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Douglas C. Noland
Just the Facts - May 19, 2017
7 days ago




For the Week:

The S&P500 slipped 0.4% (up 6.4% y-t-d), and the Dow declined 0.4% (up 5.3%). The Utilities lost 0.5% (up 6.1%). The Banks fell 1.6% (down 1.9%), and the Broker/Dealers dropped 1.6% (up 2.4%). The Transports fell 1.4% (down 1.8%). The S&P 400 Midcaps slipped 0.4% (up 3.1%), and the small cap Russell 2000 dropped 1.1% (up 0.8%). The Nasdaq100 lost 0.6% (up 16.2%), and the Morgan Stanley High Tech index declined 0.7% (up 18.7%). The Semiconductors gained 1.5% (up 17%). The Biotechs slipped 0.3% (up 17.4%). While bullion jumped $28, the HUI gold index was unchanged (up 8.1%).

Three-month Treasury bill rates ended the week at 89 bps. Two-year government yields declined two bps to 1.27% (up 8bps y-t-d). Five-year T-note yields dropped seven bps to 1.78% (down 15bps). Ten-year Treasury yields dropped nine bps to 2.24% (down 21bps). Long bond yields sank nine bps to 2.90% (down 17bps).

Greek 10-year yields were little changed at 5.62% (down 140bps y-t-d). Ten-year Portuguese yields sank 19 bps to 3.18% (down 56bps). Italian 10-year yields fell 12 bps to 2.14% (up 33bps). Spain's 10-year yields declined five bps to 1.58% (up 20bps). German bund yields declined two bps to 0.37% (up 16bps). French yields fell three bps to 0.81% (up 13bps). The French to German 10-year bond spread narrowed one to 44 bps. U.K. 10-year gilt yields added a basis point to 1.09% (down 14bps). U.K.'s FTSE equities index increased 0.5% (up 4.6%).

Japan's Nikkei 225 equities index fell 1.5% (up 2.5% y-t-d). Japanese 10-year "JGB" yields declined a basis point to 0.04% (unchanged). France's CAC40 fell 1.5% (up 9.5%). The German DAX equities index declined 1.0% (up 10.1%). Spain's IBEX 35 equities index dipped 0.6% (up 15.9%). Italy's FTSE MIB index traded unchanged (up 12.1%). EM equities were mostly under pressure. Brazil's Bovespa index sank 8.2% (up 4.0%). Mexico's Bolsa declined 0.7% (up 7.5%). South Korea's Kospi was about unchanged (up 12.9%). India’s Sensex equities index added 0.9% (up 14.4%). China’s Shanghai Exchange increased 0.2% (down 0.4%). Turkey's Borsa Istanbul National 100 index added 0.2% (up 21.8%). Russia's MICEX equities index fell 1.6% (down 12.1%).

Junk bond mutual funds saw inflows of $650 million (from Lipper).

Freddie Mac 30-year fixed mortgage rates declined three bps to 4.02% (up 44bps y-o-y). Fifteen-year rates slipped two bps to 3.27% (up 46bps). The five-year hybrid ARM rate dipped a basis point to 3.13% (up 33bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed rates down eight bps to 4.08% (up 30bps).

Federal Reserve Credit last week expanded $5.1bn to $4.439 TN. Over the past year, Fed Credit declined $7.9bn (down 0.2%). Fed Credit inflated $1.628 TN, or 58%, over the past 236 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt rose $12.4bn last week to $3.234 TN. "Custody holdings" were up $14.3bn y-o-y, or 0.4%.

M2 (narrow) "money" supply last week declined $14.8bn to $13.460 TN. "Narrow money" expanded $740bn, or 5.8%, over the past year. For the week, Currency increased $1.1bn. Total Checkable Deposits jumped $45bn, while Savings Deposits dropped $62.8bn. Small Time Deposits were little changed. Retail Money Funds gained $1.8bn.

Total money market fund assets declined $5.1bn to $2.645 TN. Money Funds fell $74bn y-o-y (2.7%).

Total Commercial Paper rose $5.0bn to $987bn. CP declined $112bn y-o-y, or 10.2%.

Currency Watch:

May 17 – Wall Street Journal (Saumya Vaishampayan): “China’s central bank is guiding the currency higher, but the country’s investors seem unconvinced. The People’s Bank of China on Wednesday fixed the yuan at 6.8635 per dollar, the strongest since Feb. 17, only to have it weaken to 6.88 within minutes... The gap between the central bank’s fix and where the currency then trades in the onshore market has widened in recent days. Wednesday’s discount was the largest since January. Such a gap ‘suggests that the onshore market is still not fully convinced that the Chinese yuan will remain strong,’ said Irene Cheung, a senior strategist for Asia at ANZ in Singapore…”

The U.S. dollar index sank 2.1% to 97.125 (down 5.2% y-t-d). For the week on the upside, the Swiss franc increased 2.9%, the euro 2.5%, the Norwegian krone 2.2%, the Japanese yen 1.9%, the Canadian dollar 1.5%, the Singapore dollar 1.3%, the British pound 1.1%, the Swedish krona 1.1%, the South African rand 1.0%, the Australian dollar 1.0%, the New Zealand dollar 0.8% and the Mexican peso 0.5%. For the week on the downside, the Brazilian real declined 4.0%. The Chinese renminbi gained 0.21% versus the dollar this week (up 0.87% y-t-d).

Commodities Watch:

The Goldman Sachs Commodities Index gained 1.2% (down 3.6% y-t-d). Spot Gold rallied 2.2% to $1,256 (up 9.0%). Silver jumped 2.4% to $16.85 (up 5.4%). Crude recovered $2.59 to $50.43 (down 6%). Gasoline rallied 4.5% (down 1%), while Natural Gas dropped 5.0% (down 13%). Copper rallied 2.6% (up 3.3%). Wheat increased 0.6% (up 6.7%). Corn added 0.4% (up 5.8%).

Trump Administration Watch:

May 19 – Bloomberg (Justine Sink): “Donald Trump won the presidency on the promise he’d drain the swamp. This week, the swamp struck back. The naming Wednesday of former FBI Director Robert Mueller as special counsel to investigate the Russian government’s meddling in the U.S. election, including ties to Trump’s campaign, abruptly shifted the balance of power in Washington. The city’s permanent political class forcefully reasserted itself against an antagonistic president determined to bring them to heel. The Russia investigation will cast a pall over Trump’s first term, with Mueller free to pursue the facts where they lead and little urgency to get there.”

May 18 – Reuters (Julia Edwards Ainsley and Steve Holland): “The U.S. Justice Department, in the face of rising pressure from Capitol Hill, named former FBI chief Robert Mueller… as special counsel to investigate alleged Russian interference in the 2016 U.S. election and possible collusion between President Donald Trump's campaign and Moscow. The move followed a week in which the White House was thrown into uproar after Trump fired FBI Director James Comey… Trump, whose anger over the allegations has grown in recent weeks, took the news calmly and used it to rally his team to unite, move on and refocus on his stalled agenda, a senior White House official said. ‘We are all in this together,’ Trump told his team…”

May 13 – Reuters (David Lawder): “U.S. Treasury Secretary Steven Mnuchin said… that United States reserves the right to be protectionist on trade, but noted that his international counterparts are growing more comfortable with the Trump administration's economic agenda. ‘We do not want to be protectionist but we reserve our right to be protectionist to the extent that we believe trade is not free and fair,’ Mnuchin told a news conference at the end of a meeting of finance ministers from the Group of Seven industrial democracies. ‘Our approach is for more balanced trade, and people have heard that… And as I say, people are more comfortable today, now that they've had the opportunity to spend time with me and listen to the president and hear our economic message.’”

May 15 – Bloomberg (David Goodman and Alessandra Migliaccio): “Group-of-Seven ministers slowly coming to terms with the reality of Donald Trump’s administration are about to leave the heavy lifting to their bosses. Finance chiefs in Italy at the weekend spoke of an improving relationship with their U.S. counterpart Steven Mnuchin, in a contrast to previous encounters. But with their gathering in Bari cementing rather than mending disagreements on free trade, the risk is that the diplomatic truce they achieved unwinds when Trump himself meets with G-7 leaders on the island of Sicily later this month.”

May 16 – Bloomberg (Joe Light): “A top Treasury Department official said the Trump administration wants to boost the role of private capital in the mortgage market, a longstanding Washington goal that has largely befuddled policy makers since the 2008 financial crisis. Transferring risk away from Fannie Mae and Freddie Mac is ‘core’ to U.S. housing policy, Craig Phillips, a counselor to Treasury Secretary Steven Mnuchin, said… Without outlining any specific plans, Phillips said a central goal is increasing the amount of private loans in the market that lack government backing.”

China Bubble Watch:

May 15 – Bloomberg: “The ferocity of China’s bond rout is surprising some of the market’s top observers. The yield on sovereign debt due in a decade surged to a two-year-high of 3.7% last week, wrong-footing analysts from Citic Securities Co. and Haitong Securities Co. -- the country’s two biggest brokerages -- who had in April predicted a maximum level of 3.6% in the near term. The tumble comes amid intensifying efforts to crack down on excessive borrowing… ‘No one knows what kind of indicator would suggest the campaign is over, and no one knows how long this process will last,’ said Shan Kun, head of China markets strategy at BNP Paribas (China)… ‘When the market is so pessimistic, investors are trading based on expectations, and declines can be illogical.’”

May 18 – Bloomberg: “China’s anti-leverage campaign is causing a distortion that hasn’t happened in the nation’s $9 trillion bond market in at least a decade. The five-year sovereign yield is now higher than that on debt due in a decade, the first time the curve has inverted for the tenor in data going back to 2006. This is due mainly to a surge in the shorter-term yield because of a deleveraging campaign, and a limited advance in the 10-year cost as economic growth concerns raise demand for safety… ‘It’s hard to say where the funding costs will be able to stabilize, so that’s curbing demand for the short-end of the curve,” said Wu Sijie, a Shanghai-based senior trader at China Merchants Bank Co. ‘A liquid market has become the paramount consideration, as people want to escape as fast as they can in a selloff.’”

May 16 – Reuters (Samuel Shen and Engen Tham): “China's banking regulator is tightening disclosure rules on lenders' wealth management products (WMP) as it tries to track risky lending practices in the shadow banking sector, the latest in a series of steps by Beijing aimed at defusing financial risks. The China Banking Regulatory Commission (CBRC) said… it plans to launch 46 new or revised rules this year, part of which targets risks related to shadowbanking activities Authorities are trying to better regulate 30 trillion yuan ($4.35 trillion) of WMPs, much of it sitting off-balance sheet in the shadowbanking sector. The WMPS have been used to channel deposits into risky investments, often via many layers of asset management schemes to skirt lending and capital rules. The CBRC will now require that banks report the underlying assets and liabilities of their WMPs, as well as all layers of investment schemes, on a weekly basis.”

May 16 – Wall Street Journal (Shen Hong): “China’s central bank made its biggest one-day cash injection into the country’s fragile financial markets in nearly four months Tuesday, a fresh sign that Beijing is trying to mitigate the damage to investor confidence inflicted by its recent campaign to tamp down speculative investing fueled by debt. The People’s Bank of China pumped a net 170 billion yuan ($24.7bn) into the financial system… The huge provision of cash follows comments from Chinese officials in recent days that suggest they are concerned that recent moves to tighten market regulation have caused too much disruption.”

May 17 – Financial Times (Gabriel Wildau and Nan Ma): “One of China’s largest insurers has warned of mass defaults and social unrest unless the regulator lifts a ban on its issuance of new products, the latest sign of stress in the industry caused by a crackdown on financial risk. In a letter to China’s insurance regulator seen by the Financial Times, Foresea Life Insurance warns that the company expects Rmb60bn ($8.7bn) in redemptions this year and might be unable to meet payouts unless it is able to sell new products. In December, the China Insurance Regulatory Commission banned Foresea for three months from applying to sell new products… In the letter dated April 28, Foresea asks the CIRC to resume new product approvals ‘in order to avoid inciting mass incidents by clients and localised and systemic risks, producing greater damage to the industry’… Foresea is a unit of Baoneng Group, a property and financial conglomerate… Baoneng has used the sale of so-called ‘universal insurance’ products to finance its stake in Vanke and other listed companies. Such policies are, essentially, investment vehicles offering high yields and guaranteed payouts on maturities. Distributed through banks, they bear little resemblance to traditional insurance…”

May 14 – Wall Street Journal (Chuin-Wei Yap): “The past two months have been tumultuous for Chinese lenders as a new banking czar has unleashed a blizzard of new directives, uncovered a fraud scandal and issued heavy fines. Since his appointment to head the China Banking Regulatory Commission in February, Guo Shuqing has become a central figure in Beijing’s crackdown on risk… The 60-year-old Mr. Guo is navigating narrow straits: He has to tame a freewheeling industry without killing a tentative recovery in bank profits or causing too much disruption. President Xi Jinping has stressed the need for a stable financial sector ahead of a major Communist Party leadership shuffle this fall. On Friday, the CBRC tried to reassure investors that it was aware of the threat of overregulation and emphasized the campaign’s value in reducing risk long term. ‘We’re hoping now to avoid risks that have resulted from the regulations to resolve risk,’ said Xiao Yuanqi, a CBRC department head.”

May 16 – Reuters (Elias Glenn): “China's growth is set for its weakest patch since the global financial crisis as authorities pull back on the stimulus that helped the economy get off to an unexpectedly strong start this year, and keep funds tight to deter risky lending… Massive debt - standing at nearly 300% of GDP - and serious budgetary imbalances mean Beijing can't carry on pump priming. The brakes went on in April, when annual growth in fiscal spending dropped to 3.8% from 21% the first quarter. And worries about speculative bubbles have forced the central bank to tighten short term liquidity, while trying to keep medium term funding available for investment.”

May 17 – Bloomberg: “China home-price growth eased last month after authorities imposed stricter restrictions on property purchases. New-home prices… gained last month in 58 of the 70 cities tracked by the government, compared with 62 in March, the National Bureau of Statistics said… Prices fell in eight cities and were unchanged in four… Chinese authorities stepped up curbs in a string of large cities last month to rein in prices, following a resurgence in demand the previous two months as buyers tried to get in ahead of further restrictions.”

Europe Watch:

May 12 – Wall Street Journal (Giovanni Legorano and Manuela Mesco): “Europe’s establishment breathed a sigh of relief after the pro-European Union centrist Emmanuel Macron was elected French president this week. But another populist storm is brewing in Italy, where the euroskeptic 5 Star Movement has remained strong. Fueled by discontent with slow growth, high unemployment and disillusionment with mainstream politicians, 5-Star has won local elections in Rome, Turin and elsewhere, partly on the strength of its leaders’ call for a referendum on Italy’s use of the European single currency. Pollsters say about 30% of Italian voters support the movement founded by comedian Beppe Grillo, a level of popularity that has stood firm despite a series of high-profile stumbles…”

May 17 – Bloomberg (Piotr Skolimowski): “The European Central Bank is trying to work out a key question about the road to policy normalization: what’s the speed limit? Three weeks before their next policy decision, the terms of debate between the ECB’s 25 Governing Council members over announcing and implementing an exit from unconventional stimulus have coalesced around the pace. In one camp are those who want to move slowly. In the opposite camp: those who want to move extremely slowly. The June 8 meeting in Tallinn is in the sights of investors and economists seeking a signal that the euro area has recovered enough for the ECB to at least hold its first formal talks on what a policy reversal might look like.”

May 18 – Bloomberg (Carolynn Look and Alessandro Speciale): “European Central Bank policy makers pointed to June to revisit their policy stance after differing on how much the region’s economic outlook had improved. At the next policy meeting on June 8, new staff projections and data will put officials ‘in a better position to take stock and reassess the sustainability of the recovery and the outlook for inflation,’ an account of the Governing Council’s April 26-27 meeting showed... ‘Some members considered that the risks to real gross domestic product could now be characterized as broadly balanced,’ while ‘other members maintained that downside risks to growth still prevailed,’ the account showed.”

May 17 – Bloomberg (Maria Tadeo and Ainhoa Goyeneche): “Spain’s government debt pile rose for the fourth consecutive month in March, once again climbing above 100% of gross domestic product… Prime Minister Mariano Rajoy’s government has been struggling with a debt-to-GDP ratio hovering around 100% since mid-2014 even as Spain leads the recovery in the euro area.”

Global Bubble Watch:

May 13 – New York Times (Jane Perlez and Yufan Huang): “Along the jungle-covered mountains of Laos, squads of Chinese engineers are drilling hundreds of tunnels and bridges to support a 260-mile railway, a $6 billion project that will eventually connect eight Asian countries. Chinese money is building power plants in Pakistan to address chronic electricity shortages, part of an expected $46 billion worth of investment. Chinese planners are mapping out train lines from Budapest to Belgrade, Serbia, providing another artery for Chinese goods flowing into Europe through a Chinese-owned port in Greece. The massive infrastructure projects, along with hundreds of others across Asia, Africa and Europe, form the backbone of China’s ambitious economic and geopolitical agenda… The initiative, called ‘One Belt, One Road,’ looms on a scope and scale with little precedent in modern history, promising more than $1 trillion in infrastructure and spanning more than 60 countries.”

May 15 – Reuters (Shu Zhang and Matthew Miller): “Behind China's trillion-dollar effort to build a modern Silk Road is a lending program of unprecedented breadth, one that will help build ports, roads and rail links, but could also leave some banks and many countries with quite a hangover. At the heart of that splurge are China's two policy lenders, China Development Bank (CDB) and Export-Import Bank of China (EXIM), which have between them already provided $200 billion in loans throughout Asia, the Middle East and even Africa. They are due to extend at least $55 billion more… Thanks to cheaper funding, CDB and EXIM have helped to unblock what Chinese president Xi Jinping on Sunday called a 'prominent challenge' to the Silk Road: the funding bottleneck. But as the Belt and Road project grows, so do the risks to policy banks, commercial lenders and borrowers, all of whom are tangled in projects with questionable business logic, bankers and analysts say.”

Fixed Income Bubble Watch:

May 14 – Wall Street Journal (Heather Gillers and Tom McGinty): “The losses from soured investments in Puerto Rico bonds are coming into focus for some of the world’s biggest mutual funds, and it is a brutal reckoning. The total red ink for mutual funds that invested in debt issued by the troubled island commonwealth is as much as $5.4 billion over the past five years, according to a Wall Street Journal analysis of mutual-fund holdings… Those losses… were tucked inside a wide range of funds…”

May 14 – Financial Times (Fraser Lundie): “‘The past is always triple-A. We can all remember what the past was. But if we try to make the future triple-A, we have no future. The future is always single-B.’ Michael Milken, the ‘Junk bond king’, was not describing the asset class he created, but he could well have been. In hindsight, high-yield bonds have been one of the best performing asset classes on a risk-adjusted basis of any in the world, an asset class delivering equity-like rewards with half the volatility. Like all things too good to last, capital markets have come to chew the fat off this remarkable record… It is ironic that an asset class that has taken decades to rid itself of the unflattering ‘junk’ tag now finds itself in a state more likely to exhibit junk status than ever before.”

May 16 – Wall Street Journal (Min Zeng): “The U.S. bond market is sending a note of caution to the Federal Reserve, which is on track to raise interest rates in June. Hedge funds and money managers have built up the biggest net wagers since 2008 betting long-term Treasury yields will fall. At the same time, wagers betting on an increase in short-term interest rates are near the highest level since 1993. This divergence is happening at a time when the yield premium on the 10-year note relative to the two year has been shrinking.”

Federal Reserve Watch:

May 17 – Bloomberg (Brian Chappatta): “The bond market is interpreting what could be the deepest crisis of Donald Trump’s presidency as throwing the Federal Reserve off its path for interest-rate increases this year. The odds that the central bank raises its benchmark rate next month are about 60%, based on the current effective fed funds rate and the forward overnight index swap rate. That’s down from 80% a week ago.”

May 15 – CNBC (Steve Liesman): “While Federal Reserve officials have said they plan to begin a process to normalize their balance sheet, the end result is likely to be a balance sheet that is anything but normal. Interviews with Fed officials, and public statements they've made suggest the Fed's new normalized balance sheet could end up being three times as large as it was before the financial crisis. And it could be bigger than that. The Fed has yet to announce a plan to run off its massive $4.4 trillion balance sheet, but market participants… expect the process to begin in January 2018, months sooner than previously forecast. Some Fed officials have made no secret of their intentions to announce a plan later this year to reduce the balance sheet.”

May 15 – Bloomberg (Liz McCormick and Alex Harris): “To appreciate just how important the Federal Reserve has been to the U.S. Treasury, consider this simple fact: It alone financed roughly 40% of America’s budget deficit last year. So as Fed officials talk up the possibility of unwinding the central bank’s crisis-era bond holdings later this year, figuring out what will happen when the U.S. loses its biggest source of funding has become a pressing concern. Of course, finding ready buyers in the Treasury market… has rarely been a problem. But with deficits poised to balloon, bond dealers are divided over which parts of the market will feel the most pain as the Fed pulls back and the Treasury ramps up debt issuance to fill those gaps.”

U.S. Bubble Watch:

May 15 – Wall Street Journal (Laura Kusisto): “Home sales in the first quarter hit their fastest pace in a decade, a sign that rising prices and slightly higher mortgage rates haven’t deterred home buyers from rushing into the market. Total existing-home sales climbed 1.4% in the quarter to a seasonally adjusted annual rate of 5.62 million, the highest since the first quarter of 2007… The national median home price, meanwhile, jumped 6.9% from the same quarter a year earlier to $232,100, the sharpest price gain in nearly two years. Demand remains strong as millennials begin to enter the housing market in force.”

May 17 – CNBC (Diana Olick): “The number of homes for sale in America has been falling steadily for the past year, but the situation is apparently getting much worse as spring demand heats up. ‘The inventory is reaching historic lows. It's never declined faster than it did last month. It's freaking us out — it's affecting our business; it's limiting our sales,’ said Glenn Kelman, CEO of Seattle-based Redfin…”

May 15 – Bloomberg (Patricia Laya): “More confidence among U.S. home builders this month shows the industry remains optimistic demand will keep growing in the face of rising property values, according to data… from the National Association of Home Builders/Wells Fargo. Builder sentiment rose to 70, the second-highest since 2005, from 68 in April…”

May 16 – Reuters (Richard Leong): “The U.S. economy is forecast to expand at a 4.1% annualized pace in the second quarter following the release of April figures on housing starts and industrial output, the Atlanta Federal Reserve's GDP Now forecast model showed… Domestic factory production increased 1.0% last month for its biggest monthly gain in over three years, but housing starts unexpectedly fell 2.6%...”

May 17 – Reuters (Jonathan Spicer): “Americans' debt level reached a record high this year, surpassing the peak touched just as the worst of the recession was taking hold in 2008, and marking a milestone for households that now lean less on mortgages and more on auto and student loans. Total U.S. household debt was $12.73 trillion at the end of the first quarter of 2017, up $473 billion from a year ago, according to a Federal Reserve Bank of New York survey… Total indebtedness is now 14% above the 2013 trough of household deleveraging brought on by the 2007-2009 financial crisis and Great Recession. The previous peak, in the third quarter of 2008, was $12.68 trillion, and the New York Fed stressed that the pull-back since then marked an ‘aberration’ from what had been a 63-year upward trend in household debt.”

May 18 – Bloomberg (Shahien Nasiripour): “Student debt has more than tripled as a share of total debt owed by U.S. households in less than 15 years.. Student loans made up just 3.3% of total household debt in 2003, for a sum of $240.7 billion, according to estimates… by the Federal Reserve Bank of New York. That sum is now about $1.3 trillion, or about 10.6% of all U.S. household debt. The jump reflects higher tuition and campus-related costs, more people seeking higher education…, and declines in state appropriations to public colleges and federal grants to students relative to rising college costs. One in six American adults, or 44 million people, has a student loan.”

May 17 – Bloomberg (Gabrielle Coppola): “Lenders are tightening the spigot on new auto loans, making it harder for U.S. consumers with weak credit to buy a car, data from the Federal Reserve Bank of New York show. New car loans for subprime borrowers fell in the first quarter to $25.9 billion, the lowest in two years… Drivers with credit scores below 620 now comprise less than 20% of new loans, down from almost 30% a decade ago. Borrowers with the highest credit scores -- 760 or more -- made up nearly a third of new auto loan originations in the first quarter as lenders target the safer deals.”

May 16 – Reuters (Lucia Mutikani): “U.S. manufacturing production recorded its biggest increase in more than three years in April, bolstering the view that economic growth picked up early in the second quarter despite a surprise decline in homebuilding. The broad strength in factory output… added to labor market data in suggesting the growth slowdown in the first quarter was temporary… ‘The sharp increase in industrial activity is a clear sign that the first-quarter sluggishness is behind us. It comes at the right time as home construction seems to have hit a lull,’ said Joel Naroff, chief economist at Naroff Economic Advisors…”

May 14 – Wall Street Journal (Tripp Mickle and Eliot Brown): “Apple Inc. employees last month began testing the company’s latest innovation: Apple Park, one of history’s most expensive corporate campuses and the leading example of the tech industry’s newfound love for splashy architecture. The first of 12,000 Apple headquarters employees moved from several drab, stone buildings in Cupertino, Calif., to space across town in the 2.8-million-square-foot circular building that resembles a spaceship. It features a seamless, curved-glass exterior and a theater that architects said was designed to look like a MacBook Air. The estimated $5 billion project commanded years of attention from top Apple executives… Apple Park is the most lavish in a spate of glitzy new architectural projects by tech titans at a time when their businesses are booming and market valuations are soaring to new heights. Facebook Inc. and Alphabet Inc. have tapped top architects Frank Gehry and Bjarke Ingels for expansions, Amazon is building giant glass globes containing an indoor forest in Seattle, and business-software company Salesforce.com Inc. paid to put its name on a new, 61-story tower that will be the tallest building in San Francisco.”

May 15 – Bloomberg (Martin Z Braun and Jonathan Levin): “San Juan’s gleaming commuter train seemed like a coup -- the kind of big-ticket item many U.S. cities can only dream of. More than a decade on, the Tren Urbano is a monument to the folly, bloat and abuse that finally bankrupted Puerto Rico. Despite years of planning, it sells only a third of the rides it needs to, and loses roughly $50 million a year. The cost so far: $2.25 billion, $1 billion more than planned. That, in a nutshell, is Puerto Rico’s story. With Wall Street’s help, the U.S. commonwealth borrowed tens of billions in the bond markets, only to squander much of it on grand projects, government bureaucracy, everyday expenses and worse. Debts were piled on debts, even as the economy gave way.”

Japan Watch:

May 16 – Reuters (Leika Kihara): “Bank of Japan Governor Haruhiko Kuroda said he was ‘quite sure’ the central bank could smoothly exit from its massive monetary stimulus when the appropriate time to do so came. But he also said the BOJ ‘always’ had room to expand monetary stimulus to achieve its 2% inflation target, indicating that wages and prices had been slow to respond to improvements in the economy. The remarks suggest the BOJ is in no rush to swing monetary policy in either direction, particularly toward cutting back on stimulus with the economic recovery still fragile. ‘There may be some challenging issues, but I'm quite sure the BOJ has enough tools’ to manage an exit from its stimulus program, Kuroda told a seminar…”

May 18 – Bloomberg (Keiko Ujikane): “Japan’s economy advanced for a fifth straight quarter, the longest expansion in a decade, supported by continued strength in exports. Domestic demand rebounded, but economists question whether this strength will continue. Gross domestic product increased by an annualized 2.2% in the three months ended March 31 (estimate +1.7%), accelerating from a revised 1.4% in the previous quarter… The last time Japan strung together this many quarters of growth was in 2006…”

May 15 – Bloomberg (Gareth Allan and Shingo Kawamoto): “Earnings reports by Japan’s three megabanks on Monday pointed to a fourth straight fall in combined annual profit, even as the impact of negative interest rates begins to ease. Mitsubishi UFJ Financial Group Inc., Sumitomo Mitsui Financial Group Inc., and Mizuho Financial Group Inc. forecast a 4.8% drop in combined net income to 2.13 trillion yen ($18.8bn) in the fiscal year ending March 2018 from the previous 12 months.”

EM Watch:

May 19 – Reuters (Brad Brooks and Lisandra Paraguassu): “Brazil's top court released plea-bargain testimony on Friday accusing President Michel Temer and his two predecessors of receiving millions of dollars in bribes, the most damaging development yet in a historic political corruption probe. The testimony made public by the Supreme Court is from executives of the world's largest meatpacking company, and raises serious doubts about whether Temer can maintain his grip on the presidency. The scandals that have engulfed Brazil's political class and many business elites reduce the chances that Temer, a conservative who took office after leftist former President Dilma Rousseff was impeached last year, can push through economic reforms crucial for Latin America's biggest country to recover from its worst recession on record.”

May 16 – Bloomberg (Blaise Robinson): “The scorching gains that have put emerging-market equities on track for their best year since 2009 are showing signs of flagging. After the MSCI Emerging Market Index’s surge of about 17% this year, momentum indicators suggest the rally is losing steam. The benchmark is approaching a resistance level formed by the trend line connecting the peaks in 2011, 2014 and 2015. While breaking above it would be a bullish omen, other technical signals also point to some overheating.”

May 19 – Bloomberg (Eric Martin): “Mexico’s central bank unexpectedly raised its key interest rate for a sixth straight meeting to keep an increase in consumer prices from deepening after inflation accelerated to almost double policy makers’ target… Banco de Mexico, led by Governor Agustin Carstens, lifted its benchmark by a quarter point to 6.75% Thursday…”

May 16 – Bloomberg (Isabella Cota, Eric Martin, and Michelle Davis): “Mexican authorities have zeroed in on seven banks, including three from the U.S., as part of a widening investigation into price manipulation in the nation’s bond market, according to a person with knowledge of the matter. Local units of Banco Santander SA, Banco Bilbao Vizcaya Argentaria SA, JPMorgan Chase & Co., HSBC Holdings Plc, Barclays Plc, Citigroup Inc. and Bank of America Corp. have become the focus of the probe…”

Leveraged Speculator Watch:

May 15 – Bloomberg (Susanne Barton): “Expectations for another boost in U.S. interest rates are wearing down gold bulls. Hedge funds and other large speculators cut long positions in bullion futures and options by the most in more than eight years last week.”

Geopolitical Watch:

May 17 – Reuters (Christine Kim): “South Korean President Moon Jae-in said… there was a ‘high possibility’ of conflict with North Korea, which is pressing ahead with nuclear and missile programs it says are needed to counter U.S. aggression. Moon made his comments hours after South Korea, which hosts 28,500 U.S. troops, said it wanted to reopen a channel of dialogue with North Korea as Moon seeks a two-track policy… North Korea has made no secret of its work to develop a nuclear-tipped missile capable of striking the United States and has ignored calls to halt its nuclear and missile programs, even from China, its lone major ally.”

May 14 – CNN (Brad Lendon): “North Korea says the missile it tested Sunday is capable of carrying a large nuclear warhead, state media said… The country's leader, Kim Jong Un, supervised the launch of the Hwasong-12 missile that reached an altitude of 2,111.5 kilometers (1,312 miles) and flew 787 kilometers (489 miles)… The test was ‘aimed at verifying the tactical and technological specifications of the newly developed ballistic rocket capable of carrying a large-size heavy nuclear warhead,’ KCNA said.”

May 16 – Reuters (Christine Kim and Tom Miles): “North Korea's missile program is progressing faster than expected, South Korea's defense minister said… Han Min-koo told South Korea's parliament that Sunday's test had been detected by the controversial U.S. THAAD anti-missile system, which was deployed in South Korea last month, infuriating China. North Korea has defied all calls to rein in its nuclear and missile programs, even from China, its lone major ally, calling them legitimate self-defense. It has been working to develop a nuclear-tipped missile capable of striking the U.S. mainland, and experts say Sunday's test was another step toward that aim.”

May 14 – Bloomberg (Jordan Robertson and Rebecca Penty): “An unrivaled global cyber-attack is poised to continue claiming victims Monday as people return to work and turn on their desktop computers, even as hospitals and other facilities gained the upper hand against the first wave. More than 200,000 computers in at least 150 countries have so far been infected, according to Europol, the European Union’s law enforcement agency. The U.K.’s National Cyber Security Centre said new cases of so-called ransomware are possible ‘at a significant scale.’ ‘We’ve seen the rise of ransomware becoming the principal threat, I think, but this is something we haven’t seen before -- the global reach is unprecedented,’ Europol Executive Director Rob Wainwright said…”

May 16 – New York Times (Nicole Perlroth and David E. Sanger): “Intelligence officials and private security experts say that new digital clues point to North Korean-linked hackers as likely suspects in the sweeping ransomware attacks that have crippled computer systems around the world. The indicators are far from conclusive, the researchers warned, and it could be weeks, if not months, before investigators are confident enough in their findings to officially point the finger at Pyongyang’s increasingly bold corps of digital hackers. The attackers based their weapon on vulnerabilities that were stolen from the National Security Agency and published last month.”

May 16 – New York Times (Choe Sang-Hun, Paul Mozur, Nicole Perlroth and David E. Sanger): “They take legitimate jobs as software programmers in the neighbors of their home country, North Korea. When the instructions from Pyongyang come for a hacking assault, they are believed to split into groups of three or six, moving around to avoid detection. Ever since the 1980s, reclusive North Korea has been known to train cadres of digital soldiers to engage in electronic warfare and profiteering exploits against its perceived enemies… In more recent years, cybersecurity experts say, the North Koreans have spread these agents across the border into China and other Asian countries to help cloak their identities. The strategy also amounts to war-contingency planning in case the homeland is attacked. Now this force of North Korean cyberhacking sleeper cells is under new scrutiny in connection with the ransomware assaults that have roiled much of the world over the past four days.”