Japan’s Nikkei 225 equities index dropped 1.8% (down 1.1% y-t-d). Japanese 10-year “JGB” yields added about a basis point to 0.07% (up 3bps). The German DAX equities index rose 2.1% (up 7.2%). Spain’s IBEX 35 equities index advanced 1.5% (up 11.9%). Italy’s FTSE MIB index gained 1.5% (up 6.5%). EM equities were mixed. Brazil’s Bovespa index rallied 1.8% (up 7.9%). Mexico’s Bolsa lost 1.1% (up 6.4%). South Korea’s Kospi slipped 0.4% (up 6.6%). India’s Sensex equities index added 0.7% (up 11.2%). China’s Shanghai Exchange declined 1.4% (up 3.8%). Turkey’s Borsa Istanbul National 100 index dropped 1.6% (up 13.8%). Russia’s MICEX equities index sank 2.2% (down 10.6%).
Junk bond mutual funds saw outflows of $249 million (from Lipper).
Freddie Mac 30-year fixed mortgage rates sank nine bps to 4.14% (up 43bps y-o-y). Fifteen-year rates declined five bps to 3.39% (up 41bps). The five-year hybrid ARM rate fell six bps to 3.18% (up 28bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-yr fixed rates up a basis point to 4.23% (up 47bps).
Federal Reserve Credit last week was little changed at $4.436 TN. Over the past year, Fed Credit fell $8.2bn (down 0.2%). Fed Credit inflated $1.626 TN, or 58%, over the past 229 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt declined $4.8bn last week to $3.207 TN. “Custody holdings” were down $53.4bn y-o-y, or 1.6%.
M2 (narrow) “money” supply last week increased $2.5bn to a record $13.405 TN. “Narrow money” expanded $834bn, or 6.6%, over the past year. For the week, Currency increased $1.4bn. Total Checkable Deposits dropped $11.5bn, while Savings Deposits gained $6.8bn. Small Time Deposits were little changed. Retail Money Funds rose $5.1bn.
Total money market fund assets were about unchanged at $2.654 TN. Money Funds fell $112bn y-o-y (4.0%).
Total Commercial Paper jumped $18.2bn to $983.7bn. CP declined $117bn y-o-y, or 10.6%.
March 27 – Wall Street Journal (Ira Iosebashvili): “The dollar fell to its lowest level Monday since November amid rising doubts that the White House will be able to push through promised tax cuts and infrastructure spending after failing to repeal the Affordable Care Act last week. The Wall Street Journal Dollar Index, which gauges the U.S. currency against a basket of 16 others, was recently down 0.4% to 89.65, its lowest level since November 11.”
The U.S. dollar index rallied 0.7% to 100.35 (down 2.0% y-t-d). For the week on the upside, the British pound increased 0.6%, the Canadian dollar 0.5%, the South Korean won 0.4%, the Mexican peso 0.2%, the Singapore dollar 0.1% and the Australian dollar 0.1%. For the week on the downside, the South African rand declined 7.3%, the Swedish krona 1.8%, the euro 1.4%, the Norwegian krone 1.2%, the Swiss franc 1.1%, the Brazilian real 0.5% and the New Zealand dollar 0.3%. The Chinese yuan was little changed versus the dollar this week (up 0.84% y-t-d).
The Goldman Sachs Commodities Index rallied 2.7% (down 2.6% y-t-d). Spot Gold added 0.5% to $1,249 (up 8.4%). Silver jumped 2.7% to $18.26 (up 14.2%). Crude recovered $2.63 to $50.60 (down 6%). Gasoline surged 6.1% (up 2%), and Natural Gas rose 3.7% (down 15%). Copper increased 0.8% (up 6%). Wheat added 0.4% (up 5%). Corn gained 2.2% (up 4%).
Trump Administration Watch:
March 30 – Reuters (Susan Cornwell and Amanda Becker): “U.S. President Donald Trump lashed out… at Republican conservatives who helped torpedo healthcare legislation he backed, escalating a feud within his party that jeopardizes the new administration’s legislative agenda. Trump threatened to try to defeat members of the Freedom Caucus – a bloc of conservative Republicans in the House of Representatives – in next year’s congressional elections if they continued to defy him. ‘The Freedom Caucus will hurt the entire Republican agenda if they don’t get on the team, & fast. We must fight them, & Dems, in 2018!’ Trump wrote on Twitter… He later singled out three Freedom Caucus members by name…”
March 31 – CNBC (Matthew J. Belvedere): “The United States will no longer bow to the rest of the world on trade because President Donald Trump plans to act, Commerce Secretary Wilbur Ross told CNBC… ‘We are in a trade war. We have been for decades. The only difference is that our troops are finally coming to the rampart. We didn’t end up with a trade deficit accidentally,’ he said, warning about the consequences of doing nothing. Ross…argued… that the shortfalls are the result of bad trade deals and other countries actively seeking surpluses. ‘Our trade deficit overall is about $500 billion a year,’ Ross said. ‘Quite miraculously, that also equals the net trade surplus with the rest of the world.’”
March 28 – Associated Press (Andrew Taylor): “The fundamentals of tax overhaul were strong some 30 years ago. A popular president, Republican Ronald Reagan, pushed the landmark 1986 measure. Powerful and experienced congressional leaders shepherded the legislation with bipartisan support. Key players had established, trusting relationships. The situation facing President Donald Trump features none of those advantages. His party is divided and his congressional leadership is weakened after the health care debacle. Key players are inexperienced. Trump has record low approval ratings. Republicans who control all of Washington are planning on going it alone, without help from Democrats. Now, there isn’t even basic agreement on what revising the tax code is. Trump is promising ‘massive tax relief for the middle class.’”
March 27 – Wall Street Journal (Justin Lahart): “Any investors who think the failure of health-care reform was somehow a positive because it cleared the way for tax reform may be about to be rapidly disabused of that notion. Optimism on taxes is sharply at odds with the complexity and controversy that has met every effort of reform. Indeed, the rifts among congressional Republicans exposed by the health care battle might just get deeper. Ever since President Donald Trump was elected, investors have used a tax-reform plan House Republicans drew up last year as their lodestar. The plan, championed by Speaker Paul Ryan, calls for a reduction in the corporate tax rate to 20% from 35%. To help pay for that plan, it includes a border adjustment tax that would levy goods imported into the U.S.”
March 27 – Wall Street Journal (Kristina Peterson and Siobhan Hughes): “President Donald Trump and GOP leaders enter their next big battle facing stubborn opposition in both parties that increases Republicans’ worries that they will need more Democratic support than previously expected to avert a government shutdown by the end of April. It is a sign of the new reality in Washington after Mr. Trump and House Speaker Paul Ryan failed to persuade the House’s most conservative Republicans, as well as centrists, to back a bill to replace the Affordable Care Act. The failure derailed the GOP leadership and the new administration’s top legislative priority and has put unexpected questions before both parties about their paths forward. For Republicans leaders, the main challenge is the House Freedom Caucus, an alliance of the most conservative Republicans who successfully defied the White House to sink the health bill.”
March 28 – Bloomberg (Billy House and Erik Wasson): “Republican leaders are eager to avoid a government shutdown but the demise of their Obamacare repeal could leave some conservatives spoiling for a fight that raises the odds of a standoff. The House Freedom Caucus… says Republicans have yet to notch a significant victory, despite controlling both chambers of Congress and the White House. One top promise they and other conservatives had to hoped to deliver on with the Obamacare repeal was defunding Planned Parenthood over its provision of abortions. Now, their next chance comes with a spending measure needed to keep the government operating after April 28, when current funding runs out.”
March 29 – Wall Street Journal (William Mauldin): “The Trump administration appears poised to cement China’s unfavorable status in trade cases, making Chinese goods eligible for higher U.S. tariffs well into the future. U.S. officials are preparing a review of China’s ‘market-economy status’ under the World Trade Organization, according to official documents… The review is expected to be announced as early as this week, just days before a high-stakes meeting between President Xi Jinping and President Donald Trump.”
March 30 – Associated Press (Michael Cohen): “President Donald Trump is predicting ‘a very difficult’ meeting next week with Chinese President Xi Jinping, citing trade deficits and lost jobs. Hours after both governments announced an April 6-7 summit between the economic powerhouses in Florida, Trump sought to set expectations by tweeting: ‘The meeting next week with China will be a very difficult one in that we can no longer have massive trade deficits and job losses. American companies must be prepared to look at other alternatives.’”
March 31 – Wall Street Journal (Chun Han Wong): “China signaled little inclination to make concessions on trade with the U.S. after President Donald Trump warned of a difficult meeting with Chinese leader Xi Jinping at next week’s bilateral summit. ‘China doesn’t intentionally seek trade surpluses,’ Vice Foreign Minister Zheng Zeguang said… He said that imbalances in China-U.S. trade are mainly the result of global industrial trends, as well as disparities in the two countries’ economic structures and development.”
March 27 – Politico (Ben White and Nancy Cook): “The fight for the direction of Donald Trump’s presidency between the Goldman Sachs branch of the West Wing and hardcore conservatives is spilling into the Treasury Department, threatening Trump’s next agenda item of overhauling the tax code. Conservatives inside and outside Treasury say the new secretary, former Goldman Sachs banker, movie producer and Democratic donor Steven Mnuchin, is assembling a team that is too liberal and too detached from the core of Trump’s ‘Make America Great Again’ platform of ripping up trade deals, gutting the Dodd-Frank banking rules and generally rejecting ‘globalism’ in all its forms. The ideological divide has been brewing for weeks inside the White House as a result of appointing a raft of top advisers with radically different worldviews. The battle at Treasury is simply an extension of that brutal fight…”
March 27 – Financial Times (Shawn Donnan and Sam Fleming): “Conservative economist Allan Meltzer has railed against the World Bank and the International Monetary Fund for decades and in Donald Trump’s nomination of a former protegee he sees hope that Washington may finally be heeding his calls for reform. While Mr Trump’s naming this month of Adam Lerrick as the next assistant secretary for international finance at the Treasury has yielded a nervous reaction inside both the IMF and the World Bank, Mr Meltzer is effusive. ‘There is not to my knowledge a person in the world better qualified for that job,’ he says. Mr Lerrick, a former investment banker, served as Mr Meltzer’s top adviser on a 1990s congressional commission examining the role of the two institutions in the global economy. The ‘Meltzer Commission’ report that Mr Lerrick went on to help draft called for a more limited IMF that focuses exclusively on plugging the short-term liquidity needs of countries facing crises rather than protracted bailouts. It also recommended that the World Bank scale back its activities…”
March 30 – Reuters (David Shepardson): “U.S. Transportation Secretary Elaine Chao said the Trump administration would unveil a $1 trillion infrastructure plan later this year, but she did not offer details of funding for projects. Chao said… the infrastructure initiative would include ‘a strategic, targeted program of investment valued at $1 trillion over 10 years. The proposal will cover more than transportation infrastructure, it will include energy, water and potentially broadband and veterans hospitals as well.’”
China Bubble Watch:
March 29 – Wall Street Journal (Shen Hong): “Money markets are often described as the financial system’s plumbing: When they work—which is most of the time—hardly anyone notices, but when they get blocked up, it creates quite a stink. That’s why China’s massive money market—where banks and other financial institutions borrowed some $6.4 trillion from each other last month alone to fund their daily needs—is becoming one of the world’s most important markets to watch. China’s central bank has raised key interest rates twice since early February. That immediately pushed funding costs to the highest in two years, hitting smaller banks that have come to rely on the market particularly hard. Last week, some small rural banks failed to make good on short-term loans from other lenders… The volume of interbank lending, usually uncollateralized, hit a record with the equivalent of $34 trillion in loans last year, nearly 100 times the amount of lending in 2002… Turnover in the repo market surged to the equivalent of $216 trillion last year, around 24 times its volume a decade ago.”
March 31 – Bloomberg: “Chinese banks are taking on an unprecedented amount of short-term financing. Yield-starved investors are lapping it up amid assumptions of state support, unperturbed by a lack of collateral and warnings from rating companies. That’s fueling concern among some analysts that government backing for the nation’s lenders is distorting one of the world’s largest debt markets and increasing risks in the event of cash crunches, even after Premier Li Keqiang vowed to give market forces greater sway. Banks have issued a record 5.2 trillion yuan ($754.6bn) this quarter of so-called negotiable certificates of deposit (NCDs) that mostly mature within a year, up 44% from the three months ended Dec.31…”
March 31 – Bloomberg (Robin Ganguly): “China’s short-term money-market rates climbed across the board, with the one-week cost rising to the most expensive level in almost two years. The seven-day repurchase rate jumped 36 bps to 3.17%, the highest since April 7, 2015. The 14-day cost added 20 bps to 4.94%, extending its advance after reaching the highest since March 2015 on Thursday. The rates rose as the People’s Bank of China refrained from conducting reverse-repurchase agreements for the sixth day in a row, saying that there is a high level of liquidity in the banking system.”
March 28 – Bloomberg: “Turmoil at a small Chinese dairy company is shedding rare light on the final destination for some of the country’s estimated $8 trillion of shadow banking loans. Jilin Jiutai Rural Commercial Bank Corp., a major creditor to embattled China Huishan Dairy Holdings Co., said… it has extended a total of 1.35 billion yuan ($196 million) in credit to the dairy producer, including 750 million yuan through the purchase of investment receivables from a finance lease company. Investment receivables — a category that can include using wealth-management products, asset-management plans and trust-beneficiary rights to disguise what are in effect loans — allow banks to reduce the amount of cash they need to set aside for capital and provisions for loan losses.”
March 30 – Reuters (Meg Shen and Lee Chyen Yee): “China’s economy, the world’s second largest, will likely expand 6.8% in the first quarter of 2017, the official Xinhua agency quoted a government think tank as saying… The expected pace is on par with the 6.8% growth logged in the fourth quarter, which was better than market expectations due to higher government spending and record bank lending.”
March 31 – Bloomberg: “China’s official factory gauge climbed to the highest in almost five years, the latest evidence of increasing momentum in the world’s second-largest economy. The manufacturing purchasing managers index increased to 51.8 in March…”
March 30 – Reuters: “Growth in China’s services sector accelerated in March at the fastest pace in nearly three years, an official survey showed… The official non-manufacturing Purchasing Managers’ Index (PMI) stood at 55.1, compared with the previous month’s reading of 54.2…”
March 28 – Reuters (Jun Yang): “The ever-closer relationship between Chinese companies and banks can be a toxic mix. A growing number of companies in the People’s Republic are buying into local lenders that need to raise capital. The interdependence is risky. One danger is that banks lend to their corporate shareholders on more lenient terms than to regular borrowers, regardless of credit risks. That concern sparked a selloff in Jilin Jiutai Rural Commercial Bank’s stock on Monday, the first trading day following an 85% plunge in the market value of shareholder China Huishan Dairy. The milk group’s chairman controls the company through an entity that also owns more than 15% of Jilin Jiutai’s Hong Kong-listed stock. The lender in turn is Huishan’s second-largest creditor, with some $262 million on the line, according to Caixin.”
Global Bubble Watch:
March 31 – Financial Times (Katie Martin): “Investors might need to chuck out their text books, because markets seem set to move in unpredictable and potentially painful ways. That’s the warning from Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch, in his widely-read quarterly market wrap. ‘It ain’t a normal cycle,’ he and Jared Woodward write. After all, central banks around the world have cut interest rates 679 times and bought $14.2bn since the collapse of Lehman Brothers. ‘Normalization’ from a 5,000-year low in rates, 70-year low in G7 fiscal stimulus, 35-year high in the US-German rate differential, an all-time high US stocks vs. [the rest of the world], a 75-year low in bank stocks is unlikely to be peaceful; long gold in anticipation of potential manias, panics, crashes.’”
March 26 – Financial Times (Gavyn Davies): “One of the most dramatic monetary interventions in recent years has been the unprecedented surge in global central bank balance sheets. This form of ‘money printing’ has not had the inflationary effect predicted by pessimists, but there is still deep unease among some central bankers about whether these bloated balance sheets should be accepted as part of the ‘new normal’. There are concerns that ultra large balance sheets carry with them long term risks of inflation, and financial market distortions. In recent weeks, there have been debates within the FOMC and the ECB Governing Council about balance sheet strategy, and it is likely that there will be important new announcements from both these central banks before the end of 2017. Meanwhile, the PBOC balance sheet has been drifting downwards because of the large scale currency intervention that has been needed to prevent a rapid devaluation in the renminbi. Only the Bank of Japan seems likely to persist with policies that will extend the balance sheet markedly further after 2017.”
March 28 – Bloomberg (Andrea Wong): “A high-risk corner of the $5.1 trillion-a-day currency market has become the collateral damage of the dollar selloff. Whipsawed by the greenback and confronted by U.S. policy confusion, carry trades were supposed to be a rare bright spot for investors who want to stay away from the world’s biggest reserve currency. Under the strategy, you borrow in low-rate alternatives such as the yen, and buy high-yielding peers like the Mexican peso… Practitioners of the carry trade are learning there’s no hiding from the dollar’s influence. Growing doubts about the outlook for U.S. policy following the failed attempt at health-care reform not only led to a weaker dollar, it also caused investors to pile into havens such as the yen and the euro — the funding currencies carry traders sell as part of the strategy. The Japanese currency gained 2.2% against the dollar this month, while the euro rose 2.7%.”
March 28 – Bloomberg (Narae Kim and Sid Verma): “Talk about risk-on: the demand for higher-yielding securities is proving so strong that Papua New Guinea, one of Asia’s poorest nations, is contemplating a debut issue of dollar bonds. The southwest Pacific nation plans to raise $500 million in five-year bonds… The country would join Mongolia among sub-investment grade issuers in 2017. Sales of high-yield bonds total almost $15 billion so far this year… It’s part of a broader trend of enduring strength in emerging markets that are weathering the U.S. Federal Reserve’s monetary tightening cycle with aplomb. Concerns about trade wars and the potential renewed decline of commodity prices have been set aside for now, with the long-awaited end of the global bond bull market seeming to be on hold.”
Fixed Income Bubble Watch:
March 27 – Reuters (Nick Carey): “As U.S. auto sales have peaked, competition to finance car loans is set to intensify and drive increased credit risk for auto lenders, Moody’s… said… ‘The combination of plateauing auto sales, growing negative equity from consumers and lenders’ willingness to offer flexible loan terms is a significant credit risk for lenders,’ Jason Grohotolski, a senior credit officer at Moody’s… told Reuters. Motor vehicle sales have boomed in the years since the Great Recession.”
March 29 – Bloomberg (Tim Ross and Jonathan Stearns): “U.K. Prime Minister Theresa May struck a conciliatory tone toward the European Union as she coupled her demand for divorce with a request for a sweeping free-trade deal encompassing financial services. In a six-page letter submitted… to EU President Donald Tusk, May formally triggered two years of likely contentious talks that will end with Britain breaking ties with its largest trading partner after more than four decades. May sought to smooth over tensions from the start by calling on both sides to negotiate ‘constructively and respectfully,’ saying that she wants the bloc to ‘succeed and prosper.’”
March 30 – Reuters (Thomas Escritt and Balazs Koranyi): “The European Central Bank needs to stick to its already laid out policy path, several policymakers argued…, although a top conservative urged them to leave the door open to a more rapid reduction in stimulus. Economic growth is gaining momentum and the euro zone may be on its best economic run in a decade. But inflation is still not moving decisively higher, the policymakers argued, hinting at little appetite for now to amend the ECB’s policy stance. The comments gel with Reuters report on Wednesday that policymakers are wary of making any new change to their policy message after small tweaks this month upset investors… With inflation at a four-year high, critics of the ECB, particularly in Germany, have called on the bank to start winding down its unprecedented stimulus measures…”
March 29 – Wall Street Journal (Tom Fairless): “The European Central Bank’s recent moves mark the first steps in winding down its aggressive monetary stimulus and the bank could soon take fresh steps toward an exit if economic data remain strong, a top ECB official said. Klaas Knot, who sits on the ECB’s rate-setting committee as governor of the Dutch central bank, said policy makers were increasingly optimistic about the strength of the economic recovery under way in the 19-nation eurozone. He said the ECB would likely start winding down its massive bond-purchase program within the next 12 months, and suggested it could even raise interest rates in parallel.”
March 27 – Reuters (Balazs Koranyi, Andreas Framke and Francesco Canepa): “Germany’s two representatives on the European Central Bank’s main policy-making body called… for it to prepare to wind down its aggressive stimulus policy as soon as economic conditions allow it. The comments by Bundesbank president Jens Weidmann and by Sabine Lautenschlaeger, who represents the ECB’s supervisory arm on the bank’s executive board, highlight Germany’s impatience with the direction the ECB has taken under president Mario Draghi. They also reveal the rift between themselves and supporters of the ECB’s current policy of ultra-low interest rates and massive bond buying, which was defended on Monday separately by the central bank’s chief economist Peter Praet and by Belgian central bank governor Jan Smets. ‘I would like to see a less expansive stance,’ Jens Weidmann, who sits on the ECB’s Governing Council, said…”
March 25 – Reuters (Francesco Canepa): “The European Central Bank’s next policy moves and the order they come in are still up in the air and might even include a rate hike or sales of bonds, a director at Germany’s central bank said. Joachim Wuermeling’s comments signal Germany’s impatience with the ECB’s ultra-easy policy as inflation in the bloc rebounds and raise new questions about the bank’s policy plan… The ECB has said it would keep buying bonds until at least the end of the year and keep interest rates at current record low levels or even cut them until ‘well past’ that point. ‘The forward guidance of the ECB council now presumes that interest rate hikes are currently to be expected at the earliest after the end of net monetary policy purchases,’ Wuermeling told an audience… ‘But here too, everything is in flux.’”
March 28 – Financial Times (Mehreen Khan): “The European Central Bank improperly veered into political activity during the eurozone crisis and should withdraw from the ‘troika’ of international bailout monitors, according to anti-corruption watchdog Transparency International. In a review of the central bank’s actions, carried out in co-operation with ECB officials, the report called on the ECB to be placed under greater scrutiny by EU institutions, saying its mandate to ensure price stability in the eurozone had been pushed to ‘breaking point’ in tackling the crisis. ‘The ECB’s accountability framework is not appropriate for the far-reaching political decisions taken by the governing council,’ said the report written by Benjamin Braun, an economist at Harvard.”
March 31 – Bloomberg (Carolynn Look and Stu Metzler): “German unemployment fell by the most since 2011, pushing joblessness to a record low as Europe’s largest economy powers ahead. The number of people out of work slid by a seasonally adjusted 30,000 to 2.6 million in March, and the rate dropped to 5.8% from 5.9%…”
March 28 – Wall Street Journal (James Mackintosh): “Politics has been a big driver of markets, but investors may be worrying about the wrong politics. Squabbling over health care hurts the chance of a big U.S. tax cut, and the neurotic can find plenty to fear in the French presidential election. Much less attention has been paid to the biggest political threat on the horizon for investors: Italy. Italian elections are events investors have learned to disregard after 44 governments in 50 years. The next election might be different, thanks to the potential for a nasty three-way feedback loop between populist politics, the European Central Bank and the bond market.”
Federal Reserve Watch:
March 31 – Reuters (Jonathan Spicer): “The Federal Reserve could begin shrinking its $4.5-trillion balance sheet as soon as this year, earlier than most economists expect, New York Fed President William Dudley said… in the central bank’s most definitive comments on the question that looms over financial markets. The hawkish-sounding assertion temporarily pushed the dollar lower and raised yields on longer-dated bonds, and added Dudley’s influential voice to at least three other officials at the Fed eyeing a prompt end to a crisis-era policy. ‘It wouldn’t surprise me if some time later this year or some time in 2018, should the economy perform in line with our expectations, that we will start to gradually let the securities mature rather than reinvesting them,’ Dudley, a close ally of Fed Chair Janet Yellen, said…”
March 31 – Bloomberg (Matthew Boesler): “For two decades, William Dudley has led a charge to change the way central bankers think about how they steer their economies through the booms and busts of financial markets. As president of the Federal Reserve Bank of New York, he’s showing them during the current tightening cycle what he’s been talking about all along. Dudley’s contribution has been, in a nutshell, to get policy makers more focused on swings in the stock market and how they affect the economy. Inspired by the Bank of Canada in the mid-1990s, he’s been developing an idea ever since that could encourage the Fed to speed up — or slow down — the pace of interest-rate increases, depending on market movements. ‘I don’t think we are removing the punch bowl, yet. We’re just adding a bit more fruit juice,’ Dudley said Thursday…”
March 31 – Wall Street Journal (Eric Morath and Jeffrey Sparshott): “An important measure of inflation exceeded the Federal Reserve’s target for a 2% annual gain for the first time in nearly five years. The personal-consumption expenditures price index, which is the Fed’s preferred inflation gauge, rose a seasonally adjusted 0.1% in February from the prior month and climbed 2.1% from a year earlier… It was the strongest annual gain for the price measure since March 2012.”
March 30 – Reuters (Svea Herbst-Bayliss): “The U.S. Federal Reserve should raise interest rates three more times this year due to the strength of the economy, Boston Fed President Eric Rosengren said… ‘The base case (for 2017) would be four tightenings, reflecting the strength of the economy that I believe justifies more regular normalization of interest rates,’ Rosengren said…”
March 28 – Reuters (Jason Lange): “A Republican-controlled committee of lawmakers approved a bill… to allow a congressional audit of Federal Reserve monetary policy, a proposal Fed policymakers have opposed and which faces an uncertain path to final approval. Democrats uniformly spoke against the proposal during a meeting of the House of Representatives Committee on Oversight and Government Reform, suggesting the bill would face stronger resistance than in the past.”
U.S. Bubble Watch:
March 28 – Reuters (Lucia Mutikani and Dan Burns): “U.S. consumer confidence surged to a more than 16-year high in March amid growing labor market optimism while the goods trade deficit narrowed sharply in February, indicating the economy was regaining momentum after faltering at the start of the year… Robust consumer confidence and rising household wealth from the home price gains suggest a recent slowdown in consumer spending, which has hurt growth, is likely temporary. ‘We think that real consumption will firm moving forward,’ said Daniel Silver, an economist at JP Morgan…”
March 28 – Bloomberg (Michelle Jamrisko): “Home prices in 20 U.S. cities climbed in the 12 months through January at the fastest pace since July 2014, while nationwide the increase in property values also accelerated, according to S&P CoreLogic Case-Shiller… 20-city property values index rose 5.7% from January 2016 after increasing 5.5% in the year through December. National home-price gauge increased 5.9% in the 12 months through January…”
March 27 – Bloomberg (Vince Golle): “The paucity of houses on the market remains a nagging hurdle for those Americans interested in trading up or looking to take their first step into homeownership. With a limited number of property listings amid solid demand, sellers have little reason to reduce asking prices. From December through February, less than four months’ supply of existing houses were on the market, compared with a post-recession high of about 12 months’ worth in mid-2010… Yes, interested sellers take their homes off the market during the winter, but such a lean supply over a similar time frame has never been recorded in about two decades of data.”
March 30 – Bloomberg (Toru Fujioka and Keiko Ujikane): “Japan’s core consumer prices rose slightly for a second month in February, while the jobless rate dropped to the lowest level since 1994. Consumer prices excluding fresh food climbed 0.2% in February from a year earlier, registering the first back-to-back gains since late 2015.”
March 30 – Reuters (Adam Haigh): “The first quarter is ending, and the tally is in: emerging markets are winning hands down. Developing-market equities have handed investors a 12.4% return this year, twice that of developed stocks, for their best start to a year since 2012. A gauge of local-currency emerging-nation bonds is up 7.4%, more than three times as much as the Bloomberg Barclays global fixed-income index.”
March 30 – Bloomberg (Michael Cohen): “South African President Jacob Zuma faced a widening public backlash from senior members of the ruling African National Congress including his deputy, Cyril Ramaphosa, the morning after he fired his finance minister and made sweeping cabinet changes. ‘I have made my views known and there are quite a number of other colleagues and comrades who are unhappy about the situation, particularly the removal of the minister of finance,’ Ramaphosa said… He called Zuma’s reasons for removing Pravin Gordhan ‘unacceptable.’”
March 31 – Bloomberg (Jonathan Spicer): “Venezuela lurched closer to full-blown crisis Friday when the nation’s top prosecutor, a long-time ally of the ruling socialist party, labeled unconstitutional the Supreme Court’s move to usurp the power of the opposition-led National Assembly. Small, sporadic protests flared up across the country, jittery investors dumped the government’s bonds and opposition leaders sought to capitalize on the chaos by calling on the military to ‘restore’ constitutional order.”
Leveraged Speculation Watch:
March 29 – Wall Street Journal (Saumya Vaishampayan): “Many of the trades that seemed sure bets at the start of 2017 have already flopped in the first quarter. Investors’ high expectations about what President Donald Trump would be able to achieve in office, reflected in the ‘Trump trade,’ have moderated. In addition, trades have been upended by surprisingly good global economic data. The Eurekahedge Macro Hedge Fund Index, which shows the performance of funds that wager on big economic trends, has returned 0.5% so far this year, versus 3.4% in all of 2016. ‘There’s been quite a shift in sentiment about what the U.S. administration will do,’ said Mitul Kotecha, head of Asia macro strategy at Barclays…”
March 30 – Reuters (Ben Blanchard): “China’s Defence Ministry said… it was futile for Taiwan to think it could use arms to prevent unification, as the self-ruled democratic island looks to fresh arms sales by the United States amid what it sees as a growing Chinese threat. China has never renounced the use of force to bring under its control what it deems a wayward province, and Taiwan’s defense ministry says China has more than 1,000 missiles directed at the island. The Trump administration is crafting a big new arms package for Taiwan that could include advanced rocket systems and anti-ship missiles to defend against China…”
March 30 – Reuters (Ben Blanchard): “There was ‘no such thing’ as man-made islands in the disputed South China Sea, China’s Defence Ministry said…, and reiterated that any building work was mainly for civilian purposes. China, which claims most of the resource-rich region, has carried out land reclamation and construction on several islands in the Spratly archipelago, parts of which are also claimed by Brunei, Malaysia, the Philippines, Taiwan and Vietnam. The building has included airports, harbors and other facilities…”
March 30 – Wall Street Journal (Yaroslav Trofimov): “Turkey expected a honeymoon with President Donald Trump. Instead, it increasingly looks like Ankara and Washington are heading for a squabble, if not a divorce. For now, President Recep Tayyip Erdogan has bitten his tongue and avoided attacking the Trump administration with the kind of inflammatory statements that he routinely hurls at European and regional leaders. The White House, too, has kept largely mum about Turkish affairs… Yet, on several key issues of this complicated relationship between the two North Atlantic Treaty Organization allies, a head-on collision with potentially unpredictable consequences seems more and more possible.”
March 29 – New York Times (Ben Hubbard and Michael R. Gordon): “The United States launched more airstrikes in Yemen this month than during all of last year. In Syria, it has airlifted local forces to front-line positions and has been accused of killing civilians in airstrikes. In Iraq, American troops and aircraft are central in supporting an urban offensive in Mosul, where airstrikes killed scores of people on March 17. Two months after the inauguration of President Trump, indications are mounting that the United States military is deepening its involvement in a string of complex wars in the Middle East that lack clear endgames… On display are some of the first indications of how complicated military operations are continuing under a president who has vowed to make the military ‘fight to win.’”