about how the market will replace supplies from the Russian smelting giant hobbled by U.S. sanctions."

The Goldman Sachs Commodities Index surged 5.5% (up 5.8% y-t-d). Spot Gold added 0.9% to $1,345 (up 3.3%). Silver gained 1.8% to $16.658 (down 2.8%). Crude jumped $5.33 to $67.39 (up 12%). Gasoline surged 5.7% (up 15%), and Natural Gas gained 1.3% (down 7%). Copper increased 0.4% (down 7%). Wheat jumped 3.6% (up 15%). Corn declined 0.6% (up 13%).

Trump Administration Watch:

April 11 - Wall Street Journal (Michael R. Gordon, Sune Rasmussen and Thomas Grove): "A series of exchanges between President Donald Trump and Moscow raised the prospect of a clash between U.S. and Russian military forces in Syria, a confrontation that would pit advanced American missile technology against Russia's integrated air defense. After a Russian diplomat said his country's forces would shoot down U.S. missiles launched at Syria, Mr. Trump in three tweets said U.S.-Russian relations were worse than ever, including during the Cold War, and said missiles 'will be coming.' 'Get ready, Russia,' he wrote. The saber rattling on Wednesday morning threatened to elevate U.S. outrage over a suspected Syrian chemical attack into a potential military skirmish between the two military powers. Mr. Trump vowed that U.S. technology would prevail, although current and former U.S. military officials acknowledge that Russian defenses are formidable…"

April 9 - CNBC (Berkeley Lovelace Jr.): "White House economic advisor Larry Kudlow told CNBC on Monday that President Donald Trump is warning China about its trade practices with tariffs. 'This president's got some backbone, others didn't and he's raising the issue in full public view, setting up a process that may include tariffs. Hopefully, it will be mostly negotiations,' Kudlow said… 'I don't know if we'll have tariffs or not… [Trump] is responding to decades of misdeeds by China [on] trade… It's high time we did that… Somebody's got to do it. Somebody's got to say to China, 'you are no longer a Third World country. You are a First World country and you have to act like it… The president's got to stick up for himself and the United States.'"

April 10 - Bloomberg (Keith Zhai): "Trade talks between the world's biggest economies broke down last week after the Trump administration demanded that China curtail support for high-technology industries, a person familiar with the situation said, signaling that a resolution may be some ways off. Liu He, a vice premier overseeing economics and finance, told a group of officials… that Beijing had rejected a U.S. request to stop subsidizing industries related to its 'Made in China 2025' initiative, the person said. The U.S. has accused China of using the policy to force companies into transferring technology in areas like robotics, aerospace and artificial intelligence."

April 11 - Bloomberg (Justin Sink, Billy House, and Anna Edgerton): "House Speaker Paul Ryan said… he won't seek re-election in November, dealing a blow to congressional Republicans already facing a possible Democratic takeover of the House in the November elections and setting off a GOP leadership battle. 'I will be retiring in January, leaving this majority in good hands with what I believe is a very bright future,' Ryan, 48, said… 'I think we have achieved a heck of a lot.'"

April 9 - CNBC (Erik Wasson and Sarah McGregor): "The U.S. budget deficit will surpass $1 trillion by 2020, two years sooner than previously estimated, as tax cuts and spending increases signed by President Donald Trump do little to boost long-term economic growth, according to the Congressional Budget Office. Spending will exceed revenue by $804 billion in the fiscal year through September, jumping from a projected $563 billion shortfall forecast in June… In fiscal 2019, the deficit will reach $981 billion, compared with an earlier projection of $689 billion… The report includes new projections for the effects of the tax legislation -- saying it will increase the deficit by almost $1.9 trillion over the next 11 years…"

April 10 - Wall Street Journal (Rebecca Ballhaus, Del Quentin Wilber and Kristina Peterson): "The White House said… that President Donald Trump believes he has the authority to fire special counsel Robert Mueller, as lawmakers from both parties warned against doing so one day after the FBI raided properties tied to the president's longtime lawyer. Senate Majority Leader Mitch McConnell (R., Ky.) said that Mr. Mueller 'should be allowed to finish his job,' though he rebuffed calls for legislation to protect the special counsel."

April 9 - CNBC (Dan Mangan): "The FBI on Monday raided the New York City office and residence of President Donald Trump's personal attorney Michael Cohen, seeking evidence related to the payment Cohen made to porn star Stormy Daniels on the eve of the 2016 presidential election. The Washington Post… reported that Cohen is being investigated for crimes possibly related to bank fraud and campaign finance violations. The raids came after federal prosecutors in New York City obtained a search warrant following a referral from special counsel Robert Mueller, Cohen's lawyer said."

April 10 - Politico (Andrew Restuccia and Nancy Cook): "The Trump White House punched back at its own Justice Department on Tuesday, with President Donald Trump and senior officials expressing outrage over law enforcement raids on lawyer Michael Cohen - and making thinly veiled threats to fire Russia special prosecutor Robert Mueller. 'We've been advised the president certainly has the power to make that decision,' White House press secretary Sarah Huckabee Sanders said when asked whether Trump could fire Mueller… Trump began the day tweeting in defense of Cohen, a longtime Trump Organization associate. 'A TOTAL WITCH HUNT!!!' Trump tweeted... He added: 'Attorney-client privilege is dead!'"

Federal Reserve Watch:

April 11 - Bloomberg (Craig Torres): "Federal Reserve officials leaned toward a slightly faster pace of policy tightening at their March meeting as their growth outlook and confidence in hitting their inflation target strengthened, according to minutes of the gathering… A number of officials viewed a stronger economic outlook and greater confidence for higher inflation implying 'the appropriate path for the federal funds rate over the next few years would likely be slightly steeper than they had previously expected,' the Federal Open Market Committee said in the records of its March 20-21 meeting. The minutes showed U.S. central bankers wrestling to match a policy to an economy that is receiving a boost from tax cuts and government spending at a time when unemployment is low and growth, by their estimate, is above its long-run speed limit."

U.S. Bubble Watch:

April 11 - Reuters (David Lawder and Lindsay Dunsmuir): "The U.S. government ran a $209 billion budget deficit in March as outlays grew and receipts fell… That compared with a budget deficit of $176 billion in the same month last year, according to Treasury's monthly budget statement."

April 11 - Bloomberg (Sarah McGregor): "The U.S. budget deficit widened to $600 billion halfway through the fiscal year, as spending growth outstripped revenue. Receipts rose by 1.6% to $1.5 trillion between October and March compared with a year earlier, while outlays climbed by 4.8% to $2.1 trillion, the Treasury Department said in its monthly budget statement on Wednesday. Corporate income taxes fell to $78.6 billion in the first half of fiscal 2018, from $100.2 billion a year earlier."

April 11 - Bloomberg (Sho Chandra): "A key measure of U.S. inflation finally got a bump in March thanks to a fading drag from mobile-phone service costs, bearing out the Federal Reserve's forecast for a pickup in price gains. Excluding food and energy, the core consumer-price index rose 2.1% from March 2017, the most in a year and matching the median estimate…, after a 1.8% gain in February… Including all components, the CPI was down 0.1% from February on a drop in gasoline costs; overall prices were up an annual 2.4%, also the biggest advance in a year."

April 10 - Wall Street Journal (Laura Kusisto and Christina Rexrode): "More Americans are stretching to buy homes, the latest sign that rising prices are making homeownership more difficult for a broad swath of potential buyers. Roughly one in five conventional mortgage loans made this winter went to borrowers spending more than 45% of their monthly incomes on their mortgage payment and other debts, the highest proportion since the housing crisis… That was almost triple the proportion of such loans made in 2016 and the first half of 2017, CoreLogic said. Economists said rising debt levels are a symptom of a market in which home prices are rising sharply in relation to incomes, driven in part by a historic lack of supply that is forcing prices higher."

April 10 - Bloomberg (Jesse Hamilton): "Wall Street banks could face higher capital hurdles under a Federal Reserve proposal that would mark the most significant rewrite of requirements put in place after the 2008 financial crisis. The new 'stress capital buffer' announced by the Fed… is meant to streamline competing regulatory demands on lenders and better tailor standards to each bank's specific business. The central bank's proposal would also relax parts of its annual stress tests. For financial firms anticipating a deregulatory wave under President Donald Trump, it's a mixed bag. The proposal could make capital requirements a bit tougher for megabanks but the industry's overall demands may fall by tens of billions of dollars."

April 10 - Bloomberg (Sho Chandra): "U.S. wholesale prices advanced in March by more than forecast, reflecting broad increases in the costs of services and goods… Producer-price index rose 0.3% m/m (est. 0.1%) after 0.2% gain the previous month. PPI climbed 3% from a year earlier, the most since November, after 2.8% gain in prior 12-month period."

April 10 - Bloomberg (Matthew Boesler): "One sign U.S. inflation may be heading higher, from the NFIB monthly survey of small businesses: the net percentage of respondents saying they're raising prices. That number rose to 16% in March, the highest level since September 2008."

April 10 - Wall Street Journal (Peter Rudegeair, Rachel Louise Ensign and Coulter Jones): "These days, Wells Fargo… and Citigroup Inc. are unlikely to make a $14,000 auto loan to a borrower with a subprime credit score. That is now the domain of direct lenders such as Exeter Finance LLC, based in Irving, Texas. But where does Exeter get the money to make subprime auto loans? From Wells Fargo and Citigroup. They have helped lend Exeter $1.4 billion for that very purpose. Bank loans to Exeter and other nonbank financial firms have increased sixfold between 2010 and 2017 to a record high of nearly $345 billion… They are now one of the largest categories of bank loans to companies."

China Watch:

April 9 - Reuters (Kevin Yao and Lindsay Dunsmuir): "China stepped up its attacks on the Trump administration on Monday over billions of dollars worth of threatened tariffs, but U.S. President Donald Trump again voiced optimism the two sides would hammer out a trade deal. The comments from both countries followed a week of escalating tariff threats sparked by U.S. frustration with China's trade and intellectual property policies, worrying financial markets over potential damage to global growth. 'When we do a deal with China, which, probably, we will - if we don't, they'll have to pay pretty high taxes to do business with our country,' Trump said…"

April 10 - Bloomberg: "Chinese President Xi Jinping reiterated pledges to open sectors from banking to auto manufacturing in a speech that also warned against returning to a 'Cold War mentality' amid trade disputes with U.S. counterpart Donald Trump. Xi pledged a 'new phase of opening up' in his keynote address… to the Boao Forum for Asia, China's answer to Davos. While the speech offered little new policy, Xi affirmed or expanded on proposals to increase imports, lower foreign-ownership limits on manufacturing and expand protection to intellectual property -- all central issues in Trump's trade gripes."

April 10 - Politico (Megan Cassella and Adam Behsudi): "Chinese President Xi Jinping's promise to reduce auto tariffs is not the win for President Donald Trump that it appears to be. While Trump praised Xi's proposals on Twitter - 'Very thankful for President Xi of China's kind words on tariffs and automobile barriers,' he posted - analysts and business leaders shrugged off Xi's promises to open markets as old pledges that have yet to be fulfilled. They also dismissed his vow to reduce auto tariffs as inconsequential without other, larger changes. 'The Chinese are great at saying what folks want to hear,' said a U.S. industry aide… 'Hope springs eternal, and it would be great if the takeaway from this speech is that the Chinese are truly now committed to a level playing field. I think it's really, quite frankly, a stretch to make that case.'"

April 9 - Bloomberg: "China is evaluating the potential impact of a gradual yuan depreciation, people familiar with the matter said, as the country's leaders weigh their options in a trade spat with U.S. President Donald Trump that has roiled financial markets worldwide. Senior Chinese officials are studying a two-pronged analysis of the yuan that was prepared by the government, the people said. One part looks at the effect of using the currency as a tool in trade negotiations with the U.S., while a second part examines what would happen if China devalues the yuan to offset the impact of any trade deal that curbs exports."

April 10 - Bloomberg (John Ruwitch): "Chinese investment in the United States fell more than a third last year to $29 billion from a record $46 billion in 2016, the first major correction in a decade, a report by the Rhodium Group and the National Committee on U.S.-China Relations showed."

April 8 - Reuters (Kevin Yao and Stella Qiu): "China should make better use of the country's funds by looking to invest its large capital reserves in real assets, not United States Treasury bonds, an adviser to China's central bank said… 'We are a low income country, but we are a high wealth country...we should make better use of the capital. Rather than investing in U.S. government debt, it's better to invest in some real assets,' Fan Gang, director of the National Economic Research Institute and a member of the People's Bank of China's (PBOC) Monetary Policy Committee, said."

April 10 - Bloomberg: "China's factory inflation slowed for a fifth month while the consumer price index retreated from a four-year high. The producer price index rose 3.1% in March from a year earlier, compared with the projected 3.3 percent rise in a Bloomberg survey and 3.7% in February. The consumer price index climbed 2.1%... versus a forecast of 2.6% and 2.9% in February."

Global Bubble Watch:

April 9 - Bloomberg (Cormac Mullen): "A breakdown in the relationship between dollar weakness and Asian central bank intervention poses a risk to Treasuries, stocks and all risky assets, according to Deutsche Bank AG. Attempts by the Trump administration to clamp down on currency manipulation have limited the ability of central banks across the region to buy U.S. assets when the dollar weakens, and dampen the appreciation of their currencies, strategist Alan Ruskin wrote… These purchases have historically limited the greenback's downside and acted as a 'put' on Treasury market weakness, he wrote."

April 8 - Reuters (Hideyuki Sano): "Japanese investors sold a record amount of U.S. dollar bonds in February as the soaring cost of currency-hedging undercut yields while they extended their purchases of euro-denominated bonds… Investors sold 3.924 trillion yen ($36.68bn) of U.S. dollar bonds in February but scooped up 1.059 trillion yen (8.06 billion euros) of euro-denominated bonds - which offer higher yields after currency hedging."

EM Bubble Watch:

April 9 - Bloomberg (Ksenia Galouchko): "Russian stocks had their biggest drop in four years and the ruble slumped the most in the world after the U.S. slapped new sanctions on Kremlin-connected billionaires and tensions with the U.S. spiraled following the latest chemical attack in Syria. The benchmark MOEX Russia Index sank 8.7% on Monday, the steepest slide since March 2014, when Moscow's annexation of the Crimean peninsula triggered international penalties. The ruble and local bonds had their biggest drop since 2016 and the cost of insuring sovereign notes against default was set for the sharpest increase since December 2014."

April 10 - Financial Times (Kathrin Hille and Max Seddon): "It was standing room only at Russia's largest stock exchange on Tuesday as the country's top economic policymakers faced an unenviable job: trying to persuade a crowd of skittish investors that the economy can weather the latest sanctions imposed by the US. Even while officials including Maxim Oreshkin,economy minister, made their pitch at the Moscow Exchange, the rouble fell nearly 5% in less than an hour to more than 63 to the dollar. Bankers made frantic phone calls and streamed out of the room."

April 11 - Bloomberg (Constantine Courcoulas): "Shorting the Turkish lira is becoming one of the easiest trades in town. The wager is simple: the central bank is going to hesitate to defend the currency by raising interest rates given President Recep Tayyip Erdogan's explicit criticism of high borrowing costs. And that's allowing hedge funds and other speculators to pile up one-sided bets against the lira as it extends one of the biggest declines in emerging markets this year, hitting record lows against both the dollar and euro."

April 12 - Bloomberg (Selcan Hacaoglu and Cagan Koc): "Turkish President Recep Tayyip Erdogan said his government will punish anyone attempting to exploit developments in neighboring Syria in order to wage 'economic terrorism' on Turkey. The warning was directed specifically at actors in business and financial markets. 'Those playing an active role in the economy, those within the financial system, if you are attempting to wage economic terror against our country by using developments in Syria as pretext, you'll be making a mistake,' the president said… 'When the time comes, you'll be held accountable and pay the price.'"

Leveraged Speculator Watch:

April 9 - Bloomberg (Ivan Levingston): "The outlook for one of the most popular currency-trading strategies is in doubt, even after a two-week rebound, so one analyst says investors should consider the reverse approach. The carry trade, where investors borrow in low-yielding currencies to buy assets where rates are higher, has pared its loss for the last year to about 6%, according to a Deutsche Bank AG index. Nonetheless, the potential for volatility ahead means the strategy is likely to underperform and possibly unwind, according to Alice Leng, an FX strategist at Bank of America… 'The current movement is the opposite of what you would want from a carry trade,' Leng said. 'The opposite of a carry strategy should be able to perform well from a systematic perspective.'"

April 10 - Bloomberg (Lananh Nguyen): "After suffering unprecedented losses last year, currency-focused hedge funds were hoping a bit of market turbulence would help them get back on track in 2018. Things could hardly have gone worse. A BarclayHedge gauge of foreign-exchange trading programs slumped 2.5% over the first three months of 2018, extending last year's record 11% plunge. Even FX stalwarts… haven't been immune, sliding along with peers after years of dominant returns."

Geopolitical Watch:

April 9 - Financial Times (Kathrin Hille): "The Russian government on Monday called the latest US sanctions against the country 'scandalous' and 'illegal' and vowed it would retaliate and protect those hit by Washington's measures from the fallout. Russian prime minister Dmitry Medvedev ordered the cabinet to start work on a list of potential retaliatory measures. He also ordered that a plan be worked out to support sanctioned companies."

April 10 - Bloomberg (Natasha Doff): "The trail of destruction left by U.S. sanctions against Russia's most influential oligarchs spread to President Vladimir Putin's government as surging borrowing costs forced the Finance Ministry and the biggest state bank to pull bond sales. It's the first debt auction Russia abandoned since cancellations in 2014 and 2015, when Putin's annexation of Crimea soured relations with the U.S. and European Union. Growing panic over how far America will go at blacklisting wealthy Russians and their businesses sent the ruble and bonds tumbling."

April 9 - Reuters (Michelle Nichols): "Russian U.N. Ambassador Vassily Nebenzia said on Monday that Moscow has warned the United States of 'grave repercussions' if it carries out an attack against Syrian government forces over reports of a deadly chemical weapons attack. 'There was no chemical weapons attack,' Nebenzia told the U.N. Security Council. 'Through the relevant channels we already conveyed to the U.S. that armed force under mendacious pretext against Syria - where, at the request of the legitimate government of a country, Russian troops have been deployed - could lead to grave repercussions,' he said."

April 9 - Wall Street Journal (Michael R. Gordon and Jeremy Page): "China has installed equipment on two of its fortified outposts in the Spratly Islands capable of jamming communications and radar systems, a significant step in its creeping militarization of the South China Sea, U.S. officials say. The move strengthens China's ability to assert its extensive territorial claims and hinder U.S. military operations in a contested region that includes some of the world's busiest shipping routes."

April 10 - Bloomberg (Karen Lema): "In a span of 20 minutes, 20 F-18 fighter jets took off and landed on the USS Theodore Roosevelt aircraft carrier, in a powerful display of military precision and efficiency. The nuclear-powered warship, leading a carrier strike group, was conducting what the U.S. military called routine training in the disputed South China Sea on Tuesday, headed for a port call in the Philippines, a defense treaty ally. The United States is not alone in carrying out naval patrols in the strategic waterway, where Chinese, Japanese and some Southeast Asian navies operate, possibly increasing tensions and risking accidents at sea."