Just The Facts, April 10

The S&P500 (SPX) slipped 0.3% (up 5.2% y-t-d), while the Dow (INDU) was about unchanged (up 4.5%). The Utilities added 0.3% (up 5.3%). The Banks (BKX) fell 1.2% (down 1.0%), and the Broker/Dealers dropped 2.4% (up 2.7%). The Transports (TRAN) were little changed (up 0.7%). The S&P 400 Midcaps (MID) declined 0.8% (up 2.8%), and the small cap Russell 2000 (RUT) fell 1.5% (up 0.5%). The Nasdaq100 (NDX) dipped 0.3% (up 11.4%), and the Morgan Stanley High Tech index declined 0.2% (up 13.3%). The Semiconductors lost 1.2% (up 10.2%). The Biotechs (BTK) sank 2.5% (up 13.1%). With bullion gaining $5, the HUI gold index rallied 3.3% (up 11.8%).

Three-month Treasury bill rates ended the week at 80 bps. Two-year government yields increased three bps to 1.29% (up 10bps y-t-d). Five-year T-note yields were unchanged at 1.92% (down 1bp). Ten-year Treasury yields (TNX) slipped a basis point to 2.38% (down 6bps). Long bond yields were unchanged at 3.01% (down 6bps).

Greek 10-year yields declined 11 bps to 6.79% (down 23bps y-t-d). Ten-year Portuguese yields fell 11 bps to 3.87% (up 12bps). Italian 10-year yields dropped 10 bps to 2.22% (up 41bps). Spain’s 10-year yields declined five bps to 1.61% (up 23bps). German bund yields sank 10 bps to 0.23% (up 2bps). French yields fell eight bps to 0.89% (up 21bps). The French to German 10-year bond spread widened one to 66 bps. U.K. 10-year gilt yields fell six bps to 1.08% (down 16bps). U.K.’s FTSE equities index added 0.4% (up 2.9%).

Japan’s Nikkei 225 equities index dropped 1.3% to a four-month low (down 2.4% y-t-d). Japanese 10-year “JGB” yields slipped a basis point to 0.06% (up 2bps). The German DAX equities index dipped 0.7% (up 6.5%). Spain’s IBEX 35 equities index added 0.6% (up 12.6%). Italy’s FTSE MIB index fell 0.9% (up 5.5%). EM equities were mixed. Brazil’s Bovespa index lost 0.8% (up 7.0%). Mexico’s Bolsa jumped 1.6% (up 8.1%). South Korea’s Kospi slipped 0.4% (up 6.2%). India’s Sensex (BSE) equities index added 0.3% (up 11.6%). China’s Shanghai Exchange jumped 2.0% (up 5.9%). Turkey’s Borsa Istanbul National 100 index declined 0.5% (up 13.3%). Russia’s MICEX equities index advanced 1.2% (down 9.5%).

Junk bond mutual funds saw inflows surge to $2.375 billion (from Lipper).

Freddie Mac 30-year fixed mortgage rates declined four bps to 4.10% (up 51bps y-o-y). Fifteen-year rates declined three bps to 3.36% (up 48bps). The five-year hybrid ARM rate added a basis point to 3.19% (up 37bps). Bankrate’s survey of jumbo mortgage borrowing costs had 30-yr fixed rates down four bps to 4.19% (up 51bps).

Federal Reserve Credit last week slipped $1.6bn to $4.435 TN. Over the past year, Fed Credit declined $8.8bn (down 0.2%). Fed Credit inflated $1.617 TN, or 58%, over the past 230 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt gained $7.2bn last week to $3.214 TN. “Custody holdings” were down $43.4bn y-o-y, or 1.3%.

M2 (narrow) “money” supply last week expanded $12.3bn to a record $13.418 TN. “Narrow money” expanded $777bn, or 6.2%, over the past year. For the week, Currency increased $4.3bn. Total Checkable Deposits dropped $25bn, while Savings Deposits jumped $31.4bn. Small Time Deposits were little changed. Retail Money Funds added $1.8bn.

Total money market fund assets declined $6.0bn to $2.648 TN. Money Funds fell $91bn y-o-y (3.3%).

Total Commercial Paper gained $6.7bn to $993bn. CP declined $109bn y-o-y, or 9.9%.

Currency Watch:

The U.S. dollar index gained 0.8% to 101.13 (down 1.2% y-t-d). For the week on the upside, the Mexican peso and Japanese yen increased 0.3%. For the week on the downside, the South African rand declined 2.5%, the Australian dollar 1.7%, the British pound 1.4%, the South Korean won 1.4%, the Swedish krona 1.1%, the New Zealand dollar 0.9%, the Brazilian real 0.8%, the Norwegian krone 0.7%, the Swiss franc 0.6%, the Canadian dollar 0.6%, the euro 0.6% and the Singapore dollar 0.6%. The Chinese yuan declined 0.19% versus the dollar this week (up 0.64% y-t-d).

Commodities Watch:

The Goldman Sachs Commodities Index advanced 1.2% (down 1.4% y-t-d). Spot Gold added 0.4% to $1,254 (up 8.9%). Silver fell 1.5% to $17.99 (up 12.6%). Crude jumped $1.69 to $52.29 (down 2.9%). Gasoline rose 2.3% (up 4%), and Natural Gas gained 1.8% (down 13%). Copper slipped 0.3% (up 6%). Wheat declined 0.6% (up 4%). Corn fell 1.3% (up 2%).

Trump Administration Watch:

April 4 – Reuters (David Brunnstrom, Matt Spetalnick and Ben Blanchard): “When U.S. President Donald Trump meets Chinese President Xi Jinping this week, their summit will be marked not only by deep policy divisions but a clash of personalities between America’s brash ‘tweeter-in-chief’ and Beijing’s cautious, calculating leader. They may have one thing in common: their rhetoric about restoring their nations to greatness. But the two men differ in almost every other respect, from their political styles to their diplomatic experience, adding uncertainty to what has been called the world’s most important bilateral relationship. Five months after his election on a stridently anti-China platform, Trump appears to have set himself on a course for collision rather than conciliation with Xi, raising doubts as to whether the world’s two biggest economies can find common ground.”

April 3 – Financial times (Song Jung-a, Ben Bland and Tom Mitchell): “Donald Trump’s warning that he could take unilateral action to eliminate North Korea’s nuclear threat has sparked alarm among some analysts in Asia about the implications for South Korea, Japan and China of a military conflict with Pyongyang. ‘China has great influence over North Korea. And China will either decide to help us with North Korea, or they won’t,’ Mr Trump told the Financial Times… ‘If China is not going to solve North Korea, we will.’ The comments by the US president came weeks after Rex Tillerson, secretary of state, declared during a visit to Asia that the US policy of ‘strategic patience has ende’. Mr Tillerson said that Washington would not rule out any option in response to provocations by North Korea.”

April 6 – Bloomberg (Elizabeth Dexheimer): “In a private meeting with lawmakers, White House economic adviser Gary Cohn said he supports a policy that could radically reshape Wall Street’s biggest firms by separating their consumer-lending businesses from their investment banks, said people with direct knowledge… Cohn, the ex-Goldman Sachs Group Inc. executive who is now advising President Donald Trump, said he generally favors banking going back to how it was when firms like Goldman focused on trading and underwriting securities, and companies such as Citigroup Inc. primarily issued loans… The remarks surprised some senators and congressional aides who attended the Wednesday meeting, as they didn’t expect a former top Wall Street executive to speak favorably of proposals that would force banks to dramatically rethink how they do business.”

April 5 – Reuters (Roberta Rampton and Jeff Mason): “‘We’re going to be coming out with some very strong – far beyond recommendations – we’re going to be doing things that are going to be very good for the banking industry so that the banks can loan money to people who need it,’ Trump told a meeting with a business leaders… ‘We’re going to do a very major haircut on Dodd-Frank. We want strong restrictions, we want strong regulation. But not regulation that makes it impossible for the banks to loan to people that are going to create jobs,’ Trump said.”

April 4 – Bloomberg (Matthew Townsend, Ben Brody, and Elizabeth Dexheimer): “Donald Trump’s surprising election and his promise to overhaul the U.S. tax code set off celebrations across corporate America — but some industries had barely applauded before they began gearing up for a fight. Trump’s win gave Republicans control of the U.S. government for the first time in a decade and quickly drew attention to a tax plan that House Speaker Paul Ryan unveiled last summer with little fanfare. Ryan’s radical tax-code rewrite would replace the corporate income tax with a 20% tax on businesses’ domestic sales and imports; their exports would be exempt. Cue the alarm bells for import-heavy companies like Wal-Mart Stores Inc., Target Corp. and Nike Inc. Retailers, apparel-makers, shoemakers, automakers and others unleashed one of their most robust lobbying and public-relations pushes in recent memory against the so-called ‘border-adjusted’ tax.”

China Bubble Watch:

April 2 – Bloomberg: “China’s deleveraging push has racked up the most defaults on corporate bonds ever for a first quarter, and the identity of the debtors is pretty revealing. Seven companies have defaulted on a total of nine bonds onshore so far in 2017, versus 29 for all of last year… In a sign of the struggles facing China’s old economic model, most of them depend on heavy industry and construction… ‘Weak companies can’t sell bonds, which adds to the pressure on their cash flow,’ said Liu Dongliang, a senior analyst at China Merchants Bank… ‘The pace of defaults will continue. It will be even more difficult for weak companies to sell bonds because corporate bond yields may rise further — the current yield premium doesn’t provide enough protection against credit risks.’”

April 4 – Reuters (Jake Spring): “The crisis at Huishan Dairy, one of China’s biggest dairy companies, is a stark reminder of what can lurk in the dark corners of corporate China, where rapid growth can go hand in hand with tangled finances and heavy debt. China Huishan Dairy Holdings Co Ltd embraced what its executives called ‘innovative financing’, from the sale and leaseback of its cows, to selling wealth management products for rich investors – financial antics that seem incongruous with the dusty fields, tin-roofed sheds and plastic greenhouses of Zhangwu county in northeast China. Now it is battling swollen liabilities, a short-term debt squeeze and considerable unwanted attention… It has reported a key finance executive missing. Its misfortunes are a reminder that even as banks’ bad debt numbers stabilise, there remain many question marks over the quality of their balance sheets… ‘When you move down to the local lenders in less developed provinces and counties, there could be hundreds and thousands of similar cases to Huishan, albeit at a smaller scale,’ said Shawlin Chaw, Control Risks analyst focused on Greater China.”